10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ             Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012 

or

¨             Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to______

Commission file number 001-52186

Kandi Technologies, Corp.

(Exact name of registrant as specified in charter)

Delaware	90-0363723
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Jinhua City Industrial Zone

Jinhua, Zhejiang Province

People’s Republic of China

Post Code 321016

 (Address of principal executive offices)

(86 - 579) 82239856

 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ¨ No þ  

As of May 9, 2012 the registrant had issued and outstanding 29,845,122 shares of common stock, par value $.001 per share.

TABLE OF CONTENTS

		Page
PART I— FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	3
	Condensed Consolidated Statements of Income (Loss)  and Comprehensive Income (Loss)  (unaudited)– Three Months Ended March 31, 2012 and March 31, 2011	5
	Condensed Consolidated Statements of Cash Flows (unaudited)–Three Months Ended March 31, 2012 and March 31, 2011	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45
PART II— OTHER INFORMATION
Item 1	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other information	46
Item 6.	Exhibits	47

2

PART I— FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	March 31,		December 31,
	2012		2011
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	5,017,510	$	2,294,352
R Restricted cash		22,424,419		6,634,989
Accounts receivable		15,638,955		12,932,776
Inventories (net of reserve for slow moving inventory of $0 and $72,487  as of March 31, 2012 and December 31, 2011 respectively)		8,186,202		6,674,467
Notes receivable		20,099,193		37,879,243
Other receivables		1,333,896		2,438,917
Prepayments and prepaid expenses		98,909		185,037
Due from employees		23,150		79,857
Advances to suppliers		2,282,224		852,638
Marketable securities (trading)		-		-
Total Current Assets		75,104,458		69,972,276
LONG-TERM ASSETS
Plant and equipment, net		19,996,846		20,981,893
Land use rights, net		10,996,560		10,992,769
Construction in progress		10,251,771		10,007,601
Deferred taxes		261,381		89,998
Investment in associated companies		217,271		229,213
Total Long-Term Assets		41,723,829		42,301,474
TOTAL ASSETS	$	116,828,287	$	112,273,750

See accompanying notes to condensed consolidated financial statements

3

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

	March 31,		December 31,
	2012		2011
	(Unaudited)
CURRENT LIABILITIES
Accounts payable	$	5,400,924	$	5,061,069
Other payables and accrued expenses		610,256		3,137,983
Short-term bank loans		36,570,905		36,372,492
Customer deposits		34,099		1,025,357
Notes payable, net of discount of $0 and $71 as of March 31, 2012 and December 31, 2011 respectively		10,814,742		5,847,552
Income tax payable		519,589		153,730
Due to employees		172,950		9,455
Due to related party		841,251		841,251
Deferred taxes		199,880		56,362
Financial derivate - liability		-		213
Total Current Liabilities		55,164,596		52,505,464
LONG-TERM LIABILITIES
Note payable, net of discount of $0 and $0 as of March 31, 2012 and December 31, 2011 respectively		-		-
Financial derivatives - liability		2,976,461		3,919,411
Total Long-Term Liabilities		2,976,461		3,919,411
TOTAL LIABILITIES		58,141,057		56,424,875
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized; 27,457,593and 27,445,600 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		27,458		27,446
Additional paid-in capital		31,593,353		31,533,378
Retained earnings (the restricted portion is $1,940,832 at March 31, 2012 and December 31, 2011)		21,593,282		19,210,330
Accumulated other comprehensive income		5,473,137		5,077,721
TOTAL STOCKHOLDERS’ EQUITY		58,687,230		55,848,875
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	116,828,287	$	112,273,750

See accompanying notes to condensed consolidated financial statements

4

KANDI TECHNOLOGIES, CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended
	March 31, 2012			March 31, 2011
REVENUES, NET	$	14,355,541		$	8,341,506
COST OF GOODS SOLD		(11,014,691	)		(6,280,073	)
GROSS PROFIT		3,340,850			2,061,433
Research and development		(756,096	)		(511,952	)
Selling and marketing		(93,835	)		(56,936	)
General and administrative		(683,620	)		(673,867	)
INCOME FROM CONTINUING OPERATIONS		1,807,299			818,678
Interest income (expense), net		131,602			(297,270	)
Change in fair value of financial instruments		942,950			5,385,178
Government grants		-			7,588
Investment (loss) income		(13,401	)		1,214
Other income, net		34,468			113,706
INCOME (LOSS) BEFORE INCOME TAXES		2,902,918			6,029,094
INCOME TAX EXPENSE		(519,966	)		(90,694	)
NET INCOME		2,382,952			5,938,400
OTHER COMPREHENSIVE INCOME
Foreign currency translation		395,416			318,600
COMPREHENSIVE INCOME (LOSS)	$	2,778,368		$	6,257,000
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC		27,450,371			27,422,823
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED		28,839,747			29,026,629
NET INCOME PER SHARE, BASIC	$	0.09		$	0.22
NET INCOME PER SHARE, DILUTED	$	0.08		$	0.20

See accompanying notes to condensed consolidated financial statements

5

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,382,952		$	5,938,400
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,200,884			1,006,769
Deferred taxes		(24,184	)		(31,893	)
Option and warrant expense		19,053			85,957
Change of derivative instrument’s fair value		(942,950	)		(5,385,178	)
Acquisition effect		-			97,793
Loss in investment in associated company		13,401			-
Changes in operating assets and liabilities:
(Increase) Decrease In:
Accounts receivable		(2,626,288	)		1,317,634
Inventories		(1,470,587	)		(3,845,917	)
Other receivables and prepaid expenses		1,121,239			(34,122	)
Due from employees		220,807			15,739
Prepayments and prepaid expenses		(1,337,864	)		(6,947,548	)
Marketable equity securities (trading)		-			(1,214	)
Increase (Decrease) In:
Accounts payable		308,069			(1,254,949	)
Other payables and accrued liabilities		(2,530,325	)		(347,439	)
Customer deposits		(998,466	)		(15,757	)
Income tax payable		365,152			(37,078	)
Net cash (used in) provided by operating activities	$	(4,299,107	)	$	(9,438,803	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment		(16,512	)		(172,385	)
Purchase of construction in progress		(181,009	)		-
Issuance of notes receivable		-			(2,716,484	)
Repayments of notes receivable		18,032,672			7,476,170
Net cash provided by (used in) investing activities	$	17,835,151		$	4,587,301

See accompanying notes to condensed consolidated financial statements

6

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

	Three Months Ended March 31
	2012			2011
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash	$	(15,758,880	)	$	(9,431,611	)
Proceeds from short-term bank loans		6,297,349			6,829,150
Repayments of short-term bank loans		(6,328,994	)		(6,829,150	)
Proceeds from notes payable		8,686,544			19,425,137
Repayments of notes payable		(3,752,827	)		(5,463,320	)
Option exercise & other financing		40,749			26,666
Net cash provided by financing activities		(10,816,059	)		4,556,872
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,719,985			(294,630	)
Effect of exchange rate changes on cash		3,173			43,744
Cash and cash equivalents at beginning of period		2,294,352			7,754,166
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,017,510		$	7,503,280
SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid	$	154,814		$	127,772
Interest paid	$	648,059		$	773,281

SUPPLEMENTAL NON-CASH DISCLOSURE:

During the three months ended March 31, 2012 and 2011, $0 and $0 were transferred from construction in progress to plant and equipment, respectively.

See accompanying notes to condensed consolidated financial statements

7

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company was incorporated under the laws of the State of Delaware on March 31, 2004. On August 13, 2007, the Company changed its name from Stone Mountain Resources, Inc. to Kandi Technologies, Corp.

On June 29, 2007, the Company executed an exchange agreement to acquire 100% of Continental Development Limited, a Hong Kong corporation and its wholly owned subsidiary Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”).

In the first fiscal quarter of 2011, Jinhua Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) was incorporated by Kandi Vehicles and Mr. Xiaoming Hu, the Chairman and CEO of the Company.

The Company’s organization chart as of this reporting date is as follows:

Kandi Vehicles has a 50% ownership interest and controls the Board of Directors in Kandi New Energy. Under Share Escrow and Trust Agreement, Loan Agreement, Contractor Agreement, between Kandi Vehicles and the other equity owner, Kandi Vehicles is entitled to 100% of the economic benefits, voting rights and residual interests (100% profits and loss absorption rate) in Kandi New Energy.

The primary operations of the Company are designing, developing, manufacturing, and commercializing of all-terrain vehicles, go-karts, and specialized automobile related products for the PRC and global markets.

8

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 2 – LIQUIDITY

The Company’s working capital surplus is $19,939,862 as of March 31, 2012.

As of March 31, 2012, the Company had credit lines from commercial banks of $44,587,095, of which $33,440,321 was used as of March 31, 2012.

The Company believes that its cash flows generated internally may not be sufficient to support growth of future operations and repay short term bank loans for the next twelve months if needed. However, the Company believes its access to existing financing sources and established relationships with PRC banks will enable it to meet its obligations and fund its ongoing operations.

The Company has historically financed itself through short-term commercial bank loans from PRC banks. The term of these loans are typically for one year, and upon the payment of all outstanding principal and interest in a respective loan, the banks have typically rolled over the loans for additional one-year terms, with adjustments made to the interest rate to reflect prevailing market rates. The Company believes this situation has not changed and the short-term bank loan will be available on normal trade terms if needed.

NOTE 3 - BASIS OF PRESENTATION

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

The financial information included herein for the three month periods ended March 31, 2012 and 2011 is unaudited; however, such information reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the Company's condensed consolidated financial statements for these interim periods.

The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results expected for the entire fiscal year ending December 31, 2012.

9

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 4 – PRINCIPLES OF CONSOLIDATION

The consolidated financial statements reflect the accounts of the Company and its ownership interest in following subsidiaries:

(i) Continental Development, Ltd. (“Continental”) (a wholly-owned subsidiary of the Company)

(ii) Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”) (a wholly-owned subsidiary of “Continental”)

(iii) Jinhua Three Parties New Energy Vehicles Service Co., Ltd. (“Jinhua Service”) (a 30% owned subsidiary of Kandi Vehicles)

(iv) Jinhua Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) (a 50% owned subsidiary of Kandi Vehicles with 100% profits and loss absorption due to contractual agreement)

Inter-company accounts and transactions have been eliminated in consolidation. 

NOTE 5 – USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results when ultimately realized could differ from those estimates.

NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Economic and Political Risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC economy.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

10

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Fair Value of Financial Instruments

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

· Level 1—defined as observable inputs such as quoted prices in active markets;

· Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

· Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of March 31, 2012 are as follows:

	Fair Value Measurements at Reporting Date Using Quoted Prices in
	Carrying value as		Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	of March 31, 2012		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	5,017,510	$	5,017,510		-		-
Restricted cash		22,424,419		22,424,419		-		-
Warrants		2,976,461		-		2,976,461		-

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. Restricted cash represents time deposits on account, some of which is used to secure short-term bank loans and notes payable. The original cost of these assets approximates fair value due to their short term maturity.

Warrants which are accounted as liabilities, are treated as derivative instruments, which will be measured at each reporting date for their fair value using Level 2 inputs. Also see Note 6 section (s).

The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

The Company’s non-financial assets measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which are measured for recoverability when indicators for impairment are present. ASC 820 requires companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the remeasurement at fair value is performed. The Company has reviewed its long-lived assets as of March 31, 2012 and determined that there are no significant assets to be tested for recoverability under ASC 360 and as such, no fair value measurements related to non-financial assets have been made during the three months ended March 31, 2012.

11

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(c) Cash and Cash Equivalents

The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Restricted cash on March 31, 2012 and December 31, 2011 represent time deposits on account, some of which are used to secure short-term bank loans and notes payable. As of March 31, 2012, our restricted cash was as set forth on the table below:

Purpose	Amount
Used to secure short-term bank loans (also see Note 14)	$	2,371,654
Used to secure note payable (also see Note 15)		9,249,451
Pure time deposits		10,803,314
Total		22,424,419

(d) Inventories

Inventories are stated at the lower of cost or net realizable value (market value). The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the weighted average basis and comprises direct materials, direct labor and an appropriate proportion of overhead.

Net realizable value is based on estimated selling prices less any further costs expected to be incurred for completion and selling expense.

(e) Accounts Receivable

Accounts receivable are recognized and carried at net realizable value. An allowance for doubtful accounts will be recorded in the period when a loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business relation and other factors. Accounts are written off after exhaustive efforts at collection. If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses. At March 31, 2012 and December 31, 2011, the Company has no allowance for doubtful accounts, as per the management's judgment based on their best knowledge.

As of March 31, 2012 and December 31, 2011, the longest credit term used, in connection with certain selected customers was 120 days.

(f) Note receivable

Notes receivable represents short-term loans to third parties with the maximum term of one year. Interest income is recognized according to each agreement between a borrower and the Company on an accrual basis. If notes receivable are to be provided for, or written off, they are recognized in the relevant year if the loan default is probable, reasonably sure and the loss can be reasonably estimated. The Company recognizes income if the written-off loan is recovered at a future date. In case of foreclosure procedures or legal actions being taken, the Company provides accrual for the related foreclosure expense and related litigation expenses.

(g) Prepayments

Prepayments represent cash paid in advance to suppliers. As of March 31, 2012, prepayments included cash paid advances to raw material suppliers, mold manufacturers, and prepaid expenses, such as water and electricity fees.

12

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(h) Plant and Equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows:

Buildings	30 years
Machinery and equipment	10 years
Office equipment	5 years
Motor vehicles	5 years
Moulds	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized.

(i) Construction in Progress

Construction in progress represents direct costs of construction or the acquisition cost of buildings or machinery and design fees. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until the assets are completed and ready for their intended use.

(j) Land Use Rights

According to the laws of China, land in the PRC is owned by the government and its ownership cannot be sold to an individual or a company.  However, the government grants the user a “land use right” to use the land.   The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

(k) Accounting for the Impairment of Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC No. 350. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

During the reporting period, there was no impairment loss.

(l) Revenue Recognition

Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenues are recognized when all of the following criteria are met:

· Persuasive evidence of an arrangement exists;

· Delivery has occurred or services have been rendered;

· The seller’s price to the buyer is fixed or determinable; and

· Collectability is reasonably assured.

13

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m) Research and Development

Expenditures relating to the development of new products and processes, including significant improvement to existing products are expensed as incurred. Research and development expenses were $756,096 and $511,952 for the three months ended March 31, 2012 and 2011, respectively.

(n) Government Grant

Grants received from the PRC Government for assisting in the Company’s technical research and development efforts are netted against the relevant research and development costs incurred when the proceeds are received or collectible.

For the three months ended March 31, 2012 and 2011, $0 and $7,588, respectively, was received from the PRC government for the Company’s contribution to the local economy.

(o) Income Taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The accounting for deferred tax calculation represents the management’s best estimate on the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

(p) Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred.

Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year, which was obtained from website: http://www.oanda.com

	March 31,  2012		December 31, 2011		March 31, 2011
Period end RMB : USD exchange rate		6.3247		6.3647		6.5701
Average RMB : USD exchange rate		6.3201		6.4735		6.5894

(q) Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes.

14

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(r) Stock Option Cost

The Company’s stock option cost is recorded in accordance with ASC 718 and ASC 505.

The fair value of stock options is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock option expense recognized is based on awards expected to vest, and there were no estimated forfeitures. ASC standards requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The stock based compensation expense for the period ended March 31, 2012 is $19,053. Also see Note 17.

(s) Warrant Cost

The Company’s warrant costs are recorded in liabilities and equities respectively in accordance with ASC 480, ASC 505 and ASC 815.

The fair value of warrants, which is classified as a liability, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve in effect at the time of measurement. The warrants, which are freestanding derivatives and are classified as liabilities on the balance sheet, will be measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values were recognized in expenses.

The Company determined that the fair value of equity based warrants, which are not considered derivatives under ASC 815, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

15

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The adoption of ASU 2011-03 did not have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on the Company’s operating results or financial position.

In June 2011, FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s operating results or financial position.

In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2011-08 did not have a material impact on the Company’s operating results or financial position.

16

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Recent Accounting Pronouncements (Continued)

In December 2011, the FASB has issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is evaluating whether the adoption of ASU 2011-11 will have a material effect on its operating results or financial position; however, the Company does not expect the adoption of ASU No. 2011-11 to have a material effect on its operating results or financial position.

In December 2011, the FASB has issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-12 did not have a material impact on the Company’s operating results or financial position.

17

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 8 – CONCENTRATIONS

(a) Customers

The Company’s major customers for the period ended March 31, 2012 accounted for the following percentages of total sales and accounts receivable as follows:

	Sales						Accounts Receivable
Major Customers	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011			March 31, 2012			December 31, 2011
Company A		63	%		-			51	%		2	%
Company B		14	%		9	%		21	%		19	%
Company C		12	%		8	%		16	%		56	%
Company D		5	%		-			12	%		10	%
Company E		3	%		-			-			-

(b) Suppliers

The Company’s major suppliers for the three months ended March 31, 2012 accounted for the following percentage of total purchases and accounts payable as follows:

	Purchases						Accounts Payable
Major Suppliers	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011			March 31, 2012			December 31, 2011
Company F		59	%		87	%		4	%		1	%
Company G		20	%		-			5	%		-
Company H		1	%		-			2	%		-
Company I		1	%		-			-			1	%
Company J		1	%		-			1	%		1	%

18

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 9 –INCOME (LOSS) PER SHARE

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the reporting period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options, warrants and convertible note (using the if-converted method). For the three months ended March 31, 2012, there are 1,389,376 potentially dilutive common shares.

The following table sets forth the computation of basic and diluted net income per common share:

Three months Ended March 31,	2012		2011
Net income (loss)	$	2,382,952	$	5,938,400
Weighted – average shares of common stock outstanding
Basic		27,450,371		27,422,823
Dilutive shares		1,389,376		1,603,806
Diluted		28,839,747		29,026,629
Basic income per share	$	0.09	$	0.22
Diluted income per share	$	0.08	$	0.20

Also see Note 17.

NOTE 10 - INVENTORIES

Inventories are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Raw material	$	1,660,118	$	1,737,211
Work-in-progress		5,661,207		3,898,950
Finished goods		864,877		1,110,793
		8,186,202		6,746,954
Less: reserve for slow moving inventories		-		(72,487	)
Inventories, net	$	8,186,202	$	6,674,467

19

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 11 - NOTES RECEIVABLE

Notes receivable are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Notes receivable from unrelated companies:
Due April 7, 2012, interest at 9.6% per annum 1	$	4,743,308	$	4,713,498
Due September 30, 2012, interest at 9.6% per annum 2		15,355,885		33,165,745
		20,099,193		37,879,243
Bank acceptance notes:
Bank acceptance notes		-		-
Notes receivable	$	20,099,193	$	37,879,243

Details of Notes receivable from unrelated parties as of December 31, 2011

Index	Amount ($)	Counter party	Relationship	Purpose of Loan	Manner of settlement
1	4,713,498	Zhejiang XinNeng Auto System Co., Ltd.	No relationship beyond loan	Receive interest income	Not Due
2	33,165,745	Yongkang HuiFeng Guarantee Co., Ltd	No relationship beyond loan	Receive interest income	Not Due

Details of Notes receivable from unrelated parties as of March 31, 2012

Index	Amount ($)	Counter party	Relationship	Purpose of Loan	Manner of settlement
1	4,743,308	Zhejiang XinNeng Auto System Co., Ltd.	No relationship beyond loan	Receive interest income	Not due
2	15,355,885	Yongkang HuiFeng Guarantee Co., Ltd	No relationship beyond loan	Receive interest income	Not due

For the three months ended March 31, 2012, the interest income generated from the notes receivable issued to third parties was $797,254.

20

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 12 – LAND USE RIGHTS

Land use rights consist of the following:

	March 31, 2012 (Unaudited)			December 31, 2011
Cost of land use rights	$	12,073,389		$	11,997,512
Less: Accumulated amortization		(1,076,829	)		(1,004,743	)
Land use rights, net	$	10,996,560		$	10,992,769

As of March 31, 2012 and December 31, 2011, the net book value of land use rights pledged as collateral for the Company’s bank loans was $4,059,112 and $4,057,640 respectively. Also see Note 15.

As of March 31, 2012 and December 31, 2011, the net book value of land use rights pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electronic Co., Ltd. (“ZMEC”), an unrelated party of the Company was $6,937,448 and $6,935,129. Also see Notes 19.

It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. ZMEC has provided a guarantee for certain of the Company’s bank loans. As of March 31, 2012, ZMEC had guaranteed bank loan of the Company for a total of $12,648,821. In exchange, the Company provided guarantee for bank loans being borrowed by ZMEC and allowing ZMEC to pledge the Company’s assets for ZMEC’s bank loans. Also see Note 14 and Note 19.

The amortization expense for the three months ended March 31, 2012 and 2011 was $65,780 and $63,091 respectively.

Amortization expense for the next five years and thereafter is as follows:

2012 (nine months)	$	197,340
2013		263,120
2014		263,120
2015		263,120
2016		263,120
Thereafter		9,746,740
Total	$	10,996,560

21

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 13 – PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	March 31, 2012 (Unaudited)			December 31, 2011
At cost:
Buildings	$	13,784,849		$	13,698,216
Machinery and equipment		10,215,425			10,138,064
Office equipment		203,521			199,021
Motor vehicles		247,801			246,243
Moulds		15,382,893			15,286,217
		39,834,489			39,567,761
Less : Accumulated depreciation
Buildings	$	(2,076,452	)	$	(1,949,251	)
Machinery and equipment		(8,341,411	)		(8,032,798	)
Office equipment		(138,862	)		(131,813	)
Motor vehicles		(183,953	)		(175,578	)
Moulds		(9,096,965	)		(8,296,428	)
		(19,837,643	)		(18,585,868	)
Plant and equipment, net	$	19,996,846		$	20,981,893

As of March 31, 2012 and December 31, 2011, the net book value of plant and equipment pledged as collateral for the bank loans was $7,097,842 and $7,124,618, respectively.

As of March 31, 2012 and December 31, 2011, the net book value of plant and equipment pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electronic Co., Ltd. (“ZMEC”), a supplier but unrelated party of the Company was $4,610,555 and $4,624,347. Also see Note 19.

Depreciation expense for three months ended March 31, 2012 and 2011 was $1,135,062 and $943,585 respectively.

22

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 14 – SHORT TERM BANK LOANS

Short-term loans are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Loans from China Communication Bank-Jinhua Branch
Monthly interest only payments at 7.87% per annum, due September 19, 2012, guaranteed by Kandi Investment Group Co.	$	790,551	$	785,583
Loans from Commercial Bank-Jiangnan Branch
Monthly interest only payments at 5.81% per annum, due January 3, 2012, guaranteed by Zhejiang Kangli Metal Manufacturing Company, Mr. Hu Xiaoming, Lv Qingjiang, and Ms. Ling Yueping. and pledged by the assets of Jingdezheng De’er Investment Industrial Co., Ltd.		-		3,142,332
Monthly interest only payments at 6.56% per annum, due October 15, 2012, guaranteed by Mr. Hu Xiaoming, and Ms. Ling Yueping, and secured by Company’s assets. Also see Note 12 and Note 13.		1,581,103		1,571,166
Monthly interest only payments at 6.89% per annum, due December 5, 2012, secured by Company’s asset. Also see Note 12 and Note 13.		790,551		785,583
Monthly interest only payments at 6.89% per annum, due January 5, 2013, guaranteed by Zhejiang Kangli Metal Manufacturing Company, Mr. Hu Xiaoming, Ms. Ling Jiajia, and Ms. Ling Yueping. and pledged by the assets of Jingdezheng De’er Investment Industrial Co., Ltd.		3,162,205		-
Loans from Huaxia Bank
Monthly interest only payments at 7.22% per annum, due September 23, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Kandi Investment Group Co. Also see Note 12 and Note 13.		4,427,087		4,399,265
Loans from China Ever-bright Bank
Interest only payment at 6.71% per annum, due February 15, 2012.		-		3,142,332
Monthly interest only payments at 6.10% per annum, due May 15, 2012, secured by the Company’s time deposit. Also see Note 6.		2,134,489		2,121,073
Interest only payment at 7.02% per annum, due June 28, 2012.		3,130,585		-
Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.		4,743,308		4,713,498
Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.		4,743,308		4,713,498

23

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 14 - SHORT TERM BANK LOANS (CONTINUED)

	March 31, 2012 (Unaudited)		December 31, 2011
Loans from Shanghai Pudong Development Bank
Monthly interest only payments at 6.71% per annum, due June 26, 2012, secured by the property of Ms. Ling Yueping, guaranteed by Nanlong Group Co., Ltd. and Mr. Hu Xiaoming		3,162,205		3,142,332
Loans from Bank of Shanghai
Monthly interest only payments at 6.56% per annum, due December 4, 2012, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Zhejiang Taiping Shengshi Industrial Co., Ltd.		4,743,308		4,713,498
Loans from China Ever-growing Bank
Monthly interest only payments at 7.57% per annum, due April 27, 2012, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Shuguang industrial Co., Ltd. and Zhejiang Mengdeli Electric Company.		3,162,205		3,142,332
Total	$	36,570,905	$	36,372,492

Interest expense for the three month ended March 31, 2012 and 2011 was $655,975, and $412,056, respectively.

As of March 31, 2012, the aggregate amount of short-term loans that are guaranteed by various third parties is $30,515,280,

-      $12,648,821 is guaranteed by Zhejiang Mengdeli Electric Co Ltd (“ZMEC”), whose bank note of $1,264,882 is guaranteed by the Company, and ZMEC’s bank loans of $7,051,718 are secured by a pledge, or by the Company’s plant and equipment and the land use right for which net book values are $4,610,555, and $6,937,448, respectively. Also see Note 19.

-      $12,332,600 is guaranteed by Zhejiang Kangli Metal Manufacturing Company, whose bank loans of $4,743,308 is guaranteed by the Company. Also see Note 19.

-      $3,162,205 is guaranteed by Zhejiang Shuguang industrial Co., Ltd., whose bank loans of $7,905,513 are guaranteed by the Company. Also see Note 19.

-      $4,743,308 is guaranteed by Zhejiang Taiping Shengshi Industrial Co., Ltd. whose bank loans of $3,162,205 is also guaranteed by the Company. Also see Note 19.

-      $5,217,638 is guaranteed by Kandi Investment Group Co.

-       $12,648,821 is guaranteed by Nanlong Group Co., Ltd.

This is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. 

24

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 15 – NOTES PAYABLE

By issuing bank note payables rather than paying cash to suppliers, the Company can defer the payments until the date the bank note payable is due. Simultaneously, the Company needs to deposit restricted cash in banks to back up the bank note payable, while the restricted cash deposited in banks will generate interest income.

Notes payable are summarized as follows:

	March 31,2012 (Unaudited)		December 31, 2011
Bank acceptance notes:
Due January 19,2012	$	-	$	149,262
Due March 26, 2012		-		14,140
Due March 26, 2012		-		15,712
Due March 26, 2012		-		37,708
Due March 26, 2012		-		15,712
Due March 26, 2012		-		17,283
Due March 26, 2012		-		15,712
Due March 26, 2012		-		14,140
Due March 26, 2012		-		7,856
Due March 26, 2012		-		6,285
Due March 26, 2012		-		15,712
Due March 26, 2012		-		15,712
Due March 26, 2012		-		7,856
Due March 26, 2012		-		31,423
Due March 26, 2012		-		9,741
Due March 26, 2012		-		9,427
Due March 26, 2012		-		10,998
Due March 26, 2012		-		31,423
Due March 26, 2012		-		51,848
Due March 26, 2012		-		47,135
Due March 26, 2012		-		15,712
Due March 26, 2012		-		4,713
Due March 26, 2012		-		3,142
Due March 26, 2012		-		3,142
Due March 26, 2012		-		12,569
Due March 26, 2012		-		15,712
Due March 26, 2012		-		3,142
Due March 26, 2012		-		3,142,332
Due May 10, 2012		79,055		78,558
Due May 10, 2012		158,110		157,117
Due May 10, 2012		189,732		188,540
Due May 10, 2012		94,866		94,270
Due May 10, 2012		31,622		31,423
Due June 19, 2012		237,165		235,675
Due June 19, 2012		1,343,938		1,335,491
Due July 12, 2012		3,162,206		-
Due September 14, 2012		2,371,654		-
Due September 20, 2012		3,146,394		-
Subtotal	$	10,814,742	$	5,846,623

25

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 15 – NOTES PAYABLE (CONTINUED) 

Notes payable to unrelated companies:
Due January 20, 2012 (Interest rate 6.0% per annum)		-		1,000
Subtotal	$	-	$	1,000
Total	$	10,814,742	$	5,847,623

All the bank acceptance notes do not bear interest, but are subject to bank charges of 0.005% of the principal as commission on each transaction. Bank charges for notes payable were $4,343 for the first three months ended March 31, 2012.

Restricted cash of $9,249,451 is held as collateral for the following notes payable at March 31, 2012:

Due May 10, 2012		79,055
Due May 10, 2012		158,110
Due May 10, 2012		189,732
Due May 10, 2012		94,866
Due May 10, 2012		31,622
Due June 19, 2012		237,165
Due June 19, 2012		1,343,938
Due July 12, 2012		3,162,206
Due September 14, 2012		2,371,654
Due September 20, 2012		3,146,394
Total	$	10,814,742

26

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 16 – TAX

(a) Corporation Income Tax (“CIT”)

On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT law”), which went into effect on January 1, 2008. In accordance with the relevant tax laws and regulations of the PRC, the applicable corporate income tax rate is 25%.

Prior to January 1, 2008, the CIT rate applicable to the Company was 33%. Kandi’s first profitable tax year for income tax purposes as a foreign-invested company was 2007. As a foreign-invested company, the income tax rate of Kandi was entitled to a 50% tax holiday based on 25% for years 2009 through 2011. During the transition period, the above tax concession granted to the Company, prior to the new CIT law, will be grandfathered according to the interpretations of the new CIT law. After the tax holiday period is ended, the tax rate applicable to Kandi Vehicle changes to 15% since 2012 because of Kandi Vehicle’s high technology enterprise qualification. Nevertheless, the Company is qualified to a special research and development credit for 2012.

Kandi New Energy is subsidiary of the Company and its applicable corporate income tax rate is 25%.

According to the PRC corporation income tax (“CIT”) reporting system, the CIT sales cut-off base is concurrent with the value added tax (“VAT”) which will be reported to the State Administration of Taxation (“SAT”) on a quarterly basis. Since the VAT and CIT are accounted for on a VAT tax basis that recorded all sales on a “State provided official invoices” reporting system, the Company is reporting the CIT according to the SAT prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off did not take the accrual base but rather on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual basis, the sales cut-off CIT timing difference which derived from the VAT reporting system will create a temporary sales cut-off timing difference and this difference is reflected in the deferred tax assets or liabilities calculations on the income tax estimation reported in the Form 10-K.

Effective January 1, 2007, the Company adopted ASC 740, Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2012, the Company does not have a liability for unrecognized tax benefits. The Company files income tax returns to the Internal Revenue Services (“IRS”) and states where the Company has operation. The Company is subject to U.S. federal or state income tax examinations by IRS and relevant state tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in China. As of March 31, 2012 the Company was not aware of any pending income tax examinations by China tax authorities. The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2012, the Company has no accrued interest or penalties related to uncertain tax positions. The Company has not recorded a provision for U.S federal income tax for the three months ended March 31, 2012 due to the net operating loss carry forward in the United States.

27

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 16 – TAX (CONTINUED)

Income tax expense (benefit) for the three months ended March 31, 2012 and 2011 is summarized as follows: 

	For the Three Months Ended March 31,
	(Unaudited)
	2012		2011
Current:
Provision for CIT	$	519,966	$	90,694
Provision for Federal Income Tax		0		0
Deferred:		-		-
Provision for CIT		0		0
Income tax expense (benefit)	$	519,966	$	90,694

The Company’s income tax expense (benefit) differs from the “expected” tax expense for the three months ended March 31, 2012 and 2011 (computed by applying the CIT rate of 25%, respectively to income before income taxes) as follows:

	For the Three Months Ended March 31,
	(Unaudited)
	2012			2011
Computed "expected" (benefit) expense	$	290,932		$	88,654
Favorable tax rate		(438,229	)		(90,694	)
Permanent differences		597,047			39,848
Valuation allowance		70,216			52,886
Income tax expense (benefit)	$	519,966		$	90,694

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of March 31, 2012 and December 31, 2011 are summarized as follows:

28

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 16 – TAX (CONTINUED)

	March 31, 2012 (Unaudited)			December 31, 2011
Current portion:
Deferred tax assets:
Expense	$	(26,066	)	$	(11,741	)
Subtotal		(26,066	)		(11,741	)
Deferred tax liabilities:
Sales cut-off (CIT tax reporting on VAT tax system)		(173,814	)		(44,621	)
Other		-			-
Subtotal		(173,814	)		(44,621	)
Total deferred tax liabilities – current portion		(199,880	)		(56,362	)
Non-current portion:
Deferred tax assets:
Depreciation		398,005			226,622
Loss carried forward		70,216			1,351,513
Valuation allowance		(70,216	)		(1,351,513	)
Subtotal		398,005			226,622
Deferred tax liabilities:
Accumulated other comprehensive gain		(136,624	)		(136,624	)
Subtotal		(136,624	)		(136,624	)
Total deferred tax assets – non-current portion		261,381			89,998
Net deferred tax assets	$	61,501		$	33,636

(b) Tax Benefit (Holiday) Effect

For the three months ended March 31, 2012 and 2011 the PRC corporate income tax rate was 25%. Certain subsidiaries of the Company are entitled to tax benefit (holidays) for the three months ended March 31, 2012 and 2011.

The combined effects of the income tax expense exemptions and reductions available to the Company for the three months ended March 31, 2012 and 2011 are as follows:

	For the Three Months Ended March 31 (Unaudited)
	2012		2011
Tax benefit (holiday) credit	$	438,229	$	90,694
Basic net income per share effect	$	0.02	$	0.00

29

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 17 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES

(a) Stock Options

On February 11, 2009, the Compensation Committee of the Board of Directors of the Company approved the grant of stock options for 2,600,000 shares of common stock to ten of the Company's employees and directors. The stock options vest ratably over three years and expire in ten years from the grant date. The Company valued the stock options at $2,062,964 and amortizes the stock compensation expense using the straight-line method over the service period from February 11, 2009 through February 11, 2012. The value of the options was estimated using the Black Scholes Model with an expected volatility of 164%, expected life of 10 years, risk-free interest rate of 2.76% and expected dividend yield of 0.00%. On June 30, 2011, one of the Company’s directors resigned, and his 6,668 unexercised options were forfeited. As of March 31, 2012, options for 906,695 shares have been exercised.

On October 6, 2009, the Company executed an agreement (“Cooperation Agreement”) with Wang Rui and Li Qiwen, third-party consultants, whereby Mr. Wang and Mr. Li are to provide business development services in China to the Company in exchange for options to purchase 350,000 shares of the Company’s common stock at an exercise price of $1.50 per share.   Per the agreement, 250,000 of these options vested and became exercisable on March 6, 2011, and 100,000 will vest and become exercisable on June 6, 2011.  The options will expire after ten years.  The options are issued under and subject to the terms of the Company’s 2008 Omnibus Long-Term Incentive Plan.  No required dates of service are specified on the consulting agreement.  No repurchase features or cash settlement provisions are specified in the terms and conditions of the Notice of Grant of Stock Option.

The following is a summary of the stock option activities of the Company:

	Activity		Weighted Average Exercise Price
Outstanding as of January 1, 2012		1,786,637	$	0.84
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding as of March 31, 2012		1,786,637		0.84

The following table summarizes information about stock options outstanding as of March 31, 2012:

Options Outstanding						Options Exercisable
Number of shares		Exercise Price		Remaining Contractual life (in years)		Number of shares		Exercise Price
	1,686,637	$	0.80		7		1,686,637	$	0.80
	100,000		1.50		7.5		100,000		1.50

The fair value per share of the 2,600,000 options issued to the employees and directors is $0.7934 per share. The fair value per share of the unexercised 100,000 options issued to Wang Rui and Li Qiwen, which became exercisable on June 6, 2010, is $3.44.

30

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 17 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES (CONTINUED)

(b) Warrants and Convertible Notes

On September 21, 2009, the Company executed an agreement (“Consulting Agreement”) with a third-party consultant, whereby the consultant is to provide management consulting and advisory services for a period of 12 months, beginning on September 22, 2009, and ending on September 22, 2010.  As compensation for the services provided, the Company agreed to issue 200,000 warrants to purchase the Company’s common stock, with 100,000 of these warrants issued at an exercise price of $2.00 per share and 100,000 of these warrants issued at an exercise price of $2.50 per share.  All of the warrants have a five year contractual term and were granted on October 22, 2009.  The warrants vested in full and became exercisable on January 21, 2010, upon the closing of an initial round of financing. The fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price of $2.00 is $4.56, and the fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price of $2.50 is $4.48. As of March 31, 2012, the consultant had cashless exercised the 100,000 warrants with the exercise price of $2.5 per share.

Under a Securities Purchase Agreement, dated as of January 21, 2010, by and among the Company and certain investors thereto, the Company issued a total of $10 million of senior secured convertible notes (the “Convertible Notes”) and warrants exercisable for an aggregate of 800,000 shares of the Company’s Common Stock (the “Investor Warrants”), for gross proceeds of $10 million.  As of January 21, 2010, at the price of $6.25 per share, the Convertible Notes were convertible into 1,600,000 shares of Common Stock.  The Investor Warrants, which are exercisable for a period of three years following the closing date, are initially exercisable for shares of Common Stock at an exercise price of $6.5625 per share as of January 21, 2010.  Included in the associated issuance costs is the fair value of 80,000 warrants issued to a placement agent.  These warrants have the same terms and conditions as the Investor Warrants issued to the investors.

Pursuant to the terms of the Convertible Notes and the Investor Warrants, on May 18, 2010, the conversion price of the Convertible Notes was adjusted to $3.5924 per share and the exercise price of the Investor Warrants and warrants issued to the placement agent was adjusted to $4.3907 per share. On August 19, 2010, the conversion price of the Convertible Notes was adjusted to $3.1146 per share and the exercise price of the Investor Warrants and warrants issued to the placement agent was adjusted to $3.8067 per share. As a result, the number of Investor Warrants and warrants issued to the placement agent were adjusted to 1,379,148 and 137,915 respectively. As of March 31, 2012, the investors had converted all $10,000,000 principal amount and $159,522 of accrued interest of the Convertible Notes into an aggregate of 3,121,121 shares of Common Stock.

As of March 31, 2012, the fair value of the Investor Warrants and the warrants issued to the placement agent is $1.06 per share.

On December 21, 2010, the Company agreed to sell to certain institutional investors up to 3,027,272 shares of the Company’s common stock and warrants to purchase up to 1,210,912 shares of the Company’s common stock in fixed combination, with each combination consisting of one share of common stock and a warrant to purchase 0.40 shares of common stock in a registered direct public offering (“Second round warrants”). The warrants became exercisable immediately following the closing date of the offering and remain exercisable for three years thereafter at an exercise price of $6.30 per share. As of March 31, 2012, the fair value of Second round warrants is $1.13 per share.

31

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 18 – STOCK AWARD

In connection with his appointment to the Board of Directors, and as compensation for serving, the Board of Directors has authorized the Company to provide Mr. Henry Yu with 5,000 shares of Company’s restricted common stock every six months, par value $0.001 from July 2011.

As compensation for his services, the Board of Directors has authorized the Company to provide Mr. Jerry Lewin with 5,000 shares of Company’s restricted common stock every six months, par value $0.001 from August 2011.

The fair value of awarded stock is determined by the closing price of our common stock on the date of stock award, or estimated by the closing price of our common stock on the reporting date if stock has not yet been awarded.

32

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

NOTE 19 – COMMITMENTS AND CONTINGENCIES

(a) Guarantees and Pledged collateral for third party bank loans

As of March 31, 2012, the Company provided guarantees for the following third parties:

(1) Guarantees for bank loans

Guarantee provided to	Amount
Zhejiang Kangli Metal Manufacturing Company.	$	4,743,308
Zhejiang Shuguang industrial Co., Ltd.		7,905,513
Zhejiang Yiran Auto Sales Company		1,581,103
Zhejiang Taiping Shengshi Industrial Co., Ltd.		3,162,205
Zhejiang Taiping Trade Co., Ltd		3,636,536
Yongkang Angtai Trade Co., Ltd.		790,551
Total	$	21,819,216

On December 4, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount of $4,743,308 by Zhejiang Kangli Metal Manufacturing Company. (“ZKMMC”) for the period from December 4, 2011 to December 4, 2012. ZKMMC is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZKMMC under the loan contract if ZKMMC fails to perform its obligations as set forth in the loan contract.

On October 9, 2011 and December 8, 2011, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shenzhen Development Bank Hangzhou branch and Huaxia Bank Hangzhou branch in the amount of $4,743,308 and $3,162,205 by Zhejiang Shuguang industrial Co., Ltd. (“ZHICL”) for the period from October 9, 2011 to October 9, 2012 and from December 8, 2011 to December 8, 2012 respectively. ZHICL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of ZHICL under the loan contracts if ZHICL fails to perform its obligations as set forth in the loan contracts.

On April 25, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Hangzhou branch in the amount of $1,581,103 by Zhejiang Yiran Auto Sales Company (“ZYASC”) for the period April 25, 2011 to April 25, 2012. ZYASC is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of ZYASC under the loan contracts if ZYASC fails to perform its obligations as set forth in the loan contracts.

On December 4, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Bank Hangzhou branch in the amount of $3,162,205 by Zhejiang Taiping Shengshi Industrial Co., Ltd. (“ZTSICL”) for the period from December 4, 2011 to December 4, 2012. ZTSICL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTSICL under the loan contract if ZTSICL fails to perform its obligations as set forth in the loan contract.

On August 12, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from ICBC Wuyi branch in the amount of $3,636,536 by Zhejiang Taiping Trade Co., Ltd (“ZTTCL”) for the period from August 12, 2011 to August 8, 2013. ZTTCL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTTCL under the loan contract if ZTTCL fails to perform its obligations as set forth in the loan contract.

33

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

On January 7, 2011, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch in the amount of $158,110 and $632,441 respectively by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from January 7, 2011 to December 31, 2012. YATCL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of YATCL under the loan contracts if YATCL fails to perform its obligations as set forth in the loan contracts.

(2) Guarantees for Bank notes:

Guarantee provided to	Amount
Zhejiang Mengdeli Electric Co., Ltd.	$	1,264,882
Total	$	1,264,882

On August 24, 2010, the Company entered into a guarantee contract to serve as guarantor for the bank note borrowed from Huaxia Bank Hangzhou branch in the amount of $1,264,882 by Zhejiang Mengdeli Electric Co., Ltd. (“ZMEC”) for the period from August 24, 2010 to August 24, 2012. ZMEC is a supplier but not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZMEC under the loan contract if ZMEC fails to perform its obligations as set forth in the loan contract.

(3) Pledged collateral for a third party’s  bank loans

As of March 31, 2012, the Company provided the land use rights and plant and equipment pledged as collateral for the following third party:

Zhejiang Mengdeli Electric Co., Ltd.:
Land use rights net book value	$	6,937,448
Plant and equipment net book value	$	4,610,555

It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given.  It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral. Also see Note 14.

(b) Pending litigations

There are two lawsuits currently pending in Ripley County, Missouri against the Company and its subsidiary Zhejiang Kandi Vehicles Co., Ltd.(“Kandi Vehicles”) as well as other parties, Kandi Investment Group and SunL, and they are related to two persons who died in an accident on March 3, 2006 while operating a go-cart allegedly manufactured by Kandi Vehicles.  Kandi Investment Group was a major shareholder of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi Investment Group is unrelated to the Company or its affiliates.

The cases were filed in 2009 and are known as Elder vs. SunL Group and Griffen vs. SunL Group. In March, 2010, the local trial court entered two default judgments in the amount of $20,000,000 each against Kandi Vehicles and other parties including Kandi Investment but not the Company. The lawsuit and default judgments didn’t come to the Company or Kandi Vehicles’ attention until May or June 2010. The Company had not been served or notified of the lawsuits and learned of their existence and of the default judgment in the course of commercial discussions with another of the defendants in the cases. Currently, the Company and Kandi Vehicles have filed answers to the complaint denying any culpability. In addition, the Company requested that the court set aside the default judgments against Kandi Vehicles, a request granted, by the court, on February 28, 2011. On March 3, 2011, the plaintiffs subsequently appealed the court order vacating the default judgments; however, the plaintiffs have since voluntarily withdrawn their appeal.

34

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 (UNAUDITED)

The Company intends to defend these cases vigorously and expects to prevail in this lawsuit since the Company including its subsidiaries did not manufacture the subject vehicle in the accident.  The Company intends to propound discovery on the plaintiffs. Further, the Company and Kandi Vehicles have each filed a Motion for Summary Judgment in an attempt to have the cases dismissed by summary judgment. The plaintiffs have thirty (30) days to respond.

(c) Capital Commitment

During the previous year, certain mold manufacturing contracts were executed. As of March 31, 2012, remaining unpaid balance was $4,568,833, we plan on paying the full amount within the next twelve months.

NOTE 20 – SUBSEQUENT EVENTS

On February 13, 2012, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO NGA”) and each of the shareholders of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the “Sellers”). Pursuant to the terms of the Exchange Agreement, the Sellers exchanged an aggregate of 253 shares of KO NGA, representing 100% of the issued and outstanding shares of KO NGA, to the Company for a total of 2,354,212 shares (the “Exchange Shares”) of the Company’s common stock (the “Exchange”), representing an aggregate exchange purchase price of approximately $7,952,524, which was primarily derived from KO NGA’s indirect, wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China.  The Exchange Agreement closed on April 25, 2012, and, as such, KO NGA became a wholly-owned subsidiary of the Company. The Exchange Shares were issued by the Company in reliance on an exemption from the registration requirements of the Securities Act for the private placement of our securities pursuant to Regulation S of the Securities Act.

35

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology, such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "intend," "potential" or "continue" or the negative of such terms or other comparable terminology, although not all forward-looking statements contain such terms.

In addition, these forward-looking statements include, but are not limited to, statements regarding implementing our business strategy; development and marketing of our products; our estimates of future revenue and profitability; our expectations regarding future expenses, including research and development, sales and marketing, manufacturing and general and administrative expenses; difficulty or inability to raise additional financing, if needed, on terms acceptable to us; our estimates regarding our capital requirements and our needs for additional financing; attracting and retaining customers and employees; sources of revenue and anticipated revenue; and competition in our market.

Forward-looking statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All of our forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors described in the Company’s Form 10-K for the year ended December 31, 2011 and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”). These documents are available on the SEC’s Electronic Data Gathering and Analysis Retrieval System athttp://www.sec.gov.

Critical Accounting Policies and Estimates

Policy affecting options, and warrants

The Company’s stock option cost is recorded in accordance with ASC 718 and ASC 505.

The fair value of stock options is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Stock option expense recognized is based on awards expected to vest, and there were no estimated forfeitures. ASC standards requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The Company’s warrant costs are recorded in liabilities and equities, respectively, in accordance with ASC 480, ASC 505 and ASC 815.

The fair value of warrants, which is classified as a liability, is estimated using a Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve in effect at the time of measurement. The warrants, which are freestanding derivatives and are classified as liabilities on the balance sheet, will be measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values recognized in expenses.

The Company determined that the fair value of equity based warrants, which are not considered derivatives under ASC 815, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Estimates affecting accounts receivable and inventories

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect our reporting of assets and liabilities (and contingent assets and liabilities). These estimates are particularly significant where they affect the reported net realizable value of the Company’s accounts receivable and inventories.

36

Accounts receivable are recognized and carried at net realizable value.  An allowance for doubtful accounts will be recorded in the period when a loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business relation and other factors.  Accounts are written off after exhaustive efforts at collection.  If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses. At March 31, 2012 and December 31, 2011, the Company has an allowance for doubtful accounts of $0 and $0 respectively, as per the management’s judgment based on their best knowledge.

Inventories are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale.  When inventories are sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There were no declines in net realizable value of inventory for the three months ended March 31, 2012.

While the Company currently believes that there is little likelihood that actual results will differ materially from these current estimates, if customer demand for our products decreases significantly in the near future, or if the financial condition of our customers deteriorates in the near future, the Company could realize significant write downs for slow-moving inventories or uncollectible accounts receivable.

Revenue Recognition

Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenues are recognized when all of the following criteria are met:

· Persuasive evidence of an arrangement exists;

· Delivery has occurred or services have been rendered;

· The seller’s price to the buyer is fixed or determinable; and

· Collectability is reasonably assured.

37

Results of Operations

Comparison of Three Months Ended March 31, 2012 and 2011

The following table sets forth the amounts and percentage relationship to revenue of certain items in our condensed consolidated statements of income and comprehensive income

	For Three Months Ended March 31, 2012			% Of Revenue			For Three Months Ended March 31, 2011			% Of Revenue			Change In Amount			Change In %
REVENUES, NET	$	14,355,541			100	%	$	8,341,506			100	%	$	6,014,035			72.1	%
COST OF GOODS SOLD		(11,014,691	)		(76.7	)%		(6,280,073	)		(75.3	)%		(4,734,618	)		75.4	%
GROSS PROFIT		3,340,850			23.3	%		2,061,433			24.7	%		1,279,417			62.1	%
Research and development		(756,096	)		(5.3	)%		(511,952	)		(6.1	)%		(244,144	)		47.7	%
Selling and distribution expenses		(93,835	)		(0.7	)%		(56,936	)		(0.7	)%		(36,899	)		64.8	%
General and administrative expenses		(683,620	)		(4.8	)%		(673,867	)		(8.1	)%		(9,753	)		1.4	%
INCOME FROM OPERATIONS		1,807,299			12.6	%		818,678			9.8	%		988,621			120.8	%
Interest income (expense), net		131,602			0.9	%		(297,270	)		(3.6	)%		428,872			(144.3	)%
Change in fair value of financial instruments		942,950			6.6	%		5,385,178			64.6	%		(4,442,228	)		(82.5	)%
Government grants		-			0	%		7,588			0.1	%		(7,588	)		(100	)%
Investment (loss) income		(13,401	)		(0.1	)%		1,214			0	%		(14,615	)		(1,203.9	)%
Other income, net		34,468			0.2	%		113,706			1.4	%		(79,238	)		(69.7	)%
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		2,902,918			20.2	%		6,029,094			72.3	%		(3,126,176	)		(51.9	)%
INCOME TAX (EXPENSE)		(519,966	)		(3.6	)%		(90,694	)		(1.1	)%		(429,272	)		473.3	%
NET (LOSS) INCOME		2,382,952			16.6	%		5,938,400			(71.2	)%		(3,555,448	)		(59.9	)%

38

(a) Revenue

For the three months ended March 31, 2012, our revenue increased by 72.1% from $8,341,506 to $14,355,541 as compared to the three months ended March 31, 2011.

The following table lists the number of vehicles sold, categorized by vehicle types, within the three months ended March 31, 2012 and 2011:

	Three Months Ended March 31
	2012				2011
	Unit		Sales		Unit		Sales
ATV		5,124		2,000,300		1,620	$	1,414,516
Super-mini car 1		296		1,185,917		209		1,032,763
Go-Kart		12,981		9,639,676		5,366		4,948,190
Utility vehicles (“UTVs”)		20		74,433		233		490,245
Three wheeled motorcycle		248		502,355		191		455,792
Refitted car		35		952,860		-		-
Total		18,704		14,355,541		7,619		8,341,506

1) include the products called CoCo, EV and mini-car in the previous filing.

Off-Road Vehicles

During the three months ended March 31, 2012, the market condition for ATV products continues to recover. The Company developed some price competitive products to meet markets demands, which has caused good results and successfully increased the Company’s sales. Revenues from our ATVs experienced a significant increase of $585,784, or 41% in the three months ended March 31, 2012 over the comparable period, which was attributable to 216% increase from 1,620 units in the first three months of 2011 to 5,124 units in 2012, partially caused by a 55% unit price reduction.

In the first three months of 2012, our Go-Karts experienced a significant increase in revenue of $4.7 million or 94.8% over the same period of last year, which was mainly attributable to a 141.9% increase in unit sales from 5,366 units in the three months ended March 31, 2011 to 12,981 units in 2012.  Just as with ATVs, the Company’s successful development of meet-market-demands price competitive products has achieved good results.

The sales of three-wheeled motorcycle (TT) continued the good performance started from the second half of 2011. In the first three months ended March 31, 2012, the sales of TT increased $46,563, or 10.2% from the same period of last year, which was attributable to an increase in unit sales from 191 units to 248 units, with the unit price dropped 15.1%.

Utility vehicles (UTVs) experienced a significant decrease in revenues from $490,245 to $74,433. This 84.8% decrease is mainly due to the 91.4% drop in unit sales in the three months ended March 31, 2012 compared to the same period of 2011. This significant drop is primarily because of the continuing high competition in this UTV market, while the UTV manufactured by the Company is relatively high end and more expensive, which caused the average unit price increased significantly compared to the same period of last year.

Super-mini-Car Products

For the EV products, the Company has not realized mass unit sales during this reporting period. For the three months ended March 31, 2012, revenues from our Super-mini car increased slightly by $153,154, or 14.8% from the same period of 2011, which was attributable to an increase in unit sales of 41.6% from 209 units in the first three months of 2011 to 296 units in 2012. For the three months ended March 31, 2012, the average unit price of our super-mini-cars decreased 18.9%, because some of the Super-mini-cars sold by the Company during this reporting period were sold without batteries.

39

Refitted car

For the three months ended March 31, 2012, the Company also refitted other companies’ vehicles to meet special requirements for certain customers. The Company expects this new business to expand the Company’s business scope and stimulate the Company’s development.

The following table shows the breakdown of Kandi’s revenues from its customers by geographical markets based on the location of the customer during the 3 months ended March 31, 2012 and 2011:

	Three Months Ended March 31
	2012					2011
	Sales		Percentage			Sales		Percentage
North America	$	1,639,376		11	%	$	1,059,533		13	%
China		12,452,931		87	%		7,034,824		84	%
Europe & other region		263,234		2	%		247,149		3	%
Total	$	14,355,541		100	%	$	8,341,506		100	%

For the three months ended March 31, 2012, about 85% of sales in China are sales to Chinese export agents, who resell the company’s products to markets around the world.

(b) Cost of goods sold

Cost of goods sold during the three months ended March 31, 2012 was $11,014,691, representing an increase of $4,734,618, or 75.4% from the three months ended March 31, 2011, corresponding to the Company’s significant increase of revenue.

(c) Gross profit

Gross profit for the first quarter of 2012 increased 62.1% to $3,340,850 compared to $2,061,433 at the same period of last year, as a result of increased revenue. However, the gross margin has decreased to 23.3% compared to 24.7% for the same period of 2011. This is primarily due to the fact that processing techniques for refitted cares are relatively simple; therefore tis gross margin is comparatively lower, which reduced the overall gross margin of the Company for this reporting period.

(d) Selling and distribution expenses

Selling and distribution expenses were $93,835 for the three months ended March 31, 2012, as compared to $56,936 from the same period in 2011, representing a 64.8% increase. The significant increase is primarily because of the increase in fees related to exhibition, higher transportation fees and advertising fees.

(e) General and administrative expenses

General and administrative expenses were $683,620 for the three months ended March 31, 2012, as compared to $673,867 for the same period in 2011, representing a 1.4% increase. For the three months ended March 31, 2012, the general and administrative expenses included $19,053 in stock-based compensation cost for the options issued to the Company’s executives and managerial level employees, while for the same period of last year, this stock based compensation cost was $85,957. In addition, the general and administrative expenses also included $13,733 in expenses for common stock awards to employees and consultants for financing and investor relations services, while for the same period of last year, this cost was $17,792. Excluding the effect of stock based compensation cost and stock award cost, the net general and administrative expenses for the three months ended March 31, 2012 was $650,834, an increase of 14.2% from $570,118 for the same period of 2011. This increase was primarily due to the higher product insurance fee and the increase of employee welfare.

40

(f) Research and development

Research and development expenses were $756,096 for the three months ended March 31, 2012, as compared to $511,952 from the same period in 2011, representing a 47.7% increase. This increase was primarily due to additional research and development efforts on new products and on quality improvement on existing products. In the first three months of 2012, the Company strengthened the research and development for electrical vehicles equipped with lithium battery in order to seek the leading position in EV market.

(g) Government grants

Government grants totaled $0 for the three months ended March 31, 2012, representing a 100% decrease over the same period in 2011.  

(h) Net interest income (expense)

Net interest income was $131,602 for the three months ended March 31, 2012, as compared to ($297,270) net interest expense for the same period last year, representing a significant increase. For the three months ended March 31, 2011, the interest expense for convertible notes was $2, and the interest incurred by the amortization of debt discount was $43. While for the same period of last year, the interest expense for the convertible notes was $15, and the interest incurred by the amortization of debt discount was $92. Excluding the effects of interest expense related to convertible notes, the net interest income for this reporting period was $131,647, improved from net interest expense of ($297,163) for the same period of 2011, primarily due to the increase of interest income earned from the note receivables issued to third parties.

(i) Change in fair value of financial instruments

For the three months ended March 31, 2012, the interest income, which was caused by the changes of fair value of warrants issued to investors and placement agents was $942,950, while for the same period of last year, the interest income, which was caused by the changes of fair value of financial instruments, was $5,385,178. This significant decrease was primarily because the stock price was more stable in the first quarter of 2012 compared to the same period of last year.

(j) Other Income, Net

Net other income was $34,468 for the three months ended March 31, 2012, compared to $113,706 for the same period of last year, a decrease of $79,238 or 69.7%.  This decrease is primarily because there was a write off of other payables in the first three months of 2011.

(k) Investment (loss) income

Investment loss was ($13,401) for the first three months ended March 31, 2012, compared to income of $1,214 for the corresponding period in 2011. For the three months ended March 31, 2012, the investment loss was purely a result of our 30% equity interest investment in Jinhua Service, which was $0 for the same period of 2011. During the first three months ended March 31, 2011, the $1,214 investment income was from trading securities.

(l) Net income

The operating performance of the Company for the three months ended March 31, 2012 reflected a net income of $2,382,952, decreased 3,555,448 or 59.9% from a net income of $5,938,400 for the same period of last year, primarily due to the changes of fair value of warrants issued to investors and placement agents.

Excluding the effects of option related expenses, which was $19,053 and $85,957 for the three months ended March 31, 2012 and 2011 respectively, the stock award expense, which was $13,733 and $17,792 for the three months ended March 31, 2012 and 2011 respectively, the Convertible Note’s interest expense, which was $2 and $15 for the three months ended March 31, 2012 and 2011 respectively, the effect caused by amortization of discount on Convertible Notes, which was $43 and $92 for the three months ended March 31, 2012 and 2011 respectively, and the change of the fair value of financial derivatives, which was $942,950 and $5,385,178 for the three months ended March 31, 2012 and 2011 respectively, for the three months ended March 31, 2012, the Company’s net income was $1,472,833, an increase 124.1% as compared with net income of $657,078 for the same period of 2011 excluding the same effects. This increase is primarily due to the increase of gross profit.

As of the date of this Form 10-Q filing, all of the Convertible Notes have been converted.

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Financial Condition

Liquidity and Capital Resources

Working Capital

The Company had a working capital surplus of $19,939,862 at March 31, 2012, almost unchanged from a working capital surplus of $20,208,386 as of March 31, 2011.

As of March 31, 2012, the Company has credit lines from commercial banks for $44,587,095, of which $33,440,321 was used at March 31, 2012. The Company believes that its cash flows generated internally may not be sufficient to support growth of future operations and repay short term bank loans for the next twelve months if needed. However, the Company believes its access to existing financing sources and established relationships with PRC banks will enable it to meet its obligations and fund its ongoing operations.

The Company has historically financed itself through short-term commercial bank loans from PRC banks. The term of these loans are typically for one year, and upon the payment of all outstanding principal and interest in a respective loan, the banks have typically rolled over the loans for additional one-year terms, with adjustments made to the interest rate to reflect prevailing market rates. The Company believes this situation has not changed and the short-term bank loan will be available on normal trade terms if needed.

42

Capital Requirements and Capital Provided

Capital requirements and capital provided for the three months ended March 31, 2011 are as follows:

	Three Months Ended March 31, 2012 (In thousands)
Capital requirements
Purchase of plant and equipment	$	17
Purchase of Construction in progress		181
Issuance of notes receivable		-
Repayments of short-term bank loans		6,329
Repayments of notes payable		3,753
Increase in restricted cash		15,759
Increase in cash		2,723
Internal cash used in operations		4,299
Total capital requirements	$	33,061
Capital provided
Proceeds from short-term bank loan		6,297
Proceeds from notes payable		8,687
Repayments of notes receivable		18,033
Other financing activities		41
Total capital provided	$	33,058

For further information, see the Statement of Cash Flows.

The difference between capital provided and capital requirement is the effect of exchange rage changes over the past three months.

Cash Flow

Net cash flow used in operating activities was ($4,299,107) for the three months ended March 31, 2012, as compared to net cash flow used in operating activities of ($9,438,803) in the same period in 2011. The improvement of net cash flow by operating activities was mainly due to the less amount of cash outflow caused by prepayments and prepaid expenses. The account has changed to cash outflow of ($1,337,864) in the three months ended 2012 from cash outflow of ($6,947,548) for the same period of last year, which is mainly because the Company had prepaid most part of the model manufacturing payments to suppliers in 2011.

Net cash flow provided by investing activities was $17,835,151 for the three months ended March 31, 2012 as compared to net cash flow provided by investing activities of $4,587,301 for the same reporting period in 2011. For the three months ended March 31, 2012, the Company recorded a net cash inflow of $18,032,672 in notes receivable, due to the $18,032,672 repayment of notes receivable and no issuance of notes receivable. While for the same period of last year, the Company issued ($2,716,484) in notes receivable and collected $7,476,170 in repayment of note receivables, which caused a net cash inflow $4,759,686 from notes receivable.

Net cash flow used in financing activities was ($10,816,059) for the three months ended March 31, 2012, as compared to net cash flow provided by financing activities of $4,556,872 for the three months ended March 31, 2011. Cash flow used in financing activities in this quarter is primarily due to the increase in restricted cash, which caused a cash outflow of ($15,758,880). While for the same period of last year, the Company recorded a net cash inflow from notes payable of $13,961,817, although offset by the cash outflow of ($9,431,611) for the restricted cash.

Off-Balance Sheet Arrangements:

Please see Financial Footnotes 14 and 19 for additional information relating to the following of off-balance sheet arrangements.

(a) Guarantees and Pledged collateral for third party bank loans

As of March 31, 2012, the Company provided guarantees for the following third parties:

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(1) Guarantees for bank loans

Guarantee provided to	Amount
Zhejiang Kangli Metal Manufacturing Company.	$	4,743,308
Zhejiang Shuguang industrial Co., Ltd.		7,905,513
Zhejiang Yiran Auto Sales Company		1,581,103
Zhejiang Taiping Shengshi Industrial Co., Ltd.		3,162,205
Zhejiang Taiping Trade Co., Ltd		3,636,536
Yongkang Angtai Trade Co., Ltd.		790,551
Total	$	21,819,216

(2) Guarantees for Bank notes:

Guarantee provided to	Amount
Zhejiang Mengdeli Electric Co., Ltd.	$	1,264,882
Total	$	1,264,882

(3) Pledged collateral for a third party’s  bank loans

As of March 31, 2012, the Company provided the land use rights and plant and equipment pledged as collateral for the following third party:

Zhejiang Mengdeli Electric Co., Ltd.:
Land use rights net book value	$	6,937,448
Plant and equipment net book value	$	4,610,555

It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given.  It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral.

Recent Development Activities:

On February 13, 2012, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO NGA”) and each of the shareholders of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the “Sellers”). Pursuant to the terms of the Exchange Agreement, the Sellers exchanged an aggregate of 253 shares of KO NGA, representing 100% of the issued and outstanding shares of KO NGA, to the Company for a total of 2,354,212 shares (the “Exchange Shares”) of the Company’s common stock (the “Exchange”), representing an aggregate exchange purchase price of approximately $7,952,524, which was primarily derived from KO NGA’s indirect, wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China.  The Exchange Agreement closed on April 25, 2012, and, as such, KO NGA became a wholly-owned subsidiary of the Company. The Exchange Shares were issued by the Company in reliance on an exemption from the registration requirements of the Securities Act for the private placement of our securities pursuant to Regulation S of the Securities Act.  

On February 29, 2012, the Ministry of Industry and Information Technology of China issued the “Energy-Saving and New Energy Vehicle Demonstration and Promotion for Use Project” list; Kandi's pure electric cargo vehicle model KD5021XXYBEV was included on this list.

On March 6, 2012, the Ministry of Finance, the Ministry of State Administration of Taxation and the Ministry of Industry and Information Technology of China, collectively, issued and released a list of Energy-Saving and New EVs that qualify for the recently enacted Registration Tax Reduction and Exemption. Kandi's pure EV (model number KD5011XXYEV) was among the first vehicles included on this list. Consumers that purchase the KD5011XXYEV model are exempt from paying the annual registration tax required of other vehicle owners starting January 1, 2012.

44

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Exchange Rate Risk

Our operations are conducted mainly in the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in RMB, which is our functional currency. Accordingly, our operating results are affected by changes in the exchange rate between the U.S. dollar and those currencies.

Economic and Political Risks

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s performance may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by the Company in this Form 10-Q, and in other reports required to be filed under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms for such filings. Management of the Company, under the direction of the Company's Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15a(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 

45

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

There are two lawsuits currently pending in Ripley County, Missouri against the Company and its subsidiary Zhejiang Kandi Vehicles Co., Ltd.(“Kandi Vehicles”) as well as other parties, Kandi Investment Group and SunL, and they are related to two persons who died in an accident on March 3, 2006 while operating a go-cart allegedly manufactured by Kandi Vehicles.  Kandi Investment Group was a major shareholder of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi Investment Group is unrelated to the Company or its affiliates.

The cases were filed in 2009 and are known as Elder vs. SunL Group and Griffen vs. SunL Group. In March, 2010, the local trial court entered two default judgments in the amount of $20,000,000 each against Kandi Vehicles and other parties including Kandi Investment but not the Company. The lawsuit and default judgments didn’t come to the Company or Kandi Vehicles’ attention until May or June 2010. The Company had not been served or notified of the lawsuits and learned of their existence and of the default judgment in the course of commercial discussions with another of the defendants in the cases. Currently, the Company and Kandi Vehicles have filed answers to the complaint denying any culpability. In addition, the Company requested that the court set aside the default judgments against Kandi Vehicles, a request granted, by the court, on February 28, 2011. On March 3, 2011, the plaintiffs subsequently appealed the court order vacating the default judgments; however, the plaintiffs have since voluntarily withdrawn their appeal.

The Company intends to defend these cases vigorously and expects to prevail in this lawsuit since the Company including its subsidiaries did not manufacture the subject vehicle in the accident.  The Company intends to propound discovery on the plaintiffs. Further, the Company and Kandi Vehicles have each filed a Motion for Summary Judgment in an attempt to have the cases dismissed by summary judgment. The plaintiffs have thirty (30) days to respond.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors previously disclosed in our “Risk Factors” in the Form 10-K for the period ended December 31, 2011. An investment in our common stock involves various risks. When considering an investment in our company, you should consider carefully all of the risk factors described in our most recent Form 10-K. These risks and uncertainties are not the only ones facing us and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

As initially reported on a Form 8-K, filed with the SEC on February 17, 2012, and voluntarily reported on a Form 8-K with the SEC on May 2, 2012, the Company, on February 13, 2012, entered into a Share Exchange Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO NGA”) and each of the shareholders of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the “Sellers”). Pursuant to the terms of the Exchange Agreement, the Sellers exchanged an aggregate of 253 shares of KO NGA, representing 100% of the issued and outstanding shares of KO NGA, to the Company for a total of 2,354,212 shares (the “Exchange Shares”) of the Company’s common stock (the “Exchange”), representing an aggregate exchange purchase price of approximately $7,952,524, which was primarily derived from KO NGA’s indirect, wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China.  The Exchange Agreement closed on April 25, 2012, and, as such, KO NGA became a wholly-owned subsidiary of the Company. The Exchange Shares were issued by the Company in reliance on an exemption from the registration requirements of the Securities Act for the private placement of our securities pursuant to Regulation S of the Securities Act. The Company is obligated to file a registration statement on Form S-3 (or if Form S-3 is not available another appropriate form) registering the resale of the Exchange Shares that were issued to the Sellers.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None.

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Item 6. Exhibits

Exhibit Number	Description
10.1	Share Exchange Agreement, dated February 13, 2012, by and among, Kandi Technologies Corp., KO NGA Investment Limited and each of the shareholders of KO NGA Investment Limited.*
31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
32.1	Certification of CEO and CFO pursuant to 18 U.S.C.§ 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002**

Exhibit 101.INS	XBRL Instance Document.**
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document.**
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.**
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document.**
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**
Exhibit 101.DEF	XBRL Taxonomy Definitions Linkbase Document.**

* Filed herewith

** Furnished with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012

47

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

	Kandi Technologies, Corp.
Date: May 15, 2012	By:	/s/ Hu Xiaoming
		Hu Xiaoming
		President and Chief Executive Officer  (Principal Executive Officer)
Date: May 15, 2012	By:	/s/ Zhu Xiaoying
		Zhu Xiaoying
		Chief Financial Officer  (Principal Financial and Accounting Officer)

48

EX-10.1

Exhibit 10.1

SHARE EXCHANGE AGREEMENT

By and Among

Kandi Technologies, Corp.

and

KO NGA Investment Limited

and

GAO SHUPING

and

ZHENG XIUJIN

and

HU QIKUN

and

XU WENGE

and

LUO XIANSONG

and

LI QIAOHONG

and

WANG YINGXIONG

Dated as of February 13, 2012

SHARE EXCHANGE AGREEMENT

This Share Exchange Agreement is made effective as of the 13th day of February, 2012 by and among Kandi Technologies, Corp., a Delaware corporation, with its primary office at Jinhua City Industrial Zone, Jinhua, Zhejiang Province, People’s Republic of China (“Kandi”); KO NGA Investment Limited, a British Virgin Islands corporation, with its registration address at Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands (“KO NGA”), and each of the individuals listed on Schedule 1 attached hereto (individually, a “Seller” and collectively, the “Sellers”).

WHEREAS:

A.          The Sellers are the owners of all of the issued and outstanding common shares in the capital of KO NGA; KO NGA is the sole owner of all share capital of K S Asia Limited Group Limited, a Hong Kong corporation, (“K S Asia”), K S Asia is the sole owner and shareholder of Yongkang K S Electric Limited, a Chinese company (“Yongkang”) and Yongkang is the sole owner and shareholder of Yongkang Scrou Electric. Co., Ltd., a Chinese company (“Scrou”).

B.          Kandi has agreed to issue common stock shares of Kandi to the Sellers as consideration for the purchase of all of the issued and outstanding common shares of KO NGA held by the Sellers; and

C.          Upon the terms and subject to the conditions set forth in this Agreement, the Sellers have agreed to sell all of the issued and outstanding common shares of KO NGA to Kandi in exchange for common shares of Kandi.

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, covenant and agree as follows:

1.           DEFINITIONS

1.1         Definitions. The following terms have the following meanings in this Agreement, unless the context indicates otherwise:

(a) “Agreement” shall mean this Agreement, and all the exhibits, schedules and other documents attached or referred hereto, and all amendments and supplements, if any, hereto;

(b) “Closing” shall mean the completion of the Transaction, in accordance with Section 7 hereof, at which the Closing Documents shall be exchanged by the parties, except for those documents or other items specifically required to be exchanged at a later time;

(c) “Closing Date” shall mean a date mutually agreed upon by the parties hereto in writing and in accordance with Section 10.6 hereof following the satisfaction or waiver by Kandi and Sellers of the conditions precedent set out in Section 5 hereof, respectively, provided that such date shall be no later than June 30, 2012 unless mutually agreed to in writing by the Parties;

(d) “Closing Documents” shall mean the papers, instruments and documents required to be executed and delivered at the Closing pursuant to this Agreement;

(e) “Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended;

(f) “FINRA” means the Financial Industry Regulatory Authority;

(g) “Former Entity” means any entity other than K S Asia, Yongkang and Scrou that has ever been owned by KO NGA or one of KO NGA’s subsidiaries.

(h) “GAAP” shall mean United States generally accepted accounting principles applied in a manner consistent with prior periods;

(i) “Liabilities” shall include any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted choate or inchoate, liquidated or unliquidated, secured or unsecured;

(j) “Kandi Shares” shall mean common stock shares of Kandi to be issued to the Sellers by Kandi pursuant to this Agreement;

(k) “SEC” shall mean the United States Securities and Exchange Commission;

(l) “Securities Act” shall mean the United States Securities Act of 1933, as amended;

(m) “Taxes” shall mean all international, federal, state, provincial and local income taxes, capital gains taxes, value-added taxes, franchise, personal property and real property taxes, levies, assessments, tariffs, duties (including any customs duties), business license or other fees, sales, use and any other taxes relating to the assets of the designated party or the business of the designated party for all periods up to and including the Closing Date, together with any related charge or amount, including interest, fines, penalties and additions to tax, if any, arising out of tax assessments; and

(n) “Transaction” shall mean the purchase of all of the issued and outstanding shares of KO NGA by Kandi from the Sellers in consideration for the issuance of the Kandi Shares.

1.2         Schedules. The following schedules are attached to and form part of this Agreement:

Schedule 1	List of Sellers
Schedule 2	Regulation S. Certificate

3

1.3         Currency. All references to currency in this Agreement are to United States Dollars, unless expressly stated otherwise.

2.           OFFER, PURCHASE AND SALE OF SHARES

2.1         Offer, Purchase and Sale of Shares. Subject to the terms and conditions of this Agreement, the Sellers hereby covenant and agree to sell, assign and transfer to Kandi, and Kandi hereby covenants and agrees to purchase from the Sellers, all of the issued and outstanding shares of KO NGA.

2.2          Consideration.

(a) Parties agree that the aggregate value of all of the issued and outstanding shares of KO NGA is RMB 50,052,387.66, which value is primarily derived from KO NGA’s indirect, wholly-owned operating entity Scrou, does not ascribe any amount of value to any Former Entity, and is based upon the year end December 31, 2011 financial report of Scrou and a valuation report by Jinhua Jincheng Assets Evaluation Co., Ltd on January 19, 2012;

(b) As consideration for the sale of all of the issued and outstanding shares of KO NGA by the Sellers to Kandi, Kandi shall issue the Kandi Shares pro rata to the Sellers, or a Seller’s designee, based on each Seller’s “percentage interest” as set forth on Schedule 1 hereto at an aggregate price for the Kandi Shares equal to RMB 50,052,387.66; and

(c) The price per share for the Kandi Shares in connection with the issuance shall be the average closing price per share for the Kandi stock traded on NASDAQ for the 10 consecutive trading days prior to the effective date of this Agreement (the “Stock Price”). The exchange rate between U.S. Dollar and Chinese RMB in connection with this stock issuance shall be the middle rate published by the People’s Bank of China on the effective day of this Agreement (the “Exchange Rate”).

(d) The number of Kandi Shares to which each Seller shall be entitled shall be equal to a number derived by multiplying such Seller’s “percentage interest” (as set forth on Schedule 1) by RMB 50,052,387.66, then dividing by the Exchange Rate, and then dividing by the Stock Price.

(e) A sample Kandi Share distribution which assumes this Agreement was signed on February 1, 2012 is set forth on Schedule 1; if the Agreement had been effective February 1, 2012, the Exchange Rate would have been 6.31 and the Stock Price would have been $3.412.

2.3          Share Exchange Procedure. The Sellers may exchange their certificates representing their shares of KO NGA by delivering such certificates to Kandi duly executed and endorsed in blank (or accompanied by a duly executed stock power endorsed in blank), in proper form for transfer, signature guaranteed, and, if applicable, with all stock transfer and any other required documentary stamps affixed thereto and with appropriate instructions to allow the transfer agent to issue certificates for Kandi Shares, together with a Certificate of Non-U.S. Shareholder (the “Regulation S. Certificate”), a copy of which is attached as Schedule 2 hereto.

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2.4         Fractional Shares. Notwithstanding any other provision of this Agreement, no certificate for fractional Kandi Shares will be issued in the Transaction. In lieu of any such fractional shares, if a Seller would otherwise be entitled to receive a fraction of a Kandi Share upon surrender of the certificate(s) representing all of such Seller’s ownership of shares of KO NGA for exchange pursuant to this Agreement, such Seller will be entitled to have such fraction rounded up to the nearest whole number of Kandi Shares and will receive from Kandi a stock certificate representing same.

2.5         Closing Date. The Closing will take place, subject to the terms and conditions of this Agreement, on the Closing Date.

2.6         Registered Shares.

(a) In order to register the Kandi Shares issued pursuant to the terms and conditions set forth in this Agreement, Kandi will a file a S-3 registration statement, if it is available to Kandi, or a post-effective amendment pursuant to an effective shelf registration statement within 90 days of the Closing Date. If Kandi is not qualified for an S-3 registration statement, then Kandi shall prepare and file an S-1 registration statement for the Kandi Shares issued pursuant to the terms and conditions set forth in this Agreement within 120 days of the Closing Date.

(b) Each Seller acknowledges and agrees that the Kandi Shares are being issued pursuant to an exemption from the prospectus and registration requirements of the Securities Act. As required by applicable securities laws, each of the Sellers agrees to abide by all applicable resale restrictions and hold periods imposed by all applicable securities laws. Until the Kandi Shares are registered pursuant to Section 2.6(a), all certificates representing the Kandi Shares issued will be endorsed with the following legend pursuant to the Securities Act in order to reflect the fact that the Kandi Shares will be issued to the Sellers pursuant to an exemption from the registration requirements of the Securities Act:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (A) IN THE ABSENCE OF (I) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR (II) AN OPINION OF COUNSEL TO THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (B) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF THE SECURITIES ACT. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

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3.           REPRESENTATIONS AND WARRANTIES OF SELLERS

As of the Closing, KO NGA and the Sellers, jointly and severally, represent and warrant to Kandi, and acknowledge that Kandi is relying upon such representations and warranties, in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by or on behalf of Kandi, as follows:

3.1         Organization of KO NGA and its subsidiaries.

(a) KO NGA and its subsidiaries are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation and each has the requisite corporate power and authority to own, lease and carry on its business as now being conducted. KO NGA and its subsidiaries are duly qualified to do business and are in good standing as foreign corporations in each of the jurisdictions in which they own property, lease property, do business, or are otherwise required to do so, where the failure to be so qualified would have a material adverse effect on the business of KO NGA and its subsidiaries taken as a whole.

(b) All of the issued and outstanding shares of KO NGA common stock have been duly authorized, are validly issued, were not issued in violation of any pre-emptive rights and are fully paid and non-assessable, are not subject to preemptive rights and were issued in full compliance with the laws of the British Virgin Islands. There are no outstanding options, warrants, subscriptions, conversion rights, or other rights, agreements, or commitments obligating KO NGA to issue any additional shares of KO NGA Common Stock, or any other securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire from KO NGA any shares of KO NGA Common Stock. There are no agreements purporting to restrict the transfer of the KO NGA Common Stock, no voting agreements, shareholders’ agreements, voting trusts, or other arrangements restricting or affecting the voting of the KO NGA Common Stock.

(c) The issued and outstanding shares of each of KO NGA’s subsidiaries have been duly authorized, are validly issued, were not issued in violation of any pre-emptive rights and are fully paid and non-assessable, are not subject to preemptive rights and were issued in full compliance with all applicable laws. There are no outstanding options, warrants, subscriptions, conversion rights, or other rights, agreements, or commitments obligating KO NGA or any of its subsidiaries to issue any additional common stock of any of KO NGA’s subsidiaries, or any other securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire any shares of the common stock of any of KO NGA’s subsidiaries. There are no agreements purporting to restrict the transfer of the common stock of any of KO NGA’s subsidiaries, no voting agreements, shareholders’ agreements, voting trusts, or other arrangements restricting or affecting the voting of the common stock of any of KO NGA’s subsidiaries.

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3.2         Standing. Each Seller is a natural person having legal capacity to enter into this Agreement and to perform the Sellers’ obligations hereunder and to consummate the Transaction. Each of this Agreement and any collateral document to which any Seller is a party has been duly executed and delivered by such Seller and constitutes a legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms.

3.3         Ownership of Equity. Each Seller (i) has good and valid title to and beneficial ownership of the number of shares of capital stock of the KO NGA (the “Shares”) set forth opposite such Seller’s name on Schedule 1 free and clear of all liens, pledges, security interests and encumbrances, (ii) has not granted any option, warrant or other right in or to any of the Shares, and (iii) is not a party to any voting trust, voting agreement or shareholder agreement with respect to the Shares.

3.4          Authority. KO NGA has all requisite corporate power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement (collectively, the “KO NGA Documents”) to be signed by KO NGA and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of each of the KO NGA Documents by KO NGA and the consummation by KO NGA of the transactions contemplated hereby have been duly authorized by its board of directors and no other corporate or shareholder proceeding on the part of KO NGA is necessary to authorize such documents or to consummate the transactions contemplated hereby. This Agreement has been, and the other KO NGA Documents when executed and delivered by KO NGA as contemplated by this Agreement will be, duly executed and delivered by KO NGA and this Agreement is, and the other KO NGA Documents when executed and delivered by KO NGA, as contemplated hereby will be, valid and binding obligations of KO NGA enforceable in accordance with their respective terms, except:

(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally;

(b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies; and

(c) as limited by public policy.

3.5         Legal Proceedings. There are no suits, actions, claims, proceedings or investigations pending or, to the knowledge of Sellers, threatened against, relating to or involving any Seller or KO NGA that would or would reasonably be expected to impair the ability of any Seller or KO NGA to perform its respective obligations hereunder or prevent or delay the consummation of the Transaction.

3.6          Corporate Records of KO NGA and its subsidiaries. The corporate records of KO NGA and its subsidiaries, as required to be maintained by them pursuant to all applicable laws, are accurate, complete and current in all material respects, and the minute books of KO NGA and its subsidiaries are, in all material respects, correct and contain all records required by all applicable laws in regards to all proceedings, consents, actions and meetings of their respective boards of directors.

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3.7          Non-Contravention. Neither the execution, delivery and performance of this Agreement, nor the consummation of the Transaction, will:

(a) conflict with, result in a violation of, cause a default under (with or without notice, lapse of time or both) or give rise to a right of termination, amendment, cancellation or acceleration of any obligation contained in or the loss of any material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties or assets of KO NGA and its subsidiaries under any term, condition or provision of any loan or credit agreement, note, debenture, bond, mortgage, indenture, lease or other agreement, instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to KO NGA or any of its subsidiaries, or any of their respective material property or assets;

(b) violate any provision of the Articles of Incorporation, Bylaws or any other documents of KO NGA or any of its subsidiaries or any applicable laws; or

(c) violate any order, writ, injunction, decree, statute, rule, or regulation of any court or governmental or regulatory authority applicable to KO NGA or its subsidiaries or any of their respective material property or assets.

3.8         Actions and Proceedings. There is no basis for and there is no action, suit, judgment, claim, demand or proceeding outstanding or pending, or threatened against or affecting KO NGA and its subsidiaries or which involves any of the business, or the properties or assets of KO NGA and its subsidiaries that, if adversely resolved or determined, would have a material adverse effect on the business, operations, assets, properties, prospects, or conditions of KO NGA and its subsidiaries taken as a whole (a “Material Adverse Effect”). There is no reasonable basis for any claim or action that, based upon the likelihood of its being asserted and its success if asserted, would have such a Material Adverse Effect.

3.9          Compliance.

(a) Each of KO NGA and its subsidiaries is in compliance with, is not in default or violation in any material respect under, and has not been charged with or received any notice at any time of any material violation of any statute, law, ordinance, regulation, rule, decree or other applicable regulation to its business or operations;

(b) None of KO NGA and its subsidiaries is subject to any judgment, order or decree entered in any lawsuit or proceeding applicable to its business and operations that would constitute a Material Adverse Effect;

(c) KO NGA and its subsidiaries have duly filed all reports and returns required to be filed with governmental authorities and have obtained all governmental permits and other governmental consents, except as may be required after the execution of this Agreement. All such permits and consents are in full force and effect, and no proceeding for the suspension or cancellation of any of them, and no investigation relating to any of them, is pending or threatened, and none of them will be adversely affected by the consummation of the Transaction; and

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(d) Each of KO NGA and its subsidiaries has operated in material compliance with all laws, rules, statutes, ordinances, orders and regulations applicable to its business. None of KO NGA or its subsidiaries has received any notice of any violation thereof, nor is aware of a valid basis therefore.

3.10       Filings, Consents and Approvals. No filing or registration with, no notice to and no permit, authorization, consent, or approval of any public or governmental body or authority or other person or entity is necessary for the consummation by KO NGA and its subsidiaries of the Transaction contemplated by this Agreement or to enable Kandi to continue to conduct the business of KO NGA and its subsidiaries after the Closing Date in a manner which is consistent with that in which the business is presently conducted.

3.11       Financial Representations. Each of (a) the consolidated unaudited balance sheets for Scrou for the period ended December 31, 2011 (the “Accounting Date”), together with related statements of income, cash flows, and changes in shareholder’s equity for such interim period then ended (collectively, the “Scrou Financial Statements”) and (b) the consolidated audited balance sheets for KO NGA for its last two fiscal years plus any consolidated unaudited balance sheets for KO NGA for the period ended on the Accounting Date, together with related statements of income, cash flows, and changes in shareholder’s equity for such fiscal years and interim period then ended (collectively, the “KO NGA Financial Statements”) to be supplied on or before the Closing Date:

(a) are in accordance with the books and records of their respective entity; and

(b) present fairly the financial condition of their respective entity as of the respective dates indicated and the results of operations for such periods.

Neither KO NGA nor Scrou has received any advice or notification from its independent certified public accountants that KO NGA or Scrou has used any improper accounting practice that would have the effect of not reflecting or incorrectly reflecting in the KO NGA Financial Statements, the books and records of KO NGA, the Scrou Financial Statements or the books and records of Scrou, any properties, assets, liabilities, revenues, or expenses. The books, records, and accounts of Scrou accurately and fairly reflect, in reasonable detail, the assets, and liabilities of Scrou. Scrou has not engaged in any transaction, maintained any bank account, or used any funds of Scrou, except for transactions, bank accounts, and funds which have been and are reflected in the normally maintained books and records of Scrou. The books, records, and accounts of KO NGA accurately and fairly reflect, in reasonable detail, the assets, and liabilities of KO NGA. KO NGA has not engaged in any transaction, maintained any bank account, or used any funds of KO NGA except for transactions, bank accounts, and funds which have been and are reflected in the normally maintained books and records of KO NGA.

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3.12       Absence of Undisclosed Liabilities. Neither Scrou nor KO NGA has any material liabilities or obligations either direct or indirect, matured or unmatured, absolute, contingent or otherwise that exceed $10,000, which:

(a) are not set forth in the Scrou Financial Statements or the KO NGA Financial Statements, respectively, and have not heretofore been paid or discharged;

(b) did not arise in the regular and ordinary course of business under any agreement, contract, commitment, lease or plan specifically disclosed in writing to Kandi; or

(c) have not been incurred in amounts and pursuant to practices consistent with past business practice, in or as a result of the regular and ordinary course of its business since the Accounting Date.

3.13       Tax Matters.

(a) None of KO NGA and its subsidiaries are presently under (nor have any of them received notice of any contemplated) investigation or audit by any regulatory or governmental agency or body or any foreign or state taxing authority concerning any fiscal year or period ended prior to the date hereof;

(b) All taxes required to be withheld by KO NGA and its subsidiaries on or prior to the date hereof from employees for income taxes, social security taxes, unemployment taxes and other similar withholding taxes have been properly withheld and, if required on or prior to the date hereof, have been deposited with the appropriate governmental agency; and

(c) Each of the Scrou Financial Statements and the KO NGA Financial Statements contain full provision for all taxes including any deferred taxes that may be assessed to Scrou or KO NGA (as the case may be) for the accounting period ended on the Accounting Date or for any prior period in respect of any transaction, event or omission occurring, or any profit earned, on or prior to the Accounting Date or for any profit earned by Scrou or KO NGA (as the case may be) on or prior to the Accounting Date or for which Scrou or KO NGA is accountable up to such date and all contingent liabilities for taxes have been provided for or disclosed in the Scrou Financial Statements and the KO NGA Financial Statements.

3.14        Absence of Changes.

Since the Accounting Date, none of Scrou, KO NGA or any of KO NGA’s other subsidiaries has:

(a) incurred any liabilities, other than liabilities incurred in the ordinary course of business consistent with past practice, or discharged or satisfied any lien or encumbrance, or paid any liabilities, other than in the ordinary course of business consistent with past practice, or failed to pay or discharge when due any liabilities of which the failure to pay or discharge has caused or will cause any material damage or risk of material loss to it or to any of its assets or properties;

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(b) sold, encumbered, assigned or transferred any material fixed assets or properties except for ordinary course business transactions consistent with past practice;

(c) created, incurred, assumed or guaranteed any indebtedness for money borrowed, or mortgaged, pledged or subjected any of the material assets or properties of Scrou, KO NGA or any of KO NGA’s other subsidiaries to any mortgage, lien, pledge, security interest, conditional sales contract or other encumbrance of any nature whatsoever;

(d) made or suffered any amendment or termination of any material agreement, contract, commitment, lease or plan to which it is a party or by which it is bound, or cancelled, modified or waived any substantial debts or claims held by it or waived any rights of substantial value, other than in the ordinary course of business;

(e) declared, set aside or paid any dividend or made or agreed to make any other distribution or payment in respect of its capital shares or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or acquire any of its capital shares or equity securities;

(f) suffered any damage, destruction or loss, whether or not covered by insurance, that materially and adversely effects its business, operations, assets, properties or prospects;

(g) suffered any material adverse change in its business, operations, assets, properties, prospects or condition (financial or otherwise);

(h) received notice or had knowledge of any actual or threatened labor trouble, termination, resignation, strike or other occurrence, event or condition of any similar character which has had or might have an adverse effect on its business, operations, assets, properties or prospects;

(i) made commitments or agreements for capital expenditures or capital additions or betterments exceeding in the aggregate $5,000;

(j) other than in the ordinary course of business, increased the salaries or other compensation of, or made any advance (excluding advances for ordinary and necessary business expenses) or loan to, any of its employees or directors or made any increase in, or any addition to, other benefits to which any of its employees or directors may be entitled;

(k) entered into any transaction other than in the ordinary course of business consistent with past practice; or

(l) agreed, whether in writing or orally, to do any of the foregoing.

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3.15       Absence of Certain Changes or Events.

Since the Accounting Date, there has not been:

(a) a Material Adverse Effect; or

(b) any material change by Scrou or KO NGA in its accounting methods, principles or practices.

3.16       Personal Property. Scrou possesses, and has good and marketable title to all property necessary for the continued operation of the business of Scrou as presently conducted and as represented to Kandi. All such property is used in the business of Scrou. All such property is in reasonably good operating condition (normal wear and tear excepted), and is reasonably fit for the purposes for which such property is presently used. All material equipment, furniture, fixtures and other tangible personal property and assets owned or leased by Scrou is owned by Scrou free and clear of all liens, security interests, charges, encumbrances, and other adverse claims.

3.17       Intellectual Property.

(a) Intellectual Property Assets. KO NGA and its subsidiaries own or hold an interest in all intellectual property assets necessary for the operation of the business of KO NGA and its subsidiaries as they are currently conducted (collectively, the “Intellectual Property Assets”), including:

(i) all functional business names, trading names, registered and unregistered trademarks, service marks and applications (collectively, the “Marks”);

(ii) all patents, patent applications, and inventions, methods, processes and discoveries that may be patentable (collectively, the “Patents”);

(iii) all copyrights in both published works and unpublished works (collectively, the “Copyrights”); and

(iv) all know-how, trade secrets, confidential information, customer lists, technical information, data, process technology, plans, drawings, and blue prints owned, used, or licensed by KO NGA and its subsidiaries as licensees or licensors (collectively, the “Trade Secrets”).

(b) Agreements. To the best knowledge of the Sellers, there are no outstanding or threatened disputes or disagreements with respect to any agreements to which KO NGA or any its subsidiaries is a party.

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(c) Intellectual Property and Know-How Necessary for the Business. KO NGA and its subsidiaries are the owners of all rights, titles and interests in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances and other adverse claims, and has the right to use without payment to a third party of all the Intellectual Property Assets. Each of KO NGA and is subsidiaries and all former and current employees and contractors of KO NGA and its subsidiaries have executed written contracts, agreements or other undertakings with KO NGA and its subsidiaries that assign all rights to any Intellectual Property Assets or other inventions, improvements, discoveries, or information relating to the business of Scrou to Scrou. No employee, director, officer or shareholder of KO NGA or any of its subsidiaries owns directly or indirectly in whole or in part, any Intellectual Property Asset which Scrou is presently using or which is necessary for the conduct of its business. No employee or contractor of KO NGA and its subsidiaries has entered into any contract or agreement that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than Scrou.

(d) Trade Secrets. KO NGA and its subsidiaries have taken all reasonable precautions to protect the secrecy, confidentiality and value of its Trade Secrets. KO NGA and its subsidiaries have good title and an absolute right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature. KO NGA and its subsidiaries have not been used, divulged, or appropriated either for the benefit of any person or entity or to the detriment of KO NGA and its subsidiaries. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

3.18       Insurance. The products sold by and the assets owned by Scrou are insured under various policies of general product liability and other forms of insurance consistent with prudent business practices. All such policies are in full force and effect in accordance with their terms, no notice of cancellation has been received, and there is no existing default by Scrou, or any event which, with the giving of notice, the lapse of time or both, would constitute a default thereunder. All premiums to date have been paid in full.

3.19       Employees and Consultants. All employees and consultants of KO NGA and its subsidiaries have been paid all salaries, wages, income and any other sum due and owing to them by KO NGA or one of its subsidiaries, as at the end of the most recent completed pay period. KO NGA and its subsidiaries are not aware of any labor conflict with any employees. No employee of KO NGA or its subsidiaries is in violation of any term of any employment contract, non-disclosure agreement, non-competition agreement or any other contract or agreement relating to the relationship of such employee with KO NGA and its subsidiaries or to any other nature of the business conducted or to be conducted by KO NGA and its subsidiaries.

3.20       Real Property. Each of the leases, subleases, claims or other real property interests (collectively, the “Leases”) to which KO NGA or its subsidiaries is a party or is bound is legal, valid, binding, enforceable and in full force and effect in all material respects. All rental and other payments required to be paid by KO NGA or its subsidiaries pursuant to any such Leases have been duly paid and no event has occurred which, upon the passing of time, the giving of notice, or both, would constitute a breach or default by any party under any of the Leases. The Leases will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing Date. KO NGA and its subsidiaries have not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or the leasehold property pursuant thereto.

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3.21       Material Contracts and Transactions. Each contract to which KO NGA or one of its subsidiaries is a party is in full force and effect, and there exists no material breach or violation of or default under any contract, or any event that with notice or the lapse of time, or both, will create a material breach or violation thereof or default under any contract by KO NGA and its subsidiaries. The continuation, validity, and effectiveness of each contract will in no way be affected by the consummation of the Transaction contemplated by this Agreement. There exists no actual or threatened termination, cancellation, or limitation of, or any amendment, modification or change to any contract.

3.22       No Brokers. None of KO NGA, KO NGA’s subsidiaries or Sellers has incurred any obligation or liability to any party for any brokerage fees, agent’s commissions or finder’s fees in connection with the Transaction contemplated by this Agreement

3.23       Completeness of Disclosure. No representation or warranty by Sellers or KO NGA in this Agreement nor any certificate, schedule, statement, document or instrument furnished or to be furnished to Kandi pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated herein or therein or necessary to make any statement herein or therein not materially misleading.

4.          REPRESENTATIONS AND WARRANTIES OF KANDI

As of the Closing, Kandi represents and warrants to KO NGA and the Sellers and acknowledges that KO NGA and the Sellers are relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by or on behalf of KO NGA or the Sellers, as follows:

4.1        Organization and Good Standing. Kandi is duly incorporated, organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and carry on its business as now being conducted.

4.2        Authority. Kandi has all requisite corporate power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement (collectively, the “Kandi Documents”) to be signed by Kandi and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of each of the Kandi Documents by Kandi and the consummation by Kandi of the transactions contemplated hereby have been duly authorized by its board of directors and no other corporate or shareholder proceeding on the part of Kandi is necessary to authorize such documents or to consummate the transactions contemplated hereby. This Agreement has been, and the other Kandi Documents when executed and delivered by Kandi as contemplated by this Agreement will be, duly executed and delivered by Kandi and this Agreement is, and the other Kandi Documents when executed and delivered by Kandi, as contemplated hereby will be, valid and binding obligations of Kandi enforceable in accordance with their respective terms, except:

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(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally;

(b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies; and

(c) as limited by public policy.

4.3        Capitalization of Kandi. The authorized capital stock of Kandi consists of 100,000,000 shares of Common Stock (the “Kandi Common Stock”) with 27,445,600 shares of common stock issued and outstanding. Kandi has 10,000,000 shares of preferred stock authorized, none of which are issued and outstanding. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and non-assessable.

4.4        Corporate Records of Kandi. The corporate records of Kandi, as required to be maintained by it pursuant to the laws of the State of Delaware, are accurate, complete and current in all material respects, and the minute book of Kandi is, in all material respects, correct and contains all material records required by the law of the State of Delaware in regards to all proceedings, consents, actions and meetings of the shareholders and the board of directors of Kandi.

4.5        Validity of Kandi Common Stock Issuable upon the Transaction. The Kandi Shares to be issued to the Sellers, or their designees, upon consummation of the Transaction in accordance with this Agreement will, upon issuance, have been duly and validly authorized and, when so issued in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable.

4.6        No Brokers. Kandi has not incurred any obligation or liability to any party for any brokerage fees, agent’s commissions or finder’s fees in connection with the Transaction contemplated by this Agreement.

5.         CLOSING CONDITIONS

5.1        Conditions Precedent to Closing by Kandi. The obligation of Kandi to consummate the Transaction is subject to the satisfaction or written waiver of the conditions set forth below by a date mutually agreed upon by the parties hereto in writing and in accordance with Section 10.6. The Closing of the Transaction contemplated by this Agreement will be deemed to mean a waiver of all conditions to Closing. These conditions precedent are for the benefit of Kandi and may be waived by Kandi in its sole discretion.

(a) Representations and Warranties. The representations and warranties of KO NGA and the Sellers set forth in this Agreement will be true, correct and complete in all respects as of the Closing Date, as though made on and as of the Closing Date and Sellers will have delivered to Kandi a certificate dated as of the Closing Date, to the effect that the representations and warranties made by KO NGA and the Sellers in this Agreement are true and correct.

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(b) Performance. All of the covenants and obligations that KO NGA and the Sellers are required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects.

(c) Transaction Documents. This Agreement, the Scrou Financial Statements and all other documents necessary or reasonably required to consummate the Transaction, all in form and substance reasonably satisfactory to Kandi, will have been executed and delivered to Kandi.

(d) Third Party Consents. Kandi will have received duly executed copies of all third party consents and approvals contemplated by this Agreement, in form and substance reasonably satisfactory to Kandi.

(e) No Material Adverse Change. No Material Adverse Effect will have occurred since the date of this Agreement.

(f) No Action. No suit, action, or proceeding will be pending or threatened against Sellers or KO NGA and its subsidiaries before any governmental or regulatory authority wherein an unfavorable judgment, order, decree, stipulation, injunction or charge would:

(i) prevent the consummation of any of the transactions contemplated by this Agreement; or

(ii) cause the Transaction to be rescinded following consummation.

(g) Delivery of Financial Statements. Scrou will have delivered to Kandi the Scrou Financial Statements, which financial statements will include audited financial statements for Scrou’s two most recent fiscal years, prepared in accordance with GAAP. KO NGA will have delivered to Kandi the KO NGA Financial Statements, which financial statements will include audited financial statements for KO NGA’s two most recent fiscal years, prepared in accordance with GAAP.

(h) Due Diligence Review of Financial Statements. Kandi will be reasonably satisfied with its due diligence investigation and review of the Scrou Financial Statements.

(i) Due Diligence Generally. Kandi will be reasonably satisfied with its due diligence investigation of KO NGA and its subsidiaries that is reasonable and customary in a transaction of a similar nature to that contemplated by the Transaction, including:

(i) materials, documents and information in the possession and control of KO NGA or its subsidiaries which are reasonably germane to the Transaction;

(ii) a physical inspection of the assets of Scrou by Kandi or its representatives;

16

(iii) a review by Kandi of all Material Agreements entered into by KO NGA or its subsidiaries; and

(iv) title to the material assets of Scrou.

(j) Surrender of Shares. Sellers shall surrender all of the issued and outstanding shares of KO NGA to Kandi endorsed in blank for transfer from Sellers to Kandi.

(k) Former Entities. Yongkang shall have completed the transfer of its ownership and/or shares in any entities other than Scrou to Sellers or a third party so that the only entities directly or indirectly owned by KO NGA are K S Asia, Yongkang and Scrou. Yongkang shall deliver to Kandi a new business license issued by the China Administration for Industry and Commerce providing that Yongkang has only one wholly owned subsidiary (Scrou).

5.2        Conditions Precedent to Closing by Sellers. The obligation of the Sellers to consummate the Transaction is subject to the satisfaction or written waiver of the conditions set forth below by a date mutually agreed upon by the parties hereto in writing and in accordance with Section 10.6. The Closing of the Transaction will be deemed to mean a waiver of all conditions to Closing. These conditions precedent are for the benefit of the Sellers and may be waived by Sellers in their discretion.

(a) Representations and Warranties. The representations and warranties of Kandi set forth in this Agreement will be true, correct and complete in all respects as of the Closing Date, as though made on and as of the Closing Date and Kandi will have delivered to Sellers a certificate dated the Closing Date, to the effect that the representations and warranties made by Kandi in this Agreement are true and correct.

(b) Public Market. On the Closing Date, Kandi’s Common Stock will be traded on the NASDAQ Global Market.

6.         ADDITIONAL COVENANTS OF THE PARTIES

6.1        Confidentiality. All information regarding the business of Kandi including, without limitation, financial information that Kandi provides to Sellers during its due diligence investigation of Kandi will be kept in strict confidence by Sellers and will not be used (except in connection with due diligence), dealt with, exploited or commercialized by Sellers or disclosed to any third party (other than Sellers’s professional accounting and legal advisors) without Kandi’s prior written consent. All information regarding the business of KO NGA and its subsidiaries including, without limitation, financial information that Sellers provides to Kandi during its due diligence investigation of KO NGA and its subsidiaries will be kept in strict confidence by Kandi and will not be used (except in connection with due diligence), dealt with, exploited or commercialized by Kandi or disclosed to any third party (other than Sellers’s professional accounting and legal advisors) without Sellers’ prior written consent unless it is required by the law or regulations. The Non-Disclosure Agreement, dated September 16, 2011, between the parties shall remain in full force and effect for the period described therein or until September 16, 2014, whichever is later.

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6.2         Conduct of KO NGA and its subsidiaries. From the date of this Agreement to the Closing Date, and except to the extent that Kandi otherwise consents in writing, KO NGA and its subsidiaries will operate its business substantially as presently operated and only in the ordinary course and in compliance with all applicable laws, and use its best efforts to preserve intact its good reputation and present business organization and to preserve its relationships with persons having business dealings with it.

6.3         Certain Acts Prohibited. Except as expressly contemplated by this Agreement or for purposes in furtherance of this Agreement, between the date of this Agreement and the Closing Date, none of KO NGA nor any of its subsidiaries will, without the prior written consent of Kandi:

(a) amend its Articles of Incorporation, Bylaws or other constating documents;

(b) incur any liability or obligation other than in the ordinary course of business or encumber or permit the encumbrance of any of its properties or assets except in the ordinary course of business;

(c) dispose of or contract to dispose of any of its property or assets, including the Intellectual Property Assets, except in the ordinary course of business consistent with past practice;

(d) issue, deliver, sell, pledge or otherwise encumber or subject to any lien any shares of KO NGA Common Stock, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities;

(i) declare, set aside or pay any dividends on, or make any other distributions in respect of the KO NGA Common Stock, or

(ii) split, combine or reclassify any KO NGA Common Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of KO NGA Common Stock; or

(e) not materially increase the benefits or compensation expenses of KO NGA and its subsidiaries, other than as contemplated by the terms of any employment agreement in existence on the date of this Agreement, increase the cash compensation of any director, executive officer or other key employee or pay any benefit or amount not required by a plan or arrangement as in effect on the date of this Agreement to any such person.

6.4        Notification. Between the date of this Agreement and the Closing Date, each of the parties to this Agreement will promptly notify the other parties in writing if it becomes aware of any fact or condition that causes or constitutes a material breach of any of its representations and warranties as of the date of this Agreement, if it becomes aware of the occurrence after the date of this Agreement of any fact or condition that would cause or constitute a material breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Schedules relating to such party, such party will promptly deliver to the other parties a supplement to the Schedules specifying such change. During the same period, each party will promptly notify the other parties of the occurrence of any material breach of any of its covenants in this Agreement or of the occurrence of any event that may make the satisfaction of such conditions impossible or unlikely.

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6.5         Access and Investigation. Between the date of this Agreement and the Closing Date, KO NGA, will and will cause its representatives to:

(a) afford Kandi and its representatives full and free access to its personnel, properties, assets, contracts, books and records, and other documents and data;

(b) furnish Kandi and its representatives with copies of all such contracts, books and records, and other existing documents and data as required by this Agreement and as Kandi may otherwise reasonably request; and

(c) furnish Kandi and its representatives with such additional financial, operating, and other data and information as Kandi may reasonably request.

All of such access, investigation and communication by Kandi and its representatives will be conducted during normal business hours and in a manner designed not to interfere unduly with the normal business operations of KO NGA and its subsidiaries. KO NGA will instruct its auditors to co-operate with Kandi and its representatives in connection with such investigations.

6.6        Public Announcements. Kandi and KO NGA each agree that they will not release or issue any reports or statements or make any public announcements relating to this Agreement or the Transaction contemplated herein without the prior written consent of the other party, except as may be required upon written advice of counsel to comply with applicable laws or regulatory requirements after consulting with the other party hereto and seeking their reasonable consent to such announcement.

7.         CLOSING

7.1        Closing. The Closing shall take place on the Closing Date at the office of Kandi or at such other location as agreed to by the parties.

7.2        Closing Deliveries of Scrou and the Selling Shareholder. At Closing, Sellers will deliver or cause to be delivered the following, fully executed and in form and substance reasonably satisfactory to Kandi:

(a) A fully executed and completed copy of this Agreement;

(b) share certificates representing the KO NGA Shares as required by Section 2.3 of this Agreement;

(c) all certificates and other documents required by Section 2.3 of this Agreement; and

19

(d) the Scrou Financial Statements, the KO NGA Financial Statements and any other necessary documents, each duly executed by Sellers, as required to give effect to the Transaction.

7.3        Closing Deliveries of Kandi. At Closing, Kandi will deliver or cause to be delivered the following, fully executed and in form and substance reasonably satisfactory to Sellers:

(a) copies of the resolutions or consent action adopted by or on behalf of the Board of Directors of Kandi evidencing approval of this Agreement and the Transaction;

(b) any other necessary documents, each duly executed by Kandi, as required to give effect to the Transaction; and

(c) certificates representing the Kandi Shares.

8.          INDEMNIFICATION

8.1        Certain Definitions. For the purposes of this Article 8 the terms “Loss” and “Losses” mean any and all demands, claims, actions or causes of action, assessments, losses, damages, Liabilities, costs, and expenses, including without limitation, interest, penalties, fines and reasonable attorneys, accountants and other professional fees and expenses, but excluding any indirect, consequential or punitive damages suffered by Kandi or KO NGA including damages for lost profits or lost business opportunities.

8.2        Agreement of the Sellers to Indemnify. The Sellers will indemnify, defend, and hold harmless, to the full extent of the law, Kandi and its shareholders from, against, and in respect of any and all Losses asserted against, relating to, imposed upon, or incurred by Kandi and its shareholders by reason of, resulting from, based upon or arising out of:

(a) the breach by the Sellers or KO NGA of any representation or warranty of the Sellers or KO NGA contained in or made pursuant to this Agreement or any certificate or other instrument delivered pursuant to this Agreement;

(b) the breach or partial breach by the Sellers or KO NGA of any covenant or agreement of the Sellers or KO NGA made in or pursuant to this Agreement or any certificate or other instrument delivered pursuant to this Agreement;

(c) any misstatement, misrepresentation or breach of the representations and warranties made by the Sellers contained in or made pursuant to the Certificate of Non-U.S. Shareholder executed by the Selling Shareholder as part of the share exchange procedure detailed in Section 2.3 of this Agreement; or

(d) a claim against Kandi or any of its subsidiaries arising out of KO NGA’s prior direct or indirect ownership of a Former Entity.

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8.3        Agreement of Kandi to Indemnify. Kandi will indemnify, defend, and hold harmless, to the full extent of the law, the Sellers from, against, for, and in respect of any and all Losses asserted against, relating to, imposed upon, or incurred by the Sellers by reason of, resulting from, based upon or arising out of:

(a) the breach by Kandi of any representation or warranty of Kandi contained in or made pursuant to this Agreement or any certificate or other instrument delivered pursuant to this Agreement; or

(b) the breach or partial breach by Kandi of any covenant or agreement of Kandi made in or pursuant to this Agreement or any certificate or other instrument delivered pursuant to this Agreement.

9.          TERMINATION

9.1         Termination. This Agreement may be terminated at any time prior to the Closing Date contemplated hereby by:

(a) mutual agreement of Kandi, KO NGA and Sellers representing 51% of the outstanding shares of KO NGA;

(b) Kandi, if (i) there has been a material breach by KO NGA or the Sellers of any material representation, warranty, covenant or agreement set forth in this Agreement on the part of KO NGA or the Sellers that is not cured, to the reasonable satisfaction of Kandi, within ten business days after notice of such breach is given by Kandi (except that no cure period will be provided for a breach by KO NGA or the Sellers that by its nature cannot be cured); or (ii) the due diligence inquiry into the Scrou Financial Statements reveals material discrepancies from what has previously been represented to Kandi;

(c) KO NGA, if there has been a material breach by Kandi of any material representation, warranty, covenant or agreement set forth in this Agreement on the part of Kandi that is not cured by the breaching party, to the reasonable satisfaction of KO NGA, within ten business days after notice of such breach is given by Kandi (except that no cure period will be provided for a breach by Kandi that by its nature cannot be cured);

(d) KO NGA or Kandi, upon payment of RMB 10 million to the other party; or

(e) KO NGA or Kandi if any permanent injunction or other order of a governmental entity of competent authority preventing the consummation of the Transaction contemplated by this Agreement has become final and non-appealable.

9.2        Effect of Termination. In the event of the termination of this Agreement as provided in Section 9.1, this Agreement will be of no further force or effect, provided, however, that no termination of this Agreement will relieve any party of liability for any breaches of this Agreement that are based on a wrongful refusal or failure to perform any obligations.

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10.         MISCELLANEOUS PROVISIONS

10.1       Effectiveness of Representations; Survival. Each party is entitled to rely on the representations, warranties and agreements of each of the other parties and all such representations, warranties and agreements will be effective regardless of any investigation that any party has undertaken or failed to undertake. Unless otherwise stated in this Agreement, and except for instances of fraud, the representations, warranties and agreements will survive the Closing Date and continue in full force and effect until three (3) years after the Closing Date.

10.2       Further Assurances. Each of the parties hereto will co-operate with the others and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purposes of this Agreement.

10.3       Amendment. This Agreement may not be amended except by an instrument in writing signed by each of the parties.

10.4       Expenses. Each party will bear its own costs incurred in connection with the preparation, execution and performance of this Agreement and the Transaction contemplated hereby, including all fees and expenses of its own agents, representatives and accountants.

10.5       Entire Agreement. This Agreement, the schedules attached hereto and the other documents in connection with this transaction contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior arrangements and understandings, both written and oral, expressed or implied, with respect thereto. Any preceding correspondence or offers are expressly superseded and terminated by this Agreement.

10.6       Notices. All notices and other communications required or permitted under this Agreement must be in writing and will be deemed given if sent by email, personal delivery, faxed with electronic confirmation of delivery, internationally-recognized express courier or registered or certified mail (return receipt requested), postage prepaid, to the parties at the addresses provided in this Agreement.

All such notices and other communications will be deemed to have been received:

(a) In the case of email, on the day after the email has been sent;

(b) in the case of personal delivery, on the date of such delivery;

(c) in the case of a fax, when the party sending such fax has received electronic confirmation of its delivery;

(d) in the case of delivery by internationally-recognized express courier, on the third business day following dispatch; and

(e) in the case of mailing, on the seventh business day following mailing.

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10.7        Headings. The headings contained in this Agreement are for convenience purposes only and will not affect in any way the meaning or interpretation of this Agreement.

10.8        Benefits. This Agreement is and will only be construed as for the benefit of or enforceable by those persons party to this Agreement.

10.9        Assignment. This Agreement may not be assigned (except by operation of law) by any party without the consent of the other parties.

10.10      Governing Law. This Agreement will be governed by and construed in accordance with the laws of the state of Delaware applicable to contracts made and to be performed therein.

10.11      Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

10.12      Gender. All references to any party will be read with such changes in number and gender as the context or reference requires.

10.13      Counterparts. This Agreement may be executed in one or more counterparts, all of which will be considered one and the same agreement and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

10.14      Schedules. The schedules are attached to this Agreement and are incorporated herein.

10.15      Effective. This Agreement becomes effective upon the parties’ execution.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

Kandi Technologies, Corp.
Per:
	Name:  Hu Xiaoming
	Title:  Chief Executive Officer
KO NGA Investment Limited
Per:
	Name:
	Title:

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Sellers:

GAO SHUPING

ZHENG XIUJIN

HU QIKUN

XU WENGE

LUO XIANSONG

LI QIAOHONG

WANG YINGXIONG

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SCHEDULE 1

TO THE SHARE EXCHANGE AGREEMENT
Shareholders of KO NGA

Name	Address	Number of KO NGA Shares held prior to Closing	Percentage Interest		Sample Distribution of Kandi Shares (Sec 2.2(e))
Gao SHUPING 高淑萍 (ID330722196606095922)	NO 33 SHANGFANGJIAN XITIAN VILLAGE LONGSHAN TOWN, YONGKANG CITY, ZHEJIANG 浙江永康市龙山镇溪田村上房尖33号	42	16.6008	%	385,936
ZHENG XIUJIN 郑秀金 (ID330722195909285921)	NO 33 XIADIANKOU VILLAGE LONGSHAN TOWN, YONGKANG, ZHEJIANG 浙江永康市龙山镇下奠口村33号	30	11.8577	%	275,669
HU QIKUN 胡启昆 (ID330722195811010014)	NO 3218 JIULING EAST RAOD, DONGCHENG STREET, YONGKANG, ZHEJIANG 浙江永康市东城街道九铃东路3218号	24	9.4862.	%	220,535
XU WENGE 徐文革 (ID330722196612120426)	ROOM 503 NO 1166 JIULING WEST RAOD, XICHENG STREET, YONGKANG, ZHEJIANG 浙江永康市西城街道九铃西路1166号503室	41	16..2005	%	376,747
LUO XIANSONG 罗献松 (ID330702197312252012)	NO 24 YANGHUAN ROAD, WUCHENG AREA, JINHUA, ZHEJIANG 浙江金华市婺城区杨环路24号	30	11.8577	%	275,669
Li QIAOHONG 李巧红 (ID330722196001310028)	NO 3 BUILD 5 XIJIN ROAD, JIANGNAN STREET, YONGKANG, ZHEJIANG 浙江永康市江南街道西津路5幢3号	43	16.9960	%	395,125
WANG YINGXIONG 王英雄 (ID330722197811044010)	NO 8 LANE 40 NANSHAN ROAD, NANSHAN VILLAGE GUSHAN TOWN, YONGKANG, ZHEJIANG 浙江永康市古山镇南山村南山路40弄 8号	43	16.9960	%	395,125

Schedule 1-1

SCHEDULE 2

FORM REGULATION S. CERTIFICATE

Schedule 2-1

EX-31.1

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Hu Xiaoming, certify that:

1.    I have reviewed this report on Form 10-Q of Kandi Technologies, Corp.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2012

/s/ Hu Xiaoming

Name: Hu Xiaoming

Title: President and Chief Executive Officer

EX-31.2

Exhibit 31.2

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Zhu Xiaoying, certify that:

1.     I have reviewed this report on Form 10-Q of Kandi Technologies, Corp.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2012

/s/ Zhu Xiaoying

Name: Zhu Xiaoying

Title:   Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CEO AND CFO PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

§ 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Kandi Technologies, Corp. (the “Company”) for the quarterly period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Hu Xiaoming, President and Chief Executive Officer of the Company, and Zhu Xiaoying, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Hu Xiaoming

Name: Hu Xiaoming

Title: President and Chief Executive Officer

Date: May 15, 2012

/s/ Zhu Xiaoying

Name: Zhu Xiaoying

Title: Chief Financial Officer

Date: May 15, 2012

XML

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 20 – SUBSEQUENT EVENTS

On February 13, 2012, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO NGA”) and each of the shareholders of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the “Sellers”). Pursuant to the terms of the Exchange Agreement, the Sellers exchanged an aggregate of 253 shares of KO NGA, representing 100% of the issued and outstanding shares of KO NGA, to the Company for a total of 2,354,212 shares (the “Exchange Shares”) of the Company’s common stock (the “Exchange”), representing an aggregate exchange purchase price of approximately $7,952,524, which was primarily derived from KO NGA’s indirect, wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China.  The Exchange Agreement closed on April 25, 2012, and, as such, KO NGA became a wholly-owned subsidiary of the Company. The Exchange Shares were issued by the Company in reliance on an exemption from the registration requirements of the Securities Act for the private placement of our securities pursuant to Regulation S of the Securities Act.

XML

PRINCIPLES OF CONSOLIDATION

3 Months Ended

Mar. 31, 2012

Principles Of Consolidation [Abstract]

Principles Of Consolidation Disclosure [Text Block]

NOTE 4 – PRINCIPLES OF CONSOLIDATION

The consolidated financial statements reflect the accounts of the Company and its ownership interest in following subsidiaries:

(i) Continental Development, Ltd. (“Continental”) (a wholly-owned subsidiary of the Company)

(ii) Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”) (a wholly-owned subsidiary of “Continental”)

(iii) Jinhua Three Parties New Energy Vehicles Service Co., Ltd. (“Jinhua Service”) (a 30% owned subsidiary of Kandi Vehicles)

(iv) Jinhua Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) (a 50% owned subsidiary of Kandi Vehicles with 100% profits and loss absorption due to contractual agreement)

Inter-company accounts and transactions have been eliminated in consolidation.

XML

BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Basis of Accounting [Text Block]

NOTE 3 - BASIS OF PRESENTATION

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

The financial information included herein for the three month periods ended March 31, 2012 and 2011 is unaudited; however, such information reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the Company's condensed consolidated financial statements for these interim periods.

The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results expected for the entire fiscal year ending December 31, 2012.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 5,017,510	$ 2,294,352
Restricted cash	22,424,419	6,634,989
Accounts receivable	15,638,955	12,932,776
Inventories (net of reserve for slow moving inventory of $0 and $72,487 as of March 31, 2012 and December 31, 2011 respectively)	8,186,202	6,674,467
Notes receivable	20,099,193	37,879,243
Other receivables	1,333,896	2,438,917
Prepayments and prepaid expenses	98,909	185,037
Due from employees	23,150	79,857
Advances to suppliers	2,282,224	852,638
Marketable securities (trading)	0	0
Total Current Assets	75,104,458	69,972,276
LONG-TERM ASSETS
Plant and equipment, net	19,996,846	20,981,893
Land use rights, net	10,996,560	10,992,769
Construction in progress	10,251,771	10,007,601
Deferred taxes	261,381	89,998
Investment in associated companies	217,271	229,213
Total Long-Term Assets	41,723,829	42,301,474
TOTAL ASSETS	116,828,287	112,273,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	5,400,924	5,061,069
Other payables and accrued expenses	610,256	3,137,983
Short-term bank loans	36,570,905	36,372,492
Customer deposits	34,099	1,025,357
Notes payable, net of discount of $0 and $71 as of March 31, 2012 and December 31, 2011 respectively	10,814,742	5,847,552
Income tax payable	519,589	153,730
Due to employees	172,950	9,455
Due to related party	841,251	841,251
Deferred taxes	199,880	56,362
Financial derivate - liability	0	213
Total Current Liabilities	55,164,596	52,505,464
LONG-TERM LIABILITIES
Note payable, net of discount of $0 and $0 as of March 31, 2012 and December 31, 2011 respectively	0	0
Financial derivatives - liability	2,976,461	3,919,411
Total Long-Term Liabilities	2,976,461	3,919,411
TOTAL LIABILITIES	58,141,057	56,424,875
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized; 27,457,593and 27,445,600 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively	27,458	27,446
Additional paid-in capital	31,593,353	31,533,378
Retained earnings (the restricted portion is $1,940,832 at March 31, 2012 and December 31, 2011)	21,593,282	19,210,330
Accumulated other comprehensive income	5,473,137	5,077,721
TOTAL STOCKHOLDERS' EQUITY	58,687,230	55,848,875
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 116,828,287	$ 112,273,750

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ORGANIZATION AND PRINCIPAL ACTIVITIES

3 Months Ended

Mar. 31, 2012

Organization and Principal Activities [Abstract]

Organization and Principal Activities Disclosure [Text Block]

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company was incorporated under the laws of the State of Delaware on March 31, 2004. On August 13, 2007, the Company changed its name from Stone Mountain Resources, Inc. to Kandi Technologies, Corp.

On June 29, 2007, the Company executed an exchange agreement to acquire 100% of Continental Development Limited, a Hong Kong corporation and its wholly owned subsidiary Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”).

In the first fiscal quarter of 2011, Jinhua Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) was incorporated by Kandi Vehicles and Mr. Xiaoming Hu, the Chairman and CEO of the Company.

The Company’s organization chart as of this reporting date is as follows:

Kandi Vehicles has a 50% ownership interest and controls the Board of Directors in Kandi New Energy. Under Share Escrow and Trust Agreement, Loan Agreement, Contractor Agreement, between Kandi Vehicles and the other equity owner, Kandi Vehicles is entitled to 100% of the economic benefits, voting rights and residual interests (100% profits and loss absorption rate) in Kandi New Energy.

The primary operations of the Company are designing, developing, manufacturing, and commercializing of all-terrain vehicles, go-karts, and specialized automobile related products for the PRC and global markets.

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STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2012

Stock Options Warrants and Convertible Notes [Abstract]

Stock Options Warrants and Convertible Notes Disclosure [Text Block]

NOTE 17 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES

(a) Stock Options

On February 11, 2009, the Compensation Committee of the Board of Directors of the Company approved the grant of stock options for 2,600,000 shares of common stock to ten of the Company's employees and directors. The stock options vest ratably over three years and expire in ten years from the grant date. The Company valued the stock options at $2,062,964 and amortizes the stock compensation expense using the straight-line method over the service period from February 11, 2009 through February 11, 2012. The value of the options was estimated using the Black Scholes Model with an expected volatility of 164%, expected life of 10 years, risk-free interest rate of 2.76% and expected dividend yield of 0.00%. On June 30, 2011, one of the Company’s directors resigned, and his 6,668 unexercised options were forfeited. As of March 31, 2012, options for 906,695 shares have been exercised.

On October 6, 2009, the Company executed an agreement (“Cooperation Agreement”) with Wang Rui and Li Qiwen, third-party consultants, whereby Mr. Wang and Mr. Li are to provide business development services in China to the Company in exchange for options to purchase 350,000 shares of the Company’s common stock at an exercise price of $1.50 per share.   Per the agreement, 250,000 of these options vested and became exercisable on March 6, 2011, and 100,000 will vest and become exercisable on June 6, 2011.  The options will expire after ten years.  The options are issued under and subject to the terms of the Company’s 2008 Omnibus Long-Term Incentive Plan.  No required dates of service are specified on the consulting agreement.  No repurchase features or cash settlement provisions are specified in the terms and conditions of the Notice of Grant of Stock Option.

The following is a summary of the stock option activities of the Company:

	Activity		Weighted Average Exercise Price
Outstanding as of January 1, 2012		1,786,637	$	0.84
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding as of March 31, 2012		1,786,637		0.84

The following table summarizes information about stock options outstanding as of March 31, 2012:

Options Outstanding						Options Exercisable
Number of shares		Exercise Price		Remaining Contractual life (in years)		Number of shares		Exercise Price
	1,686,637	$	0.80		7		1,686,637	$	0.80
	100,000		1.50		7.5		100,000		1.50

The fair value per share of the 2,600,000 options issued to the employees and directors is $0.7934 per share. The fair value per share of the unexercised 100,000 options issued to Wang Rui and Li Qiwen, which became exercisable on June 6, 2010, is $3.44.

(b) Warrants and Convertible Notes

On September 21, 2009, the Company executed an agreement (“Consulting Agreement”) with a third-party consultant, whereby the consultant is to provide management consulting and advisory services for a period of 12 months, beginning on September 22, 2009, and ending on September 22, 2010.  As compensation for the services provided, the Company agreed to issue 200,000 warrants to purchase the Company’s common stock, with 100,000 of these warrants issued at an exercise price of $2.00 per share and 100,000 of these warrants issued at an exercise price of $2.50 per share.  All of the warrants have a five year contractual term and were granted on October 22, 2009.  The warrants vested in full and became exercisable on January 21, 2010, upon the closing of an initial round of financing. The fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price of $2.00 is $4.56, and the fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price of $2.50 is $4.48. As of March 31, 2012, the consultant had cashless exercised the 100,000 warrants with the exercise price of $2.5 per share.

Under a Securities Purchase Agreement, dated as of January 21, 2010, by and among the Company and certain investors thereto, the Company issued a total of $10 million of senior secured convertible notes (the “Convertible Notes”) and warrants exercisable for an aggregate of 800,000 shares of the Company’s Common Stock (the “Investor Warrants”), for gross proceeds of $10 million.  As of January 21, 2010, at the price of $6.25 per share, the Convertible Notes were convertible into 1,600,000 shares of Common Stock.  The Investor Warrants, which are exercisable for a period of three years following the closing date, are initially exercisable for shares of Common Stock at an exercise price of $6.5625 per share as of January 21, 2010.  Included in the associated issuance costs is the fair value of 80,000 warrants issued to a placement agent.  These warrants have the same terms and conditions as the Investor Warrants issued to the investors.

Pursuant to the terms of the Convertible Notes and the Investor Warrants, on May 18, 2010, the conversion price of the Convertible Notes was adjusted to $3.5924 per share and the exercise price of the Investor Warrants and warrants issued to the placement agent was adjusted to $4.3907 per share. On August 19, 2010, the conversion price of the Convertible Notes was adjusted to $3.1146 per share and the exercise price of the Investor Warrants and warrants issued to the placement agent was adjusted to $3.8067 per share. As a result, the number of Investor Warrants and warrants issued to the placement agent were adjusted to 1,379,148 and 137,915 respectively. As of March 31, 2012, the investors had converted all $10,000,000 principal amount and $159,522 of accrued interest of the Convertible Notes into an aggregate of 3,121,121 shares of Common Stock.

As of March 31, 2012, the fair value of the Investor Warrants and the warrants issued to the placement agent is $1.06 per share.

On December 21, 2010, the Company agreed to sell to certain institutional investors up to 3,027,272 shares of the Company’s common stock and warrants to purchase up to 1,210,912 shares of the Company’s common stock in fixed combination, with each combination consisting of one share of common stock and a warrant to purchase 0.40 shares of common stock in a registered direct public offering (“Second round warrants”). The warrants became exercisable immediately following the closing date of the offering and remain exercisable for three years thereafter at an exercise price of $6.30 per share. As of March 31, 2012, the fair value of Second round warrants is $1.13 per share.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 19 – COMMITMENTS AND CONTINGENCIES

(a) Guarantees and Pledged collateral for third party bank loans

As of March 31, 2012, the Company provided guarantees for the following third parties:

(1) Guarantees for bank loans

Guarantee provided to	Amount
Zhejiang Kangli Metal Manufacturing Company.	$	4,743,308
Zhejiang Shuguang industrial Co., Ltd.		7,905,513
Zhejiang Yiran Auto Sales Company		1,581,103
Zhejiang Taiping Shengshi Industrial Co., Ltd.		3,162,205
Zhejiang Taiping Trade Co., Ltd		3,636,536
Yongkang Angtai Trade Co., Ltd.		790,551
Total	$	21,819,216

On December 4, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount of $4,743,308 by Zhejiang Kangli Metal Manufacturing Company. (“ZKMMC”) for the period from December 4, 2011 to December 4, 2012. ZKMMC is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZKMMC under the loan contract if ZKMMC fails to perform its obligations as set forth in the loan contract.

On October 9, 2011 and December 8, 2011, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shenzhen Development Bank Hangzhou branch and Huaxia Bank Hangzhou branch in the amount of $4,743,308 and $3,162,205 by Zhejiang Shuguang industrial Co., Ltd. (“ZHICL”) for the period from October 9, 2011 to October 9, 2012 and from December 8, 2011 to December 8, 2012 respectively. ZHICL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of ZHICL under the loan contracts if ZHICL fails to perform its obligations as set forth in the loan contracts.

On April 25, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Hangzhou branch in the amount of $1,581,103 by Zhejiang Yiran Auto Sales Company (“ZYASC”) for the period April 25, 2011 to April 25, 2012. ZYASC is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of ZYASC under the loan contracts if ZYASC fails to perform its obligations as set forth in the loan contracts.

On December 4, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Bank Hangzhou branch in the amount of $3,162,205 by Zhejiang Taiping Shengshi Industrial Co., Ltd. (“ZTSICL”) for the period from December 4, 2011 to December 4, 2012. ZTSICL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTSICL under the loan contract if ZTSICL fails to perform its obligations as set forth in the loan contract.

On August 12, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from ICBC Wuyi branch in the amount of $3,636,536 by Zhejiang Taiping Trade Co., Ltd (“ZTTCL”) for the period from August 12, 2011 to August 8, 2013. ZTTCL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTTCL under the loan contract if ZTTCL fails to perform its obligations as set forth in the loan contract.

On January 7, 2011, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch in the amount of $158,110 and $632,441 respectively by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from January 7, 2011 to December 31, 2012. YATCL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of YATCL under the loan contracts if YATCL fails to perform its obligations as set forth in the loan contracts.

(2) Guarantees for Bank notes:

Guarantee provided to	Amount
Zhejiang Mengdeli Electric Co., Ltd.	$	1,264,882
Total	$	1,264,882

On August 24, 2010, the Company entered into a guarantee contract to serve as guarantor for the bank note borrowed from Huaxia Bank Hangzhou branch in the amount of $1,264,882 by Zhejiang Mengdeli Electric Co., Ltd. (“ZMEC”) for the period from August 24, 2010 to August 24, 2012. ZMEC is a supplier but not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZMEC under the loan contract if ZMEC fails to perform its obligations as set forth in the loan contract.

(3) Pledged collateral for a third party’s  bank loans

As of March 31, 2012, the Company provided the land use rights and plant and equipment pledged as collateral for the following third party:

Zhejiang Mengdeli Electric Co., Ltd.:
Land use rights net book value	$	6,937,448
Plant and equipment net book value	$	4,610,555

It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given.  It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral. Also see Note 14.

(b) Pending litigations

There are two lawsuits currently pending in Ripley County, Missouri against the Company and its subsidiary Zhejiang Kandi Vehicles Co., Ltd.(“Kandi Vehicles”) as well as other parties, Kandi Investment Group and SunL, and they are related to two persons who died in an accident on March 3, 2006 while operating a go-cart allegedly manufactured by Kandi Vehicles.  Kandi Investment Group was a major shareholder of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi Investment Group is unrelated to the Company or its affiliates.

The cases were filed in 2009 and are known as Elder vs. SunL Group and Griffen vs. SunL Group. In March, 2010, the local trial court entered two default judgments in the amount of $20,000,000 each against Kandi Vehicles and other parties including Kandi Investment but not the Company. The lawsuit and default judgments didn’t come to the Company or Kandi Vehicles’ attention until May or June 2010. The Company had not been served or notified of the lawsuits and learned of their existence and of the default judgment in the course of commercial discussions with another of the defendants in the cases. Currently, the Company and Kandi Vehicles have filed answers to the complaint denying any culpability. In addition, the Company requested that the court set aside the default judgments against Kandi Vehicles, a request granted, by the court, on February 28, 2011. On March 3, 2011, the plaintiffs subsequently appealed the court order vacating the default judgments; however, the plaintiffs have since voluntarily withdrawn their appeal.

The Company intends to defend these cases vigorously and expects to prevail in this lawsuit since the Company including its subsidiaries did not manufacture the subject vehicle in the accident.  The Company intends to propound discovery on the plaintiffs. Further, the Company and Kandi Vehicles have each filed a Motion for Summary Judgment in an attempt to have the cases dismissed by summary judgment. The plaintiffs have thirty (30) days to respond.

(c) Capital Commitment

During the previous year, certain mold manufacturing contracts were executed. As of March 31, 2012, remaining unpaid balance was $4,568,833, we plan on paying the full amount within the next twelve months.

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LIQUIDITY

3 Months Ended

Mar. 31, 2012

Liquidity [Abstract]

Liquidity [Text Block]

NOTE 2 – LIQUIDITY

The Company’s working capital surplus is $19,939,862 as of March 31, 2012.

As of March 31, 2012, the Company had credit lines from commercial banks of $44,587,095, of which $33,440,321 was used as of March 31, 2012.

The Company believes that its cash flows generated internally may not be sufficient to support growth of future operations and repay short term bank loans for the next twelve months if needed. However, the Company believes its access to existing financing sources and established relationships with PRC banks will enable it to meet its obligations and fund its ongoing operations.

The Company has historically financed itself through short-term commercial bank loans from PRC banks. The term of these loans are typically for one year, and upon the payment of all outstanding principal and interest in a respective loan, the banks have typically rolled over the loans for additional one-year terms, with adjustments made to the interest rate to reflect prevailing market rates. The Company believes this situation has not changed and the short-term bank loan will be available on normal trade terms if needed.

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CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Mar. 31, 2012	Dec. 31, 2011
Reserve for slow moving inventory	$ 0	$ 72,487
Discount on notes payable, current	0	71
Discount on notes payable, noncurrent	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	27,457,593	27,445,600
Common stock, shares outstanding (in shares)	27,457,593	27,445,600
Retained earnings, restricted portions	$ 1,940,832	$ 1,940,832

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LAND USE RIGHTS

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

NOTE 12 – LAND USE RIGHTS

Land use rights consist of the following:

	March 31, 2012 (Unaudited)			December 31, 2011
Cost of land use rights	$	12,073,389		$	11,997,512
Less: Accumulated amortization		(1,076,829	)		(1,004,743	)
Land use rights, net	$	10,996,560		$	10,992,769

As of March 31, 2012 and December 31, 2011, the net book value of land use rights pledged as collateral for the Company’s bank loans was $4,059,112 and $4,057,640 respectively. Also see Note 15.

As of March 31, 2012 and December 31, 2011, the net book value of land use rights pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electronic Co., Ltd. (“ZMEC”), an unrelated party of the Company was $6,937,448 and $6,935,129. Also see Notes 19.

It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. ZMEC has provided a guarantee for certain of the Company’s bank loans. As of March 31, 2012, ZMEC had guaranteed bank loan of the Company for a total of $12,648,821. In exchange, the Company provided guarantee for bank loans being borrowed by ZMEC and allowing ZMEC to pledge the Company’s assets for ZMEC’s bank loans. Also see Note 14 and Note 19.

The amortization expense for the three months ended March 31, 2012 and 2011 was $65,780 and $63,091 respectively.

Amortization expense for the next five years and thereafter is as follows:

2012 (nine months)	$	197,340
2013		263,120
2014		263,120
2015		263,120
2016		263,120
Thereafter		9,746,740
Total	$	10,996,560

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DOCUMENT AND ENTITY INFORMATION	3 Months Ended
	Mar. 31, 2012	May 09, 2012
Entity Registrant Name	Kandi Technologies Corp
Entity Central Index Key	0001316517
Current Fiscal Year End Date	--03-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	kndi
Entity Common Stock, Shares Outstanding		29,845,122
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012

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PLANT AND EQUIPMENT

3 Months Ended

Mar. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 13 – PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	March 31, 2012 (Unaudited)			December 31, 2011
At cost:
Buildings	$	13,784,849		$	13,698,216
Machinery and equipment		10,215,425			10,138,064
Office equipment		203,521			199,021
Motor vehicles		247,801			246,243
Moulds		15,382,893			15,286,217
		39,834,489			39,567,761
Less : Accumulated depreciation
Buildings	$	(2,076,452	)	$	(1,949,251	)
Machinery and equipment		(8,341,411	)		(8,032,798	)
Office equipment		(138,862	)		(131,813	)
Motor vehicles		(183,953	)		(175,578	)
Moulds		(9,096,965	)		(8,296,428	)
		(19,837,643	)		(18,585,868	)
Plant and equipment, net	$	19,996,846		$	20,981,893

As of March 31, 2012 and December 31, 2011, the net book value of plant and equipment pledged as collateral for the bank loans was $7,097,842 and $7,124,618, respectively.

As of March 31, 2012 and December 31, 2011, the net book value of plant and equipment pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electronic Co., Ltd. (“ZMEC”), a supplier but unrelated party of the Company was $4,610,555 and $4,624,347. Also see Note 19.

Depreciation expense for three months ended March 31, 2012 and 2011 was $1,135,062 and $943,585 respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
REVENUES, NET	$ 14,355,541	$ 8,341,506
COST OF GOODS SOLD	(11,014,691)	(6,280,073)
GROSS PROFIT	3,340,850	2,061,433
Research and development	(756,096)	(511,952)
Selling and marketing	(93,835)	(56,936)
General and administrative	(683,620)	(673,867)
INCOME FROM CONTINUING OPERATIONS	1,807,299	818,678
Interest income (expense), net	131,602	(297,270)
Change in fair value of financial instruments	942,950	5,385,178
Government grants	0	7,588
Investment (loss) income	(13,401)	1,214
Other income, net	34,468	113,706
INCOME (LOSS) BEFORE INCOME TAXES	2,902,918	6,029,094
INCOME TAX EXPENSE	(519,966)	(90,694)
NET INCOME	2,382,952	5,938,400
OTHER COMPREHENSIVE INCOME
Foreign currency translation	395,416	318,600
COMPREHENSIVE INCOME (LOSS)	$ 2,778,368	$ 6,257,000
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC (in shares)	27,450,371	27,422,823
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED (in shares)	28,839,747	29,026,629
NET INCOME PER SHARE, BASIC (in dollars per share)	$ 0.09	$ 0.22
NET INCOME PER SHARE, DILUTED (in dollars per share)	$ 0.08	$ 0.20

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NEW ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2012

Accounting Changes and Error Corrections [Abstract]

Accounting Changes and Error Corrections [Text Block]

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The adoption of ASU 2011-03 did not have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on the Company’s operating results or financial position.

In June 2011, FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s operating results or financial position.

In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2011-08 did not have a material impact on the Company’s operating results or financial position.

Recent Accounting Pronouncements (Continued)

In December 2011, the FASB has issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is evaluating whether the adoption of ASU 2011-11 will have a material effect on its operating results or financial position; however, the Company does not expect the adoption of ASU No. 2011-11 to have a material effect on its operating results or financial position.

In December 2011, the FASB has issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-12 did not have a material impact on the Company’s operating results or financial position.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Economic and Political Risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC economy.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

(b) Fair Value of Financial Instruments

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

· Level 1—defined as observable inputs such as quoted prices in active markets;

· Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

· Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of March 31, 2012 are as follows:

	Fair Value Measurements at Reporting Date Using Quoted Prices in
	Carrying value as		Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	of March 31, 2012		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	5,017,510	$	5,017,510		-		-
Restricted cash		22,424,419		22,424,419		-		-
Warrants		2,976,461		-		2,976,461		-

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. Restricted cash represents time deposits on account, some of which is used to secure short-term bank loans and notes payable. The original cost of these assets approximates fair value due to their short term maturity.

Warrants which are accounted as liabilities, are treated as derivative instruments, which will be measured at each reporting date for their fair value using Level 2 inputs. Also see Note 6 section (s).

The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

The Company’s non-financial assets measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which are measured for recoverability when indicators for impairment are present. ASC 820 requires companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the remeasurement at fair value is performed. The Company has reviewed its long-lived assets as of March 31, 2012 and determined that there are no significant assets to be tested for recoverability under ASC 360 and as such, no fair value measurements related to non-financial assets have been made during the three months ended March 31, 2012.

(c) Cash and Cash Equivalents

The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Restricted cash on March 31, 2012 and December 31, 2011 represent time deposits on account, some of which are used to secure short-term bank loans and notes payable. As of March 31, 2012, our restricted cash was as set forth on the table below:

Purpose	Amount
Used to secure short-term bank loans (also see Note 14)	$	2,371,654
Used to secure note payable (also see Note 15)		9,249,451
Pure time deposits		10,803,314
Total		22,424,419

(d) Inventories

Inventories are stated at the lower of cost or net realizable value (market value). The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the weighted average basis and comprises direct materials, direct labor and an appropriate proportion of overhead.

Net realizable value is based on estimated selling prices less any further costs expected to be incurred for completion and selling expense.

(e) Accounts Receivable

Accounts receivable are recognized and carried at net realizable value. An allowance for doubtful accounts will be recorded in the period when a loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business relation and other factors. Accounts are written off after exhaustive efforts at collection. If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses. At March 31, 2012 and December 31, 2011, the Company has no allowance for doubtful accounts, as per the management's judgment based on their best knowledge.

As of March 31, 2012 and December 31, 2011, the longest credit term used, in connection with certain selected customers was 120 days.

(f) Note receivable

Notes receivable represents short-term loans to third parties with the maximum term of one year. Interest income is recognized according to each agreement between a borrower and the Company on an accrual basis. If notes receivable are to be provided for, or written off, they are recognized in the relevant year if the loan default is probable, reasonably sure and the loss can be reasonably estimated. The Company recognizes income if the written-off loan is recovered at a future date. In case of foreclosure procedures or legal actions being taken, the Company provides accrual for the related foreclosure expense and related litigation expenses.

(g) Prepayments

Prepayments represent cash paid in advance to suppliers. As of March 31, 2012, prepayments included cash paid advances to raw material suppliers, mold manufacturers, and prepaid expenses, such as water and electricity fees.

(h) Plant and Equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows:

Buildings	30 years
Machinery and equipment	10 years
Office equipment	5 years
Motor vehicles	5 years
Moulds	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized.

(i) Construction in Progress

Construction in progress represents direct costs of construction or the acquisition cost of buildings or machinery and design fees. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until the assets are completed and ready for their intended use.

(j) Land Use Rights

According to the laws of China, land in the PRC is owned by the government and its ownership cannot be sold to an individual or a company.  However, the government grants the user a “land use right” to use the land.   The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

(k) Accounting for the Impairment of Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC No. 350. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

During the reporting period, there was no impairment loss.

(l) Revenue Recognition

Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenues are recognized when all of the following criteria are met:

· Persuasive evidence of an arrangement exists;

· Delivery has occurred or services have been rendered;

· The seller’s price to the buyer is fixed or determinable; and

· Collectability is reasonably assured.

(m) Research and Development

Expenditures relating to the development of new products and processes, including significant improvement to existing products are expensed as incurred. Research and development expenses were $756,096 and $511,952 for the three months ended March 31, 2012 and 2011, respectively.

(n) Government Grant

Grants received from the PRC Government for assisting in the Company’s technical research and development efforts are netted against the relevant research and development costs incurred when the proceeds are received or collectible.

For the three months ended March 31, 2012 and 2011, $0 and $7,588, respectively, was received from the PRC government for the Company’s contribution to the local economy.

(o) Income Taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The accounting for deferred tax calculation represents the management’s best estimate on the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

(p) Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred.

Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year, which was obtained from website: http://www.oanda.com

	March 31,  2012		December 31, 2011		March 31, 2011
Period end RMB : USD exchange rate		6.3247		6.3647		6.5701
Average RMB : USD exchange rate		6.3201		6.4735		6.5894

(q) Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes.

(r) Stock Option Cost

The Company’s stock option cost is recorded in accordance with ASC 718 and ASC 505.

The fair value of stock options is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock option expense recognized is based on awards expected to vest, and there were no estimated forfeitures. ASC standards requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The stock based compensation expense for the period ended March 31, 2012 is $19,053. Also see Note 17.

(s) Warrant Cost

The Company’s warrant costs are recorded in liabilities and equities respectively in accordance with ASC 480, ASC 505 and ASC 815.

The fair value of warrants, which is classified as a liability, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve in effect at the time of measurement. The warrants, which are freestanding derivatives and are classified as liabilities on the balance sheet, will be measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values were recognized in expenses.

The Company determined that the fair value of equity based warrants, which are not considered derivatives under ASC 815, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

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STOCK AWARD

3 Months Ended

Mar. 31, 2012

Stock Award [Abstract]

Stock Award Disclosure [Text Block]

NOTE 18 – STOCK AWARD

In connection with his appointment to the Board of Directors, and as compensation for serving, the Board of Directors has authorized the Company to provide Mr. Henry Yu with 5,000 shares of Company’s restricted common stock every six months, par value $0.001 from July 2011.

As compensation for his services, the Board of Directors has authorized the Company to provide Mr. Jerry Lewin with 5,000 shares of Company’s restricted common stock every six months, par value $0.001 from August 2011.

The fair value of awarded stock is determined by the closing price of our common stock on the date of stock award, or estimated by the closing price of our common stock on the reporting date if stock has not yet been awarded.

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SHORT-TERM BANK LOANS

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Abstract]

Short-term Debt [Text Block]

NOTE 14 – SHORT TERM BANK LOANS

Short-term loans are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Loans from China Communication Bank-Jinhua Branch
Monthly interest only payments at 7.87% per annum, due September 19, 2012, guaranteed by Kandi Investment Group Co.	$	790,551	$	785,583
Loans from Commercial Bank-Jiangnan Branch
Monthly interest only payments at 5.81% per annum, due January 3, 2012, guaranteed by Zhejiang Kangli Metal Manufacturing Company, Mr. Hu Xiaoming, Lv Qingjiang, and Ms. Ling Yueping. and pledged by the assets of Jingdezheng De’er Investment Industrial Co., Ltd.		-		3,142,332
Monthly interest only payments at 6.56% per annum, due October 15, 2012, guaranteed by Mr. Hu Xiaoming, and Ms. Ling Yueping, and secured by Company’s assets. Also see Note 12 and Note 13.		1,581,103		1,571,166
Monthly interest only payments at 6.89% per annum, due December 5, 2012, secured by Company’s asset. Also see Note 12 and Note 13.		790,551		785,583
Monthly interest only payments at 6.89% per annum, due January 5, 2013, guaranteed by Zhejiang Kangli Metal Manufacturing Company, Mr. Hu Xiaoming, Ms. Ling Jiajia, and Ms. Ling Yueping. and pledged by the assets of Jingdezheng De’er Investment Industrial Co., Ltd.		3,162,205		-
Loans from Huaxia Bank
Monthly interest only payments at 7.22% per annum, due September 23, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Kandi Investment Group Co. Also see Note 12 and Note 13.		4,427,087		4,399,265
Loans from China Ever-bright Bank
Interest only payment at 6.71% per annum, due February 15, 2012.		-		3,142,332
Monthly interest only payments at 6.10% per annum, due May 15, 2012, secured by the Company’s time deposit. Also see Note 6.		2,134,489		2,121,073
Interest only payment at 7.02% per annum, due June 28, 2012.		3,130,585		-
Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.		4,743,308		4,713,498
Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.		4,743,308		4,713,498

	March 31, 2012 (Unaudited)		December 31, 2011
Loans from Shanghai Pudong Development Bank
Monthly interest only payments at 6.71% per annum, due June 26, 2012, secured by the property of Ms. Ling Yueping, guaranteed by Nanlong Group Co., Ltd. and Mr. Hu Xiaoming		3,162,205		3,142,332
Loans from Bank of Shanghai
Monthly interest only payments at 6.56% per annum, due December 4, 2012, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Zhejiang Taiping Shengshi Industrial Co., Ltd.		4,743,308		4,713,498
Loans from China Ever-growing Bank
Monthly interest only payments at 7.57% per annum, due April 27, 2012, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Shuguang industrial Co., Ltd. and Zhejiang Mengdeli Electric Company.		3,162,205		3,142,332
Total	$	36,570,905	$	36,372,492

Interest expense for the three month ended March 31, 2012 and 2011 was $655,975, and $412,056, respectively.

As of March 31, 2012, the aggregate amount of short-term loans that are guaranteed by various third parties is $30,515,280,

-      $12,648,821 is guaranteed by Zhejiang Mengdeli Electric Co Ltd (“ZMEC”), whose bank note of $1,264,882 is guaranteed by the Company, and ZMEC’s bank loans of $7,051,718 are secured by a pledge, or by the Company’s plant and equipment and the land use right for which net book values are $4,610,555, and $6,937,448, respectively. Also see Note 19.

-      $12,332,600 is guaranteed by Zhejiang Kangli Metal Manufacturing Company, whose bank loans of $4,743,308 is guaranteed by the Company. Also see Note 19.

-      $3,162,205 is guaranteed by Zhejiang Shuguang industrial Co., Ltd., whose bank loans of $7,905,513 are guaranteed by the Company. Also see Note 19.

-      $4,743,308 is guaranteed by Zhejiang Taiping Shengshi Industrial Co., Ltd. whose bank loans of $3,162,205 is also guaranteed by the Company. Also see Note 19.

-      $5,217,638 is guaranteed by Kandi Investment Group Co.

-       $12,648,821 is guaranteed by Nanlong Group Co., Ltd.

This is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases.

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INVENTORIES

3 Months Ended

Mar. 31, 2012

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE 10 - INVENTORIES

Inventories are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Raw material	$	1,660,118	$	1,737,211
Work-in-progress		5,661,207		3,898,950
Finished goods		864,877		1,110,793
		8,186,202		6,746,954
Less: reserve for slow moving inventories		-		(72,487	)
Inventories, net	$	8,186,202	$	6,674,467

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CONCENTRATIONS

3 Months Ended

Mar. 31, 2012

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

NOTE 8 – CONCENTRATIONS

(a) Customers

The Company’s major customers for the period ended March 31, 2012 accounted for the following percentages of total sales and accounts receivable as follows:

	Sales						Accounts Receivable
Major Customers	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011			March 31, 2012			December 31, 2011
Company A		63	%		-			51	%		2	%
Company B		14	%		9	%		21	%		19	%
Company C		12	%		8	%		16	%		56	%
Company D		5	%		-			12	%		10	%
Company E		3	%		-			-			-

(b) Suppliers

The Company’s major suppliers for the three months ended March 31, 2012 accounted for the following percentage of total purchases and accounts payable as follows:

	Purchases						Accounts Payable
Major Suppliers	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011			March 31, 2012			December 31, 2011
Company F		59	%		87	%		4	%		1	%
Company G		20	%		-			5	%		-
Company H		1	%		-			2	%		-
Company I		1	%		-			-			1	%
Company J		1	%		-			1	%		1	%

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INCOME (LOSS) PER SHARE

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 9 –INCOME (LOSS) PER SHARE

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the reporting period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options, warrants and convertible note (using the if-converted method). For the three months ended March 31, 2012, there are 1,389,376 potentially dilutive common shares.

The following table sets forth the computation of basic and diluted net income per common share:

Three months Ended March 31,	2012		2011
Net income (loss)	$	2,382,952	$	5,938,400
Weighted – average shares of common stock outstanding
Basic		27,450,371		27,422,823
Dilutive shares		1,389,376		1,603,806
Diluted		28,839,747		29,026,629
Basic income per share	$	0.09	$	0.22
Diluted income per share	$	0.08	$	0.20

Also see Note 17.

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NOTES RECEIVABLE

3 Months Ended

Mar. 31, 2012

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 11 - NOTES RECEIVABLE

Notes receivable are summarized as follows:

	March 31, 2012 (Unaudited)		December 31, 2011
Notes receivable from unrelated companies:
Due April 7, 2012, interest at 9.6% per annum 1	$	4,743,308	$	4,713,498
Due September 30, 2012, interest at 9.6% per annum 2		15,355,885		33,165,745
		20,099,193		37,879,243
Bank acceptance notes:
Bank acceptance notes		-		-
Notes receivable	$	20,099,193	$	37,879,243

Details of Notes receivable from unrelated parties as of December 31, 2011

Index	Amount ($)	Counter party	Relationship	Purpose of Loan	Manner of settlement
1	4,713,498	Zhejiang XinNeng Auto System Co., Ltd.	No relationship beyond loan	Receive interest income	Not Due
2	33,165,745	Yongkang HuiFeng Guarantee Co., Ltd	No relationship beyond loan	Receive interest income	Not Due

Details of Notes receivable from unrelated parties as of March 31, 2012

Index	Amount ($)	Counter party	Relationship	Purpose of Loan	Manner of settlement
1	4,743,308	Zhejiang XinNeng Auto System Co., Ltd.	No relationship beyond loan	Receive interest income	Not due
2	15,355,885	Yongkang HuiFeng Guarantee Co., Ltd	No relationship beyond loan	Receive interest income	Not due

For the three months ended March 31, 2012, the interest income generated from the notes receivable issued to third parties was $797,254.

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TAX

3 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 16 – TAX

(a) Corporation Income Tax (“CIT”)

On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT law”), which went into effect on January 1, 2008. In accordance with the relevant tax laws and regulations of the PRC, the applicable corporate income tax rate is 25%.

Prior to January 1, 2008, the CIT rate applicable to the Company was 33%. Kandi’s first profitable tax year for income tax purposes as a foreign-invested company was 2007. As a foreign-invested company, the income tax rate of Kandi was entitled to a 50% tax holiday based on 25% for years 2009 through 2011. During the transition period, the above tax concession granted to the Company, prior to the new CIT law, will be grandfathered according to the interpretations of the new CIT law. After the tax holiday period is ended, the tax rate applicable to Kandi Vehicle changes to 15% since 2012 because of Kandi Vehicle’s high technology enterprise qualification. Nevertheless, the Company is qualified to a special research and development credit for 2012.

Kandi New Energy is subsidiary of the Company and its applicable corporate income tax rate is 25%.

According to the PRC corporation income tax (“CIT”) reporting system, the CIT sales cut-off base is concurrent with the value added tax (“VAT”) which will be reported to the State Administration of Taxation (“SAT”) on a quarterly basis. Since the VAT and CIT are accounted for on a VAT tax basis that recorded all sales on a “State provided official invoices” reporting system, the Company is reporting the CIT according to the SAT prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off did not take the accrual base but rather on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual basis, the sales cut-off CIT timing difference which derived from the VAT reporting system will create a temporary sales cut-off timing difference and this difference is reflected in the deferred tax assets or liabilities calculations on the income tax estimation reported in the Form 10-K.

Effective January 1, 2007, the Company adopted ASC 740, Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2012, the Company does not have a liability for unrecognized tax benefits. The Company files income tax returns to the Internal Revenue Services (“IRS”) and states where the Company has operation. The Company is subject to U.S. federal or state income tax examinations by IRS and relevant state tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in China. As of March 31, 2012 the Company was not aware of any pending income tax examinations by China tax authorities. The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2012, the Company has no accrued interest or penalties related to uncertain tax positions. The Company has not recorded a provision for U.S federal income tax for the three months ended March 31, 2012 due to the net operating loss carry forward in the United States.

Income tax expense (benefit) for the three months ended March 31, 2012 and 2011 is summarized as follows: 

	For the Three Months Ended March 31,
	(Unaudited)
	2012		2011
Current:
Provision for CIT	$	519,966	$	90,694
Provision for Federal Income Tax		0		0
Deferred:		-		-
Provision for CIT		0		0
Income tax expense (benefit)	$	519,966	$	90,694

The Company’s income tax expense (benefit) differs from the “expected” tax expense for the three months ended March 31, 2012 and 2011 (computed by applying the CIT rate of 25%, respectively to income before income taxes) as follows:

	For the Three Months Ended March 31,
	(Unaudited)
	2012			2011
Computed "expected" (benefit) expense	$	290,932		$	88,654
Favorable tax rate		(438,229	)		(90,694	)
Permanent differences		597,047			39,848
Valuation allowance		70,216			52,886
Income tax expense (benefit)	$	519,966		$	90,694

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31, 2012 (Unaudited)			December 31, 2011
Current portion:
Deferred tax assets:
Expense	$	(26,066	)	$	(11,741	)
Subtotal		(26,066	)		(11,741	)
Deferred tax liabilities:
Sales cut-off (CIT tax reporting on VAT tax system)		(173,814	)		(44,621	)
Other		-			-
Subtotal		(173,814	)		(44,621	)
Total deferred tax liabilities – current portion		(199,880	)		(56,362	)
Non-current portion:
Deferred tax assets:
Depreciation		398,005			226,622
Loss carried forward		70,216			1,351,513
Valuation allowance		(70,216	)		(1,351,513	)
Subtotal		398,005			226,622
Deferred tax liabilities:
Accumulated other comprehensive gain		(136,624	)		(136,624	)
Subtotal		(136,624	)		(136,624	)
Total deferred tax assets – non-current portion		261,381			89,998
Net deferred tax assets	$	61,501		$	33,636

(b) Tax Benefit (Holiday) Effect

For the three months ended March 31, 2012 and 2011 the PRC corporate income tax rate was 25%. Certain subsidiaries of the Company are entitled to tax benefit (holidays) for the three months ended March 31, 2012 and 2011.

The combined effects of the income tax expense exemptions and reductions available to the Company for the three months ended March 31, 2012 and 2011 are as follows:

	For the Three Months Ended March 31 (Unaudited)
	2012		2011
Tax benefit (holiday) credit	$	438,229	$	90,694
Basic net income per share effect	$	0.02	$	0.00

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 2,382,952	$ 5,938,400
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	1,200,884	1,006,769
Deferred taxes	(24,184)	(31,893)
Option and warrant expense	19,053	85,957
Change of derivative instrument's fair value	(942,950)	(5,385,178)
Acquisition effect	0	97,793
Loss in investment in associated company	13,401	0
Changes in operating assets and liabilities:
Accounts receivable	(2,626,288)	1,317,634
Inventories	(1,470,587)	(3,845,917)
Other receivables and prepaid expenses	1,121,239	(34,122)
Due from employees	220,807	15,739
Prepayments and prepaid expenses	(1,337,864)	(6,947,548)
Marketable equity securities (trading)	0	(1,214)
Increase (Decrease) In:
Accounts payable	308,069	(1,254,949)
Other payables and accrued liabilities	(2,530,325)	(347,439)
Customer deposits	(998,466)	(15,757)
Income tax payable	365,152	(37,078)
Net cash (used in) provided by operating activities	(4,299,107)	(9,438,803)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment	(16,512)	(172,385)
Purchase of construction in progress	(181,009)	0
Issuance of notes receivable	0	(2,716,484)
Repayments of notes receivable	18,032,672	7,476,170
Net cash provided by (used in) investing activities	17,835,151	4,587,301
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash	(15,758,880)	(9,431,611)
Proceeds from short-term bank loans	6,297,349	6,829,150
Repayments of short-term bank loans	(6,328,994)	(6,829,150)
Proceeds from notes payable	8,686,544	19,425,137
Repayments of notes payable	(3,752,827)	(5,463,320)
Option exercise & other financing	40,749	26,666
Net cash provided by financing activities	(10,816,059)	4,556,872
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	2,719,985	(294,630)
Effect of exchange rate changes on cash	3,173	43,744
Cash and cash equivalents at beginning of period	2,294,352	7,754,166
CASH AND CASH EQUIVALENTS AT END OF PERIOD	5,017,510	7,503,280
SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid	154,814	127,772
Interest paid	648,059	773,281
SUPPLEMENTAL NON-CASH DISCLOSURE:
Transferred from construction in progress to plant and equipment	$ 0	$ 0

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USE OF ESTIMATES

3 Months Ended

Mar. 31, 2012

Use Of Estimates [Abstract]

Use Of Estimates [Text Block]

NOTE 5 – USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results when ultimately realized could differ from those estimates.

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NOTES PAYABLE

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

NOTE 15 – NOTES PAYABLE

By issuing bank note payables rather than paying cash to suppliers, the Company can defer the payments until the date the bank note payable is due. Simultaneously, the Company needs to deposit restricted cash in banks to back up the bank note payable, while the restricted cash deposited in banks will generate interest income.

Notes payable are summarized as follows:

	March 31,2012 (Unaudited)		December 31, 2011
Bank acceptance notes:
Due January 19,2012	$	-	$	149,262
Due March 26, 2012		-		14,140
Due March 26, 2012		-		15,712
Due March 26, 2012		-		37,708
Due March 26, 2012		-		15,712
Due March 26, 2012		-		17,283
Due March 26, 2012		-		15,712
Due March 26, 2012		-		14,140
Due March 26, 2012		-		7,856
Due March 26, 2012		-		6,285
Due March 26, 2012		-		15,712
Due March 26, 2012		-		15,712
Due March 26, 2012		-		7,856
Due March 26, 2012		-		31,423
Due March 26, 2012		-		9,741
Due March 26, 2012		-		9,427
Due March 26, 2012		-		10,998
Due March 26, 2012		-		31,423
Due March 26, 2012		-		51,848
Due March 26, 2012		-		47,135
Due March 26, 2012		-		15,712
Due March 26, 2012		-		4,713
Due March 26, 2012		-		3,142
Due March 26, 2012		-		3,142
Due March 26, 2012		-		12,569
Due March 26, 2012		-		15,712
Due March 26, 2012		-		3,142
Due March 26, 2012		-		3,142,332
Due May 10, 2012		79,055		78,558
Due May 10, 2012		158,110		157,117
Due May 10, 2012		189,732		188,540
Due May 10, 2012		94,866		94,270
Due May 10, 2012		31,622		31,423
Due June 19, 2012		237,165		235,675
Due June 19, 2012		1,343,938		1,335,491
Due July 12, 2012		3,162,206		-
Due September 14, 2012		2,371,654		-
Due September 20, 2012		3,146,394		-
Subtotal	$	10,814,742	$	5,846,623

Notes payable to unrelated companies:
Due January 20, 2012 (Interest rate 6.0% per annum)		-		1,000
Subtotal	$	-	$	1,000
Total	$	10,814,742	$	5,847,623

All the bank acceptance notes do not bear interest, but are subject to bank charges of 0.005% of the principal as commission on each transaction. Bank charges for notes payable were $4,343 for the first three months ended March 31, 2012.

Restricted cash of $9,249,451 is held as collateral for the following notes payable at March 31, 2012:

Due May 10, 2012		79,055
Due May 10, 2012		158,110
Due May 10, 2012		189,732
Due May 10, 2012		94,866
Due May 10, 2012		31,622
Due June 19, 2012		237,165
Due June 19, 2012		1,343,938
Due July 12, 2012		3,162,206
Due September 14, 2012		2,371,654
Due September 20, 2012		3,146,394
Total	$	10,814,742