**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K**





**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**


**For
      the fiscal year ended December 31, 2007**




**Commission
      file number 000-52186**




**KANDI
      TECHNOLOGIES, CORP.**




(Exact
      name of registrant as specified in its charter)




**Delaware**
            
            **87-0700927**(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)




**(86-0579)
      882239700**




(Registrant’s
      telephone number, including area code)




**Securities
      Registered Pursuant to Section 12(b) of the Act:**





**Common
                Stock, Par Value $0.001 Per Share**
            
            **NASDAQ
                Capital Market**(Title
                of each class)
            
            (Name
                of exchange on which registered)




**Securities
      Registered Pursuant to Section 12(g) of the Act:**  **None.**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Exchange Act. Yes oNo x




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 xNo o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K. o









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
      the definitions of “large accelerated filer” and “smaller reporting company” in
      Rule 12b-2 of the Exchange Act. (check one):





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o
              (Do
                not check if a smaller reporting company)
            Smaller
                reporting company x




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




As
      of
      March 31, 2008, there were 19,961,000 **** shares
      of
      the registrant’s common stock issued and outstanding and 1,000,000 shares of the
      registrant’s preferred stock, $0.001 par value, issued and outstanding. The
      aggregate market value of the shares of common stock held by non-affiliates
      of
      the registrant on July 6, 2007 was approximately $10,180,110*.




*Prior
      to
      July 6, 2007, no liquid market had existed for our common stock.





DOCUMENTS
      INCORPORATED BY REFERENCE: none.









**TABLE
      OF CONTENTS**





**PART
                I**
            
            1**Item 1.**
            Business
            1**Item 1A.**
            Risk
                Factors
            4**Item 1B.**
            Unresolved
                Staff Comments
            13**Item 2.**
            Properties
            13**Item 3.**
            Legal
                Proceedings
            13**Item 4.**
            Submission
                of Matters to a Vote of Security Holders
            13**PART II**
            
            14**Item 5.**
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases
            14**Item 6.**
            Selected
                Financial Data
            14**Item 7.**
            Management's
                Discussion and Analysis of Financial Condition and Results of Operations
            14**Item 7A.**
            Quantitative
                and Qualitative Disclosures about Market Risk
            21**Item 8.**
            Financial
                Statements and Supplementary Data
            21**Item 9.**
            Changes
                and Disagreements With Accountants on Accounting and Financial
                Disclosure
            22**Item 9A.**
            Controls
                and Procedures.
            22**PART III**
            
            23**Item 10.**
            Directors
                and Executive Officers of the Registrant
            23**Item 11.**
            Executive
                Compensation
            26**Item 12.**
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            27**Item 13.**
            Certain
                Relationships and Related Transaction and Director
                Independence
            28**Item 14.**
            Principal
                Accounting Fees and Services
            28**PART IV**
            
            29**Item 15.**
            Exhibits
                and Financial Statement Schedules
            29**SIGNATURES**
            30









**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




This
      Annual Report contains certain forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
      Securities Exchange Act of 1934, as amended. These include statements about
      our
      expectations, beliefs, intentions or strategies for the future, which we
      indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,”
“will,” “we believe,” “our company believes,” “management believes” and similar
      language. These forward-looking statements are based on our current expectations
      and are subject to certain risks, uncertainties and assumptions, including
      those
      set forth in the discussion under Item 1, “Business”, Item 1A, “Risk Factors”
and Item 7, “Management's Discussion and Analysis of Financial Condition and
      Results of Operations.” Our actual results may differ materially from results
      anticipated in these forward-looking statements. We base our forward-looking
      statements on information currently available to us, and we assume no obligation
      to update them. In addition, our historical financial performance is not
      necessarily indicative of the results that may be expected in the future and
      we
      believe such comparisons cannot be relied upon as indicators of future
      performance.





Although
      we believe that the expectations reflected in the forward looking statements
      are
      reasonable, we cannot guarantee future results, levels of activity, performance
      or achievements. Except as required by applicable law, including the securities
      laws of the United States, we do not intend to update any of the forward-looking
      statements to conform these statements to actual results.









**PART
      I**




**Item 1.**
            **Business.**





Except
      as
      otherwise indicated by the context, references in this Annual Report to “we,”
“us,” “our,” “Kandi,” or the “Company” are to the combined businesses of Kandi
      Technologies, Corp.





**Introduction**




On
      June
      29, 2007, Stone Mountain Resources, Inc., a Delaware corporation (“Stone
      Mountain”) executed a share exchange agreement (the “Exchange Agreement”) with
      Continental Development Limited, a Hong Kong corporation (“Continental”) and
      Excelvantage Group Limited, a British Virgin Islands Company which owned 100%
      of
      Continental (the “Continental Shareholder”). Pursuant to the Exchange Agreement,
      Stone Mountain issued 12,000,000 shares of its common stock to the Continental
      Shareholder, in exchange for 100% of the common stock of Continental. After
      the
      closing of the Exchange Agreement, Stone Mountain had a total of 19,961,000
      shares of common stock outstanding, with the Continental Shareholder owning
      60.12% of the total issued and outstanding shares of Stone Mountain’s common
      stock, and the remaining shares outstanding were held by those who held shares
      of Stone Mountain’s common stock prior to the closing.




As
      a
      result of this transaction, Continental became a wholly owned subsidiary of
      Stone Mountain. Thereafter, the business of the Company was that of
      Continental’s wholly owned subsidiary, Zhejiang Kandi Vehicles Co., Ltd.. On
      August 13, 2007, we changed our name from Stone Mountain Resources, Inc. to
      Kandi Technologies, Corp.




Stone
      Mountain was a public shell company prior to the closing of the Exchange
      Agreement. Stone Mountain was originally incorporated on March 31, 2004 in
      the
      State of Delaware, and operated as a gold exploration company exploring Nevada
      mineral properties, before ceasing operations in May 30, 2007.




**Description
      of Business**




We
      are a
      PRC-based manufacturer of small vehicle production, including all terrain
      vehicles (“ATVs”), golf carts, motor cycles, motor scooters and approximately
      15% China’s global export market of go-karts. Focusing on China's rapid economic
      development, the Company also sees an increasing need for transportation
      vehicles for specific purposes, in particular, mini pesticide spraying vehicles
      and mini service vehicles.  The
      Company produces a wide and growing range of ATVs which it believes represent
      the highest quality vehicles of this type in China, aimed at the export market
      as well as the rapidly growing market in the People’s Republic of China (the
“PRC”). The Company also is focused on the development of fashionable, energy
      saving mini-cars. We have produced mini-cars that have completed the trial
      stage
      and are now preparing to start mass production. We expect to begin exporting
      these cars to the U.S. market in 2008, followed by sales in China when the
      domestic market is more mature. The full range of the Company's products can
      be
      viewed at http://www.kandivehicle.com .




1





**OVERVIEW
      OF OUR INDUSTRY**





**The
      Small Vehicle Market in China**




With
      increased demand and limited supply for oil worldwide, and the resulting
      increases in oil price, promoting energy-saving vehicles has become one of
      China's basic national policies for the future development of the automobile
      industry. In the coming years, the Chinese government plans to devote time
      and
      energy to research and implementation of tax policies geared toward the
      development of energy-saving cars and decreasing energy consumption through
      a
      comparatively lower consumption tax on fuel-efficient vehicles. Based on this
      new domestic focus, we believe that the mini-sized casual vehicle market will
      become a popular choice for the Chinese people because of the vehicles’
practicality and energy-efficient performance capabilities.




The
      Chinese government has also implemented new agriculture policies, creating
      huge
      growth in agricultural industrialization. Farmers’ incomes are increasing,
      rapidly creating demand for improvements in working conditions, especially
      after
      the recently completed reconstruction of large farmland areas in the developed
      coastal areas in southeast China. We believe that these factors have created
      a
      demand for a safe and comfortable mini-sized pesticide-spraying vehicle,
      specialized for agricultural purposes, to reduce manual labor and to increase
      efficiency. Additionally, forestation is required for many big urban
      construction projects, creating parks and gardens in the city, and therefore
      another sizable market for a specialized pesticide-spraying vehicle.




We
      also
      believe that with the rapid development of the market economy in China, there
      is
      an increasing need for transportation vehicles for specific purposes, such
      as
      vehicles for delivering express mail, food delivery vehicles, maintenance
      vehicles, and other short-distance service vehicles. Previously, delivery by
      foot and bicycle has been widely accepted in the market. We believe that our
      vehicles will provide efficient, safe transportation, and provide an
      energy-efficient way to modernize the urban environment in China.




As
      China
      continues forward in its rapid development, the Chinese people are also spending
      more money on fitness and entertainment. Our go-karts provide a fun, novel
      way
      to be active and relax.





The
      development of super mini-cars is a trend of the future. Because the number
      of
      cars on the road has increased year-by-year, reducing the area that motor
      vehicles require will help to alleviate growing space concerns. Super mini-cars
      were first developed in Europe and Japan in recent years, and its market has
      been gaining momentum ever since. They are marketed as the young adventure
      car,
      the second car of car owners and the energy-efficient traveling tool of the
      urban working people. They have been described as "future city vehicles", and
      their cartoon-like design has attracted large numbers of young buyers in Europe.
      In only a few years, more than 100 million units have been sold in nine
      countries in the European market and the market is expected to continue to
      grow.
      We expect to begin exporting to the U.S. market in 2008, and later begin selling
      the cars in China, once the PRC market is more mature. At present, the U.S.
      SunL
      Group, Inc. is our largest distributor.





**Competitive
      Strengths**





Our
      super
      mini-car is expected to be priced much lower than similar models produced by
      other vehicle manufacturers in the international market since we have the
      capability to mass-produce at a lower cost. Therefore, the development of our
      super mini-car will not only satisfy domestic consumers, but will also have
      a
      strong competitive edge in the international market, which has tremendous
      potential for development.





Additionally,
      we know of no other company that produces a mini-size vehicle for the specific
      purpose of pesticide spraying in China, and few producers of mini-vehicles
      of
      any type within China. There is one factory, Nanjing No. 1 Automobile Plant,
      which produces the same type of general mini-size car as ours, but its annual
      production capacity is significantly lower than ours. Thus, we believe that
      we
      are better equipped to meet market needs with our product.




2




Presently,
      we have more than 30 distribution partners, including Hebei Hengshui Wei’ er
      Trading Company, Hebei Handan An’da Vehicle Trading Co., Ltd., and Kunming
      Chibao Automobile Part Co., Ltd, covering a large part of the market in China.




**Current
      and Future Projects**




Our
      company's products are developed in accordance with the procedures of the
      Quality Management System of the PRC and implemented by our development
      department. To date, we have developed and produced 25 go-kart models with
      power
      displacement from 90 ml to 100 ml, covering the most popular go-kart series
      in
      the international market. We have also developed several different models of
      special purpose mini-vehicles: a mini pickup truck, a mini pesticide spraying
      vehicle, minivans and other special purpose mini vehicles. Super mini-cars
      have
      completed the trial stage, and we are preparing to begin exporting our
      super-mini cars to the U.S. in 2008.





We
      hold
      the intellectual property rights for all of our products, comprised of
      thirty-five state patents, including two invention patents and utility patents
      and five practical patents. The continuous development and production of new
      products has contributed greatly to our economic growth and fuel efficiency
      improvement, and has laid a good foundation for future development.





We
      will
      conduct further research and development of casual sports vehicles and increase
      the variety and output of products, making good use of the current growing
      international market demands and the prospective new markets in countries such
      as China. We also plan to continue research and development of various casual
      entertainment sports products and super mini-cars with multi-purpose usage.
      The
      future development plan of products is as follows:





1.
      Further broaden the adaptability of products and enhance the specification
      and
      variety of products, improve the suspension system, driving structure, power
      performance, and emission standards in order to improve the overall product
      performance. New materials and technology will be focused on lightening the
      car
      body, updating the vehicle appearance, and implementing a new vehicle structure.
      We plan to present over ten new vehicle models annually to stay current with
      market changes.




2.
      Increase product output to keep pace with new technology and work towards
      technical and quality improvement of our go-karts. We hope to achieve annual
      production capacity of 30,000 go-karts, and to obtain the biggest market share
      in China. We will further enhance the research and development and production
      of
      super mini-cars and make good use of PRC state policy support in order to
      steadily increase the economic profitability of our company.





**Employees**




As
      of
      December 31, 2007, Kandi had a total of 578 employees, of which 570 were
      full-time employees. None of our employees are represented by any collective
      bargaining agreements.




3




**Environmental
      Matters**





None.





**Principal
      Executive Offices**





Our
      principal executive office is located in the Jinhua City Industrial Zone in
      Jinhua, Zhejiang Province, 321016 and our telephone number (86-0579)
      88-2239700.




**Item 1A.**
            **Risk
                Factors.**





You
      should carefully consider the risks described below together with all of the
      other information included in this report before making an investment decision
      with regard to our securities.  The statements contained in or
      incorporated into this offering that are not historic facts are forward-looking
      statements that are subject to risks and uncertainties that could cause actual
      results to differ materially from those set forth in or implied by
      forward-looking statements.  If any of the following risks actually
      occurs, our business, financial condition or results of operations could be
      harmed. In that case, the trading price of our common stock could decline,
      and
      you may lose all or part of your investment.





**Risks
      Relating to Our Overall Business Operations**





***Our
      limited operating history may not serve as an adequate basis to judge our future
      prospects and results of operations.***





We
      have a
      limited operating history, and have been in operation only since
      2003.  This limited operating history and the unpredictability of the
      machinery production industry, makes it difficult for investors to evaluate
      our
      businesses and future operating results. An investor in our securities must
      consider the risks, uncertainties and difficulties frequently encountered by
      companies in new and rapidly evolving markets.  The risks and
      difficulties we face include challenges in accurate financial planning as a
      result of limited historical data and the uncertainties resulting from having
      had a relatively limited time period in which to implement and evaluate our
      business strategies as compared to older companies with longer operating
      histories.




***We
      may not be able to maintain and/or comply with all applicable government
      regulation.***





We
      are
      subject to extensive regulation by the central government and by the regional
      and local authorities of the People’s Republic of China, where our business
      operations take place. We believe that we are currently in substantial
      compliance with all material governmental laws and regulations and maintain
      all
      material permits and licenses relating to our operations. Nevertheless, there
      can be no assurance that we will continue to be in substantial compliance with
      current laws and regulations, or whether we will be able to comply with any
      future laws and regulations. To the extent that new regulations are adopted,
      we
      will be required to conform its activities in order to comply with such
      regulations. Failure to comply with applicable laws and regulations could
      subject us to civil remedies, including fines, injunctions, recalls or seizures,
      as well as potential criminal sanctions, which could have a material adverse
      effect on its business, operations and finances.





***Compliance
      with environmental regulations can be expensive, and noncompliance with these
      regulations may result in adverse publicity and potentially significant monetary
      damages and fines.***





As
      our
      business operations generate noise, waste water, gaseous and other industrial
      wastes, we are required to comply with all national and local regulations
      regarding protection of the environment. We are in compliance with present
      environmental protection requirements and have all necessary environmental
      permits to conduct our business. However, if more stringent regulations are
      adopted in the future, the costs of compliance with these new regulations could
      be substantial. We believe that we have all necessary permits to conduct our
      business as it is presently conducted. If we fail to comply with present or
      future environmental regulations, however, we may be required to pay substantial
      fines, suspend production or cease operations. We use, generate and discharge
      toxic, volatile and otherwise hazardous chemicals and wastes in our research
      and
      development and manufacturing activities. Any failure by us to control the
      use
      of, or to restrict adequately the discharge of, hazardous substances could
      subject us to potentially significant monetary damages and fines or suspensions
      in our business operations. Certain laws, ordinances and regulations could
      limit
      our ability to develop, use, or sell our products.




4




***Our
      business depends substantially on the continuing efforts of our executive
      officers, and our business may be severely disrupted if we lose their
      services.***





Our
      future success depends substantially on the continued services of our executive
      officers, especially our CEO and President, Mr. Hu Xiaoming. We do not maintain
      key man life insurance on any of our executive officers.  If one or
      more of our executive officers are unable or unwilling to continue in their
      present positions, we may not be able to replace them readily, if at
      all.  Therefore, our business may be severely disrupted, and we may
      incur additional expenses to recruit and retain new officers.  In
      addition, if any of our executives joins a competitor or forms a competing
      company, we may lose some of our customers.  However, if any disputes
      arise between our executive officers and us, we cannot assure you, in light
      of
      uncertainties associated with the PRC legal system, the extent to which any
      of
      these agreements could be enforced in China, where some of our executive
      officers reside and hold some of their assets. See “—Risks Related to Doing
      Business in China— Uncertainties with respect to the PRC legal system could have
      a material adverse effect on us.”





***Our
      success depends on attracting and retaining qualified
      personnel***




We
      depend
      on a core management team.  The loss of any of these individuals could
      prevent us from achieving our business objective.  Our future success will
      depend in large part on our continued ability to attract and retain other highly
      qualified technical and management personnel, as well as personnel with
      expertise in government regulation.  We face competition for personnel from
      other companies, domestically, and abroad.  If our recruitment and
      retention efforts are unsuccessful, our business operations could
      suffer.





***Lack
      of property and general liability insurance.***





We
      do not
      carry any property insurance, general liability insurance, or any other
      insurance that covers the risks of our business operations. As a result, any
      material loss or damage to its properties or other assets, or personal injuries
      arising from its business operations would have a material adverse affect on
      its
      financial condition and operations.





**Risks
      Relating to Our Vehicle Machinery Production Operations**




***We
      may be subject to significant potential liabilities as a result of production
      defect and  product liability.***




Through
      our machinery production operations, we may be subject to production defect
      and
      product liability, arising in the ordinary course of business. These claims
      are
      common to the machinery production industry and can be costly.




5




With
      respect to certain general liability exposures, including manufacturing defect
      and product liability, interpretation of underlying current and future trends,
      assessment of claims and the related liability and reserve estimation process
      is
      highly judgmental due to the complex nature of these exposures, with each
      exposure exhibiting unique circumstances. Furthermore, once claims are asserted
      for construction defects, it is difficult to determine the extent to which
      the
      assertion of these claims will expand geographically. We may not have sufficient
      funds available or adequate to cover any liability for damages, the cost of
      repairs, and/or the expense of litigation surrounding such claims, and future
      claims may arise out of uninsurable events or circumstances not covered by
      insurance and not subject to effective indemnification agreements with our
      subcontractors.




***The
      vehicle machinery industry is highly competitive and we are subject to risks
      relating to competition that may adversely affect our
      performance.***





We
      will
      be adversely impacted if we cannot compete effectively in the highly competitive
      vehicle machinery industry. Our continued success depends upon our ability
      to
      compete effectively in markets that contain numerous competitors, some of which
      may have significantly greater financial, marketing and other resources than
      we
      have. Competition may reduce fee structures, potentially causing us to lower
      our
      fees or prices, which may adversely impact our profits. New competition or
      existing competition that uses a business model that is different from our
      business model may put pressure on us to change our model so that we can remain
      competitive.




***General
      economic conditions may negatively impact our results.***





The
      consumption of entertainment products such as go-karts is dependant on continued
      economic growth, and the duration, pace and full extent of the current growth
      environment remains unclear. Moderate or severe economic downturns or adverse
      conditions may negatively affect our operations. These conditions may be
      widespread or isolated to one or more geographic regions. A tightening of the
      labor markets in one or more geographic regions may result in fewer and/or
      less
      qualified applicants for job openings in our facilities. Higher wages, related
      labor costs and the increasing cost trends in the may negatively impact our
      results as wages and related labor costs.




***We
      must compete for customers.***




The
      vehicle machinery industry is highly competitive. Some of our competitors may
      have substantially greater marketing and financial resources than we do, and
      they may improve their products, reduce their prices or expand or improve their
      marketing programs in ways that adversely affect our operating
      results.




***Because
      we face intense competition from other machinery vehicle producers and many
      of
      our competitors have greater resources than we do, we may not be able to compete
      successfully and we may lose or be unable to gain market
      share.***




The
      vehicle machinery production business is highly competitive and, therefore,
      we
      face substantial competition in connection with the marketing and sale of its
      projects. In general, such vehicles are price sensitive and affected by many
      factors beyond our control, including changes in consumer tastes, fluctuation
      commodity prices and changes in supply due to weather, production, and natural
      disaster. Our products face competition from other producers in the
      industry.   Most of our competitors are well established, have
      greater financial, marketing, personnel and other resources, have been in
      business for longer periods of time than we have, and have projects that have
      gained wide customer acceptance in the marketplace.




6




**Risks
      Related to Doing Business in China**




***Change
      in political and economic conditions.***





Since
      our
      main country of business operations is China, our business operations and
      financial position are subject, to a significant degree, to the economic,
      political and legal developments in China.





China's
      government started implementing its economic reform policy in 1978, which has
      enabled China’s economy to gradually transform from a "planned economy" to a
      "socialist market economy." In 1993, the concept of the socialist market economy
      was introduced into the Constitution of China, and the country has since
      accelerated development of a market economy. A noteworthy phenomenon in the
      recent development of China economy is that non-state owned enterprises such
      as
      private enterprises play an increasingly important role in China economy and
      the
      degree of direct control by China government over the economy is gradually
      declining.





China’s
      government has been taking macro-economic austerity measures to suppress
      inflation and curb the pace of economic growth since July 1993. These measures
      include raising interest rates, tightening credit supply, delaying
      implementation of certain reform policies on pricing, enhancing financial
      supervision as well as tightening control on the granting of approval for
      property and infrastructure projects. However, since 1998, there has been
      deflation in China’s economy and the current economic policies of China mainly
      focus on stimulating consumption and expansion of domestic demand.





While
      China’s government has not halted its economic reform policy since 1978, any
      significant adverse changes in the social, political and economic conditions
      of
      China may have fundamental changes in China’s economic reform policies and thus
      the Company's operations and profits may be adversely affected.




***Change
      in tax laws and regulations in China.***




Various
      tax reform policies have been implemented in China in recent years.
      Interpretation of certain PRC tax policies is still awaiting guidance from
      the
      government. Moreover, there can be no assurance that the existing tax laws
      and
      regulations will not be revised or amended in the future.




***Uncertainties
      with respect to the Chinese legal system could have a material adverse effect
      on
      us and may restrict the level of legal protections to foreign
      investors.***





China's
      legal system is based on statutory law. Unlike the common law system, statutory
      law is based primarily on written statutes. Prior court decisions may be cited
      as persuasive authority but do not have a binding effect. Since 1979, the PRC
      government has been promulgating and amending the laws and regulations regarding
      economic matters, such as corporate organization and governance, foreign
      investment, commerce, taxation and trade.




However,
      since these laws and regulations are relatively new and the PRC legal system
      continues to rapidly evolve, the interpretation of many laws, regulations and
      rules are not always uniform and enforcement of these laws, regulations and
      rules involve uncertainties, which may limit legal protections available to
      us.
      In addition, any litigation in China may be protracted and result in substantial
      costs and diversion of resources and management attention. The legal system
      in
      the China cannot provide the investors with the same level of protection as
      in
      the U.S. The Company is governed by the law and regulations generally applicable
      to local enterprises. Many of these laws and regulations were recently
      introduced and remain experimental in nature and subject to changes and
      refinements. Interpretation, implementation and enforcement of the existing
      law
      and regulations can be uncertain and unpredictable and therefore have
      restrictions on legal protections of foreign investors.




7




***Changes
      in Currency Conversion Policies in China.***




Renminbi
      (“Yuan” or “RMB”) is not a freely exchangeable currency. Since 1998, the State
      Administration of Foreign Exchange of China has promulgated a series of
      circulars and rules in order to further enhance the verification of the
      truthfulness of foreign exchange payments under the current account items of
      a
      China enterprise and has imposed strict requirements in respect of borrowings
      and repayments of foreign exchange debts from and to foreign creditors under
      the
      capital account items and creation of foreign security in favor of foreign
      creditors.





This
      may
      cause complicated procedures in foreign exchange payments to foreign creditors
      under the current account items and thus will affect the restrictions on
      borrowing of international commercial loans, creation of foreign security and
      borrowing of RMB under guarantees in foreign currencies. Furthermore, the value
      of RMB may become subject to supply and demand, which could be largely affected
      by the international economic and political environment and any fluctuations
      in
      the exchange rate of RMB could have an adverse effect on the operational and
      financial condition of its subsidiaries in China.




***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based on United States
      or other foreign laws against us, our management or the experts named in the
      prospectus.***




We
      conduct substantially all of our operations in China and substantially all
      of
      our assets are located in China. In addition, all of our senior executive
      officers reside within China. As a result, it may not be possible to effect
      service of process within the United States or elsewhere outside China upon
      our
      senior executive officers, including with respect to matters arising under
      U.S.
      federal securities laws or applicable state securities laws. Moreover, our
      PRC
      counsel has advised us that the PRC does not have treaties with the United
      States or many other countries providing for the reciprocal recognition and
      enforcement of judgment of courts.





**Risks
      Relating to Ownership of Our Securities**





Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002 and related rules and
      regulations, are creating uncertainty for public companies. We are presently
      evaluating and monitoring developments with respect to new and proposed rules
      and cannot predict or estimate the amount of the additional compliance costs
      we
      may incur or the timing of such costs. These new or changed laws, regulations
      and standards are subject to varying interpretations, in many cases due to
      their
      lack of specificity, and as a result, their application in practice may evolve
      over time as new guidance is provided by courts and regulatory and governing
      bodies. This could result in continuing uncertainty regarding compliance matters
      and higher costs necessitated by ongoing revisions to disclosure and governance
      practices.




Maintaining
      appropriate standards of corporate governance and public disclosure may result
      in increased general and administrative expenses and a diversion of management
      time and attention from revenue-generating activities to compliance activities.
      In addition, if we fail to comply with new or changed laws, regulations and
      standards, regulatory authorities may initiate legal proceedings against us
      and
      our business and our reputation may be harmed.




8




***Our
      stock price may be volatile, which may result in losses to our
      shareholders.***




The
      stock
      markets have experienced significant price and trading volume fluctuations,
      and
      the market prices of companies listed on the NASDAQ Capital Market, the stock
      market in which shares of our common stock are listed, at times, have been
      volatile in the past and have experienced sharp share price and trading volume
      changes. The trading price of our common stock is likely to be volatile and
      could fluctuate widely in response to many of the following factors, some of
      which are beyond our control:


·
              variations
                  in our operating results;·
              changes
                  in expectations of our future financial performance, including
                  financial
                  estimates by securities analysts and investors;·
              changes
                  in operating and stock price performance of other companies in
                  our
                  industry;·
              additions
                  or departures of key personnel; and·
              future
                  sales of our common stock.




Domestic
      and international stock markets often experience significant price and volume
      fluctuations. These fluctuations, as well as general economic and political
      conditions unrelated to our performance, may adversely affect the price of
      our
      common stock. ****




***One
      stockholder owns a substantial portion of our outstanding common stock, which
      may enable this stockholder to influence many significant corporate actions
      and
      in certain circumstances may prevent a change in control that would otherwise
      be
      beneficial to our other shareholders.***





Excelvantage
      Group Limited controls approximately 60.12% **** of
      our
      outstanding shares of common stock. As a result, Excelvantage Group Limited
      could have a substantial impact on matters requiring the vote of the
      shareholders, including the election of our directors and most of our corporate
      actions. This control could delay, defer or prevent others from initiating
      a
      potential merger, takeover or other change in our control, even if these actions
      would benefit our other shareholders and the Company. This control could
      adversely affect the voting and other rights of our other shareholders and
      could
      depress the market price of our common stock.





***If
      we fail to maintain the adequacy of our internal controls, our ability to
      provide accurate financial statements and comply with the requirements of the
      Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
      to decrease substantially.***





Since,
      prior to becoming a public company in 2007, Kandi operated as a private company
      without public reporting obligations, and it had committed limited personnel
      and
      resources to the development of the external reporting and compliance
      obligations that would be required of a public company. Recently, we have taken
      measures to address and improve our financial reporting and compliance
      capabilities and we are in the process of instituting changes to satisfy our
      obligations in connection with joining a public company, when and as such
      requirements become applicable to us. Prior to taking these measures, we did
      not
      believe we had the resources and capabilities to do so. We plan to obtain
      additional financial and accounting resources to support and enhance our ability
      to meet the requirements of being a public company. We will need to continue
      to
      improve our financial and managerial controls, reporting systems and procedures,
      and documentation thereof. If our financial and managerial controls, reporting
      systems or procedures fail, we may not be able to provide accurate financial
      statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002
      as it
      applies to us. Any failure of our internal controls or our ability to provide
      accurate financial statements could cause the trading price of our common stock
      to decrease substantially.




9




***Our
      common shares are thinly traded and, you may be unable to sell at or near ask
      prices or at all if you need to sell your shares to raise money or otherwise
      desire to liquidate such shares.***





We
      cannot
      predict the extent to which an active public market for its common stock will
      be
      sustained. Our common shares have historically been sporadically or
“thinly-traded,” meaning that the number of persons interested in purchasing our
      common shares at or near bid prices at any given time may be relatively small
      or
      non-existent.





This
      situation is attributable to a number of factors, including the fact that we
      are
      a relatively small company which is relatively unknown to stock analysts, stock
      brokers, institutional investors and others in the investment community that
      generate or influence sales volume, and that even if we came to the attention
      of
      such persons, they tend to be risk-averse and would be reluctant to follow
      an
      unproven company such as ours or purchase or recommend the purchase of our
      shares until such time as we become more seasoned and viable. As a consequence,
      there may be periods of several days or more when trading activity in our shares
      is minimal or non-existent, as compared to a seasoned issuer which has a large
      and steady volume of trading activity that will generally support continuous
      sales without an adverse effect on share price. We cannot give you any assurance
      that a broader or more active public trading market for our common stock will
      develop or be sustained, or that current trading levels will be
      sustained.





The
      market price for our common stock is particularly volatile given our status
      as a
      relatively small company with a small and thinly traded “float” and lack of
      current revenues that could lead to wide fluctuations in our share price. You
      may be unable to sell your common stock at or above your purchase price if
      at
      all, which may result in substantial losses to you.





The
      market for our common shares is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The volatility in our share price is attributable to a number of factors. First,
      as noted above, our common shares are sporadically and/or thinly traded. As
      a
      consequence of this lack of liquidity, the trading of relatively small
      quantities of shares by its shareholders may disproportionately influence the
      price of those shares in either direction. The price for its shares could,
      for
      example, decline precipitously in the event that a large number of our common
      shares are sold on the market without commensurate demand, as compared to a
      seasoned issuer which could better absorb those sales without adverse impact
      on
      its share price. Secondly, an investment in our company  is a
      speculative or “risky” investment due to our lack of revenues or profits to date
      and uncertainty of future market acceptance for current and potential products.
      As a consequence of this enhanced risk, more risk-adverse investors may, under
      the fear of losing all or most of their investment in the event of negative
      news
      or lack of progress, be more inclined to sell their shares on the market more
      quickly and at greater discounts than would be the case with the stock of a
      seasoned issuer.




10




Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.





***We
      do not anticipate paying any cash dividends.***





We
      presently do not anticipate that we will pay any dividends on any of our capital
      stock in the foreseeable future. The payment of dividends, if any, would be
      contingent upon our revenues and earnings, if any, capital requirements, and
      general financial condition. The payment of any dividends will be within the
      discretion of our Board of Directors. We presently intend to retain all
      earnings, if any, to implement our business plan; accordingly, we do not
      anticipate the declaration of any dividends in the foreseeable
      future.





***Fluctuation
      in the value of the Renminbi may have a material adverse effect on your
      investment.***




The
      change in value of the Renminbi against the U.S. dollar, Euro and other
      currencies is affected by, among other things, changes in China’s political and
      economic conditions. On July 21, 2005, the PRC government changed its
      decade-old policy of pegging the value of the Renminbi to the U.S. dollar.
      Under the new policy, the Renminbi is permitted to fluctuate within a narrow
      and
      managed band against a basket of certain foreign currencies. This change in
      policy has resulted in approximately 2.1% appreciation of Renminbi against
      the
      U.S. dollar. While the international reaction to the Renminbi revaluation
      has generally been positive, there remains significant international pressure
      on
      the PRC government to adopt an even more flexible currency policy, which could
      result in a further and more significant appreciation of the Renminbi against
      the U.S. dollar. As a portion of our costs and expenses is denominated in
      Renminbi, the revaluation in July 2005 and potential future revaluation has
      and
      could further increase our costs. In addition, as we rely entirely on dividends
      paid to us by our operating subsidiaries, any significant revaluation of the
      Renminbi may have a material adverse effect on our revenues and financial
      condition. For example, to the extent that we need to convert U.S. dollars
      we receive from this offering into Renminbi for our operations, appreciation
      of
      the Renminbi against the U.S. dollar would have an adverse effect on the
      Renminbi amount we receive from the conversion. Conversely, if we decide to
      convert our Renminbi into U.S. dollars for the purpose of making payments
      for dividends on our ordinary shares or for other business purposes,
      appreciation of the U.S. dollar against the Renminbi would have a negative
      effect on the U.S. dollar amount available to us.




11




***If
      the Company were delisted from NASDAQ, our common stock could be subject to
      “penny stock” rules which could negatively impact our liquidity and our
      shareholders’ ability to sell their shares.***





Our
      common stock is currently listed on the NASDAQ Capital Market. We must comply
      with numerous NASDAQ MarketPlace rules in order to continue the listing of
      our
      common stock on NASDAQ. There can be no assurance that we can continue to meet
      the rules required to maintain the NASDAQ listing of our common stock. If we
      are
      unable to maintain our listing on NASDAQ, the market liquidity of our common
      stock may be severely limited.




***Volatility
      in Our Common Share Price May Subject Us to Securities
      Litigation.***





The
      market for our common stock is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      In the past, plaintiffs have often initiated securities class action litigation
      against a company following periods of volatility in the market price of its
      securities. We may, in the future, be the target of similar litigation.
      Securities litigation could result in substantial costs and liabilities and
      could divert management's attention and resources.





***The
      Elimination of Monetary Liability Against our Directors, Officers and Employees
      under Delaware law and the Existence of Indemnification Rights to our Directors,
      Officers and Employees may Result in Substantial Expenditures by our Company
      and
      may Discourage Lawsuits Against our Directors, Officers and
      Employees.***





Our
      articles of incorporation do not contain any specific provisions that eliminate
      the liability of our directors for monetary damages to our company and
      shareholders, however we are prepared to give such indemnification to our
      directors and officers to the extent provided by Delaware law. We may also
      have
      contractual indemnification obligations under our employment agreements with
      our
      officers. The foregoing indemnification obligations could result in our company
      incurring substantial expenditures to cover the cost of settlement or damage
      awards against directors and officers, which we may be unable to recoup. These
      provisions and resultant costs may also discourage our company from bringing
      a
      lawsuit against directors and officers for breaches of their fiduciary duties,
      and may similarly discourage the filing of derivative litigation by our
      shareholders against our directors and officers even though such actions, if
      successful, might otherwise benefit our company and shareholders.




***Past
      Activities Of Stone Mountain and Our Affiliates May Lead to Future
      Liability.***





Prior
      to
      our Stone Mountain’s into the share exchange agreement with Continental on June
      29, 2007, Stone Mountain engaged in businesses unrelated to our current
      operations. Although the Stone Mountain Shareholders are providing certain
      indemnifications against any loss, liability, claim, damage or expense arising
      out of or based on any breach of or inaccuracy in any of their representations
      and warranties made regarding such acquisition, any liabilities relating to
      such
      prior business against which we are not completely indemnified may have a
      material adverse effect on us.




12




***We
      may need additional capital, and the sale of additional shares or other equity
      securities could result in additional dilution to our
      shareholders.***




We
      believe that our current cash and cash equivalents, anticipated cash flow from
      operations will be sufficient to meet our anticipated cash needs for the near
      future. We may, however, require additional cash resources due to changed
      business conditions or other future developments, including any investments
      or
      acquisitions we may decide to pursue. If our resources are insufficient to
      satisfy our cash requirements, we may seek to sell additional equity or debt
      securities or obtain a credit facility. The sale of additional equity securities
      could result in additional dilution to our shareholders. The incurrence of
      indebtedness would result in increased debt service obligations and could result
      in operating and financing covenants that would restrict our operations. We
      cannot assure you that financing will be available in amounts or on terms
      acceptable to us, if at all.





**Item 1B.**
            **Unresolved
                Staff Comments.**




Not
      applicable.




**Item 2.**
            **Properties.**





All
      land
      in the PRC is owned by the government and cannot be sold to any individual
      or
      entity. Instead, the government grants or allocates landholders a “land use
      right.” There are four methods to acquire land use rights:


·
              grant
                  of the right to use land;·
              assignment
                  of the right to use land;
 ·
              lease
                  of the right to use land; and·
              allocated
                  land use rights


In
      comparison with Western common law concepts, granted land use rights are similar
      to life estates and allocated land use rights are in some way similar to
      leaseholds.




Granted
      land use rights are provided by the government in exchange for a grant fee,
      and
      carry the rights to pledge, mortgage, lease, and transfer within the term of
      the
      grant. Land is granted for a fixed term - generally 70 years for residential
      use, 50 years for industrial use, and 40 years for commercial and other use.
      The
      term is renewable in theory. Unlike the usual case in Western nations, granted
      land must be used for the specific purpose for which it was
      granted.




Allocated
      land use rights are generally provided by the government for an indefinite
      period (usually to state-owned entities) and cannot be pledged, mortgaged,
      leased, or transferred by the user. Furthermore, allocated land can be reclaimed
      by the government at any time. Allocated land use rights may be converted into
      granted land use rights upon the payment of a grant fee to the
      government.




Kandi
      has
      the following granted land use rights:





Location
            
            Area (square
              meters)
            
            Term and Expiration
            
            Certificate No.Zhejiang
                Jinhua Industrial Park
            
            72900.88
            
            Nov 13, 2002 - Nov 13, 2052
            
            10-15-0-203-1Zhejiang
                Jinhua Industrial Park
            
            39490.64
            
            Nov 13, 2002 - Nov 13, 2052
            
            10-15-0-203-2




**Item 3.**
            **Legal
                Proceedings.**None.




**Item 4.**
            **Submission
                of Matters to a Vote of Security
                Holders.**





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of the fiscal year ended December 31, 2007.





13




**PART
      II**




**Item 5.**
            **Market
                for Common Equity, Related Stockholder Matters and Issuer Purchases
                of
                Equity Securities.**




*Market
      Information*




Our
      common stock began trading on the OTCBB under the symbol “KNDI” on July 6, 2007.
      Prior to this date, no liquid market had existed for our common stock. Our
      common stock began trading on the NASDAQ Capital Market on March 18, 2008.
      The
      following are the high and low bid prices for our common stock for each quarter
      from July 6, 2007 to December 31, 2007.





**HIGH**
            
            **LOW****FISCAL
                2007**Fourth
                Quarter (through December 31, 2007)
            
            $
            5.40
            
            $
            3.90Third
                Quarter (through September 30, 2007)
            
            $
            4.25
            
            $
            2.10




*Holders
      of Common Stock*




As
      of
      December 31, 2007, there are approximately 132 record holders of our common
      stock.




*Dividends*




We
      have
      never paid a dividend on our common stock. At present, we intend to retain
      any
      earnings for use in our business and do not anticipate paying cash dividends
      in
      the foreseeable future.





**Item 6.**
            **Selected
                Financial Data.**





Not
      applicable.





**Item 7.**
                **Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operation.**




The
      following discussion should be read in conjunction with the information
      contained in the consolidated financial statements of the Company and the notes
      thereto appearing elsewhere herein. Readers should carefully review the risk
      factors disclosed in this Form 10-K and other documents filed by the Company
      with the SEC.




CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES




This
      section should be read together with the Summary of Significant Accounting
      Policies in the attached consolidated financial statements included in this
      report.




***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.




14





Accounts
      receivables are recognized and carried at original invoice amount less allowance
      for any uncollectible amounts. An estimate for doubtful accounts is made when
      collection of the full amount is no longer probable. There was an allowance
      for
      doubtful accounts of $4,819 in 2007 and none for 2006.





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 years ended of December 31, 2007 and 2006.




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.




***Policy
      affecting recognition of revenue***




Among
      the
      most important accounting policies affecting our consolidated financial
      statements is our policy of recognizing revenue in accordance with the SEC’s
      Staff Accounting Bulletin (“SAB”) No. 104. Under this policy, all of the
      following criteria must be met in order for us to recognize
      revenue:




1. Persuasive
      evidence of an arrangement exists;


2. Delivery
      has occurred or services have been rendered;


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


4. Collectibility
      is reasonably assured.




The
      majority of the Company’s revenue results from sales contracts with
      distributors. Revenue is recorded upon the shipment of goods. Management
      conducts credit background checks for new customers as a means to reduce the
      subjectivity of assuring collectibility. Based on these factors, the Company
      believes that it can apply the provisions of SAB 104 with minimal
      subjectivity.




RECENT
      ACCOUNTING PRONOUNCEMENTS


In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
        which
        provides enhanced guidance for using fair value to measure assets and
        liabilities. SFAS No. 157 provides a common definition of fair value and
        establishes a framework to make the measurement of fair value in generally
        accepted accounting principles more consistent and comparable. SFAS No. 157
        also
        requires expanded disclosures to provide information about the extent to
        which
        fair value is used to measure assets and liabilities, the methods and
        assumptions used to measure fair value, and the effect of fair value measures
        on
        earnings. SFAS No. 157 is effective for financial statements issued in fiscal
        years beginning after November 15, 2007 and to interim periods within those
        fiscal years. The Company is currently in the process of evaluating the effect,
        if any, the adoption of SFAS No. 157 will have on its consolidated results
        of
        operations, financial position, or cash flows.




In
      February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
      for
      Financial Assets and Financial Liabilities — including an amendment of FASB
      Statement No. 115 (“FAS 159”). FAS 159, which becomes effective for the Company
      on January 1, 2008. This standard permits companies to choose to measure many
      financial instruments and certain other items at fair value and report
      unrealized gains and losses in earnings. Such accounting is optional and is
      generally to be applied instrument by instrument. The Company does not
      anticipate that election, if any, of this fair-value option will have a material
      effect on the consolidated results or operations or financial
      position.




15




In
      December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and
      SFAS
      No.160, Non-controlling Interests in Consolidated Financial Statements. SFAS
      No.
      141 (R) requires an acquirer to measure the identifiable assets acquired, the
      liabilities assumed, and any non-controlling interest in the acquired entity
      at
      their fair values on the acquisition date, with goodwill being the excess value
      over the net identifiable assets acquired. SFAS No.160 clarifies that a
      non-controlling interest in a subsidiary should be reported as equity in the
      consolidated financial statement. The calculation of earnings per share will
      continue to be based on income amounts attributable to the parent. SFAS No.141
      (R) and SFAS No.160 are effective for financial statements issued for fiscal
      years beginning after December 15, 2008. Early adoption is prohibited. We have
      not yet determined the effect on our consolidated financial statements, if
      any,
      upon adoption of SFAS No.141 (R) or SFAS No. 160. We are aware that our
      accounting for minority interest will change and we are considering those
      effects now but believe the effects will only be a reclassification of minority
      interest from mezzanine equity to our stockholder's equity section in the
      balance sheet; in any case, we do not believe the implementation of SFAS 160
      will be material to our financial position. SFAS 141(R) will significantly
      affect the accounting for future business combinations and we will determine
      the
      accounting as new combinations are determined.




RESULTS
      OF OPERATIONS – YEAR ENDED DECEMBER 31, 2007 AS COMPARED TO YEAR ENDED
      DECEMBER 31, 2006




The
      following table sets forth the amounts and the percentage relationship to
      revenues of certain items in our consolidated statements of income for the
      years
      ended December 31, 2007 and 2006:




**For
      The Years Ended**


**December
      31, 2007 and 2006**


**2007**
            
            **2006**
            
            **Comparisons****Amount**
            
            **% of**
              **Revenue**
            
            **Amount**
            
            **% of**
              **Revenue**
            
            **Growth in**
              **Amount**
            
            **Increase**
              **in %****REVENUES**
            
            $
            34,702,168
            
            
            100.0
            %
            $
            14,480,836
            
            
            100.0
            %
            $
            20,221,332
            
            
            139.6
            %**COST
                OF GOODS SOLD**
            
            
            27,235,275
            
            
            78.5
            %
            
            11,884,462
            
            
            82.1
            %
            
            15,350,813
            
            
            129.2
            %**GROSS
                PROFIT**
            
            
            7,466,893
            
            
            21.5
            %
            
            2,596,374
            
            
            17.9
            %
            
            4,870,519
            
            
            187.6
            %Research
                and Development
            
            
            112,489
            
            
            0.3
            %
            
            103,785
            
            
            0.7
            %
            
            8,704
            
            
            8.4
            %Selling
                and Marketing
            
            
            1,137,493
            
            
            3.3
            %
            
            289,408
            
            
            2.0
            %
            
            848,085
            
            
            293.0
            %General
                and Administration
            
            
            1,027,843
            
            
            3.0
            %
            
            411,306
            
            
            2.8
            %
            
            616,537
            
            
            149.8
            %**INCOME
                FROM OPERATIONS**
            
            
            5,189,068
            
            
            15.0
            %
            
            1,791,875
            
            
            12.4
            %
            
            3,397,193
            
            
            189.6
            %Government
                Grants
            
            
            15,430
            
            
            0.0
            %
            
            97,806
            
            
            0.7
            %
            
            82,376
            
            
            -84.2
            %Forfeiture
                of Customer Deposits
            
            
            505,207
            
            
            1.5
            %
            
            29,324
            
            
            0.2
            %
            
            475,883
            
            
            1,622.8
            %Forgiveness
                of debt
            
            
            161,835
            
            
            0.5
            %
            
            -
            
            
            0.0
            %
            
            161,834
            
            
            100
            %Other
                (Expense) Income, Net
            
            
            (8,650
            )
            
            0.0
            %
            
            (3,725
            )
            
            0.0
            %
            
            -4,925
            
            
            132.2
            %Interest
                Expense, Net
            
            
            (1,206,299
            )
            
            -3.5
            %
            
            (836,056
            )
            
            -5.8
            %
            
            -370,243
            
            
            44.3
            %**INCOME
                BEFORE INCOME TAX**
            
            
            4,656,591
            
            
            13.4
            %
            
            1,079,224
            
            
            7.5
            %
            
            3,577,367
            
            
            331.5
            %**INCOME
                TAX**
            
            
            372,505
            
            
            1.1
            %
            
            (69
            )
            
            0.0
            %
            
            372,574
            
            
            539,962.3
            %**NET
                INCOME**
            
            $
            5,029,096
            
            
            14.5
            %
            $
            1,079,155
            
            
            7.5
            %
            $
            3,950,687
            
            
            366.0
            %





16




**Revenues**




Revenues
      for the year ended 2007 were $34,702,168, versus $14,480,836 in revenues for
      the
      year ended 2006, an increase of 140%.





The
      increase in revenues was mainly due to the consequent results of successful
      market penetration and mass production achievements in the year 2007. In 2006,
      we were still producing in small quantities and promotion of our products had
      just begun.




**Cost
      of Goods Sold and Gross Profit**




Cost
      of
      goods sold was $27,235,275 for the year ended December 31, 2007, compared to
      $11,884,462 for the year ended December 31, 2006. Expressed as a percentage
      of
      revenues, cost of goods sold was 78.5% for the year ended December 31, 2007,
      compared to 82.1% for the year ended December 31, 2006. The similarity in cost
      of goods sold as a percentage of revenues reflected a continued focus on
      operating cost management, sourcing efficiencies and operation
      efficiencies.




The
      cost
      of goods sold of products increased by 129% in the year ended December 31,
      2007
      compared to the year ended December 31, 2006. These increases are attributed
      to
      our increase in sales.




Gross
      profit increased $4,870,519, or 188%, for the year ended December 31, 2007
      over
      the year ended December 31, 2006. This increase reflected higher net sales,
      improved margins and operating efficiencies generally across our sports vehicles
      businesses.




**Selling
      and Marketing**




Selling
      and marketing expenses, including distribution expenses, increased from $289,408
      in the year ended December 31, 2006 to $1,137,493 in the year of 2007, representing
      a 293% increase. The increase in selling and marketing expenses was primarily
      due to the following factors:




§
            Shipping
                expenses increased by 430% in 2007 compared to 2006. The increases
                resulted primarily from the growth in sales volume in the U.S.




§
            Custom
                claim expenses and export inspection fees also grew in line with
                the
                increase of sales volume.




§
            Promotion
                expenses were increased significantly to launch new products and
                increase
                market awareness of our brand and products.




**General
      and Administrative**




General
      and administrative expenses grew from $411,306 in 2006 to $1,027,843 in 2007,
      a
      150% increase. The increase was primarily due to the addition of several
      managers and technical experts.




**Research
      and Development**




For
      the
      year ended December 31, 2007, research and development expenses increased $8,704
      from $112,489 to $103,785 relative to the year ended December 31, 2006. The
      increase was attributed to the significant research and development expenses
      required in the initial stage of product development, while such expenses were
      gradually increased due to improvements on its existing products.




17




**Interest
      Expense, Net**




Net
      interest expense was $1,206,299 for the year ended December 31, 2007, compared
      to $836,056 for the year ended December 31, 2006, an increase of 46.4%. This
      increase was mainly the result of an increase in short-term loans taken to
      satisfy increased working capital needs for the expansion in production volume
      and the appreciation of the Renminbi (RMB) relative to U.S dollars that
      triggered a foreign currency exchange loss.




**Other
      Income (Expenses)**





Other
      income (including government grants, forgiveness of debt and forfeiture of
      customer deposits) were $637,822 for the year ended December 31, 2007, compared
      to $123,405 for the year ended December 31, 2006. A major contributing factor
      was the significant increase in the forfeiture of customer deposits.




**Income
      Taxes**




In
      accordance with the relevant tax laws and regulations of the PRC, the applicable
      corporate income tax rate of the Company is 33%. However, according to certain
      rules in the tax laws, from the time that the company has its first profitable
      tax year, a foreign-invested company is exempt from corporate income tax for
      the
      following two years of operations and is then entitled to a 50% tax reduction
      for the succeeding three years. The Company’s first profitable year for income
      tax purposes as a foreign-invested company was 2006. Dingji is a subsidiary
      of
      the Company and its applicable corporate income tax rate is 33%.




18




On
      March
      16, 2007, the National People’s Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises.  The new
      corporate income tax law took effect on January 1, 2008. However, a
      foreign-invested company which registered with the PRC government before March
      16, 2007 may still apply the former corporate income tax rule. Thus, our company
      is exempt from corporate income tax for the fiscal year 2007 and 2008 and then
      is entitled to a 50% tax reduction for 2009, 2010 and 2011. As a result, the
      Company had an income tax benefit of $(372,505) at December 31, 2007 and there
      was a $69 income tax expense for 2006. For further details, please see Note
      11
      of the financial statements included in this report.




**Net
      Income**




Net
      income increased approximately 466% from $1,079,155 for the year ended December
      31, 2006 to $5,029,096 for the year ended December 31, 2007.  This
      increase in net income was due primarily to the increase in our sales revenue
      especially because of the surge in demand for our sports vehicles, while the
      ratio of cost of sales to sales revenue remained stable during the
      period.




LIQUIDITY
      AND CAPITAL RESOURCES




**Cash
      Flow**




Net
      cash
      flow provided by operating activities was $7,238,116 for the year ended December
      31, 2007 as compared to $(1,590,589) in cash flow used in operating
      activities in the same period of 2006. The increase of net cash flow used
      in operating activities was mainly due to the increase in sales revenue.




Net
      cash
      flow used in investing activities was $17,264,696 for the year ended December
      31, 2007 as compared to $1,172,962 in cash flow used by investing activities
      in
      the same period of 2006. Cash flow used in investing activities in 2007 was
      for
      the deposit for the acquisition of Kandi Special Vehicles co., Ltd. and the
      purchase of associated machinery and equipment. Also see note 13 of the
      financial statements included in this report.




Net
      cash
      flow provided by financing of net cash used in financing activities was
      $9,652,942 in the year ended December 31, 2007, as compared to $2,557,900 in
      the
      same period in 2006. The increase in net cash flow provided by financing
      activities was mainly due to the receipt of loans. Those loans are used for
      the
      company to expand their output and distributions in the next year.




**Working
      Capital**




The
      Company’s working capital increased by $2,567,469 to $294,623 at December 31,
      2007, as compared to a working capital deficit of $2,272,846 at December 31,
      2006.  The increase in working capital was mainly caused by the
      Company’s expanded capacity in 2007.





The
      Company currently generates its cash flow through operations and the Company
      believes that its cash flows generated from operations will be sufficient to
      sustain operations for the next twelve months.  Also, from time to
      time, the Company may require extra funding through financing activities and
      investments for expansion.  Also, from time to time, the Company may
      consider new expansion opportunities for which our management may consider
      seeking external funding and financing.  However, as of December 31,
      2007, the Company did not have any plans for additional capital through external
      funding and financing.





19





**Contractual
      Obligations**




We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash
      flows.





The
      following tables summarize our contractual obligations as of December 31, 2007,
      and the effect these obligations are expected to have on our liquidity and
      cash
      flows in future periods.





**Payments Due by Period****Total**
            
            **Less
                than 1**
              **Year**
            
            **1
                - 3 Years**Contractual
                Obligations:Bank
                Indebtedness
            
            $
            22,373,807
            
            $
            22,373,807
            
            $
            -Other
                Indebtedness
            
            
            12,324,047
            
            
            12,324,047
            
            
            -Operating
                Leases
            
            
            34,265
            
            
            18,690
            
            
            15,575Total
                Contractual Obligations:
            
            $
            34,732,119
            
            $
            34,716,544
            
            $
            15,575





Bank
      indebtedness consists of secured and unsecured borrowings from Industrial and
      Commercial Bank of China Limited, ICBC Jinhua Economic Exploration Zone Branch,
      Shanghai Pudong Development Bank and Commercial Bank, Jiangnan
      Branch.





Other
      indebtedness includes short-term loans and loans from individuals.





Operating
      leases consists of outstanding commitments with respect to non-cancelable
      operating leases for real estate.





**Off-balance
      Sheet Arrangements**





Other
      than the arrangement described above, we have not entered into any other
      financial guarantees or other commitments to guarantee the payment obligations
      of any third parties. We have not entered into any derivative contracts for
      currency hedges, interest rate hedges or instruments that are indexed to our
      shares and classified as shareholder’s equity or that are not reflected in our
      consolidated financial statements. Furthermore, we do not have any retained
      or
      contingent interest in assets transferred to an unconsolidated entity that
      serves as credit, liquidity or market risk support to such entity. We do not
      have any variable interest in any unconsolidated entity that provides financing,
      liquidity, market risk or credit support to us or engages in leasing, hedging
      or
      research and development services with us.




20




**Item
                7A.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk.**





Not
      applicable.





**Item
                8.**
            **Financial
                Statements and Supplementary
                Data**





21




**KANDI
      TECHNOLOGIES, CORP.**




**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)**





**AND
      SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**FOR
      THE YEARS ENDED**





**DECEMBER
      31, 2007 AND 2006**










**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)**


**AND
      SUBSIDIARIES**





**CONTENTS**





(a)
            PAGE F-i
            REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM(b)
            PAGES F-1 – F-2
            CONSOLIDATED
                BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006(c)
            PAGE F-3
            CONSOLIDATED
                STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
                DECEMBER
                31, 2007 AND 2006(d)
            PAGE F-4
            CONSOLIDATED
                STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER
                31, 2007 AND 2006(e)
            PAGES F-5 – F-6
            CONSOLIDATED
                STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND
                2006(f)
            PAGES F-7 – F-26
            NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER
                31, 2007
                AND 2006









**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Shareholders of:


Kandi
      Technologies Corp. and
      Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Kandi
      Technologies Corp. (Formerly Stone Mountain Resources, Inc.) and subsidiaries (the “Company”) as of
      December 31, 2007 and 2006, and the related consolidated statements of income
      and comprehensive income, changes in shareholders’ equity and cash flows for the
      years then ended. These consolidated financial statements are the responsibility
      of the Company's management. Our responsibility is to express an opinion on
      these consolidated financial statements based on our audits.




We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





We
      were
      not engaged to examine management’s assertion about the effectiveness of the
      Company’s internal control over financial reporting as of December 31, 2007
      included in the Company’s
      Item 9A “Controls
      and
      Procedures”
      in the Annual Report on Form 10-K and, accordingly, we do not express
      an opinion thereon.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Kandi
      Technologies Corp. (Formerly Stone Mountain Resources, Inc.) and subsidiaries
      as
      of December 31, 2007 and 2006 and the consolidated results of their operations
      and their cash flows for the years then ended in conformity with accounting
      policies generally accepted in the United States of America.






/s/
        Weinberg & Company, P.A.




Weinberg
      & Company, P.A.





Boca
      Raton, Florida


March
      17,
      2008




F-i




**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**ASSETS**





**December 31,**
            
            **December 31,****2007**
            
            **2006**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            1,322,782
            
            $
            1,034,017Restricted
                cash
            
            
            12,305,000
            
            
            9,092,423Accounts
                receivable, net of allowance for doubtful accounts of $4,819 and
                $0 as of
                December 31, 2007 and 2006, respectively
            
            
            11,113,355
            
            
            7,572,565Inventories
            
            
            3,293,529
            
            
            5,463,179Notes
                receivable
            
            
            1,223,664
            
            
            430,811Other
                receivables
            
            
            913,791
            
            
            2,988,016Prepayments
                and prepaid expenses
            
            
            49,706
            
            
            332,556Deposit
                for acquisition
            
            
            12,270,859
            
            
            -Due
                from employees
            
            
            91,590
            
            
            184,221Due
                from related parties
            
            
            -
            
            
            31,901Deferred
                taxes
            
            
            -
            
            
            99Total
                Current Assets
            
            
            42,584,276
            
            
            27,129,788LONG-TERM
                ASSETSPlant
                and equipment, net
            
            
            10,933,702
            
            
            9,224,935Land
                use rights, net
            
            
            385,539
            
            
            395,926Construction
                in progress
            
            
            1,321,832
            
            
            307,158Deferred
                taxes
            
            
            405,006
            
            
            2,784Total
                Long-Term Assets
            
            
            25,316,938
            
            
            9,930,803TOTAL
                ASSETS
            
            $
            55,630,355
            
            $
            37,060,591


F-1


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




**LIABILITIES
      AND SHAREHOLDERS’ EQUITY**





**December 31,**
            
            **December 31,****2007**
            
            **2006**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            6,425,261
            
            $
            6,626,826Other
                payables and accrued expenses
            
            
            406,357
            
            
            307,453Tax
                payable
            
            
            -
            
            
            2,953Short-term
                bank loans
            
            
            22,373,807
            
            
            9,163,737Current
                portion of long-term bank loan
            
            
            -
            
            
            1,920,934Customer
                deposits
            
            
            742,195
            
            
            601,168Notes
                payable
            
            
            12,324,047
            
            
            10,779,563Deferred
                taxes
            
            
            17,676
            
            
            -Due
                to employees
            
            
            310
            
            
            -Total
                Current Liabilities
            
            
            42,289,653
            
            
            29,402,634LONG-TERM
                LIABILITIESDeferred
                taxes
            
            
            299,161
            
            
            81,195Total
                Long-Term Liabilities
            
            
            299,161
            
            
            81,195TOTAL
                LIABILITIES
            
            
            42,588,814
            
            
            29,483,829COMMITMENTSSHAREHOLDERS’
                EQUITYCommon
                stock, $0.001 par value; 100,000,000 shares authorized; 19,961,000
                and
                12,000,000 shares issued and outstanding at December 31, 2007 and
                December
                31, 2006, respectively
            
            
            19,961
            
            
            12,000Additional
                paid-in capital
            
            
            7,138,105
            
            
            7,154,193Retained
                earnings
            
            
            5,125,120
            
            
            96,024Accumulated
                other comprehensive income
            
            
            758,355
            
            
            314,545TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            13,041,541
            
            
            7,567,762TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            55,630,355
            
            $
            37,060,591


See
        notes
        to consolidated financial statements


F-2


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**




**2007**
            
            **2006****REVENUES**
            
            $
            34,702,168
            
            $
            14,480,836**COST
                OF GOODS SOLD**
            
            
            27,235,275
            
            
            11,884,462**GROSS
                PROFIT**
            
            
            7,466,893
            
            
            2,596,374Research
                and development
            
            
            112,489
            
            
            103,785Selling
                and marketing
            
            
            1,137,493
            
            
            289,408General
                and administrative
            
            
            1,027,843
            
            
            411,306**TOTAL
                OPERATING EXPENSES**
            
            
            2,277,825
            
            
            804,499**INCOME
                FROM OPERATIONS**
            
            
            5,189,068
            
            
            1,791,875Interest
                expense, net
            
            
            (1,206,299
            )
            
            (836,056
            )Government
                grants
            
            
            15,430
            
            
            97,806Forgiveness
                of debt
            
            
            161,835
            
            
            29,324Forfeiture
                of customer deposits
            
            
            505,207
            
            
            -Other
                expense, net
            
            
            (8,650
            )
            
            (3,725
            )**INCOME
                BEFORE INCOME TAXES**
            
            
            4,656,591
            
            
            1,079,224**INCOME
                TAX (BENEFIT) EXPENSE**
            
            
            (372,505
            )
            
            69**NET
                INCOME**
            
            
            5,029,096
            
            
            1,079,155**OTHER
                COMPREHENSIVE INCOME**Foreign
                currency translation gain
            
            
            662,403
            
            
            236,114Income
                tax expense related to other comprehensive income
            
            
            (218,593
            )
            
            (77,918
            )**OTHER
                COMPREHENSIVE INCOME, NET OF TAX**
            
            
            443,810
            
            
            158,196**COMPREHENSIVE
                INCOME**
            
            $
            5,472,906
            
            $
            1,237,351**WEIGHTED
                AVERAGE SHARES OUTSTANDING BASIC AND DILUTED**
            
            
            16,056,838
            
            
            12,000,000**NET
                INCOME PER COMMON SHARE, BASIC AND DILUTED**
            
            $
            0.31
            
            $
            0.10


See
      notes
      to consolidated financial statements   F-3


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**Accumulated****Common
                  Stock**
              
              **Additional**
              
              **Retained**
              
              **Other****Par**
              
              **Paid-in**
              
              **Earnings**
              
              **Comprehensive****Shares**
              
              **Value**
              
              **Capital**
              
              **(Deficit)**
              
              **Income**
              
              **Total****BALANCE
                  AT JANUARY 1, 2006**
              
              
              12,000,000
              
              
              12,000
              
              $
              7,154,193
              
              $
              (983,131
              )
              $
              156,349
              
              $
              6,339,411Foreign
                  currency translation gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              158,196
              
              
              236,114Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              1,079,155
              
              
              -
              
              
              1,079,155**BALANCE
                  AT DECEMBER 31, 2006**
              
              
              12,000,000
              
              $
              12,000
              
              $
              7,154,193
              
              $
              96,024
              
              $
              314,545
              
              $
              7,654,680Recapitalization
              
              
              7,961,000
              
              
              7,961
              
              
              (16,088
              )
              
              -
              
              
              -
              
              
              (8,127
              )Foreign
                  currency translation gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              443,810
              
              
              662,403Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              5,029,096
              
              
              -
              
              
              5,029,096**BALANCE
                  AT DECEMBER 31, 2007**
              
              
              19,961,000
              
              $
              19,961
              
              $
              7,138,105
              
              $
              5,125,120
              
              $
              758,355
              
              $
              13,338,052


See
      notes
      to consolidated financial statements   F-4


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            5,029,096
            
            $
            1,079,155Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            1,453,253
            
            
            943,827Provision
                for doubtful accounts
            
            
            4,819
            
            
            -Loss
                on disposal of fixed assets
            
            
            35,049
            
            
            (1,049
            )Deferred
                taxes
            
            
            (385,074
            )
            
            (2,842
            )Forgiveness
                of debt
            
            
            (161,834
            )
            
            (48,467
            )Forfeiture
                of customer deposits
            
            
            (505,207
            )
            
            -**Changes
                in operating assets and liabilities, net of effects of
                acquisition:****(Increase)
                Decrease In:**Accounts
                receivable
            
            
            (3,545,609
            )
            
            (4,361,476
            )Inventories
            
            
            2,169,649
            
            
            (2,574,313
            )Other
                receivables
            
            
            2,074,226
            
            
            (521,897
            )Due
                from employees
            
            
            -
            
            
            (156,831
            )Due
                to employees
            
            
            92,941
            
            
            -Prepayments
                and prepaid expenses
            
            
            282,850
            
            
            919,267**Increase
                (Decrease) In:**Accounts
                payable
            
            
            (39,730
            )
            
            3,876,269Other
                payables and accrued liabilities
            
            
            90,405
            
            
            (1,044,175
            )Tax
                payable
            
            
            (2,953
            )
            
            -Customer
                deposits
            
            
            646,235
            
            
            301,943Net
                cash provided by (used in) operating activities
            
            
            7,238,116
            
            
            (1,590,589
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchases
                of plant and equipment
            
            
            (2,866,548
            )
            
            (861,407
            )Purchases
                of construction in progress
            
            
            (1,334,437
            )
            
            (1,145,390
            )Deposit
                for acquisition
            
            
            (12,270,859
            )
            
            -Purchase
                of a subsidiary, net of cash acquired
            
            
            -
            
            
            (69,391
            )Issuance
                of notes receivable
            
            
            (5,726,898
            )
            
            (430,811
            )Due
                from related parties
            
            
            -
            
            
            816,823Repayment
                of notes receivable
            
            
            4,934,046
            
            
            351,457Compensation
                received for land use right
            
            
            -
            
            
            165,757Net
                cash used in investing activities
            
            
            (17,264,696
            )
            
            (1,172,962
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Restricted
                cash
            
            
            (3,212,577
            )
            
            5,819,379Proceeds
                from short term bank loans
            
            
            29,005,594
            
            
            12,054,339Repayment
                of short term bank loans
            
            
            (17,716,459
            )
            
            (9,108,549
            )Proceeds
                from notes payable
            
            
            12,324,047
            
            
            10,677,113Repayment
                of notes payable
            
            
            (10,779,564
            )
            
            (16,884,382
            )Repayment
                of advances to related parties
            
            
            31,901
            
            
            -Net
                cash provided by financing activities
            
            
            9,652,942
            
            
            2,557,900


See
      notes
      to consolidated financial statements   F-5


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND
        2006**


**2007**
            
            **2006****DECREASE
                IN CASH AND CASH EQUIVALENTS**
            
            
            (373,638
            )
            
            (205,651
            )Effect
                of exchange rate changes on cash
            
            
            662,403
            
            
            362,679Cash
                and cash equivalents at beginning of year
            
            
            1,034,017
            
            
            876,989**CASH
                AND CASH EQUIVALENTS AT END OF YEAR**
            
            $
            1,322,782
            
            $
            1,034,017**SUPPLEMENTARY
                CASH FLOW INFORMATION**Income
                taxes paid
            
            $
            -
            
            $
            -Interest
                paid
            
            $
            1,007,597
            
            $
            695,850





**SUPPLEMENTAL
                NON-CASH DISCLOSURES:**


On
          September 25, 2006, the Company acquired a 100% interest in Zhejiang Yongkang
          Import & Export Co., Ltd. (Dingji) for $632,215 in cash and Dingji became a
          100% owned subsidiary of the Company. The following represents the assets
          purchased and liabilities assumed at the acquisition
          date:




Cash
                and cash equivalents
            
            $
            562,824Restricted
                cash
            
            
            13,080,930Accountants
                receivable
            
            
            2,595,165Plant
                and equipment, net
            
            
            312,311Other
                receivables and prepayments
            
            
            1,756,798Other
                assets
            
            
            19,910Total
                assets purchased
            
            
            18,327,938Accounts
                payable
            
            
            (1,624,432
            )Other
                payable and accrued liabilities
            
            
            (1,095,986
            )Short-term
                bank loans
            
            
            (1,719,918
            )Notes
                payable
            
            
            (13,086,854
            )Deferred
                taxes
            
            
            (3,236
            )Other
                liabilities
            
            
            (165,297
            )Total
                liabilities assumed
            
            
            (17,695,723
            )Total
                net assets
            
            $
            632,215Share
                percentage
            
            
            100
            %Net
                assets acquired and consideration paid
            
            $
            632,215Cash
                acquired
            
            $
            562,824Net
                cash consideration paid
            
            $
            69,391


See
      notes
      to consolidated financial statements


F-6


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)** ****
 **AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      1 –** **ORGANIZATION
      AND PRINCIPAL ACTIVITIES**





Kandi
      Technologies, Corp. (formerly Stone Mountain Resources, Inc.) (the “Company”)
      was incorporated under the laws of the State of Delaware on March 31, 2004.
      On
      June 29, 2007, the Company changed its name to Kandi Technologies,
      Corp.




On
      June
      29, 2007, pursuant to the share exchange agreement between Stone Mountain
      Resources, Inc. (“Stone Mountain”), Continental Development Limited,
      (“Continental”) and Excelvantage (Continental’s sole shareholder), Stone
      Mountain issued 12,000,000 shares of its common stock to Excelvantage, in
      exchange for 100% of the common stock of Continental. As a result of the share
      exchange, Continental became a wholly-owned subsidiary of Stone Mountain. The
      Company conducts its operations through its wholly owned subsidiary, Zhejiang
      Kandi Vehicles Co. Ltd., a People’s Republic of China (“PRC”)
      company.




The
      exchange transaction was accounted for as a reverse acquisition in accordance
      with Statements
      of Financial Accounting Standards (“SFAS”)  No.
      141. “ Business
      Combinations”. Accordingly, the consolidated statements of income include the
      results of operations of Kandi Technologies, Inc. from the acquisition date
      through December 31, 2007 and 2006.




The
      primary operations of the Company is design, developing, manufacturing, and
      commercializing all-terrain vehicles, go-karts, and specialized automobile
      related products for the People’s Republic of China (“PRC”) and global export
      markets. Sales are made to dealers in China, United States, Europe and
      Australia.





**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





(a) Principles
      of Consolidation




The
      consolidated financial statements include
      the accounts of Kandi Technologies Corp. (formerly Stone Mountain Resource,
      Inc.), and the following subsidiaries:





(i)
            Continental
                Development Ltd., (“Continental”) (100% subsidiary of the
                Company)


(ii)
            Zhejiang
                Kandi Vehicles Co. Ltd., (“Kandi”) (100% subsidiary of
                Continental)


(iii)
            Zhejiang
                Yongkong Import and Export Co. Ltd., (“Dingji”) (100%subsidiary of Kandi)





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




(b)  Concentration





The
      Company’s major customers for the years ended December 31, 2007 and 2006,
      respectively who accounted for the following percentage of total sales and
      accounts receivable are as follows:


F-7


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





**Sales**
            
            **Accounts
                Receivable****Major
                Customers**
            
            **2007**
            
            **2006**
            
            **December 31, 2007**
            
            **December 31, 2006**Company
                A
            
            18%
            
            -
            
            40%
            
            -Company
                B
            
            15%
            
            2%
            
            19%
            
            2%Company
                C
            
            14%
            
            14%
            
            11%
            
            27%Company
                D
            
            8%
            
            11%
            
            8%
            
            26%Company
                E
            
            5%
            
            7%
            
            7%
            
            13%





The
      Company’s major suppliers for the years ended December 31, 2007 and 2006,
      respectively who accounted for the following percentage of total purchases
      and
      accounts payable are as follows:





**Purchases**
            
            **Accounts
                Payable****Major
                Suppliers**
            
            **2007**
            
            **2006**
            
            **December 31, 2007**
            
            **December 31, 2006**Company
                F
            
            2%
            
            48%
            
            7%
            
            37%Company
                G
            
            2%
            
            4%
            
            6%
            
            3%Company
                H
            
            2%
            
            13%
            
            5%
            
            9%Company
                I
            
            4%
            
            7%
            
            5%
            
            5%Company
                J
            
            1%
            
            -
            
            4%
            
            -





(c)  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.





(d)  Use
      of
      Estimates





The
      preparation of the financial statements in conformity with generally accepted
      accounting principles in the United States of America 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 financial statements and the reported amounts of revenues and expenses
      during the reporting periods. Management makes these estimates using the best
      information available at the time the estimates are made; however actual results
      could differ materially from those estimates.


F-8


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)** ****
 **AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**  **(CONTINUED)**





(e)
      Fair
      Value of Financial Instruments





The
      Company’s financial instruments include cash and cash equivalents, restricted
      cash, accounts receivable, notes receivable, due from related parties,
      prepayments and prepaid expenses, other receivables, due from employees,
      accounts payable, due to employees, other payables and accrued liabilities,
      notes payable, short-term band loans, and customer deposits. Management has
      estimated that the carrying amount approximates fair value due to their
      short-term nature.





(f)  Cash
      and
      Cash Equivalents





For
      financial reporting purposes, the Company considers all highly liquid
      investments purchased with original maturity of three months or less to be
      cash
      equivalents.





Restricted
      cash at December 31, 2007 and 2006 represents time deposits on account to secure
      a short-term loan and notes payable. Also see Notes 8 and 9.





(g)  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 is comprised
      of
      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 disposal.





(h)  Accounts
      Receivable





Accounts
      receivable are recognized and carried at original invoice amount less allowance
      for any uncollectible amounts. An estimate for doubtful accounts is made when
      collection of the full amount is no longer probable. At December 31, 2007 and
      2006, the Company has an allowance for doubtful accounts of $4,819 and $0,
      respectively.





(i)
      Prepayments





Prepayments
      represent cash paid in advance to suppliers for raw materials purchases.


F-9


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**  **(CONTINUED)**





(j)
      Plant
      and Equipment





Plant
      and
      equipment are carried at cost less accumulated depreciation and amortization.
      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
                yearsMachinery
            
            10
                yearsMotor
                vehicles
            
            5
                yearsOffice
                equipment
            
            5
                yearsPatterns
            
            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. Also
      see
      note 7.





(k)  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.





(l)  Land
      Use
      Rights





According
      to the laws of China, land
      in
      the PRC is owned by the Government and 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.





(m)  Impairment
      of Long-Term Assets





Long-term
      assets of the Company are reviewed annually as to whether their carrying value
      has become impaired, pursuant to the guidelines established in SFAS No.
      144 . The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from the related operations.  The Company also
      re-evaluates the periods of amortization to determine whether subsequent events
      and circumstances warrant revised estimates of useful lives. There were no
      impairments in 2007 and 2006.


F-10


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)** ****
 **AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**  **(CONTINUED)**





(n)
      Revenue Recognition





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





à
            Persuasive
                evidence of an arrangement exists,


à
            Delivery
                has occurred or services have been
                rendered,


à
            The
                seller's price to the buyer is fixed or determinable,
                and


à
            Collectibility
                is reasonably assured.





The
      majority of the Company’s revenue results from sales contracts with distributors
      and revenue are recorded upon the shipment of goods. Management conducts credit
      background checks for new customers as a means to reduce the subjectivity of
      assuring collectibility.





(o)  Government
      Grants




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.





During
      2007 and 2006, $15,430 and $97,806 was received from the PRC Government as
      a
      reward for the Company’s contribution to the local economy.





(p)  Research
      and Development





Expenditures
      relating to the development of new products and processes, including significant
      improvements to existing products are expensed as incurred. Research and
      development expenses were $112,489 and $103,785 for the years ended December
      31,
      2007 and 2006, respectively.





(q)  Retirement
      Benefits





Retirement
      benefits in the form of contributions under defined contribution retirement
      plans to the relevant authorities are charged as expenses as incurred. The
      retirement benefits expense for 2007 and 2006 are $79,628 and $71,441
      respectively and are included in general and administrative
      expenses.


F-11


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**  **(CONTINUED)**




(r)  Taxes





Deferred
      tax assets and liabilities are recognized for the future tax consequence
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to be
      applied to taxable income in the years in which those temporary differences
      are
      expected to reverse. The effect on deferred tax assets and liabilities of a
      change in tax rates is recognized in the statement of income in the period
      that
      includes the enactment date. 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 deductibility is
      uncertain.





(s)  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.




2007
            
            2006Year
                end RMB: US$ exchange rate
            
            
            7.3141
            
            
            7.8087Average
                yearly RMB: US$ exchange rate
            
            
            7.5614
            
            
            7.9395





(t)  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 gain, net of tax.





(u)
      Segments




The
      Company operates in one business segment, developing, manufacturing, and
      commercializing all- terrain
      vehicles, go-karts, and special automobiles related products. Also see
      note 15.





(v)
      Earnings Per Share





Basic
      earnings per share is computed by dividing income available to common
      shareholders by the weighted-average number of common shares outstanding during
      the period. Diluted earnings per share is computed similar
      to basic earnings per share except that the denominator is increased to include
      the number of additional common shares that would have been outstanding if
      the
      potential common shares had been issued and if the additional common shares
      were
      dilutive. There were no potentially dilutive securities for 2007 and
      2006.


F-12


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      2 –** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**  **(CONTINUED)**





(w)
            Recent
                Accounting Pronouncements





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      provides enhanced guidance for using fair value to measure assets and
      liabilities. SFAS No. 157 provides a common definition of fair value and
      establishes a framework to make the measurement of fair value in generally
      accepted accounting principles more consistent and comparable. SFAS No. 157
      also
      requires expanded disclosures to provide information about the extent to which
      fair value is used to measure assets and liabilities, the methods and
      assumptions used to measure fair value, and the effect of fair value measures
      on
      earnings. SFAS No. 157 is effective for financial statements issued in fiscal
      years beginning after November 15, 2007 and to interim periods within those
      fiscal years. The Company is currently in the process of evaluating the effect,
      if any, the adoption of SFAS No. 157 will have on its consolidated results
      of
      operations, financial position, or cash flows.





In
      February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
      for
      Financial Assets and Financial Liabilities −− including an amendment of FASB
      Statement No. 115 (“FAS 159”). FAS 159, which became effective for the Company
      on January 1, 2008. This standard permits companies to choose to measure many
      financial instruments and certain other items at fair value and report
      unrealized gains and losses in earnings. Such accounting is optional and is
      generally to be applied instrument by instrument. The Company does not
      anticipate that election, if any, of this fair-value option will have a material
      effect on the consolidated results or operations or financial
      position.





In
      December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and
      SFAS
      No.160, Non-controlling Interests in Consolidated Financial Statements. SFAS
      No.
      141 (R) requires an acquirer to measure the identifiable assets acquired, the
      liabilities assumed, and any non-controlling interest in the acquire at their
      fair values on the acquisition date, with goodwill being the excess value over
      the net identifiable assets acquired. SFAS No.160 clarifies that a
      non-controlling interest in a subsidiary should be reported as equity in the
      consolidated financial statement. The calculation of earnings per share will
      continue to be based on income amounts attributable to the parent. SFAS No.141
      (R) and SFAS No.160 are effective for financial statements issued for fiscal
      years beginning after December 15, 2008. Early adoption is prohibited. We have
      not yet determined the effect on our consolidated financial statements, if
      any,
      upon adoption of SFAS No.141 (R) or SFAS No. 160. We are aware that our
      accounting for minority interest will change and we are considering those
      effects now but believe the effects will only be a reclassification of minority
      interest from mezzanine equity to our stockholder's equity section in the
      balance sheet, in any case we do not believe the implementation of SFAS 160
      will
      be material to our financial position, SFAS 141(R) will significantly affect
      the
      accounting for future business combinations and we will determine the accounting
      as new combinations are determined.





The
      implementation of the above pronouncements is not expected to have a material
      effect on the Company’s consolidated financial statements or
      disclosures.


F-13


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      3 –** **INVENTORIES**




Inventories
      are summarized as follows:





**December 31,**
              **2007**
            
            **December 31,**
              **2006**Raw
                materials
            
            $
            1,534,448
            
            $
            2,186,339Work-in-progress
            
            
            1,402,073
            
            
            2,576,071Finished
                goods
            
            
            357,008
            
            
            700,769Total
                inventories
            
            $
            3,293,529
            
            $
            5,463,179





**NOTE
      4 –** **NOTES
      RECEIVABLE**





Notes
      receivable consist of the following:





**December 31,**
              **2007**
            
            **December 31,**
              **2006**Notes
                receivable from unrelated companies:Due
                June 27, 2008
            
            $
            47,853
            
            $
            -Due
                Dec 25, 2008
            
            
            13,672
            
            
            -Due
                March 25, 2008 (subsequently settled on its due date)
            
            
            957,056
            
            
            -Due
                Jan 4, 2008 (subsequently settled on its due date)
            
            
            205,083
            
            
            -Due
                March 19, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            97,327Due
                May 30, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            333,484Total
            
            $
            1,223,664
            
            $
            430,811





Notes
      receivable from unrelated companies are interest-free and
      unsecured.





**NOTE
      5 –** **DUE
      TO/FROM RELATED PARTIES**





(I)
      Due
      From Related Parties





**2007**
            
            **2006**Hu
                Wangyuan(a)
            
            $
            -
            
            $
            21,015Hu
                Xiaoming(b)
            
            
            -
            
            
            10,886Total
                due from related parties
            
            $
            -
            
            $
            31,901





(II)
      Due
      To Employees





**2007**
            
            **2006**Current
            
            $
            310
            
            $
            -Total
                due from employees(c)
            
            $
            310
            
            $
            -





(II)
      Due
      From Employees





**2007**
            
            **2006**Current
            
            $
            91,590
            
            $
            184,221Total
                due from employees(c)
            
            $
            91,590
            
            $
            184,221


F-14


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      5 –** **DUE
      TO/FROM RELATED PARTIES (CONTINUED)**





(a)
            Hu
                Wangyuan is the chairman of Dingji, a subsidiary of the Company.
                The
                balance as of December 31, 2006 represented advances, which were
                unsecured, interest-free and collected in
                2007.





(b)
            Hu
                Xiaoming is the chairman of the Company. The balance as of December
                31,
                2006 represented a traveling advance, which was unsecured, interest-free
                and collected in 2007.





(c)
            Due
                to employees are interest-free, unsecured and have no fixed repayment
                term.





(d)
            Due
                from employees are interest-free, unsecured and have no fixed repayment
                term.The
                Company provides these advances for business-related purposes only,
                including for the purchases of raw materials and business-related
                travel in the ordinary course of
                business.





**NOTE
      6 –** **LAND
      USE RIGHTS**





Land
      use
      rights consist of the following:





**December
                31, 2007**
            
            **December
                31,**
              **2006**Cost
                of land use rights
            
            $
            460,943
            
            $
            460,943Less:
                Accumulated amortization
            
            
            (75,404
            )
            
            (65,017
            )Land
                use rights, net
            
            $
            385,539
            
            $
            395,926





During
      2006, $165,757 was received from the finance bureau of Jinhua City, Zhejiang
      Province, PRC, as compensation due to the delay in completion of the development
      of the land by the government. The amount was netted against the original cost
      of the land use rights.





Amortization
      expense for the years ended December 31, 2007 and 2006 was $10,386 and $9,652,
      respectively.





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





2008
            
            $
            10,3862009
            
            
            10,3862010
            
            
            10,3862011
            
            
            10,3862012
            
            
            10,386Thereafter
            
            
            333,609Total
            
            $
            385,539


F-15


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      7 –**  **PLANT
      AND EQUIPMENT**




Plant
      and
      equipment consist of the following:





**December 31,**
              **2007**
            
            **December 31,**
              **2006**At
                cost:Buildings
            
            $
            3,911,944
            
            $
            3,371,280Machinery
                and equipment
            
            
            8,572,451
            
            
            7,955,806Office
                equipment
            
            
            103,091
            
            
            81,376Transportation
            
            
            900,644
            
            
            679,554Patterns
            
            
            1,742,124
            
            
            -15,230,254
            
            
            12,088,016Less
                : Accumulated depreciationBuildings
            
            
            (428,834
            )
            
            (289,224
            )Machinery
                and equipment
            
            
            (3,520,084
            )
            
            (2,498,695
            )Office
                equipment
            
            
            (66,358
            )
            
            (44,115
            )Transportation
            
            
            (190,317
            )
            
            (31,047
            )Patterns
            
            
            (90,959
            )
            
            -(4,296,552
            )
            
            (2,863,081
            )Plant
                and equipment, net
            
            $
            10,933,702
            
            $
            9,224,935





As
      of
      December 31, 2007, the net book value of plant and equipment pledged as
      collateral for bank loans was $1,652,616. Also see Notes 8 and 10





Depreciation
      expense for the years ended December 31, 2007 and 2006 was $1,442,867 and
      $934,175, respectively.


F-16


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      8 –** **SHORT
      TERM BANK LOANS**




Short-term
      bank loans consist of the following:





**December 31,**
              **2007**
            
            **December 31,**
              **2006****Loans
                from ICBC-Exploration Zone Branch**Monthly
                interest only payments at 7.29% per annum, due November 24, 2008,
                secured
                by certain assets owned by the Company.
            
            $
            546,889
            
            $
            -Monthly
                interest only payments at 6.57% per annum, due April 10, 2008, secured
                by
                certain assets owned by the Company.
            
            
            683,611
            
            
            -Monthly
                interest only payments at 6.57% per annum, due June 5, 2008, secured
                by
                certain assets owned by the Company.
            
            
            683,611
            
            
            -Monthly
                interest only payments at 7.29% per annum, due September 5, 2008,
                secured
                by certain assets owned by the Company.
            
            
            410,167
            
            
            -Monthly
                interest only payments at 7.29% per annum, due September 5, 2008,
                secured
                by certain assets owned by the Company.
            
            
            369,150
            
            
            -Monthly
                interest only payments at 7.29% per annum, due October 16, 2008,
                secured
                by certain assets owned by the Company.
            
            
            929,711
            
            
            -Monthly
                interest only payments at 7.29% per annum, due October 23, 2008,
                secured
                by certain assets owned by the Company.
            
            
            478,528
            
            
            -Monthly
                interest only payments at 5.85% per annum, due June 5, 2007, secured
                by
                certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            
            
            
            1,280,623Monthly
                interest only payments at 5.85% per annum, due July 24, 2007, secured
                by
                certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            -
            
            
            384,187Monthly
                interest only payments at 6.12% per annum, due September 7, 2007,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            -
            
            
            345,768Monthly
                interest only payments at 6.12% per annum, due October 17, 2007,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            -
            
            
            870,824Monthly
                interest only payments at 6.12% per annum, due November 1, 2007,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            -
            
            
            448,218Monthly
                interest only payments at 6.12% per annum, due November 27, 2007,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            -
            
            
            512,249




F-17


**KANDI
        TECHNOLOGIES, CORP.**
 **(FORMERLY
        STONE MOUNTAIN RESOURCES, INC.)** ****
 **AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
  **NOTE
        8 – SHORT TERM BANK LOANS (CONTINUED)**


**December 31,**
              **2007**
            
            **December 31,**
              **2006****Loans
                from Commercial Bank-Jiangnan Branch**Monthly
                interest only payments at 7.58 % per annum, due January 10, 2008,
                secured
                by certain assets owned by the Company (subsequently repaid on its
                due
                date)
            
            
            2,734,444
            
            
            -Monthly
                interest only payments at 7.67% per annum, due May 10, 2008, secured
                by
                certain assets owned by the Company.
            
            
            1,367,222
            
            
            -Monthly
                interest only payments at 7.254 % per annum, due January 15, 2007,
                guaranteed by Jindezhen De'er Investment Co.Ltd and Yongkang Tangxin
                Metal
                Foundry Company (subsequently repaid on its due date)
            
            
            -
            
            
            2,561,246Monthly
                interest only payments at 7.605% per annum, due May 11, 2007 secured
                by
                certain assets owned by the Company (subsequently repaid on its due
                date)
            
            
            -
            
            
            1,280,622**Loans
                from ICBC-Jinhua Branch**Monthly
                interest only payments at 6.88% per annum, due January 18, 2008,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            189,753
            
            
            -Monthly
                interest only payments at 6.58% per annum, due February 1, 2008,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            948,766
            
            
            -Monthly
                interest only payments at 6.88% per annum, due March 3, 2008, secured
                by
                certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            858,883
            
            
            -Monthly
                interest only payments at 7.88% per annum, due March 21, 2008, secured
                by
                certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            1,098,571
            
            
            -


F-18


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      8 –** **SHORT
      TERM BANK LOANS (CONTINUED)**





**December
                31,**
              **2007**
            
            **December
                31,**
              **2006****Loans
                from Huaxia Bank**Monthly
                interest only payments at 8.22% per annum, due December 24, 2008.
                Guaranteed by Yongkang Tangxian Colour Metal Die-casting
                Company.
            
            
            2,734,444
            
            
            -Monthly
                interest only payments at 5.83% per annum, due May 19, 2008. And
                secured
                by restricted cash of the Company.
            
            
            1,503,945
            
            
            -**Loans
                from China Guangda Bank**Monthly
                interest only payments at 7.18% per annum, due August 9, 2008. And
                secured
                by certain assets owned by the Company. Guaranteed by Nanlong Group
                Co.,Ltd & Zhejiang Mengdeli Electric Company.
            
            
            4,101,668
            
            
            -**Loans
                from Shanghai Pudong Development Bank**Monthly
                interest only payments at 6.33 % per annum, due February 14, 2008,
                secured
                by certain assets owned by the Company. (subsequently repaid on its
                due
                date)
            
            
            2,734,444
            
            
            -**Loans
                from Agricultural bank, Yongkang branch secured by account receivable
                of
                $5,096,049**Monthly
                interest only payments at 6.39% per annum, due February 2, 2007
                (subsequently repaid on its due date)
            
            
            -
            
            
            330,000Monthly
                interest only payments at 6.36063% per annum, due March 12, 2007
                (subsequently repaid on its due date)
            
            
            -
            
            
            700,000Monthly
                interest only payments at 6.36% per annum, due January 13, 2007
                (subsequently repaid on its due date)
            
            
            -
            
            
            450,000Total
            
            $
            22,373,807
            
            $
            9,163,737





Interest
      expense for short-term loans during 2007 and 2006 were $1,103,489 and $459,948,
      respectively.


F-19




**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      9 –** **NOTES
      PAYABLE**




Notes
      payable consist of the following:




**December 31,**
              **2007**
            
            **December 31,**
              **2006**Notes
                payable to unrelated companies:Due
                November 11, 2007 (subsequently settled on its due date)
            
            $
            -
            
            $
            102,450Due
                May 30, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            14,608Due
                September 18, 2008
            
            
            683,611
            
            
            -Due
                April 17, 2008
            
            
            683,611
            
            
            -Due
                November 8, 2008
            
            
            109,379
            
            
            -Due
                January 15, 2008 (subsequently settled on its due date)
            
            
            683,611
            
            
            -Due
                December 15, 2008
            
            
            730,002
            
            
            -Subtotal
            
            $
            2,890,214
            
            $
            117,058Notes
                payable to related companies:Bank
                acceptance notesDue
                October 30, 2007 (subsequently settled on its due date)
            
            $
            -
            
            $
            1,570,083Due
                January 4, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            960,467Due
                February 12, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            1,280,623Due
                February 10, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            1,280,623Due
                January 26, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            640,311Due
                January 5, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            960,467Due
                March 11, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            1,152,560Due
                March 25, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            1,024,498Due
                March 28, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            1,280,623Due
                January 3, 2007 (subsequently settled on its due date)
            
            
            -
            
            
            512,250Due
                February 6, 2008 (subsequently settled on its due date)
            
            
            1,093,778
            
            
            -Due
                February 6, 2008 (subsequently settled on its due date)
            
            
            683,611
            
            
            -Due
                January 30, 2008 (subsequently settled on its due date)
            
            
            546,888
            
            
            -Due
                January 26, 2008 (subsequently settled on its due date)
            
            
            820,333
            
            
            -Due
                January 26, 2008 (subsequently settled on its due date)
            
            
            820,333
            
            
            -Due
                March 20, 2008 (subsequently settled on its due date)
            
            
            957,057
            
            
            -Due
                April 23, 2008
            
            
            1,093,778
            
            
            -Due
                June 27, 2008
            
            
            683,611
            
            
            -Due
                February 20, 2008 (subsequently settled on its due date)
            
            
            1,367,222
            
            
            -Due
                February 21, 2008 (subsequently settled on its due date)
            
            
            1,367,222
            
            
            -Subtotal
            
            
            9,433,833
            
            
            10,662,505Total
            
            $
            12,324,047
            
            $
            10,779,563





All
      the
      bank acceptance notes are subject to bank charges of 0.005% of the principal
      as
      commission on each loan transaction. Bank charges for notes payable were $11,074
      and $9,048 in 2007 and 2006, respectively.


F-20


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      9 –** **NOTES
      PAYABLE (CONTINUED)**





Restricted
      cash of $10,801,055 is held as collateral for the following notes payable at
      December 31, 2007:




Due
                January 26, 2008 (subsequently settled on its due date)
            
            $
            1,640,667Due
                January 30, 2008 (subsequently settled on its due date)
            
            
            546,889Due
                February 6, 2008 (subsequently settled on its due date)
            
            
            1,777,389Due
                February 20, 2008 (subsequently settled on its due date)
            
            
            1,367,222Due
                February 20, 2008 (subsequently settled on its due date)
            
            
            1,367,222Due
                March 20, 2008 (subsequently settled on its due date)
            
            
            957,055Due
                April 17, 2008
            
            
            683,611Due
                April 23, 2008
            
            
            1,093,778Due
                June 27, 2008
            
            
            683,611Due
                September 18, 2008
            
            
            683,611Total
            
            $
            10,801,055





**NOTE
      10 –** **LONG
      TERM DEBT**





Long-term
      debt consists of the following:




**December
                31,**
              **2007**
            
            **December
                31,**
              **2006**Loans
                from Huaxia bank Hangzhou Jianguo branch, due November 22, 2007,
                quarterly
                interest only payments at 6.336% per annum, secured by the assets
                owned by
                the Company (subsequently settled on its due date)
            
            $
            -
            
            $
            1,920,934Total
                long-term bank loan
            
            
            -
            
            
            1,920,934Less:
                current portion
            
            
            -
            
            
            (1,920,934
            )Total
                long-term portion
            
            $
            -
            
            $
            -





Interest
      expense for long-term debt in 2007 and 2006 was $0 and $123,711,
      respectively .





**NOTE
      11 –** **INCOME
      TAXES**





(a)
            Corporation
                Income Tax (“CIT”)




In
      accordance with the relevant tax laws and regulations of PRC, the applicable
      corporate income tax rate of the Company is 33%. However, according to certain
      rules in the tax laws, from the time that the Company has its first profitable
      tax year, a foreign-invested company is exempt from corporate income tax for
      the
      following two years of operations and is then entitled to a 50% tax reduction
      for the succeeding three years. The Company’s first profitable year for income
      tax purposes as a foreign-invested company was 2007. Dingji is a subsidiary
      of
      the Company and its applicable corporate income tax rate is
      33%.


F-21


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


NOTE
      11 –INCOME
      TAXES (CONTINUED)




Effective
      January 1, 2007, the Company adopted Financial Accounting Standards Board
      (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN
      48"), an interpretation of FASB statement No. 109, Accounting for 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
      FIN
      48, we 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. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties on income
      taxes, accounting in interim periods and requires increased disclosures. As
      of
      December 31, 2007, the Company does not have a liability for unrecognized tax
      benefits. The Company files income tax returns in the U.S. federal jurisdiction
      and various states. The Company is subject to U.S. federal or state income
      tax
      examinations by tax authorities for years after 2005. During the periods open
      to
      examination, the Company has net operating loss and tax credit carry forwards
      for U.S. federal and state tax purposes that have attributes from closed
      periods. Since these NOLs and tax credit carry forwards may be utilized in
      future periods, they remain subject to examination. The Company also files
      certain tax returns in China. As of December 31, 2007 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 December 31, 2007, the Company has no accrued
      interest or penalties related to uncertain tax positions.




On
      March
      16, 2007, the National People’s Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises.  The new
      corporate income tax law takes effect on January 1, 2008. However, the
      foreign-invested company which registered before March 16, 2007 still can be
      applied with the ex-corporate income tax law. Thus, Kandi is exempt from
      corporate income tax for the fiscal year 2007 and 2008 then is entitled to
      a 50%
      tax reduction for 2009, 2010 and 2011. Under the corporate income tax law,
      the
      Company had deferred tax in the year ended of December 31, 2007 and 2006 as
      follows:





**2007**
            
            **2006**Current:Provision
                for CIT
            
            $
            12,569
            
            $
            2,91112,569
            
            
            2,911Deferred:Provision
                for CIT
            
            
            (385,074
            )
            
            (2,842
            )(385,074
            )
            
            (2,842
            )Income
                tax (benefit) expense
            
            $
            (372,505
            )
            $
            69


F-22


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      11 –** **INCOME
      TAXES (CONTINUED)**





The
      Company’s income tax (benefit)/expense differs from the “expected” tax
      (benefit)/expense for the years ended December 31, 2007 and 2006 (computed
      by
      applying the CIT rate of 33% percent to income before income taxes) as
      follows:





**2007**
            
            **2006**Computed
                “expected” expense
            
            $
            1,536,675
            
            $
            356,144Permanent
                difference
            
            
            (401,841
            )
            
            (5,198
            )Tax
                rate adjustment
            
            
            (53
            )
            
            -Tax
                exemption
            
            
            (1,517,420
            )
            
            (350,877
            )Valuation
                allowance
            
            
            10,134
            
            
            -Income
                tax (benefit) expense
            
            $
            (372,505
            )
            $
            69





The
      tax
      effects of temporary differences that give rise to the Company's net deferred
      tax assets and liabilities as of December 31, 2007 and 2006 are as
      follows:





**2007**
            
            **2006**Deferred
                tax assets:Current
                portion:Expense
            
            $
            5,702
            
            $
            99Valuation
                allowance
            
            
            (5,702
            )
            
            -Subtotal
            
            
            -
            
            
            99Non-current
                portion:Depreciation
            
            
            698,944
            
            
            292,290Valuation
                allowance
            
            
            (293,938
            )
            
            (289,506
            )Subtotal
            
            
            405,006
            
            
            2,784Total
                deferred tax assets
            
            
            405,006
            
            
            2,883Deferred
                tax liabilities:Current
                portion:Expense
            
            
            (17,676
            )
            
            -Subtotal
            
            
            (17,676
            )
            
            -Non-current
                portion:Other
            
            
            (299,161
            )
            
            (81,195
            )Subtotal
            
            
            (299,161
            )
            
            (81,195
            )Total
                deferred tax liabilities
            
            
            (316,837
            )
            
            (81,195
            )Net
                deferred tax assets (liabilities)
            
            $
            88,169
            
            $
            (78,312
            )





(b)
            Tax
                Holiday Effect





For
      2007
      and 2006 the PRC corporate income tax rate was 33%. Certain subsidiaries of
      the
      Company are entitled to tax exemptions (tax holidays) for 2007 and
      2006.





Income
      before income tax expense of $4,656,946 and $1,079,224 for 2007 and 2006,
      respectively, was attributed to subsidiaries with operations in China. Income
      tax (benefit) expense related to China income for 2007 and 2006 is $(372,505)
      and $69, respectively.




F-23


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      11 –** **INCOME
      TAXES (CONTINUED)**





The
      combined effects of the income tax expense exemptions and reductions available
      to the Company for the years ended December 31, 2007 and 2006 are as follows:





**2007**
            
            **2006**Tax
                holiday effect
            
            
            1,517,420
            
            
            350,877Basic
                net income per share effect
            
            $
            0.09
            
            $
            0.03





(c)
            Value
                Added Tax (“VAT”)





Enterprises
      or individuals, who sell commodities, engage in repair and maintenance or import
      or export goods in the PRC are subject to a value added tax in accordance with
      Chinese Laws. The VAT standard rate is 17% of the gross sale price. A credit
      is
      available whereby VAT paid on the purchases of semi-finished products or raw
      materials used in the production of the Company’s finished products can be used
      to offset the VAT due on the sales of the finished products.




On
      January 1, 2002, the export policy of VAT "Exemption, Credit and Refund" began
      to apply to all exports by manufacture-based enterprises. In accordance with
      this policy, exported goods are exempted from output VAT and the input VAT
      charged for purchases of the raw materials, components and power consumed for
      the production of the exported goods may be refunded. Beginning
      July 1, 2007, the refund rates of vehicle related products applicable to Kandi
      and Dingji were changed form 17% to 9%.





The
      refundable VAT of $542,874 and $2,171,195 at December 31, 2007 and 2006,
      respectively, are included in other receivables in the accompanying consolidated
      balance sheets.




F-24


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      12 –** **COMMITMENTS**




The
        Company occupies office space leased from a third party. For the years ended
        December 31, 2007 and 2006 the Company recognized rental expense of $18,235
        and
        $0, respectively.




As
      of
      December 31, 2007, the Company has outstanding commitments with respect to
      non-cancelable operating leases for real estate, which are due in the as
      following amounts:




**Years
                Ending December 31**
            
            
            **Amount**2008
            
            $
            18,6902009
            
            
            15,575Total
            
            $
            34,265





**NOTE
      13 –** **DEPOSIT
      FOR ACQUISITION**





In
      November 2007, the Company signed a letter of intent with the shareholders
      of
      Kandi Special Vehicles Co., Ltd, by which the Company would acquire 100% of
      Kandi Special Vehicles Co., Ltd. The Company paid a refundable deposit
      of $12,270,859 as of December 31, 2007. The total consideration for the
      acquisition is $12,314,988 and the acquisition is expected to be completed
      in
      April of 2008.





**NOTE
      14 –** **FORFEITURE
      OF CUSTOMER DEPOSITS**





The
      forfeitures of customer deposits resulted from the customers’ breach of mutual
      contracts (the customers had declared bankruptcy). During the year ended
      December 31, 2007 and 2006, $505,207 and $0, were forfeited and recorded in
      the
      accompanying consolidated statements of income and comprehensive income as
      other
      income.





F-25


**KANDI
      TECHNOLOGIES, CORP.**


**(FORMERLY
      STONE MOUNTAIN RESOURCES, INC.)** ****


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      15 –** **GEOGRAPHICAL
      SALES**





The
      following are the geographical sales of the Company:


**2007**
              
              **2006****Area**
              
              **Amounts**
              
              **Percentage**
              
              **Amounts**
              
              **Percentage**United
                  States
              
              **$**
              17,499,043
              
              
              50
              %
              **$**
              2,238,143
              
              
              15
              %North
                  American
              
              
              6,390,220
              
              
              18
              %
              
              1,126,484
              
              
              8
              %China
              
              
              6,264,492
              
              
              18
              %
              
              10,087,327
              
              
              70
              %Europe
              
              
              2,783,342
              
              
              8
              %
              
              609,767
              
              
              4
              %Others
              
              
              1,765,071
              
              
              6
              %
              
              419,115
              
              
              3
              %Total
              
              **$**
              34,702,168
              
              
              100
              %
              **$**
              14,480,836
              
              
              100
              %


F-26


**Item
                9.**
            **Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure**





None.





**Item
                9A.**
            **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-K, 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 December 31, 2007. Based on that review and evaluation, the Chief
      Executive Officer and Chief Financial Officer, along with other key management
      of the Company, have determined that the disclosure controls and procedures
      were
      and are effective as designed to ensure that material information relating
      to
      the Company and its consolidated subsidiaries required to be disclosed by the
      Company by the Exchange Act, was recorded, processed, summarized and reported
      within the applicable time periods.





**Changes
      in Internal Controls**




In
      conjunction with the evaluation and review of the internal controls over
      financial reporting which commenced in October of 2007, the Company also
      undertook to improve the disclosure controls and procedures by:





·
            hiring
                more experienced personnel with expertise in public company financial
                reporting;




·
            hiring
                advisors with extensive experience in dealing with public company
                disclosure issues; and




·
            properly
                documenting and formalizing internal controls and
                procedures.




22


**Management’s
      Report on Internal Control over Financial Reporting**


Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting, as such term is defined in Rule 13a-15(f)
        under the Securities Exchange Act of 1934.  Under the supervision and
        with the participation of our management, including the principal executive
        officer and principal financial officer, we are conducting an evaluation
        of the
        effectiveness of our internal control over financial reporting based on the
        framework in Internal Control-Integrated Framework issued by the Committee
        of
        Sponsoring Organizations of the Treadway Commission.
 
 Prior
        to July 2007, the Company was a reporting shell company with no
        operations.  In July 2007, as a result of the Exchange Agreement, the
        Company acquired Zhejiang Kandi Vehicles Co., Ltd. The operations of Zhejiang
        Kandi Vehicles Co., Ltd. represent primarily all the operations of the Company
        on a consolidated basis and is excluded from management’s assessment of internal
        control over financial reporting.  Due to the recent nature of the
        acquisition, it was not feasible for the Company to complete its review and
        assessment.  The Company expects to complete the review of its internal
        control over financial reporting in 2008.
 
 This
        annual report does not include an attestation report of the Company's registered
        public accounting firm regarding internal control over financial reporting.
        Management's report was not subject to attestation by the Company's registered
        public accounting firm pursuant to temporary rules of the Securities and
        Exchange Commission that permit the Company to provide only management's
        report
        in this annual report.





**PART
      III**





**Item
                10.**
            **Directors,
                Executive Officers and Corporate
                Governance**




As
      of
      March 31, 2008, our directors and executive officers, their ages, positions
      with
      Kandi, and the dates of their initial election or appointment as director or
      executive officer are as follows:





**Name**
            
            **Age**
            
            **Position
                With Kandi**
            
            **Served
                From**Hu
                Xiaoming
            
            51
            
            Chairman
                of the Board, President and
              Chief
                Executive Officer
            
            March
                2002Zhu
                Xiaoying
            
            37
            
            Chief
                Financial Officer, Director
            
            September
                2003Zheng
                Mingyang
            
            54
            
            Director
                (Independent)
            
            September
                2003Ying
                Jinfeng
            
            43
            
            Director
                (Independent)
            
            March
                2002Xie
                Keipei
            
            44
            
            Director
                (Independent)
            
            December
                2003Fong
                Heung Sang (Dexter)
            
            47
            
            Director
                (Independent)
            
            July
                2007Hu
                Wangyuan
            
            29
            
            Vice
                President, Director
            
            March
                2002


23


**Business
      Experience of Directors and Executive Officers**





**Biographical
      Information**





Hu
      Xiaoming, age 50, has been our Chief Executive Officer, President and Chairman
      of the Board of Directors since March 2002.  From October 2003 to
      April 2005, Mr. Hu was the Project Manager (Chief Scientist) in WX Pure Electric
      Vehicle Development Important Project of Electro-vehicle in State 863
      Plan.  Prior to that, from October 1984 to March 2003, Mr. Hu was a
      Factory Director in Yongkang Instrument Factory, Factory Director in Yongkang
      Mini Car Factory, Chairman and General Manager in Yongkang Vehicle Company,
      General Manager in Wan Xiang Electric Vehicle Developing Center, and General
      Manager in Wan Xiang Battery Company. He personally owns 3 invention patents,
      5
      utility model patents and over 10 appearance design patents.





Hu
      Wangyuan, age 28, is our Vice President and Director and has been a director
      and
      economist at Kandi since March 2002. Mr. Hu received his MBA at of Hong Kong
      Polytechnic University in November 2002.  Mr. Hu has 3-years of
      working experience in go-kart marketing, and retains close cooperative
      relationships with many suppliers and distributors.





Ying
      Jinfeng, age 42, has been a director and Senior Engineer at Kandi since March
      2002.  Prior to that, from June 1990 to December 1997, Mr. Ying was Manager
      of Engineering Technology Dept, Senior Project Manager, Chief Management
      Executive of Product Planning and Project Management, Vice Factory Director
      in
      Yongkang Mini Car Factory.  Prior to that, from January 1998 to
      February 2002, he was Vice General Manager in Yongkang Vehicle Company, and
      was
      in charge of technology, supply, sales and production.  Mr. Ying has
      over 20 years working experience, mostly in Production Operation Management,
      HR
      and Project Corporation.





Zhu
      Xiaoying, age 36, is our Chief Financial Officer and director.  Ms.
      Zhu received a bachelor’s degree in accounting from Hangzhou Electronic
      Engineering University and joined Kandi in September 2003 and was appointed
      acting CFO and director of the Company.  From January 2000 to
      September 2003, she worked as accounting manager for Zhejiang Yongkang
      Automobile Manufacture Co.





Zheng
      Mingyang, age 53, has been a director of Kandi since 2003.  From May
      1992 to September 2003 he worked as the vice president of Yongkang Automobile
      Manufacture Co.


24


Xie
      Kepei, age 43, has been a director of Kandi since December 2003.  From
      August 2001 to November 2003 she worked as the Manager of General Administration
      for Zhejiang Sifang Group Transportation Machinery Co.





Fong
      Heung Sang (Dexter), age 46, has been a director of Kandi since July 2007.
      Mr.
      Fong, a U.S. CPA, serves as the Executive Vice President of Corporate
      Development of Fuqi International, Inc.—a position he has held since December
      2006. From January 2004 to November 2006, Mr. Fong served as the managing
      partner of Iceberg Financial Consultants, a financial advisory firm based in
      China that advises Chinese clients in capital raising activities in the United
      States. From December 2001 to December 2003, Mr. Fong was the Chief Executive
      Officer of Holley Communications, a Chinese company that engaged in CDMA chip
      and cell phone design. From March 2002 to March 2004, he served as Chief
      Executive Officer of Pacific Systems Control Technology, Inc. (NASDAQ:PFSY),
      a
      Chinese company listed on NASDAQ. From May 2001 to November 2001, Mr. Fong
      was
      the Director of Finance of PacificeNet, Inc. (NASDAQ:PACT), a customer
      relationship management, mobile internet, e-commerce and gaming technology
      based
      in China. From December 1998 to April 2001, he was the Group Financial
      Controller of Oregon Scientific, a wholly-owned subsidiary of IDT, a Hong King
      Stock Exchange-listed company. Mr. Fong also held various positions with
      accounting firms in the United States and Hong Kong including Deloitte and
      Touche, Ernst and Young, and KPMG. Mr. Fong is also currently serving as an
      independent director and audit committee member of a Hong Kong public company,
      Universal Technology Inc. Mr. Fong graduated from the Baptist University with
      a
      bachelor’s degree in history in 1982. He also has an MBA from the University of
      Nevada at Reno and Masters in Accounting from the University of Illinois at
      Urbana Champaign.





**Family
      Relationships**





Hu
      Xiaoming, our Chairman, CEO and President is the father of Hu Wangyuan, our
      Vice
      President and Director.





**Audit
      Committee Financial Expert**





Our
      audit
      committee consists of Dexter Fong (Chair), Zheng Mingyang and Xie Keipei. The
      Board has determined that Mr. Fong qualifies as an “audit committee financial
      expert,” as defined in applicable SEC rules. The Board made a qualitative
      assessment of Mr. Fong’s level of knowledge and experience based on a number of
      factors, including formal education and business experience.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





To
      our
      knowledge the officers, directors and beneficial owners of more than 10% of
      our
      common stock have filed their initial statements of ownership on Form 3 on
      a
      timely basis with respect to fiscal 2007, and the officers, directors and
      beneficial owners of more than 10% of our common stock have also filed the
      required Forms 4 or 5 on a timely basis with respect to fiscal 2005, except
      as
      follows:


25





Number
              of
              Late
              Reports
            
            Number
                of
              Transactions
              Not
              Reported
              TimelyFong
                Heung Sang
            
            
            1
            
            
            1





**Code
      of Ethics**





Kandi
      has
      adopted a code of ethics that applies to all of our directors and employees,
      including our principal executive officer and principal financial officer.
      A
      copy of the Code of Ethics is included as an exhibit to the 8-K filed with
      the
      SEC on November 5, 2007, and is incorporated by reference herein.




**Item
      11.**  **Executive
      Compensation**





None
      of
      our executive officers received compensation in excess of $100,000 for the
      fiscal years ended December 31, 2007 or 2006. The following table summarizes
      all
      compensation received by our previous and current chief executive officer,
      President and Chief Financial Officer for the fiscal year ended December 31,
      2007.




**Name
                and principal position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($)**
            
            **Non-Equity**
              **Incentive**
              **Plan**
              **Compensation**
              **($)**
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**Peter
                Dodge (1)
            
            
            2007
            
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            02006
            
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            0Hu
                Xiaoming, CEO and President (2)
            
            
            2007
            
            
            19,231
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,2312006
            
            
            19,231
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,231


26





(1)
            Mr.
                Dodge resigned as the Company’s President, Chief Executive Officer, Chief
                Financial Officer, Secretary and Treasurer on June 29,
                2007.(2)
            Mr.
                Hu was appointed as CEO and President of the Company on June 29,
                2007.





**Director
      Compensation**





No
      compensation was paid to any of the Company’s directors for their services as a
      director in 2007. Neither were there any outstanding equity awards to any
      officer of the Company during the period covered by this report.




**ITEM
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management****and Related Stockholder
                Matters**




The
      following table sets forth information known to us, as of the date of this
      report, relating to the beneficial ownership of shares of common stock by each
      person who is known by us to be the beneficial owner of more than five percent
      of the outstanding shares of common stock; each director; each executive
      officer; and all executive officers and directors as a group. We believe that
      all persons named in the table have sole voting and investment power with
      respect to all shares of common stock shown as being owned by them.




**Title
                of Class**
            
            **Name
                of Beneficial Owner**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percent
                of Class**Common
                Stock
            
            
            Excelvantage
                Group Limited
            
            
            12,000,000
            
            
            60.12
            %Common
                Stock
            
            
            Ho
                Man Tim(1)
            
            
            12,000,000
            
            
            60.12
            %All
                officers and directors





(1)
      Ho
      Man Tim is the sole stockholder of Excelvantage Group Limited. Through his
      position as the sole stockholder in Excelvantage Group Limited, Ho Man Tim
      has
      the power to dispose of or direct the disposition of the one (1) share of common
      stock he owns in Excelvantage Limited Group. As a result, Ho Man Tim may, under
      the rules of the Securities and Exchange Commission, be deemed to be the
      beneficial owner of the shares of common stock. Ho Man Tim disclaims beneficial
      ownership of the shares of common stock reported as beneficially owned by him,
      except to the extent of his pecuniary interest as a stockholder of Excelvantage
      Group Limited.


27


**Item
                13.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence.**





None.





*Director
      Independence*





Messrs.
      Dexter Fong, Zheng Mingyang, Xie Keipei and Ying Jingfeng are all non-employee
      directors, all of whom our Board of Directors has determined are independent
      pursuant to the NASDAQ rules the rules of the Securities and Exchange
      Commission. All of the members of members of our Board of Directors Audit
      Committee, Nominating/Corporate Governance Committee and Compensation Committee
      are independent pursuant to the rules of NASDAQ and the Securities and Exchange
      Commission.





**Item
      14.**  **Principal
      Accounting Fees and Services.**




Audit
      Fees




The
      aggregate fees for each of the last two years for professional services rendered
      by the principal accountant for our audits of our annual financial statements
      and interim reviews of our financial statements included in our fillings with
      Securities and Exchange Commission on Form 10-Ks and 10-Qs services that are
      normally provided by the accountant in connection with statutory and regulatory
      filings or engagements for those years were approximately:





2007
            
            $
            215,083
            
            
            Weinberg
                & Company, P.A.2006
            
            $
            0




Audit
      Committee Approval




Our
      Audit
      Committee must pre-approve all audit and permissible non-audit services
      performed by the independent registered public accounting firm. These services
      may include audit services, audit-related services, tax services and other
      services.




All
      of
      the services described herein were approved by the Audit Committee pursuant
      to
      its pre-approval policies. None of the hours expended on the principal
      accountant’s engagement to audit the Company’s financial statements for the most
      recent fiscal year were attributed to work performed by persons other than
      the
      principal accountant’s full-time permanent employees.


28


**PART
      IV**





**Item
      15.**  **Exhibits,
      Financial Statement Schedules.**





**Exhibit**
              **Number**
            
            **Description**2.1
            
            Share
                Exchange Agreement, dated June 29, 2007, among Stone Mountain Resources,
                Inc., Continental Development Limited and Excelvantage Group Limited
                (incorporated by reference from Exhibit 2.1 to the Company’s Current
                Report on Form 8-K filed on July 6, 2007).3.1
            
            Certificate
                of Incorporation (incorporated by reference from Exhibit 3.1 to Form
                SB-2
                filed by the Company on April 1, 2005).3.2
            
            By-laws
                (incorporated by reference from Exhibit 3.2 to Form SB-2 filed by
                the
                Company on April 1, 2005).10.1
            
            Agreement
                on Business Operations between Zhejiang Kandi Vehicles Co., Ltd.
                and
                Zhejiang Yongkang Top Import & Export Co., Ltd. (incorporated by
                reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on July 6, 2007).10.2
            
            Employment
                Contract, dated June 10, 2004, by and between Zhejiang Kandi Vehicles
                Co.,
                Ltd. and Mr. Hu Xiaoming (incorporated by reference from Exhibit
                10.2 to
                the Company’s Current Report on Form 8-K filed on July 6,
                2007).10.3
            
            Employment
                Contract, dated July 10, 2004, by and between Zhejiang Kandi Vehicles
                Co.,
                Ltd. and Ms. Zhu Xiaoying (incorporated by reference from Exhibit
                10.3 to
                the Company’s Current Report on Form 8-K filed on July 6,
                2007)..16.1
            
            Letter
                from Gately & Associates, LLC (incorporated by reference from Exhibit
                16.1 to the Company’s Current Report on Form 8-K filed on August 14,
                2007).21.1
            
            List
                of Subsidiaries.31.1
            
            Certification
                of CEO pursuant to Rule 13a-14 under the Securities Exchange Act
                of
                1934.31.2
            
            Certification
                of CFO pursuant to Rule 13a-14 under the Securities Exchange Act
                of
                1934.32.1
            
            Certification
                s of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to
                Section 906 of the Sarbanes-Oxley Act of
                2002.


29


**SIGNATURES**




Pursuant
      to the requirements of Section 13 of the Securities Exchange Act of 1934 (the
      “Exchange Act”), the registrant has duly caused this report to be signed on its
      behalf by the undersigned, thereunto duly authorized.





**KANDI
                TECHNOLOGIES, CORP.**March
                31, 2008
            By:
            /s/
                Hu XiaomingHu
                XiaomingPresident
                and Chief Executive Officer





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





/s/
                Hu Xiaoming
            
            President,
                Chief Executive Officer and
            
            March
                31, 2008Hu
                Xiaoming
            
            Chairman
                of the Board (Principal Executive Officer)/s/
                Zhu Xiaoying
            
            Chief
                Financial Officer and Director
            
            March
                31, 2008(Principal
                Financial Officer and Principal Accounting Officer)/s/
                Zheng Mingyang
            
            Director
            
            March
                31, 2008/s/
                Ying Jinfeng
            
            Director
            
            March
                31, 2008/s/
                Xie Keipei
            
            Director
            
            March
                31, 2008/s/
                Fong Heung Sang
            
            Director
            
            March
                31, 2008/s/
                Hu Wangyuan
            
            Director
            
            March
                31, 2008


30