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, 2008




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)




(86-579)
83906856




(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   No þ




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes   No þ




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes þ  No 





Indicate
by check mark 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.  











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





Large
      accelerated filer 
            Accelerated
      filer Non-accelerated
      filer 
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes   No  þ




As of
March 31, 2009, there were 19,961,000 shares of the registrant’s common stock,
$0.001 par value, issued and outstanding and no 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.




DOCUMENTS
INCORPORATED BY REFERENCE: none.





* Prior
to this date, the registrant was a shell company.










TABLE OF
CONTENTS





PART
      IItem 1.
                Business.
                1-5Item 1A.
                Risk
      Factors.
                5-13Item 1B.
                Unresolved
      Staff Comments.
                13Item 2.
                Properties.
                13-14Item 3.
                Legal
      Proceedings.
                14Item 4.
                Submission
      of Matters to a Vote of Security Holders.
                15-16PART IIItem 5.
                Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                16Item 6.
                Selected
      Financial Data.
                17Item 7.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                17-23Item 7A.
                Quantitative
      and Qualitative Disclosures about Market Risk.
                23Item 8.
                Financial
      Statements and Supplementary Data.
                23Item 9.
                Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.
                24Item 9A.
                Controls
      and Procedures.
                24PART IIIItem 10.
                Directors,
      Executive Officers and Corporate Governance.
                25-26Item 11.
                Executive
      Compensation.
                27-28Item 12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                28Item 13.
                Certain
      Relationships and Related Transactions and Director
      Independence.
                28Item 14.
                Principal
      Accounting Fees and Services.
                29PART IVItem 15.
                Exhibits,
      Financial Statement Schedules.
                30-34SIGNATURES









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.





Business
Overview





General





Kandi’s
products include off-road vehicles (which includes ATVs, UTVs, and go-karts),
motorcycles and mini-cars.





The
      Years Ended of December 312008
                                  
                                  
                                  2007Sales
      Revenue
                                  
                                  
                                  Costs
                                  
                                  
                                  Sales
      Revenue
                                  
                                  
                                  CostsOff-Road
      Business
                                  
                                  $
                                  39,654,296
                                  
                                  
                                  $
                                  30,263,909
                                  
                                  
                                  $
                                  33,434,662
                                  
                                  
                                  $
                                  26,294,696Motorcycle
      Business
                                  
                                  
                                  3,297
                                  
                                  
                                  
                                  4,227
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Mini-Car
      Business
                                  
                                  
                                  856,195
                                  
                                  
                                  
                                  651,732
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
                                  
                                  $
                                  40,513,788
                                  
                                  
                                  $
                                  30,919,868
                                  
                                  
                                  $
                                  33,434,662
                                  
                                  
                                  $
                                  26,294,696





- 1
-





Off-Road
Vehicles





In 2003
Kandi began mass production of go-karts. The Company is now one of the leading
manufacturers of go-karts in the People’s Republic of China (PRC), producing
approximately 15% of China’s global exports of this popular recreational
vehicle. Kandi produces a wide range of go-karts, from the 90cc class to the
1,000cc class in cylinder displacement. Kandi also produces four-wheeled
all-terrain vehicles (ATVs) and specialized utility vehicles (UTVs), which are
ATVs special-fitted for agricultural and industrial use.




Motorcycle
Products





In late
2008, Kandi began sales of its newest motorcycle, the three-wheeled “TT,” which
was designed for enhanced safety and comfort, while maintaining the convenience
and fuel efficiency of a motorcycle.


The
Company expects significant growth in the sales of the TT and expects to expand
the product line in the near term.





Mini-Car
Products





Kandi
began sales of its gas-powered Super-mini car (“CoCo”) in August 2008. The first
generation of CoCo was designed for local neighborhood driving, with a 250cc
single cylinder, 4-stroke water-cooled engine with a top speed of 25 mph,
achieving 60 mpg. In 2009, the Company will launch the electric CoCo, a stylish
mini-car which will run on electrical power. The electric CoCo is designed to
achieve a top speed of 25mph, and will have a driving range of 80 miles on a
single full charge. The Company expects to sell 50% of the electric CoCo it
produces in China, with the rest exported to markets in North
America.





The
following table shows the breakdown of Kandi’s revenues from its customers by
geographical markets based on the location of the customer during the fiscal
years ended December 31, 2008 and 2007:




The
      Years Ended of December 312008
                                  
                                  
                                  2007Sales
      Revenue
                                  
                                  
                                  Units
                                  
                                  
                                  Percentage
                                  
                                  
                                  Sales
      Revenue
                                  
                                  
                                  Units
                                  
                                  
                                  PercentageNorth
      America
                                  
                                  $
                                  7,292,482
                                  
                                  
                                  
                                  9,010
                                  
                                  
                                  
                                  18
                                  %
                                  
                                  $
                                  23,889,263
                                  
                                  
                                  
                                  33,446
                                  
                                  
                                  
                                  72
                                  %Europe
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6,264,492
                                  
                                  
                                  
                                  8,246
                                  
                                  
                                  
                                  19
                                  %China1
                                  
                                  
                                  32,816,168
                                  
                                  
                                  
                                  40,545
                                  
                                  
                                  
                                  81
                                  %
                                  
                                  
                                  2,783,342
                                  
                                  
                                  
                                  3,665
                                  
                                  
                                  
                                  8
                                  %Other
      Regions
                                  
                                  
                                  405,138
                                  
                                  
                                  
                                  501
                                  
                                  
                                  
                                  1
                                  %
                                  
                                  
                                  497,565
                                  
                                  
                                  
                                  458
                                  
                                  
                                  
                                  1
                                  %Total
                                  
                                  $
                                  40,513,788
                                  
                                  
                                  
                                  50,056
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  $
                                  33,434,662
                                  
                                  
                                  
                                  45,815
                                  
                                  
                                  
                                  100
                                  %




1





Sales and
Distribution





Kandi’s
sales are made through third-party distributors, which distribute Kandi’s
products to local wholesalers and retail dealers. Worldwide, Kandi sells its
products through six main independent distributors for off-road
vehicles.





- 2
-





Components
and Parts, Raw Materials and Sources of Supply





Kandi
manufactures the frames of its vehicles and assembles the vehicles in its
factory in Jinhua, China.  Other components and parts, such as
engines, shock absorbers, electrical equipment and tires, are purchased from
numerous suppliers.  The principal raw materials used by Kandi are
steel plate, aluminum, special steels, steel tubes, paints, and plastics, which
are purchased from several suppliers.  The most important raw material
purchased is steel plate.There were six suppliers who accounted for more than 5%
of the Company’s purchases of major components and parts and principal raw
materials during the fiscal year ended December 31, 2008. Kandi does not have
and does not anticipate having any difficulty in obtaining its required
materials from suppliers and considers its contracts and business relations with
the suppliers to be satisfactory.





Seasonality





Kandi’s
motorcycle and off-road vehicle businesses have historically experienced some
seasonality.  However, this seasonality has not generally been
material to our financial results.





Competitive
Strengths





The
global small vehicle markets are highly competitive. Competition in such markets
is based upon a number of factors, including price, quality, reliability,
styling, product features and warranties. As a relatively new entrant into the
market, many of our competitors are more diversified and have financial and
marketing resources that are substantially greater than those of
Kandi.





Employees




As of
December 31, 2008, Kandi had a total of 562 employees. None of our employees are
represented by any collective bargaining agreements.




Environmental
and Safety Regulation




Emissions




The
United States Environmental Protection Agency (“EPA”) and the California Air
Resources Board (“CARB”) have adopted emissions regulations applicable to
Kandi’s products. CARB has emissions regulations for ATVs and off-road vehicles
which the Company already meets. In October 2002, the EPA established new
corporate average emission standards effective for model years 2006 through 2012
for non-road recreational vehicles, including ATVs and off-road
vehicles.




Kandi’s
motorcycles are also subject to EPA and CARB emission standards. Kandi believes
that its motorcycles have always complied with these standards. The CARB
regulations required additional motorcycle emission reductions in model year
2008 which the Company met. The EPA adopted the CARB emission limits in a
January 2004 rulemaking that allows an additional two model years to meet these
new CARB emission requirements on a nationwide basis.




Kandi’s
products are also subject to international laws and regulations related to
emissions in places where it sells its products outside the United States.
Europe currently regulates emissions from certain of the Company’s ATV-based
products, motorcycles, and mini-cars and the Company meets these requirements.
Canada’s emission regulations for motorcycles are similar to those in the U.S.
In December 2006 Canada proposed a new regulation that would essentially adopt
the U.S. emission standards for ATVs and off-road vehicles. These regulations
are expected to become effective in 2009.




- 3
-




Kandi
believes that its off-road vehicles, motorcycles and mini-cars have always
complied with applicable emission standards and related regulations in the
United States and internationally. Kandi is unable to predict the ultimate
impact of the adopted or proposed regulations on Kandi and its
business.




Use
regulation




State and
federal laws and regulations have been promulgated or are under consideration
relating to the use or manner of use of Kandi’s products. Some states and
localities have adopted, or are considering the adoption of, legislation and
local ordinances which restrict the use of ATVs and off-road vehicles to
specified hours and locations. The federal government also has restricted the
use of ATVs and off-road vehicles in some national parks and federal lands. In
several instances this restriction has been a ban on the recreational use of
these vehicles. Kandi is unable to predict the outcome of such actions or the
possible effect on its business. Kandi believes that its business would be no
more adversely affected than those of its competitors by the adoption of any
pending laws or regulations.






Product
Safety and Regulation





Safety
Regulation




The
federal government and individual states have promulgated or are considering
promulgating laws and regulations relating to the use and safety of Kandi’s
products. The federal government is the primary regulator of product safety. The
Consumer Product Safety Commission (“CPSC”) has federal oversight over product
safety issues related to ATVs and off-road vehicles. The National Highway
Transportation Safety Administration (“NHTSA”) has federal oversight over
product safety issues related to on-road motorcycles.




In August
2008, the Consumer Product Safety Improvement Act (the “Act”) was passed. The
Act includes a provision that requires all manufacturers and distributors who
import into or distribute ATVs in the United States to comply with the ANSI/SVIA
safety standards which were previously voluntary. The Act also requires the same
manufacturers and distributors to have ATV action plans filed with the CPSC that
are substantially similar to the voluntary action plans that were previously in
effect. Kandi currently complies with the ANSI/SVIA standard.




Kandi’s
motorcycles are subject to federal vehicle safety standards administered by
NHTSA. Kandi’s motorcycles are also subject to various state vehicle safety
standards. Kandi believes that its motorcycles have always complied with safety
standards relevant to motorcycles.




Kandi’s
products are also subject to international standards related to safety in places
where it sells its products outside the United States. Kandi believes that its
motorcycles and mini-cars have always complied with applicable safety standards
in the United States and internationally.




- 4
-




Principal
Executive Offices





Our
principal executive office is located in the Jinhua City Industrial Zone in
Jinhua, Zhejiang Province, PRC, 321016 and our telephone number (86-579)
83906856.




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 annual report on Form 10-K 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 occur, 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 because we have only been in operation since
2003.  This limited operating history, and the unpredictability of the
machinery production industry, makes it difficult for investors to evaluate our
businesses and predict 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 comply with all applicable government
regulations.





We are
subject to extensive governmental regulation by the central, regional and local
authorities in the PRC, where our business operations take place. We believe
that we are currently in substantial compliance with all laws and governmental
regulations and that we have all material permits and licenses required for our
operations. Nevertheless, we cannot assure investors that we will continue to be
in substantial compliance with current laws and regulations, or that 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 our 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.





- 5
-




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





We use,
generate and discharge toxic, volatile and otherwise hazardous chemicals and
wastes in our research and development and manufacturing activities, and our
business operations generate noise, waste water, and gaseous and other
industrial wastes. We are therefore required to comply with all national and
local regulations regarding protection of the environment. We are in compliance
with current 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. Additionally, if we fail to comply with
present or future environmental regulations, we may be required to pay
substantial fines, suspend production or cease operations. 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.




We
rely on third party distributors to sell and service a significant portion of
our products.
  The
majority of the Company's revenues results from sales contracts with
distributors. These third party distributorsmay
terminate their relationships with us, or fail to commit the necessary resources
to sell or service our products to the level of our expectations. If current or
future third party dealers or distributors do not perform adequately, or if we
fail to maintain our existing relationships with them or fail to recruit and
retain distributors in particular markets or geographic areas, our revenues may
be adversely affected and our operating results could
suffer.




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 any 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.





We
may be subject to product liability claims, recalls or warranty claims, which
could be expensive, damage our reputation and result in a diversion of
management resources.





The Company may be subject to lawsuits
resulting from injuries associated with the use of the vehicles that it sells.
The Company may incur losses relating to these claims or the defense of these
claims. There is a risk that claims or liabilities will exceed our insurance
coverage. In addition, the Company may be unable to retain adequate liability
insurance in the future.




The Company may also be required to
participate in recalls involving our vehicles if any prove to be defective, or
we may voluntarily initiate a recall or make payments related to such claims as
a result of various industry or business practices or the need to maintain good
customer relationships. Such a recall would result in a diversion of resources.
While we do maintain product liability insurance, we cannot assure you that it
will be sufficient to cover all product liability claims, that such claims will
not exceed our insurance coverage limits or that such insurance will continue to
be available on commercially reasonable terms, if at all. Any product liability
claim brought against us could have a material adverse effect on our results of
operations.




- 6
-


.


Risks
Relating to Our Vehicle Machinery Production Operations




We
may be subject to significant potential liabilities as a result of defects in
production 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.




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 subjective 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 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 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.





The
vehicle machinery industry is highly competitive, and our continued success
depends upon our ability to compete effectively in markets that contain numerous
competitors, some of which 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 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.




Our business is subject to the risk of supplier
concentrations.




We depend on a limited number of
suppliers for the sourcing of major components and parts and principal raw
materials. As a result of this concentration in our supply chain, our business
and operations would be
negatively affected if any of our key suppliers were to experience significant
disruption affecting the price, quality, availability or timely delivery of
their products. The partial or complete loss of one of these suppliers, or a
significant adversechange in our relationship with any of
these suppliers, could result in lost revenue, added costs and distribution
delays that could harm our business and customer relationships. In addition,
concentration in our supply chain can exacerbate our exposureto risks associated with the termination
by key suppliers of our distribution agreements or any adverse change in the
terms of such agreements, which could have a negative impact on our revenues and
profitability.





General economic
conditions may negatively impact our results.





The
consumption of entertainment products such as go-karts and mini-cars is
dependant on continued economic growth, and the duration, pace and full extent
of the current economic 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 qualified applicants for job openings in our facilities. Higher
wages, related labor costs and other increasing cost trends may negatively
impact our results as wages and related labor costs.




- 7
-




Risks
Related to Doing Business in China




Change
in political and economic conditions may affect our business operations and
profitability.





Since our
business operations are primarily located in 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
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
experienced accelerated development of a market economy. A noteworthy recent
phenomenon is that non-state owned enterprises, such as private enterprises,
play an increasingly important role in the Chinese economy and the degree of
direct control by the PRC government over the economy is gradually
declining.





While the
Chinese government has not halted its economic reform policy since 1978, any
significant adverse changes in the social, political and economic conditions of
China may fundamentally impact 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 may affect our business
operations.




Various
tax reform policies have been implemented in the PRC in recent years. Businesses
are still awaiting guidance from the government in interpreting certain PRC tax
policies. 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. Previous 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 is not always uniform and enforcement of these laws, regulations and rules
involves uncertainties, which may limit legal protections available to
us.




- 8
-




In
addition, any litigation in China may be protracted and may 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 in China. 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 laws and regulations can be uncertain and
unpredictable and therefore may restrict the legal protections of foreign
investors.




Changes
in Currency Conversion Policies in China may have an material adverse effect on
us.




Renminbi
(“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 enhance verification of foreign exchange
payments under a Chinese entity’s current account items, and has imposed strict
requirements on borrowing and repayments of foreign exchange debts from and to
foreign creditors under the capital account items and on the creation of foreign
security in favor of foreign creditors.





This may
complicate foreign exchange payments to foreign creditors under the current
account items and thus will affect the ability to borrow under international
commercial loans, the creation of foreign security, and the borrowing of RMB
under guarantees in foreign currencies. Furthermore, the value of RMB may become
subject to supply and demand, which could be largely impacted by international
economic and political environments.  Any fluctuations in the exchange
rate of RMB could have an adverse effect on the operational and financial
condition of the Company and its subsidiaries in China.





You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions 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 in 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.




- 9
-




Risks
Relating to Ownership of Our Securities





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, 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 factors, including the following, 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 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.




Our
common shares are thinly traded and you may be unable to sell at or near ask
prices, or at all.





We cannot
predict the extent to which an active public market for trading our 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 small company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community who generate or
influence sales volume.  Even if we came to the attention of such
persons, those persons tend to be risk-averse and may be reluctant to follow,
purchase, or recommend the purchase of shares of an unproven company such as
ours 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.




- 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 dividends on any of our capital
stock in the foreseeable future. If payment of dividends does occur at some
point in the future, it 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 RMB may have a material adverse effect on your
investment.




The
change in value of the RMB against the U.S. dollar, the Euro and other
currencies is affected by changes in China’s political and economic conditions,
among other things. On July 21, 2005, the PRC government changed its
decade-old policy of pegging the value of the RMB to the U.S. dollar. Under
the new policy, the RMB 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 RMB against the U.S. dollar.
While the international reaction to the RMB 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 RMB against the U.S. dollar. As a
portion of our costs and expenses is denominated in RMB, the revaluation in July
2005 and potential future revaluation has and could further increase our costs.
In addition, any significant revaluation of the RMB may have a material
adverse effect on our financial condition. For example, to the extent that
we need to convert U.S. dollars we receive from this offering into RMB for
our operations, appreciation of the RMB against the U.S. dollar would have
an adverse effect on the RMB amount we receive from the conversion. Conversely,
if we decide to convert our RMB 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 RMB would have a negative
effect on the U.S. dollar amount available to us.





- 11
-




If
the Company were to be 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 maintain the listing of our
common stock on NASDAQ. There can be no assurance that we can continue to meet
the requirements 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 as
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 of 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 for 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
Stone Mountain entering into the share exchange agreement with Continental on
June 29, 2007, Stone Mountain engaged in businesses unrelated to our current
operations. 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, cash equivalents, and 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 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.





Our
business is subject to changing regulations related to corporate governance and
public disclosure that have increased both our costs and the risk of
noncompliance.





Because
our common stock is publicly traded, we are subject to certain rules and
regulations of federal, state and financial market exchange entities charged
with the protection of investors and the oversight of companies whose securities
are publicly traded. These entities, including the Public Company Accounting
Oversight Board, the SEC and NASDAQ, have issued requirements and regulations
and continue to develop additional regulations and requirements in response to
corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley
Act of 2002. Our efforts to comply with these regulations have resulted in, and
are likely to continue resulting in, increased general and administrative
expenses and diversion of management time and attention from revenue-generating
activities to compliance activities. Because new and modified laws, regulations
and standards are subject to varying interpretations in many cases due to their
lack of specificity, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This evolution may
result in continuing uncertainty regarding compliance matters and additional
costs necessitated by ongoing revisions to our disclosure and governance
practices.





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




- 13
-




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 (squaremeters)
                        
                        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
                        
                        10-15-0-203-2Zhejiang
      Jinhua Industrial Park
                        
                        46650.70
                        
                        Dec
      30, 2003 - Dec 30, 2053
                        
                        10-15-0-16Zhejiang
      Jinhua Industrial Park
                        
                        37515.00
                        
                        Dec
      30, 2003 - Dec 30, 2053
                        
                        10-15-0-17Zhejiang
      Jinhua Industrial Park
                        
                        49162.00
                        
                        Dec
      30, 2003 - Dec 30, 2053
                        
                        10-15-0-18




Item 3.
            Legal Proceedings.




In 2006, the Company brought a legal action against
Zhejiang Yuegong steel Structure Co. and Zhejiang Jinhua No.1 Construction Co.,
Ltd. for their delay in the construction in the Jinhua Industrial district.
According to the judge's report from the local court in Jinhua, PRC, on December
5, 2006, the Company won the lawsuit and Zhejiang Yuegong steel Structure Co.
and Zhejiang Jinhua No.1 Construction Co., Ltd. will be required to pay $186,331
as compensation to the Company. However, the two defendants appealed the ruling
to a higher level court and the Company has not received the compensation as of
December 31, 2008. Considering the uncertainties of the legal proceeding, the
Company did not record a gain for this at December 31, 2008.




- 14
-




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




Three
proposals were submitted to a vote of, and approved by, the stockholders of the
Company at the 2008 annual meeting of stockholders, which was held on December
19, 2008.  The first proposal was for the election of seven nominees
to serve as directors until the end of their respective terms.  The
second proposal was to approve the Company’s 2008 Omnibus Long-Term Incentive
Plan.  The third proposal was to ratify the appointment of Weinberg
& Company, P.A. as the Company’s independent registered public accountants
for 2008. Additional information about the proposals can be found in the
Company’s definitive proxy statement filed with the Securities and Exchange
Commission on November 24, 2008.




Of the
19,961,000 shares of stock issued and outstanding and entitled to vote at the
annual meeting, 17,706,532 shares were represented in person or by proxy, which
constituted approximately 89% of the total votes entitled to be cast at the
meeting.  Each share of common stock outstanding is entitled to one
vote.




The votes
for each proposal were cast as follows:




Proposal
1 – Election of Directors




Number of
                    
                    
                    Number ofShares Voted
      for
                    
                    
                    SharesWithheldHu Xiaoming
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Zhu
Xiaoying
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Hu Wangyuan
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Fong Heung
    Sang
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Zheng
    Mingyang
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Yao
    Zhengming
                    
                    
                    17,575,218
                    
                    
                    
                    98,434Qian Min
                    
                    
                    17,575,218
                    
                    
                    
                    98,434





- 15
-




Proposal
2 – Approval of the Company’s 2008 Omnibus Long-Term Incentive Plan




For:12,351,983
                Against:373,387
                Abstain:2,793







Proposal
3 – Ratification of the Appointment of Weinberg & Company, P.A. to serve as
the Company’s Independent Registered Public Accountants for its year ending
December 31, 2008




For:17,578,667
                Against:94,785
                Abstain:200






PART
II




Item 5.
            Market
      for Registrant’s 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, 2008.





HIGH
                      
                      
                      LOWFISCAL
      2008Fourth
      Quarter (through December 31, 2008)
                      
                      $
                      2.40
                      
                      
                      $
                      0.72Third
      Quarter (through September 30, 2008)
                      
                      $
                      4.30
                      
                      
                      $
                      1.75Second
      Quarter (through June 30, 2008)
                      
                      $
                      7.25
                      
                      
                      $
                      4.09First
      Quarter (through March 31, 2008)
                      
                      $
                      5.65
                      
                      
                      $
                      4.28FISCAL
      2007Fourth
      Quarter (through December 31, 2007)
                      
                      $
                      5.30
                      
                      
                      $
                      3.72Third
      Quarter (through September 30, 2007)
                      
                      $
                      4.25
                      
                      
                      $
                      3.25




Holders
of Common Stock




As of
December 31, 2008, there were ten 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.





- 16
-





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.




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 $7,123 in 2008
and $3,701 for 2007.





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, 2008 and 2007.




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.




- 17
-




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 December 2007, the FASB issued SFAS
No. 141 (R), Business Combinations. SFAS No. 141 (R) requires an acquirerto 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. The
calculation of earnings per share will continue
to be based on income amounts attributable to the parent. SFAS No.141 (R) is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. SFAS 141(R) will significantly affect the accounting
for future business combinations and we will determine the accounting as new
combinations are determined.





In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements.This Statement establishes
accounting and reporting standards that require the ownership interests in
subsidiaries’non-parent owners be clearly presented
in the equity section of the balance sheet; requires the amount of consolidated
net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income; requires that changes in a parent’s ownership interest while the parent
retains its controlling financial interestin its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair
value of any noncontrolling equity; requires that entities provide disclosures
that clearly identify the interests of the parent and the interests of the
noncontrolling owners. This Statement is effective as of thebeginning of an entity’s first fiscal year that begins after
December 15, 2008. The Company has not determined the impact, if any, SFAS No.
160 will have on its
financial statements.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company's strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November 15,
2008. The Company is currently in the process of assessing the impact that SFAS
No. 161 will have on the disclosures in its financial statements.





- 18
-




RESULTS OF OPERATIONS –
YEAR ENDED DECEMBER 31, 2008 AS COMPARED TO YEAR ENDED DECEMBER 31,
2007




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, 2008 and 2007:




For The Years
      Ended December 31, 2008 and
      20072008
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2007
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          ComparisonsAmount
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          %
      of
                                                                                                                                            Revenue
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Amount
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          %
      of
                                                                                                                                            Revenue
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Change
      in
                                                                                                                                            Amount
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Change
                                                                                                                                            In
      %REVENUES
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          40,513,788
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          33,434,662
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          7,079,126
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          21.2
                                                                                                                                          %COST
      OF GOODS SOLD
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          30,919,868
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          76.3
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          26,244,696
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          78.5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,675,172
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          17.8
                                                                                                                                          %GROSS
      PROFIT
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          9,593,920
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          23.7
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          7,189,966
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          21.5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,403,954
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          33.4
                                                                                                                                          %Research
      and Development
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          839,989
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2.1
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          108,399
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.3
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          731,590
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          674.9
                                                                                                                                          %Selling
      and Marketing
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          477,413
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          730,609
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (253,196
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (34.7
                                                                                                                                          %)General
      and Administration
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,836,394
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4.5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          936,224
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2.8
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          900,170
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          96.1
                                                                                                                                          %INCOME
      FROM OPERATIONS
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          6,440,124
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          15.9
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,414,734
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,025,390
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          18.9
                                                                                                                                          %Government
      Grants
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          64,595
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          64,595
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100
                                                                                                                                          %Forfeiture
      of Customer Deposits and Forgiveness of Debt
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16,235
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          667,041
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (650,806
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (97.6
                                                                                                                                          %)Other
      (Expense) Income, Net
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100,331
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          143
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100,188
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          70061.5
                                                                                                                                          %Interest
      Expense, Net
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (2,017,323
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (5.0
                                                                                                                                          %)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (1,115,132
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (3.3
                                                                                                                                          %)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (902,191
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          80.9
                                                                                                                                          %INCOME
      BEFORE INCOME TAX
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,603,962
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          11.4
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,966,786
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          14.9
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (362,824
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (7.3
                                                                                                                                          %)INCOME
      TAX(EXPENSE)
      BENEFIT
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (9,605
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          391,760
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1.2
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (401,365
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (102.5
                                                                                                                                          %)NET
      INCOME FROM CONTINUING OPERATIONS
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,594,357
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          11.3
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,358,546
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (764,189
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (14.3
                                                                                                                                          %)INCOME
      FROM DISCONTINUED OPERATION
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          327,721
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          0.8
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (329,450
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (1.0
                                                                                                                                          %)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          657,171
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (199.5
                                                                                                                                          %)NET
      INCOME
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          4,922,078
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          12.1
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          5,029,096
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          15.0
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          (107,018
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (2.1
                                                                                                                                          %)




Revenues




Total
revenue of $40,513,788 for the year ended December 31, 2008 increased by 21.2%
as compared to the same period of 2007. Such increase is mainly attributed to
the increase in sales of Go-karts and UTVs by 115% and 69% respectively, despite
the sharp fall in ATV business sales by 62.47% due to the economic downturn
resulting from the global financial crisis.




- 19
-




Cost of Goods
Sold





Cost of
goods sold during the year ended December 31, 2008 was $30,919,868 representing
a 17.8% increase from last year, which corresponds to the increase in sales.
Cost of goods sold as a percentage of revenues was 76.3% for 2008 as compared to
78.5% for the year 2007 which reflects the Company’s continued focus on cost
control and sourcing and operational efficiencies.





Gross
profit





Gross
profit increased by $2,403,954, or 33.4%, for the year ended December 31, 2008
as compared to the year ended December 31, 2007. This increase reflected higher
net sales, improved margins and operating efficiencies generally across our
go-karts businesses and was due to improvements in product quality, improvements
in energy efficiency in our manufacturing process and our ability to sell our
vehicles at higher price.





Selling and
Marketing





Selling
and marketing expenses, including distribution expenses, decreased significantly
to $477,413 from $730,609 for the previous year, representing a 34.7% decrease
primarily due to a significant decrease in promotional expenses resulting from
the global financial downturn.





General and
Administrative





General
and administrative expenses increased from $936,224 in 2007 to $1,836,394 in
2008, a 96.1% increase. The increase was primarily due to our use of legal and
accounting services in connection with the listing of our stock on the capital
market of NASDAQ.





Research and
Development





For the
year ended December 31, 2008, research and development expenses increased
$731,590 to $839,989 from $108,399 for the year ended December 31, 2007. The
increase is attributed to the significant research and development expenses
required for the initial stage of the CoCo and the TT.





Interest Expense,
Net





Net
interest expense was $2,017,323 for the year ended December 31, 2008, compared
to $1,115,132 for the year ended December 31, 2007, an increase of
80.9%.  This increase was mainly the result of the increase in
short-term loans borrowed to satisfy the increased working capital needs for the
expansion of production.





- 20
-




Income
Taxes




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. In accordance with the
relevant tax laws and regulations of PRC, the applicable corporate income tax
rate of Kandi is 25%. However, a foreign-invested company which registered with
the PRC government before March 16, 2007 is still permitted to apply the former
corporate income tax rules. Thus, our company was exempt from corporate income
tax for 2007 and 2008 and is also entitled to a 50% tax reduction for 2009, 2010
and 2011, of which the tax rate is 16.5%. The Company had a tax expense of
$9,605 for the year ended December 31, 2008 and had a tax benefit of $391,760
for the year ended December 31, 2007.




Net
Income




Net
income for the year ended December 31, 2008 was $4,922,078, which was a slight
decrease of 2.1% as compared to 2007. The decrease is primarily due to higher
research and development expenditure, financing interest and professional fees
incurred in the stock listing on the NASDAQ capital market during the fiscal
year.




LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flow





Net cash
flow provided by operating activities was $15,147,665 for the year ended
December 31, 2008, as compared to $7,827,141 for the year ended December 31,
2007. The increase of net cash flow provided by operating activities was mainly
due to the increase in accounts payable of $3,048,097 and the decrease in
accounts receivable of $3,680,979.




Net cash
flow used in investing activities was $22,020,980 for the year ended December
31, 2008 as compared to $16,037,469 for the year ended December 31, 2007. Cash
flow used in investing activities in 2008 was for the purchase of construction
in progress of $8,427,605 and issuance of notes receivable of $19,284,461 offset
by a repayment of notes receivable of $6,096,353.




Net cash
flow provided by financing activities was $6,290,243 in the year ended December
31, 2008, as compared to $8,344,744 for the year ended December 31, 2007. The
decrease in net cash flow provided by financing activities was mainly due to the
repayment of short-term bank loans. Those loans are used for the company to
expand their output and distributions in the next year.




Working
Capital





While the
Company had net income of $4,922,078 and cash flows from operations of
$15,147,665 for the year ended of December 31, 2008, the Company also had a
working capital deficit of $13,949,253 at December 31, 2008, which principally
due to the Company using the cash proceeds borrowed from short-term loans to
invest in fixed assets and land use rights. The Company has a credit line for
$21,322,693, $10,504,509 of which was used at December 31, 2008, from commercial
banks. Subsequent to December 31, 2008, the Company collected approximately $10
million of its notes receivable. The Company expects to collect the remaining
notes receivable by June 30, 2009 according to the terms of the written
agreements.




- 21
-




The
Company believes that its cash flows generated from operations will be
sufficient to sustain operations for the next twelve months.  From
time to time, the Company may require extra funding through financing activities
and investments for expansion, and may, from time to time, consider new
expansion opportunities for which our management may consider seeking external
funding and financing.





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, 2008,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments
      Due by PeriodLess
      than 1Total
                              
                              YearContractual
      Obligations:Bank
      Indebtedness
                              
                              $
                              26,115,375
                              
                              
                              $
                              26,115,375Other
      Indebtedness
                              
                              
                              13,081,026
                              
                              
                              
                              13,081,026Construction
      In Processing Leases
                              
                              
                              190,395
                              
                              
                              
                              190,395Total
      Contractual Obligations:
                              
                              $
                              39,386,796
                              
                              
                              $
                              39,386,796





Bank
indebtedness consists of secured and unsecured borrowings from China
Communication Bank Jinhua Branch, ICBC Jinhua Economic Exploration Zone
Branch,China
Every-growing Bank, China Every-bright Bank, Huaxia Bank, Shanghai Pudong
Development Bank and Commercial Bank Jiangnan Branch.





Other
indebtedness includes bank acceptance notes and a loan from an unrelated
company.





As of
December 31, 2008, the aggregated amount of short-term bank loans that are
guaranteed by third parties was $16,340,344, of which $2,917,918 is guaranteed
by Zhejiang Mengdeli Electric Company whose bank loans of $6,245,820 are also
guaranteed by the Company.




- 22
-




Off-balance Sheet
Arrangements





Other
than the arrangement described above, we have not entered into any derivative
contracts 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.







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





Not
applicable.







Item
      8.
            Financial
      Statements and Supplementary Data.






- 23
-







KANDI
TECHNOLOGIES, CORP.




AND
SUBSIDIARIES





CONSOLIDATED
FINANCIAL STATEMENTS





FOR
THE YEARS ENDED





DECEMBER
31, 2008 AND 2007












KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES







CONTENTS





PAGE
            F-1
            REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM






PAGES
            F-2-3
            CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2008 AND
2007






PAGES
            F-4-5
            CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER
      31, 2008 AND 2007






PAGE
              F-6
              CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER
      31, 2008 AND 2007






PAGES
            F-7-8
            CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND
      2007






PAGES
            F-9-31
            NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008
      AND 2007









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. and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, 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, 2008
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. and subsidiaries as of December 31, 2008 and 2007 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 6,
2009





F-1




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEETS






ASSETSDecember
      31,
              
              
              December
      31,2008
              
              
              2007CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              141,380
              
              
              $
              1,149,140Restricted
      cash
              
              
              12,550,685
              
              
              
              1,367,222Accounts
      receivable, net of allowance for doubtful accounts of $7,123 and $3,701 as
      of December 31, 2008 and December 31, 2007, respectively
              
              
              7,715,081
              
              
              
              11,401,367Inventories
              
              
              3,207,571
              
              
              
              3,293,529Notes
      receivable
              
              
              13,235,961
              
              
              
              47,853Other
      receivables
              
              
              289,315
              
              
              
              416,454Prepayments
      and prepaid expenses
              
              
              60,017
              
              
              
              17,774Due
      from employees
              
              
              19,805
              
              
              
              9,932Discontinued
      operation
              
              
              -
              
              
              
              15,000,567Total
      Current Assets
              
              
              37,219,815
              
              
              
              32,703,838LONG-TERM
      ASSETSPlant
      and equipment, net
              
              
              20,832,549
              
              
              
              10,427,176Land
      use rights, net
              
              
              9,368,403
              
              
              
              385,539Construction
      in progress
              
              
              1,913,456
              
              
              
              1,321,832Deposit
      for acquisition
              
              
              -
              
              
              
              12,270,859Deferred
      taxes
              
              
              265,243
              
              
              
              108,495Discontinued
      operation
              
              
              -
              
              
              
              506,526Total
      Long-Term Assets
              
              
              32,379,651
              
              
              
              25,020,427TOTAL
      ASSETS
              
              $
              69,599,466
              
              
              $
              57,724,265





See notes
to consolidated financial statements
  F-2
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEETS





LIABILITIES AND
      STOCKHOLDERS’ EQUITYDecember
      31,
                
                
                December
      31,2008
                
                
                2007CURRENT
      LIABILITIESAccounts
      payable
                
                $
                9,371,105
                
                
                $
                6,333,057Other
      payables and accrued expenses
                
                
                1,151,245
                
                
                
                378,675Short-term
      bank loans
                
                
                26,115,375
                
                
                
                20,869,862Customer
      deposits
                
                
                676,548
                
                
                
                483,320Notes
      payable
                
                
                13,081,026
                
                
                
                1,476,600Due
      to employees
                
                
                10,502
                
                
                
                310Due
      to related party
                
                
                623,767
                
                
                
                -Deferred
      taxes
                
                
                139,500
                
                
                
                -Discontinued
      operation
                
                
                -
                
                
                
                15,138,249Total
      Current Liabilities
                
                
                51,169,068
                
                
                
                44,680,073LONG-TERM
      LIABILITIESDiscontinued
      operation
                
                
                -
                
                
                
                2,651Total
      Long-Term Liabilities
                
                
                -
                
                
                
                2,651TOTAL
      LIABILITIES
                
                
                51,169,068
                
                
                
                44,682,724CONMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      stock, $0.001 par value; 100,000,000 shares authorized; 19,961,000 and
      19,961,000 shares issued and outstanding at December 31, 2008 and December
      31, 2007, respectively
                
                
                19,961
                
                
                
                19,961Additional
      paid-in capital
                
                
                7,138,105
                
                
                
                7,138,105Retained
      earnings (the restricted portion is $534,040 and $0 at December 31, 2008
      and December 31, 2007, respectively)
                
                
                10,047,198
                
                
                
                5,125,120Accumulated
      other comprehensive income
                
                
                1,225,134
                
                
                
                758,355TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                18,430,398
                
                
                
                13,041,541TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                69,599,466
                
                
                $
                57,724,265




See notes
to consolidated financial statements




F-3


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER
31, 2008 AND 2007






2008
              
              
              2007REVENUES,
      NET
              
              $
              40,513,788
              
              
              $
              33,434,662COST
      OF GOODS SOLD
              
              
              30,919,868
              
              
              
              26,244,696GROSS
      PROFIT
              
              
              9,593,920
              
              
              
              7,189,966Research
      and development
              
              
              839,989
              
              
              
              108,399Selling
      and marketing
              
              
              477,413
              
              
              
              730,609General
      and administrative
              
              
              1,836,394
              
              
              
              936,224INCOME
      FROM CONTINUING OPERATIONS
              
              
              6,440,124
              
              
              
              5,414,734Interest
      expense, net
              
              
              (2,017,323
              )
              
              
              (1,115,132
              )Government
      grants
              
              
              64,595
              
              
              
              -Forfeiture
      of customer deposits
              
              
              6,186
              
              
              
              505,207Forgiveness
      of debt
              
              
              10,049
              
              
              
              161,834Other,
      net
              
              
              100,331
              
              
              
              143INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
              
              
              4,603,962
              
              
              
              4,966,786INCOME
      TAX (EXPENSE) BENEFIT
              
              
              (9,605
              )
              
              
              391,760INCOME
      FROM CONTINUING OPERATIONS
              
              
              4,594,357
              
              
              
              5,358,546DISCONTINUED
      OPERATIONLoss
      from discontinued operation
              
              
              (33,398
              )
              
              
              (329,450
              )Gain
      from disposition of discontinued operation
              
              
              361,119
              
              
              
              -NET
      GAIN (LOSS) FROMDISCONTINUED
      OPERATION
              
              
              327,721
              
              
              
              (329,450
              )NET
      INCOME
              
              
              4,922,078
              
              
              
              5,029,096OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation
              
              
              466,779
              
              
              
              443,810




See notes
to consolidated financial statements




F-4


KANDI
TECHNOLOGIES, CORP.
 AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER
31, 2008 AND 2007






2008
              
              
              2007COMPREHENSIVE
      INCOME
              
              $
              5,388,857
              
              
              $
              5,472,906WEIGHTED
      AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
              
              
              19,961,000
              
              
              
              16,056,838INCOME
      PER SHARE FROM CONTINUING OPERATIONS, BASIC AND DILUTED
              
              $
              0.23
              
              
              $
              0.33INCOME
      (LOSS) PER SHARE FROM NET GAIN (LOSS) FROM DISCONTINUED OPERATION, BASIC
      AND DILUTED
              
              $
              0.02
              
              
              $
              (0.02
              )NET
      INCOME PER SHARE, BASIC AND DILUTED
              
              $
              0.25
              
              
              $
              0.31


See notes
to consolidated financial statements
  F-5


KANDI TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007




Common
      Stock
                                  
                                  
                                  Additional
      Paid-
                                  
                                  
                                  Retained
                                  
                                  
                                  Accumulated
                                    Other
                                    ComprehensiveShares
                                  
                                  
                                  Par
Value
                                  
                                  
                                  in
    Capital
                                  
                                  
                                  Earnings
                                  
                                  
                                  Income
                                  
                                  
                                  TotalBALANCE AT JANUARY 1,
      2007
                                  
                                  
                                  12,000,000
                                  
                                  
                                  $
                                  12,000
                                  
                                  
                                  $
                                  7,154,193
                                  
                                  
                                  $
                                  96,024
                                  
                                  
                                  $
                                  392,463
                                  
                                  
                                  $
                                  7,654,680Recapitalization
                                  
                                  
                                  7,961,000
                                  
                                  
                                  
                                  7,961
                                  
                                  
                                  
                                  (16,088
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (8,127
                                  )Foreign
      currency translation gain
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  662,403
                                  
                                  
                                  
                                  662,403Income
      tax expense related to othercomprehensive
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (296,511
                                  )
                                  
                                  
                                  (296,511
                                  )Net
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,029,096
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,029,096BALANCE AT DECEMBER
      31, 2007
                                  
                                  
                                  19,961,000
                                  
                                  
                                  $
                                  19,961
                                  
                                  
                                  $
                                  7,138,105
                                  
                                  
                                  $
                                  5,125,120
                                  
                                  
                                  $
                                  758,355
                                  
                                  
                                  $
                                  13,041,541Foreign
      currency translation gain
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  466,779
                                  
                                  
                                  
                                  466,779Net
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,922,078
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,922,078BALANCE AT DECEMBER
      31, 2008
                                  
                                  
                                  19,961,000
                                  
                                  
                                  $
                                  19,961
                                  
                                  
                                  $
                                  7,138,105
                                  
                                  
                                  $
                                  10,047,198
                                  
                                  
                                  $
                                  1,225,134
                                  
                                  
                                  $
                                  18,430,398
 See notes
to consolidated financial statements
  F-6
 KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOW
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


2008
                  
                  
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  4,922,078
                  
                  
                  $
                  5,029,096Net
      (gain) loss from discontinued operation
                  
                  
                  (327,721
                  )
                  
                  
                  329,450Income
      from continuing operations
                  
                  
                  4,594,357
                  
                  
                  
                  5,358,546Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  1,976,369
                  
                  
                  
                  1,321,382Provision
      for doubtful accounts
                  
                  
                  5,308
                  
                  
                  
                  3,701Loss
      on disposal of fixed assets
                  
                  
                  -
                  
                  
                  
                  35,049Deferred
      taxes
                  
                  
                  9,605
                  
                  
                  
                  (391,760
                  )Forgiveness
      of debt
                  
                  
                  (10,049
                  )
                  
                  
                  (161,834
                  )Forfeiture
      of customer deposits
                  
                  
                  (6,186
                  )
                  
                  
                  (505,207
                  )Changes
      in operating assets and liabilities, net of effects of
      acquisition:(Increase)
      Decrease In:Accounts
      receivable
                  
                  
                  3,680,979
                  
                  
                  
                  (4,615,544
                  )Inventories
                  
                  
                  85,959
                  
                  
                  
                  2,169,649Other
      receivables
                  
                  
                  127,137
                  
                  
                  
                  241,555Due
      to employees
                  
                  
                  320
                  
                  
                  
                  174,598Prepayments
      and prepaid expenses
                  
                  
                  (42,243
                  )
                  
                  
                  266,056Increase
      (Decrease) In:Accounts
      payable
                  
                  
                  3,048,097
                  
                  
                  
                  522,919Other
      payables and accrued liabilities
                  
                  
                  772,570
                  
                  
                  
                  116,359Customer
      deposits
                  
                  
                  199,412
                  
                  
                  
                  478,249Net
      cash provided by operating activities from continuing
      operations
                  
                  
                  14,441,635
                  
                  
                  
                  5,013,718Net
      cash provided by operating activities from discontinued
      operation
                  
                  
                  706,030
                  
                  
                  
                  2,813,423Net
      cash provided by operating activities
                  
                  
                  15,147,665
                  
                  
                  
                  7,827,141CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                  
                  
                  (482,581
                  )
                  
                  
                  (2,821,010
                  )Addition
      to construction in progress
                  
                  
                  (8,427,605
                  )
                  
                  
                  (1,334,438
                  )Reverse
      merger with SMOU, net of cash acquired
                  
                  
                  -
                  
                  
                  
                  373Purchase
      of a subsidiary, net of cash acquired
                  
                  
                  (44,129
                  )
                  
                  
                  -Issuance
      of notes receivable
                  
                  
                  (19,284,461
                  )
                  
                  
                  (5,638,027
                  )Proceeds
      from disposal of fixed assets
                  
                  
                  121,443
                  
                  
                  
                  -Repayments
      of notes receivable
                  
                  
                  6,096,353
                  
                  
                  
                  5,937,746Deposit
      for acquisition
                  
                  
                  -
                  
                  
                  
                  (12,270,859
                  )Net
      cash used in investing activities from continuing
    operations
                  
                  
                  (22,020,980
                  )
                  
                  
                  (16,126,215
                  )Net
      cash provided by investing activities frm discontinued
      operation
                  
                  
                  -
                  
                  
                  
                  88,746Net
      cash used in investing activities
                  
                  
                  (22,020,980
                  )
                  
                  
                  (16,037,469
                  )




See notes
to consolidated financial statements
  F-7
 KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOW
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007






2008
                  
                  
                  2007CASH
      FLOWS FROM FINANCING ACTIVITIES:Restricted
      cash
                  
                  
                  (11,183,462
                  )
                  
                  
                  (1,367,222
                  )Proceeds
      from short-term bank loans
                  
                  
                  37,099,213
                  
                  
                  
                  26,902,520Repayments
      of short-term bank loans
                  
                  
                  (31,853,701
                  )
                  
                  
                  (15,631,588
                  )Proceeds
      from notes payable
                  
                  
                  13,063,385
                  
                  
                  
                  1,476,600Repayments
      of notes payable
                  
                  
                  (1,458,959
                  )
                  
                  
                  (117,057
                  )Repayments
      of advances to related parties
                  
                  
                  623,767
                  
                  
                  
                  17,288Net
      cash provided by financing activities from continuing
      operations
                  
                  
                  6,290,243
                  
                  
                  
                  11,280,541Net
      cash used in financing activities from discontinued
    operation
                  
                  
                  -
                  
                  
                  
                  (2,935,797
                  )Net
      cash provided by financing activities
                  
                  
                  6,290,243
                  
                  
                  
                  8,344,744NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (583,072
                  )
                  
                  
                  134,416Effect
      of exchange rate changes on cash
                  
                  
                  (424,688
                  )
                  
                  
                  649,157Cash
      and cash equivalents at beginning of year
                  
                  
                  1,149,140
                  
                  
                  
                  365,567CASH AND CASH
      EQUIVALENTS AT END OF YEAR
                  
                  $
                  141,380
                  
                  
                  $
                  1,149,140SUPPLEMENTARY
      CASH FLOW INFORMATIONIncome
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -Interest
      paid
                  
                  $
                  2,204,006
                  
                  
                  $
                  1,007,597
  SUPPLEMENTAL
NON-CASH DISCLOSURES:
  1.
              During
      the year ended December 31, 2008 and 2007, $7,835,980 and $319,763 were
      transferred from construction in progress to plant and equipment,
      respectively.
  2.
                On
      June 24, 2008, the Company acquired 100% interest of Zhejiang Kandi
      Special Vehicles Co., Ltd. ("KSV") for $12,314,988 in cash and KSV became
      a 100% owned subsidiary of the Company. The following represents the
      assets purchased and liabilities assumed at the acquisition
      date:
  Plant
      and equipment, net
                        
                        $
                        3,200,615Land
      use rights, net
                        
                        
                        9,114,373Total
      assets purchased
                        
                        
                        12,314,988Total
      liabilities assumed
                        
                        
                        -Total
      net assets
                        
                        $
                        12,314,988Share
      percentage
                        
                        
                        100%Net
      assets acquired
                        
                        $
                        12,314,988Total
      consideration paid (including the deposit of $12,270,859 paid in
      2007)
                        
                        $
                        12,314,988


See notes
to consolidated financial statements
  F-8
 KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007






NOTE 1 –ORGANIZATION AND PRINCIPAL
ACTIVITIES





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




On June
29, 2007, pursuant to the share exchange agreement between Stone Mountain
Resources, Inc., 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. Kandi Technologies, Corp. conducts
its operations through its wholly owned subsidiary, Zhejiang Kandi Vehicles Co.
Ltd., a People’s Republic of China (“PRC”) company.




The
Company closed on its acquisition of 100% shares of Kandi Special Vehicles Co.,
Ltd. (“KSV”) on June 24, 2008 after which KSV became a wholly-owned subsidiary
of the Company. The acquisition was accounted for as purchase in accordance with
Statements of Financial Accounting Standards (“SFAS”)No. 141 “Business
Combinations”, the consolidated statements of income include the result of
operations of Kandi Special Vehicle Co., Ltd. from the acquisition date through
December 31, 2008.





On May 9,
2008, the Company sold Zhejiang Yongkang Top Import & Export Co., Ltd.
(“Dingji”), a subsidiary to certain individuals. In accordance with SFAS 144,
“Accounting for the Impairment or Disposal of Long−Lived Assets,” the results of
operations of the Dingji as of the disposal date May 9, 2008 are removed from
the detailed financial statement line items to the “discontinued operation” of
the Company’s financial statements.





The
primary operations of Kandi Technologies, Corp. and subsidiaries (the “Company”) is the design,
development, manufacturing, and commercializing of all-terrain vehicles,
go-karts, and specialized automobile related products for the People’s Republic
of China and global export markets. Sales are made to dealers in Asia, North
America, Europe and Australia.




NOTE 2 –LIQUIDITY


While the
Company had net income of $4,922,078 and cash flows from operations of
$15,147,665 for the year ended of December 31, 2008, the Company also had a
working capital deficit of $13,949,253 at December 31, 2008, which was
principally due to the Company using the cash proceeds borrowed from short-term
loans to invest in fixed assets and land use rights. The Company has a credit
line for $21,322,693, $10,504,509 of which was used at December 31, 2008, from
commercial banks. Subsequent to December 31, 2008, the Company collected
approximately $10 million of its notes receivable. The Company expects to
collect the remaining notes receivable by June 30, 2009 according to written
agreements.




F-9


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 3
–SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





(a)
            Principles
      of Consolidation




The
consolidated financial statements include the accounts of Kandi Technologies
Corp., 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 Top Import and
      Export Co.Ltd.,
      (“Dingji”) (100% subsidiary of
      Kandi)


As of May 9, 2008, Dingji was sold
      and is presented in the financial statements as a discontinued operation.
      Also see Note 14.


(iv)
            Kangdi
      Special Vehicle Co. Ltd., (“KSV”) (100% subsidiary of the
      Company)





Intercompany
accounts and transactions have been eliminated in consolidation.





(b)
            Concentrations




The
Company’s major customers for the years ended December 31, 2008 and 2007,
accounted for the following percentages of total sales and accounts receivable
as follows:





Sales
                
                Accounts
      ReceivableMajor
      Customers
                
                2008
                2007
                
                December
      31, 2008
                December
      31, 2007Company
      A
                
                75%
                -
                
                52%
                -Company
      B
                
                7%
                18%
                
                1%
                40%Company
      C
                
                6%
                15%
                
                8%
                19%Company
      D
                
                -
                14%
                
                -
                11%Company
      E
                
                2%
                8%
                
                9%
                8%Company
      F
                1%
                5%
                1%
                7%




The
Company’s major suppliers for the years ended December 31, 2008 and 2007,
accounted for the following percentage of total purchases and accounts payable
as follows:




Purchases
                
                Accounts
      PayableMajor
      Suppliers
                
                2008
                2007
                
                December
      31, 2008
                December
      31, 2007Company
      G
                
                79%
                2%
                
                9%
                7%Company
      H
                
                2%
                2%
                
                4%
                6%Company
      I
                
                4%
                2%
                
                4%
                5%Company
      J
                
                4%
                4%
                
                4%
                5%Company
      K
                
                1%
                1%
                
                3%
                4%




F-10


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


NOTE 3 –SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





(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, actual results could
differ materially from those estimates.




F-11




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 3
–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 bank 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, 2008 and 2007 represents time deposits on account to secure
short-term bank loans and notes payable. Also see Note 9 and Note
10.





(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 comprises direct
materials, direct labour and an appropriate proportion of overhead.





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





(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, 2008 and
2007, the Company has an allowance for doubtful accounts of $7,123 and $3,701,
respectively.





(i)
            Prepayments





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




F-12




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 3
–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
    yearsMoulds
              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 8.




(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 2008 and 2007.




F-13




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 3
–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
2008 and 2007, $64,595 and $0 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 $839,989 and $108,399 for the years ended December
31, 2008 and 2007, 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 2008 and 2007 are $69,990 and $79,628
respectively and are included in general and administrative
expenses.





(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.




F-14




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007






NOTE 3
–SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)




(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.




2008
                
                2007Year end RMB:US$ exchange
      rate
                6.8542
                
                7.3141Average yearly RMB:  US$
      exchange rate
                7.0842
                
                7.5614




(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, development, manufacturing, and
commercialization of all-terrain vehicles,go-karts,andspecialautomobilerelated products. Also see Note
15.


(v)
              Stock-Based
      Compensation




The
Company’s stock-based compensation is recorded in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 123R.




The
Company estimates fair value of restricted stock based on the number of shares
granted and the quoted price of the Company’s common stock on the date of grant.
The fair value of stock options is estimated using the Black-Scholes model. The
Company’s expected volatility assumption is based on the historical volatility
of Company’s stock. The expected life assumption is primarily based on
historical exercise patterns and post-vesting termination behavior. The
risk-free interest rate for the expected term of the option is based on the U.S.
treasury yield curve in effect at the time of grant. There were no estimated
forfeitures as the current options outstanding were only issued to founders and
senior management of the Company. SFAS No. 123R requires forfeitures to be
estimated at the time of grant and revised in subsequent periods, if necessary,
if actual forfeitures differ from those estimates.





F-15




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007





NOTE 3
–SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)





(w)
            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 pershare 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 2008 and 2007.





(x)
            Recent
      Accounting Pronouncements





In December 2007, the FASB issued SFAS
No. 141 (R), Business Combinations. 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. The calculation of
earnings pershare will continue to be based on
income amounts attributable to the parent. SFAS No.141 (R) is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
Early adoption is prohibited. SFAS 141(R) will significantly affect the accounting for future business
combinations and we will determine the accounting as new combinations are
determined.





In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements. This
Statement establishes
accounting and reporting standards that require the ownership interests in
subsidiaries’non-parent owners be clearly presented
in the equity section of the balance sheet; requires the amount of consolidated
net income attributable to the parent and to the noncontrolling interest be
clearly identified and presented on the face of the consolidated statement of
income; requires that changes in a parent’s ownership interest while the parent
retains its controlling financial interest in its subsidiarybe accounted for consistently; requires
that when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value and the
gain or loss on the deconsolidation of the subsidiary be measured using the fair value of any
noncontrolling equity; requires that entities provide disclosures that clearly
identify the interests of the parent and the interests of the noncontrolling
owners. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after
December 15, 2008. The Company has not determined the impact, if any, SFAS No.
160 will have on its financial statements.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company's strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November 15,
2008. The Company is currently in the process of assessing the impact that SFAS
No. 161 will have on the disclosures in its financial statements.





F-16


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





NOTE 4 –INVENTORIES




Inventories
are summarized as follows:





December
      31,
                    2008
                  
                  
                  December
      31,
                    2007Raw
      materials
                  
                  $
                  988,426
                  
                  
                  $
                  1,534,448Work-in-progress
                  
                  
                  1,980,413
                  
                  
                  
                  1,402,073Finished
      goods
                  
                  
                  238,732
                  
                  
                  
                  357,008Total
      inventories
                  
                  $
                  3,207,571
                  
                  
                  $
                  3,293,529




NOTE 5 –NOTES
RECEIVABLE





Notes
receivable consist of the following:





December
      31,
                        2008
                      
                      
                      December
      31,
                        2007Notes
      receivable from unrelated companies:Due
      March 31, 2009, interest at 7.2% per annum (subsequently settled on its
      due date)
                      
                      $
                      3,928,997
                      
                      
                      $
                      -Due
      April 29, 2009, interest at 7.2% per annum
                      
                      
                      729,480
                      
                      
                      
                      -Due
      June 30, 2009, interest at 5.31% per annum
                      
                      
                      8,147,091
                      
                      
                      
                      -Notes
      receivable from unrelated companies
                      
                      
                      12,805,568
                      
                      
                      
                      -Bank
      acceptance notes:Due
      January 5, 2009 (subsequently settled on its due date)
                      
                      
                      430,393
                      
                      
                      
                      47,853Bank
      acceptance notes
                      
                      
                      430,393
                      
                      
                      
                      -Notes
      receivable
                      
                      $
                      13,235,961
                      
                      
                      $
                      47,853





Notes
receivable from unrelated companies are unsecured.




F-17




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007





NOTE 6 –DUE
TO/FROM RELATED PARTIES





(I)
            Due
      To Related Party





2008
                    
                    
                    2007ELIL
                    (a)
                    
                    $
                    623,767
                    
                    
                    $
                    -Total
      due to related party
                    
                    
                    $
                    623,767
                    
                    
                    $
                    -




(II)
              Due
      To Employees





2008
                      
                      
                      2007Current
                      
                      
                      $
                      10,502
                      
                      
                      $
                      310Total
      due to employees
                      (b)
                      
                      $
                      10,502
                      
                      
                      $
                      310





(III)
            Due
      From Employees





2008
                    
                    
                    2007Current
                    
                    
                    $
                    19,805
                    
                    
                    $
                    9,932Total
      due from employees
                    (c)
                    
                    $
                    19,805
                    
                    
                    $
                    9,932




(a)
            Ever
      Lotts Investment Limited (“ELIL”), is owned by a shareholder of the
      Company.





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





(c)
            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.




F-18




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007






NOTE 7 –LAND USE
RIGHTS





Land use
rights consist of the following:





December
      31,
                      2008
                    
                    
                    December
      31,
                      2007Cost
      of land use rights
                    
                    $
                    9,575,316
                    
                    
                    $
                    460,943Less:
      Accumulated amortization
                    
                    
                    (206,913
                    )
                    
                    
                    (75,404
                    )Land
      use rights, net
                    
                    $
                    9,368,403
                    
                    
                    $
                    385,539





As of
December 31, 2008 and 2007, the net book value of land use rights pledged as
collateral for bank loans was $374,454 and $385,539, respectively. Also see Note
9.





As of
December 31, 2008 and 2007, the net book value of land use rights pledged as
collateral for bank loans borrowed by Zhejiang Mengdeli Electronic Co., Ltd
(“ZMEC”), an unrelated party of the Company, was $8,993,949 and $0,
respectively. Also see Notes 9 and 12.





On June
24, 2008, the Company acquired a land use right, which expires on December 31,
2053, with a net book value of $9,114,373 in the acquisition of KSV. Also see
Note 13.





Amortization
expense for the years ended December 31, 2008 and 2007 was $131,509 and $10,386,
respectively.





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





2009
                    
                    $
                    135,9212010
                    
                    
                    135,9212011
                    
                    
                    135,9212012
                    
                    
                    135,9212013
                    
                    
                    135,921Thereafter
                    
                    
                    8,688,798Total
                    
                    $
                    9,368,403





F-19




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




NOTE 8
–PLANT AND
EQUIPMENT




Plant and
equipmentconsist
of the following:





December
      31,
                          2008
                        
                        
                        December
      31,
                          2007At
      cost:Buildings
                        
                        $
                        8,139,972
                        
                        
                        $
                        3,911,944Machinery
      and equipment
                        
                        
                        9,150,387
                        
                        
                        
                        8,572,451Office
      equipment
                        
                        
                        107,574
                        
                        
                        
                        93,840Transportation
                        
                        
                        166,203
                        
                        
                        
                        254,885Moulds
                        
                        
                        9,590,519
                        
                        
                        
                        1,742,12427,154,655
                        
                        
                        
                        14,575,244Less
      : Accumulated depreciationBuildings
                        
                        
                        (664,872
                        )
                        
                        
                        (428,834
                        )Machinery
      and equipment
                        
                        
                        (4,677,133
                        )
                        
                        
                        (3,520,084
                        )Office
      equipment
                        
                        
                        (85,826
                        )
                        
                        
                        (64,427
                        )Transportation
                        
                        
                        (67,049
                        )
                        
                        
                        (43,764
                        )Moulds
                        
                        
                        (827,226
                        )
                        
                        
                        (90,959
                        )(6,322,106
                        )
                        
                        
                        (4,148,068
                        )Plant
      and equipment, net
                        
                        $
                        20,832,549
                        
                        
                        $
                        10,427,176





As of
December 31, 2008 and 2007, the net book value of plant and equipment pledged as
collateral for bank loans was $1,404,236 and $1,652,616, respectively. Also see
Note 9.





On June
24, 2008, the Company acquired plant and equipment with a fair value of
$3,200,615in the
acquisition of KSV. Also see Note 13. Depreciation expense for the years ended
December 31, 2008 and 2007 was $ 1,844,860 and $1,310,996,
respectively.





Application
for ownership certificates of two buildings with a net book value of $3,415,369
is in process. The Company’s legal counsel has confirmed the ownership of the
two buildings by the Company. Currently the application for the certificate of
the buildings is expected to be completed in 2009.




F-20




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 9 –SHORT TERM
BANK LOANS




Short
term bank loansconsist of the
following:




December
      31,
                                              2008
                                            
                                            
                                            December
      31,
                                              2007Loans
      from ICBC-Exploration Zone BranchMonthly
      interest only payments at 7.29% per annum, due November 24, 2008, secured
      by the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            546,889Monthly
      interest only payments at 6.57% per annum, due April 10, 2008, secured by
      the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            683,611Monthly
      interest only payments at 6.57% per annum, due June 5, 2008, secured by
      the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            683,611Monthly
      interest only payments at 7.29% per annum, due September 5, 2008, secured
      by the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            410,167Monthly
      interest only payments at 7.29% per annum, due September 5, 2008, secured
      by the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            369,150Monthly
      interest only payments at 7.29% per annum, due October 16, 2008, secured
      by the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            929,711Monthly
      interest only payments at 7.29% per annum, due October 23, 2008, secured
      by the assets owned by the Company. Also see Notes 7 and 8. (subsequently
      repaid on its due date)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            478,528Monthly
      interest only payments at 6.21% per annum, due March 18, 2009.
      Collateralized by a time deposit. (subsequently repaid on its due
      date)
                                            
                                            
                                            656,532
                                            
                                            
                                            
                                            -Monthly
      interest only payments at 6.21% per annum, due March 23, 2009.
      Collateralized by a time deposit. (subsequently repaid on its due
      date)
                                            
                                            
                                            656,532
                                            
                                            
                                            
                                            -Monthly
      interest only payments at 7.84% per annum, due April 7, 2009, secured by
      the assets owned by the Company. Also see Notes 7 and 8.
                                            
                                            
                                            729,480
                                            
                                            
                                            
                                            -




F-21




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




NOTE 9 –SHORT TERM
BANK LOANS (CONTINUED)




December
      31,
                                            2008
                                          
                                          
                                          December
      31,
                                            2007Monthly
      interest only payments at 7.47% per annum, due June 4, 2009, secured by
      the assets owned by the Company. Also see Notes 7 and 8.
                                          
                                          
                                          729,480
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 7.47% per annum, due August 4, 2009, secured by
      the assets owned by the Company. Also see Notes 7 and 8.
                                          
                                          
                                          437,688
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 7.47% per annum, due September 2, 2009, secured
      by the assets owned by the Company. Also see Notes 7 and
8.
                                          
                                          
                                          393,919
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 6.93% per annum, due October 8, 2009, secured by
      the assets owned by the Company. Also see Notes 7 and 8.
                                          
                                          
                                          437,688
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 6.93% per annum, due October 14, 2009, secured
      by the assets owned by the Company. Also see Notes 7 and
8.
                                          
                                          
                                          554,405
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 6.93% per annum, due October 22, 2009, secured
      by the assets owned by the Company. Also see Notes 7 and
8.
                                          
                                          
                                          510,636
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 5.58% per annum, due December 4, 2009, secured
      by the assets owned by the Company. Also see Notes 7 and
8.
                                          
                                          
                                          583,584
                                          
                                          
                                          
                                          -Loans
      from Commercial Bank-Jiangnan BranchMonthly
      interest only payments at 7.58 % per annum, due January 10, 2008, secured
      by the assets owned by the Company. Also see Note 7 (subsequently repaid
      on its due date).
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,734,444Monthly
      interest only payments at 7.67% per annum, due May 10, 2008, secured by
      the assets owned by the Company. Also see Note 7 (subsequently repaid on
      its due date).
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,367,222Monthly
      interest only payments at 8.22% per annum, due May 9, 2009, secured by the
      assets owned by the Company. Also see Note 8.
                                          
                                          
                                          1,458,959
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 8.22% per annum, due January 10, 2009,
      Guaranteed by Yongkang Tangxian Colour Metal Die-casting Company and
      pledge by Jingdezhen De'er Industrial Investment Co., Ltd. (subsequently
      repaid on its due date).
                                          
                                          
                                          2,917,919
                                          
                                          
                                          
                                          -




F-22




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 9 –SHORT TERM
BANK LOANS (CONTINUED)




December
      31,
                                        2008
                                      
                                      
                                      December
      31,
                                        2007Loans
      from ICBC-Jinhua BranchMonthly
      interest only payments at 6.88% per annum, due January 18, 2008.
      Guaranteed by Export Credit Insurance (subsequently repaid on its due
      date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      189,753Monthly
      interest only payments at 6.58% per annum, due February 1, 2008.
      Guaranteed by Export Credit Insurance (subsequently repaid on its due
      date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      948,766Monthly
      interest only payments at 6.88% per annum, due March 3,
      2008.  Guaranteed by Export Credit Insurance (subsequently
      repaid on its due date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      858,883Monthly
      interest only payments at 7.88% per annum, due March 21, 2008. Guaranteed
      by Export Credit Insurance (subsequently repaid on its due
      date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,098,571Loans
      from Huaxia BankMonthly
      interest only payments at 8.22% per annum, due December 24, 2008.
      Guaranteed by Yongkang Tangxian Colour Metal Die-casting Company
      (subsequently repaid on its due date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,734,444Monthly
      interest only payments at 7.92% per annum, due September 12, 2009. Pledged
      by constructions in progress of Kandi Special Vehicles Co., Ltd, Jiangxi
      De'er Industrial Investment Co., Ltd.  Guaranteed by Zhejiang
      Kandi Metal Manufacturing Company and Kandi Investment Group
      Co.
                                      
                                      
                                      2,480,231
                                      
                                      
                                      
                                      -Loans
      from China Every-bright BankMonthly
      interest only payments at 7.18% per annum, due August 9, 2008. Guaranteed
      by Nanlong Group Co., Ltd and Zhejiang Mengdeli Electric Company
      (subsequently repaid on its due date).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,101,668Monthly
      interest only payments at 7.23% per annum, due February 5, 2009. Pledged
      office building of Mr.Hu Xiaoming and Ms Ling Yueping. Guaranteed by
      Nanlong Group Co., Ltd and Mr.Hu (subsequently repaid on its due
      date).
                                      
                                      
                                      4,376,878
                                      
                                      
                                      
                                      -




F-23


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007






NOTE 9 – SHORT TERM BANK LOANS
(CONTINUED)




December
      31,
                                          2008
                                        
                                        
                                        December
      31,
                                          2007Loans
      from Shanghai Pudong Development BankMonthly
      interest only payments at 6.33% per annum, due February 14, 2008.
      Guaranteed by Nanlong Group Co., Ltd and Zhejiang Mengdeli Electric
      Company (subsequently repaid on its due date).
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,734,444Monthly
      interest only payments at 6.72% per annum, due April 8, 2009.
      Collateralized by a time deposit.
                                        
                                        
                                        1,313,064
                                        
                                        
                                        
                                        -Monthly
      interest only payments at 6.72% per annum, due April 9, 2009.
      Collateralized by a time deposit.
                                        
                                        
                                        1,313,064
                                        
                                        
                                        
                                        -Monthly
      interest only payments at 7.28% per annum, due May 21, 2009, Guaranteed by
      Nanlong Group Co., Ltd. and Mr. Hu Xiaoming.
                                        
                                        
                                        2,917,918
                                        
                                        
                                        
                                        -Loans
      from China Every-growing BankMonthly
      interest only payments at 7.62% per annum, due October 23, 2009.
      Guaranteed by Zhejiang Shuguang industrial Co., Ltd, Zhejiang Mengdeli
      Electric Company and Mr.Hu Xiaoming.
                                        
                                        
                                        2,917,918
                                        
                                        
                                        
                                        -Loans from China Communication Bank-Jinhua
      BranchMonthly
      interest only payments at 8.96% per annum, due February 18, 2009.
      Guaranteed by Zhejiang Shuguang industrial Co., Ltd. and Mr. Hu Xiaoming.
      (subsequently repaid on its due date)
                                        
                                        
                                        729,480
                                        
                                        
                                        
                                        -Total
                                        
                                        $
                                        26,115,375
                                        
                                        
                                        $
                                        20,869,862




Interest
expense for short-term bank loans for 2008 and 2007 was $2,140,519 and
$1,103,489, respectively.





As of
December 31, 2008, the Company’s aggregated amount of short-term bank loans that
are guaranteed by third parties is $16,340,344, among which $2,917,918 is
guaranteed by Zhejiang MengdeliElectric
Company whose bank loans of $6,245,820 are also guaranteed by the Company. Also
see Notes 7 and 12.




F-24




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 10 –NOTES
PAYABLE




Notes
payable consist of the following:





December
      31,
                  2008
                
                
                December
      31,
                  2007Bank
      acceptance notes:Due
      September 18, 2008 (subsequently settled on its due date)
                
                $
                -
                
                
                $
                683,611Due
      April 17, 2008 (subsequently settled on its due date)
                
                
                -
                
                
                
                683,611Due
      November 8, 2008 (subsequently settled on its due date)
                
                
                -
                
                
                
                109,378Due
      January 18, 2009 (subsequently settled on its due date)
                
                
                1,458,959
                
                
                
                -Due
      January 31, 2009 (subsequently settled on its due date)
                
                
                875,378
                
                
                
                -Due
      March 17, 2009 (subsequently settled on its due date)
                
                
                1,458,959
                
                
                
                -Due
      March 17, 2009 (subsequently settled on its due date)
                
                
                4,376,878
                
                
                
                -Due
      March 18, 2009 (subsequently settled on its due date)
                
                
                729,480
                
                
                
                -Due
      March 23, 2009 (subsequently settled on its due date)
                
                
                1,458,959
                
                
                
                -Due
      June 12, 2009
                
                
                1,458,959
                
                
                
                -Due
      June 23, 2009
                
                
                437,688
                
                
                
                -Subtotal
                
                $
                12,255,260
                
                
                $
                1,476,600Notes
      payable to unrelated companies:Due
      December 31, 2009
                
                $
                825,766
                
                
                $
                -Subtotal
                
                
                825,766
                
                
                
                -Total
                
                $
                13,081,026
                
                
                $
                1,476,600




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 $20,384
and     $11,074 in 2008 and 2007,
respectively.





Restricted
cash of $8,170,173 is held as collateral for the following notes payable at
December 31, 2008:




Due
      January 18, 2009 (subsequently settled on its due date)
                  
                  $
                  1,458,959Due
      January 30, 2009 (subsequently settled on its due date)
                  
                  
                  875,376Due
      March 17, 2008 (subsequently settled on its due date)
                  
                  
                  729,480Due
      March 17, 2008 (subsequently settled on its due date)
                  
                  
                  2,188,439Due
      March 18, 2009 (subsequently settled on its due date)
                  
                  
                  729,480Due
      March 23, 2009 (subsequently settled on its due date)
                  
                  
                  729,480Due
      June 12, 2009
                  
                  
                  1,458,959Total
                  
                  $
                  8,170,173




F-25





KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




NOTE
11 - INCOME TAXES





(a)
            Corporation
      Income Tax (“CIT”)





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





Prior to January 1, 2008, the CIT rate
applicable to Kandi is 33%. Kandi’s first profitable tax year for income
tax purpose as a foreign-invested company was 2007. As a foreign-invested
company, the income tax rateof Kandi is entitled to a 50% tax
holiday based on 33% for the years from 2009 through 2011. During the transition
period, the above tax concession granted toKandiprior to the new CIT law will be
grandfathered according to the interpretations of the newCIT law.





KSV is a subsidiary of the Company and
its applicable corporate income tax rate is 25%.





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, 2008, 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 (“NOLs”) carry forwards for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these NOLs 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, 2008 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, 2008, the Company has no accrued interest or penalties related to
uncertain tax positions. The Company has not recorded a provision for U.S
federal income tax for the year ended December 31, 2008 due to the net operating
loss carry forward in the United States. Net operating loss carry forwards in
the United Stated as of December 31, 2008 was $1,070,885 and will expire in
the following years:
  F-26
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 11 –INCOME
TAXES (CONTINUED)





NOLs
                      
                      Expiration
      Year$
                      110,826
                      
                      20246,139
                      
                      20251,990
                      
                      2026215,505
                      
                      2027736,425
                      
                      2029$
                      1,070,885





The
Company’s income tax expense (benefit) differs from the “expected” tax expense
for the nine months ended December 31, 2008 and 2007 (computed by applying the
CIT rate of 25% to income before income taxes) as follows:





2008
                        
                        
                        2007Deferred:Provision
      for CIT
                        
                        $
                        9,605
                        
                        
                        $
                        (391,760
                        )Income
      tax expense (benefit)
                        
                        $
                        9,605
                        
                        
                        $
                        (391,760
                        )





The
Company’s income tax expense (benefit) differs from the “expected” tax expense
for the years ended December 31, 2008 and 2007 (computed by applying the CIT
rate of 25% and 33%, respectively to income before income taxes) as
follows:





2008
                    
                    
                    2007Computed
      “expected” expense
                    
                    $
                    1,150,990
                    
                    
                    $
                    1,639,039Permanent
      differences
                    
                    
                    191,896
                    
                    
                    
                    (320,659
                    )Valuation
      allowance
                    
                    
                    55,932
                    
                    
                    
                    -Favorable
      tax rates
                    
                    
                    (1,389,213
                    )
                    
                    
                    (1,710,140
                    )Income
      tax expense (benefit)
                    
                    $
                    9,605
                    
                    
                    $
                    (391,760
                    )




F-27




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 11 –INCOME
TAXES (CONTINUED)





The tax
effects of temporary differences that give rise to the Company's net deferred
tax assets and liabilities as of December 31, 2008 and 2007 are as
follows:





December
      31,
                                2008
                              
                              
                              December
      31,
                                2007Current
      portion:Deferred
      tax assets:Expense
                              
                              $
                              23,026
                              
                              
                              $
                              -Subtotal
                              
                              
                              23,026
                              
                              
                              
                              -Deferred tax
      liabilities:Sales
      cut-off
                              
                              
                              (104,783
                              )
                              
                              
                              -Other
                              
                              
                              (57,743
                              )
                              
                              
                              -Subtotal
                              
                              
                              (162,526
                              )
                              
                              
                              --Total
      deferred tax liabilities – current portion
                              
                              
                              (139,500
                              )
                              
                              
                              -Non-current
      portion:Deferred tax
      assets:Depreciation
                              
                              
                              561,754
                              
                              
                              
                              405,006Loss
      carried forward
                              
                              
                              55,932
                              
                              
                              
                              -Valuation
      allowance
                              
                              
                              (55,932
                              )
                              
                              
                              -Subtotal
                              
                              
                              561,754
                              
                              
                              
                              405,006Deferred tax
      liabilities:Accumulated
      other comprehensive gain
                              
                              
                              (296,511
                              )
                              
                              
                              (296,511
                              )Subtotal
                              
                              
                              (296,511
                              )
                              
                              
                              (296,511
                              )Total
      deferred tax assets – non-current portion
                              
                              
                              265,243
                              
                              
                              
                              108,495Net
      deferred tax assets
                              
                              $
                              125,743
                              
                              
                              $
                              108,495




F-28


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





NOTE 11 –INCOME
TAXES (CONTINUED)





(b)
            Tax
      Holiday Effect





For 2008
and 2007 the PRC corporate income tax rate was 25% and 33%, respectively.
Certain subsidiaries of the Company are entitled to tax exemptions (tax
holidays) for the years ended December 31, 2008 and 2007.





The
combined effects of the income tax expense exemptions and reductions available
to the Company for the years ended December 31, 2008 and 2007 are as
follows:





2008
                  
                  
                  2007Tax holiday
      effect
                  
                  $
                  1,389,213
                  
                  
                  $
                  1,710,140Basic net income per share
      effect
                  
                  $
                  0.07
                  
                  
                  $
                  0.11








NOTE 12–COMMITMENTS AND CONTINGENCIES





(I)
            In
      2006, the Company brought a legal action against Zhejiang Yuegong Steel
      Structure Co. and Zhejiang Jinhua No.1 Construction Co., Ltd. for their
      delay in the construction in the Jinhua Industrial district. According to
      the judge's report from the local court in Jinhua, PRC, on December 5,
      2006, the Company won the lawsuit and Zhejiang Yuegong Steel Structure Co.
      and Zhejiang Jinhua No.1 Construction Co., Ltd. will be required to pay
      $186,331 as compensation to the Company. However, the two defendants
      appealed the ruling to a higher level court and the Company has not
      received the compensation as of December 31, 2008. Considering the
      uncertainties of the legal proceeding, the Company did not record a gain
      for this at December 31, 2008.





(II)
            In
      2008, the Company signed construction contracts to construct five punching
      workshops. Total commitments related to the contracts are estimated to be
      approximately $190,395.





(III)
            On
      July 14, 2008, Kandi Special Vehicles Co., Ltd. (“KSV”) entered into a
      guarantee contract to serve as guarantor for the bank loans borrowed
      during the period from July 14, 2008 to July 14, 2009 by Zhejiang Mengdeli
      Electronic Co., Ltd (“ZMEC”), a company independent of KSV, from Huaxia
      Bank Hangzhou branch with amount of $2,480,231. Under this guarantee
      contract, KSV shall perform all obligations of ZMEC under the loan
      contract if ZMEC fails to perform its obligations as set forth in the loan
      contract. Also see Note 9.





(IV)
            On
      June 25, 2008, KSV entered into a guarantee contract to serve as guarantor
      for the bank loans borrowed during the period from June 25, 2008 to June
      24, 2009 by Zhejiang Mengdeli Electronic Co., Ltd (“ZMEC”), a company
      independent of KSV, from China Agriculture Bank with a maximum guarantee
      amount of $3,765,589. Under this guarantee contract, KSV shall
      perform all obligations of ZMEC under the loan contract if ZMEC fails to
      perform its obligations as set forth in the loan contract. Also see Note
      9.




F-29




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 13–BUSINESS COMBINATION





In
November 2007, the Company signed a letter of intent with the shareholders of
KSV, by which the Company would acquire 100% of KSV. The Company paid
$12,270,859 as a deposit in 2007. The total consideration for the acquisition
was $12,314,988. The acquisition was completed on June 24, 2008.





The
following summarizes of the acquisition:





Fair
      value of assets acquired
                  
                  $
                  12,314,988Fair
      value of liabilities assumed
                  
                  
                  -Net
      assets acquired
                  
                  $
                  12,314,988Total
      consideration paid
                  
                  $
                  12,314,988





KSV is located in the Jinhua city of
Zhejiang province of China and is registered under the laws of the PRC. KSV was
established on March 17, 2008 and is at its development state. KSV plans to
produce special vehicles, electric vehicles, automobile parts and sell the products inthePRC market.The pro forma effects of the
acquisitions are immaterial for 2007 as KSV did not have any operation in
2007.




NOTE 14 –DISCONTINUED OPERATION





On May 9,
2008, the Company, through its PRC subsidiary Zhejiang Kandi Vehicles Co. Ltd.,
entered into a disposition agreement with certain individuals. Pursuant to the
agreement, the Company agreed to sell all of its interest in Dingji to certain
individuals for $729,480 resulting in a gain of $361,119. This transaction was
completed on May 9, 2008. Thereafter, Dingji was no longer a consolidated
subsidiary of Kandi. In accordance with SFAS 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets,” the results of operations of Dingji are
removed from the detail line items in the Company's financial statements and
presented separately as “discontinued operation”. The loss from discontinued
operation was $33,398 and $329,450 for the years ended December 31, 2008 and
2007, respectively. The gains from disposition of discontinued operation of
$361,119 are reflected in the Company’s consolidated statement of income and
comprehensive income for the years ended December 31, 2008.




F-30




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


NOTE 15 –GEOGRAPHICAL SALES





The
following table shows the breakdown of the Company’s revenues from its customers
by geographical markets based on the location of the customer for the years
ended December 31, 2008 and 2007:




2008
                                          
                                          
                                          2007Area
                                          
                                          Amounts
                                          
                                          
                                          Percentage
                                          
                                          
                                          Amounts
                                          
                                          
                                          PercentageNorth
      American
                                          
                                          $
                                          7,292,482
                                          
                                          
                                          
                                          18%
                                          
                                          
                                          $
                                          23,889,263
                                          
                                          
                                          
                                          72%Europe
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          6,264,492
                                          
                                          
                                          
                                          19%China
                                          
                                          
                                          32,816,168
                                          
                                          
                                          
                                          81%
                                          
                                          
                                          
                                          2,783,342
                                          
                                          
                                          
                                          8%Others
                                          
                                          
                                          405,138
                                          
                                          
                                          
                                          1%
                                          
                                          
                                          
                                          497,565
                                          
                                          
                                          
                                          1%Total
                                          
                                          $
                                          40,513,788
                                          
                                          
                                          
                                          100%
                                          
                                          
                                          $
                                          33,434,662
                                          
                                          
                                          
                                          100%





NOTE 16 –SUBSEQUENT EVENT





On
February 11, 2009, the Compensation Committee of the Board of Directors of the
Company approved the grant of stock options for 2,600,000 shares of common stock
to ten of the Company's executive officers. The stock options vest ratably over
three years and expire in ten years from the grant date. The Company valued the
stock options at $2,062,964 and amortizes the stock compensation cost using the
straight-line method over the service period from February 11, 2009 through
February 11, 2011. The value of the options was estimated using the Black
Scholes Model with an expected volatility of 164%, expected life of 10 years,
risk-free interest rate of 2.76% and expected dividend yield of
0.00%.





F-31





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





None.





Item
      9A.
            Controls
      and Procedures.





(a)
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, 2008. 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
effective as of such date.





(b)
Management’s Annual
Report on Internal Control Over Financial Reporting




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United Sates of America.




The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the polices or procedures may deteriorate.




Management
conducted an evaluation of the effectiveness of 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 (COSO).
Based on this evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2008.




Changes
in Internal Control Over Financial Reporting




In
connection with the evaluation described above, we identified no change in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)
during our fiscal year ended December 31, 2008 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.





- 24
-




PART III







Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.




As of the
date of this report, 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
      FromHu
      Xiaoming
                      
                      52
                      
                      Chairman
      of the Board, President andChief
      Executive Officer
                      
                      June
      2007Zhu
      Xiaoying
                      
                      38
                      
                      Chief
      Financial Officer, Director
                      
                      June
      2007Zheng
      Mingyang
                      
                      55
                      
                      Director
      (Independent)
                      
                      June
      2007Fong
      Heung Sang (Dexter)
                      
                      48
                      
                      Director
      (Independent)
                      
                      June
      2007Hu
      Wangyuan
                      
                      30
                      
                      Vice
      President, Director
                      
                      June
      2007Yao
      Zhengming
                      
                      44
                      
                      Director
      (Independent)
                      
                      May
      2008Qian
      Min
                      
                      45
                      
                      Director
      (Independent)
                      
                      May
      2008




Business
Experience of Directors and Executive Officers





Biographical
Information





Hu
Xiaoming, age 52, 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 30, 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 5 years of
working experience in go-kart marketing, and retains close cooperative
relationships with many suppliers and distributors.





Zhu
Xiaoying, age 38, 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 55, 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.





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.




- 25
-




Yao
Zhengming, a director of Kandi since May 2008, is the Director of the
Development Bureau of the PRC. Over the course of his career, Mr. Yao worked in
several capacities for the Chinese government, including as Vice Director of the
Finance Bureau in Yongkang (1988-1996), Director of Foreign Trade Bureau
(1996-1997), Director of the Communications Bureau (1998-2003) and Director of
the Science and Technology Bureau (2003-2007). Mr. Yao graduated from the
Zhejiang Institute of Finance and Economics in January 1980.





Qian Min,
a director of Kandi since May 2008, is the General Manager of Zheshang Bank Co.,
Ltd. Over the course of his career, Mr. Qian worked as a Director and Vice
President of the Agricultural Bank of China, Yongkang Branch from 1990 to 2008.
Mr. Qian received his B.A. from the Southwest University of Science and
Technology, located in Minyang, China in 2005.





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 Yao Zhengming. 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 2008, 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 2008, except as
follows:




Number
                            of
                            Late
                            Reports
                          
                          Number
      of
                            Transactions
                            Not
                            Reported
                            TimelyQian
      Min
                          
                          
                          1
                          
                          1Yao
      Zhengming
                          
                          
                          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.  A
copy of our code of ethics will be provided without charge upon written request
to Hu Xiaoming, Chief Executive Officer, Kandi Technologies, Corp., Jinhua City
Industrial Zone, Jinhua, Zhejiang Province, People’s Republic of China,
321016.




- 26
-




Item 11.
            Executive
      Compensation





Compensation
Discussion and Analysis





Executive
Compensation Philosophy





Our compensation program is designed to
attract, retain and motivate highly qualified executives and drive sustainable
growth.  We compensate our executives named in the summary
compensation table, which we refer to as “named executive officers” or “NEOs,”
through a combination of base salary and long term


equity
incentive awards. This compensation program is designed to be competitive with
comparable companies and to align executive compensation with the long-term
interests of our stockholders.  Base salary is designed to reward
current performance. Incentive compensation is earned on the basis of achieving
Company and operating level performance objectives, personal performance
objectives, and the executive’s adherence to our core values.





Compensation Setting
Process





Compensation decisions regarding our
NEOs are made by our Compensation Committee based on a collective evaluation of
all components of executive pay.  In reviewing the compensation of our
NEOs, the Compensation Committee reviews compensation practices within our
industry, as well as the NEO’s background and experience within our industry, to
determine appropriate market-based compensation levels for base annual salary
and long-term incentives.





Salary and Incentive
Compensation





Salary





Salary is an important element in
attracting highly qualified executives and provides a base level of
compensation.  At the end of the year, each executive’s performance is
evaluated by our Compensation Committee which takes into account the
individual’s performance, responsibilities of the position, adherence to our
core values, experience, and external market conditions and
practices.





Long-Term
Compensation





We believe it is a customary and
competitive practice to include an equity-based element of compensation to the
overall compensation package for NEOs.  In addition, we believe that a
significant portion of the compensation of our executives, which is the level of
management with the greatest ability to influence our performance, should be
performance-based and therefore at risk.





Awards will be made under the Omnibus
Long-Term Incentive Plan (“LTIP”), which was approved by our stockholders in
December 2008.  As of December 31, 2008, no awards have been granted
under the LTIP.





Summary Compensation
Table





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)
                                                                                                                  
                                                                                                                  2008
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  02007
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0Hu
      Xiaoming, CEO and President (2)
                                                                                                                  
                                                                                                                  2008
                                                                                                                  
                                                                                                                  
                                                                                                                  19,231
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  19,2312007
                                                                                                                  
                                                                                                                  
                                                                                                                  19,231
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  19,231




(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.




- 27
-




Director
Compensation





No
compensation was paid to any of the Company’s directors for their services as a
director in 2008. There were no 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
                                    ClassCommon
      Stock
                                  
                                  Excelvantage
      Group Limited
                                  
                                  
                                  12,000,000
                                  
                                  60.12%Common
      Stock
                                  
                                  Tim
      Ho Man (1)
                                  
                                  
                                  12,000,000
                                  
                                  60.12%All
      officers and directors
                                  
                                  
                                  
                                  
                                  0
                                  
                                  0%





(1) Tim
Ho Man is the sole stockholder of Excelvantage Group Limited. Through his
position as the sole stockholder in Excelvantage Group Limited, Tim Ho Man 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, Tim Ho Man may, under
the rules of the Securities and Exchange Commission, be deemed to be the
beneficial owner of the shares of common stock. Tim Ho Man disclaims beneficial
ownership of the shares of common stock reported as beneficially owned by
him.





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





Transactions with Related
Persons





None.





Director
Independence





Messrs.
Dexter Fong, Zheng Mingyang, Yao Zhengming and Qian Min are all non-employee
directors, all of whom our Board of Directors has determined are independent
pursuant to NASDAQ rules the rules. All of the members of members of our Audit
Committee, Nominating/Corporate Governance Committee and Compensation Committee
are independent pursuant to NASDAQ rules.




- 28
-





Item 14.
            Principal Accounting Fees and
      Services.




The
following table represents the aggregate fees from our principal accountant,
Weinberg & Company, P.A. for each of our years ended December 31, 2008 and
2007.





2008
                      2007Audit
      Fees
                      $270,402
                      $215,083Audit
      Related Fees
                      $1,556
                      -All
      Other Fees
                      $3,250
                      -TOTAL
      FEES
                      $275,208
                      $215,083





Fees for
audit services include fees associated with the annual audit and reviews of our
quarterly reports, as well as services performed in conjunction with our filing
of the registration statement on Form S-8.  The Audit Committee has
reviewed the above fees for non-audit services and believes such fees are
compatible with the independent registered public accountants’
independence.





Audit Committee Pre-Approval Policies
and Procedures





The Audit
Committee’s policy is to pre-approve all audit and non-audit services by
category, including audit-related services, tax services, and other permitted
non-audit services, to be provided by the independent registered public
accounting firm to the Company.  In accordance with the policy, the
Audit Committee regularly reviews and receives updates on specific services
provided by the independent registered public accounting firm, and the Company’s
management may present additional services for approval.





The Audit
Committee may delegate pre-approval authority to one or more of its
members.  The member to whom such authority is delegated must report,
for informational purposes only, any pre-approval decisions to the Audit
Committee at its next scheduled meeting.





All
services rendered by Weinberg & Company, P.A. to the Company are permissible
under any applicable laws and regulations.  During 2008, all services
performed by Weinberg & Company, P.A. were approved in advance by the Audit
Committee in accordance with the pre-approval policy.





- 29
-


PART
IV




Item
      15.
              Exhibits,
      Financial Statement
Schedules.





Exhibit
                  Number
                
                Description2.1
      1
                
                Share
      Exchange Agreement, dated June 29, 2007, among Stone Mountain Resources,
      Inc., Continental Development Limited and Excelvantage Group
      Limited.3.1
      2
                
                Certificate
      of Incorporation.3.2
      3
                
                By-laws.10.1
      4
                
                Agreement
      on Business Operations between Zhejiang Kandi Vehicles Co., Ltd. and
      Zhejiang Yongkang Top Import & Export Co., Ltd.10.2
      5
                
                Employment
      Contract, dated June 10, 2004, by and between Zhejiang Kandi Vehicles Co.,
      Ltd. and Mr. Hu Xiaoming.10.3
      6
                
                Employment
      Contract, dated July 10, 2004, by and between Zhejiang Kandi Vehicles Co.,
      Ltd. and Ms. Zhu Xiaoying.16.1
      7
                
                Letter
      from Gately & Associates, LLC.21.1
      8
                
                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.







1 Incorporated by reference from Exhibit
2.1 to the Company’s Current Report on Form 8-K filed on July 6,
2007.


2 Incorporated by reference from Exhibit
3.1 to Form SB-2 filed by the Company on April 1, 2005.


3
Incorporated by reference from
Exhibit 3.2 to Form SB-2 filed by the Company on April 1, 2005.


4 Incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on July 6,
2007.


5 Incorporated by reference from Exhibit
10.2 to the Company’s Current Report on Form 8-K filed on July 6,
2007.


6 Incorporated by reference from Exhibit
10.3 to the Company’s Current Report on Form 8-K filed on July 6,
2007.


7Incorporated by reference
from Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on August
14, 2007.
 8 Incorporated by reference from Exhibit
21.1 to the Company’s Annual Report on Form 10-K filed on March 31,
2008.
  - 30
-


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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, 2009
                    By:
                    /s/
      Hu XiaomingHu
      XiaomingPresident
      and Chief Executive
Officer





Pursuant to the requirements of 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, 2009Hu
      Xiaoming
                                            
                                            Chairman
      of the Board (Principal Executive Officer)/s/
      Zhu Xiaoying
                                            
                                            Chief
      Financial Officer and Director
                                            
                                            March
      31, 2009(Principal
      Financial Officer and Principal Accounting Officer)/s/
      Zheng Mingyang
                                            
                                            Director
                                            
                                            March
      31, 2009/s/
      Qian Min
                                            
                                            Director
                                            
                                            March
      31, 2009/s/
      Yao Zhengming
                                            
                                            Director
                                            
                                            March
      31, 2009/s/
      Fong Heung Sang
                                            
                                            Director
                                            
                                            March
      31, 2009/s/
      Hu Wangyuan
                                            
                                            Director
                                            
                                            March
      31,
2009




- 31
-