UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF
1934




For the
quarterly period ended March 31, 2009




or




 ̈
            TRANSITION
      REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF
1934




For the
transition period from ______to______




Commission
file number 000-52186





Kandi
Technologies, Corp.


(Exact
name of registrant as specified in 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)





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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o  No þ




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




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




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




Yes
 ̈  No þ




As of
March 31, 2009 the registrant had issued and outstanding 19,961,000 shares of
common stock, par value $.001 per share.





TABLE
OF CONTENTS




PagePART I—FINANCIAL
      INFORMATIONItem
      1.
                                          Condensed
      Consolidated Financial Statements
                                          2-27Item
      2.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          28-39Item
      3.
                                          Quantitative
      and Qualitative Disclosures About Market Risk.
                                          40Item
      4.
                                          Controls
      and Procedures
                                          41PART II—OTHER
      INFORMATIONItem
      1.
                                          Legal
      Proceedings
                                          II-1Item
      1A.
                                          Risk
      Factors
                                          II-1Item
      2.
                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                          II-1Item
      3.
                                          Defaults
      Upon Senior Securities
                                          II-1Item
      4.
                                          Submission
      of Matters to a Vote of Security Holders
                                          II-1Item
      5.
                                          Other
      Information
                                          II-1Item
      6.
                                          Exhibits
                                          II-1







PART
I— FINANCIAL INFORMATION




Item
1.  Financial Statements. (Unaudited)





KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


CONDENSED CONSOLIDATED
BALANCE SHEETS


ASSETS


March
      31,
                          2009
                        
                        
                        December
                          31,(Unaudited)
                        
                        
                        2008CURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        1,767,694
                        
                        
                        $
                        141,380Restricted
      cash
                        
                        
                        10,809,863
                        
                        
                        
                        12,550,685Accounts
      receivable, net of allowance for doubtful accounts of $7,123 as of March
      31, 2009 and December 31, 2008
                        
                        
                        7,013,490
                        
                        
                        
                        7,715,081Inventories,
      net of reserve for slow moving inventories of $152,091 and $0 as of March
      31, 2009 and December 31, 2008, respectively
                        
                        
                        3,641,683
                        
                        
                        
                        3,207,571Notes
      receivable
                        
                        
                        6,976,033
                        
                        
                        
                        13,235,961Other
      receivables
                        
                        
                        206,752
                        
                        
                        
                        289,315Prepayments
      and prepaid expenses
                        
                        
                        43,631
                        
                        
                        
                        60,017Due
      from employees
                        
                        
                        26,565
                        
                        
                        
                        19,805Advances
      to suppliers
                        
                        
                        487,791
                        
                        
                        
                        -Total
      Current Assets
                        
                        
                        30,973,502
                        
                        
                        
                        37,219,815LONG-TERM
      ASSETSPlant
      and equipment, net
                        
                        
                        20,150,130
                        
                        
                        
                        20,832,549Land
      use rights, net
                        
                        
                        9,312,162
                        
                        
                        
                        9,368,403Construction
      in progress
                        
                        
                        1,887,369
                        
                        
                        
                        1,913,456Deferred
      tax asset
                        
                        
                        178,206
                        
                        
                        
                        265,243Total
      Long-Term Assets
                        
                        
                        31,527,867
                        
                        
                        
                        32,379,651TOTAL
      ASSETS
                        
                        $
                        62,501,369
                        
                        
                        $
                        69,599,466




See
accompanying notes to condensed consolidated financial
statements




2


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


CONDENSED CONSOLIDATED
BALANCE SHEETS


LIABILITIES AND STOCKHOLDERS’
EQUITY


March
      31,2009
                            
                            
                            December
      31,(Unaudited)
                            
                            
                            2008CURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            5,062,801
                            
                            
                            $
                            9,371,105Other
      payables and accrued expenses
                            
                            
                            1,047,432
                            
                            
                            
                            1,151,245Short-term
      bank loans
                            
                            
                            26,148,183
                            
                            
                            
                            26,115,375Customer
      deposits
                            
                            
                            20,049
                            
                            
                            
                            676,548Notes
      payable
                            
                            
                            11,394,180
                            
                            
                            
                            13,081,026Due
      to employees
                            
                            
                            11,527
                            
                            
                            
                            10,502Due
      to related party
                            
                            
                            676,082
                            
                            
                            
                            623,767Deferred
      tax liability
                            
                            
                            71,202
                            
                            
                            
                            139,500Total
      Current Liabilities
                            
                            
                            44,431,456
                            
                            
                            
                            51,169,068TOTAL
      LIABILITIES
                            
                            
                            44,431,456
                            
                            
                            
                            51,169,068COMMITMENTS
      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 March 31, 2009 and December
      31, 2008, respectively
                            
                            
                            19,961
                            
                            
                            
                            19,961Additional
      paid-in capital
                            
                            
                            7,348,222
                            
                            
                            
                            7,138,105Retained
      earnings (the restricted portion is $534,040 at March 31, 2009 and
      December 31, 2008)
                            
                            
                            9,464,298
                            
                            
                            
                            10,047,198Accumulated
      other comprehensive income
                            
                            
                            1,237,432
                            
                            
                            
                            1,225,134TOTAL
      STOCKHOLDERS’ EQUITY
                            
                            
                            18,069,913
                            
                            
                            
                            18,430,398TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                            
                            $
                            62,501,369
                            
                            
                            $
                            69,599,466


See
accompanying notes to condensed consolidated financial statements


3


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND


COMPREHENSIVE (LOSS)
INCOME


(UNAUDITED)





Three
      Months EndedMarch
      31, 2009
                                                    
                                                    
                                                    March
      31, 2008REVENUES,
      NET
                                                    
                                                    $
                                                    4,005,904
                                                    
                                                    
                                                    $
                                                    9,487,285COST
      OF GOODS SOLD
                                                    
                                                    
                                                    (3,025,722
                                                    )
                                                    
                                                    
                                                    (7,305,277
                                                    )GROSS
      PROFIT
                                                    
                                                    
                                                    980,182
                                                    
                                                    
                                                    
                                                    2,182,008Research
      and development
                                                    
                                                    
                                                    526,201
                                                    
                                                    
                                                    
                                                    46,610Selling
      and distribution expenses
                                                    
                                                    
                                                    86,184
                                                    
                                                    
                                                    
                                                    215,776General
      and administrative expenses
                                                    
                                                    
                                                    567,815
                                                    
                                                    
                                                    
                                                    279,120Stock
      based compensation expense
                                                    
                                                    
                                                    210,117
                                                    
                                                    
                                                    
                                                    -(LOSS)
      INCOME FROM OPERATIONS
                                                    
                                                    
                                                    (410,135
                                                    )
                                                    
                                                    
                                                    1,640,502Interest
      expense, net
                                                    
                                                    
                                                    (309,304
                                                    )
                                                    
                                                    
                                                    (615,540
                                                    )Government
      grants
                                                    
                                                    
                                                    99,053
                                                    
                                                    
                                                    
                                                    23,381Other
      income, net
                                                    
                                                    
                                                    56,214
                                                    
                                                    
                                                    
                                                    21,711(LOSS)
      INCOME FROM OPERATIONS BEFORE INCOME TAXES
                                                    
                                                    
                                                    (564,172
                                                    )
                                                    
                                                    
                                                    1,070,054INCOME
      TAX (EXPENSE) BENEFIT
                                                    
                                                    
                                                    (18,727
                                                    )
                                                    
                                                    
                                                    39,965(LOSS)
      INCOME FROM CONTINUING OPERATIONS
                                                    
                                                    
                                                    (582,899
                                                    )
                                                    
                                                    
                                                    1,110,019DISCONTINUED
      OPERATIONIncome
      from discontinued operation
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    157NET
      GAIN FROMDISCONTINUED
      OPERATION
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    157




See
accompanying notes to condensed consolidated financial statements


4




KANDI
      TECHNOLOGIES, CORP.
                                AND
      SUBSIDIARIES
                                CONDENSED
      CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND
                                COMPREHENSIVE (LOSS) INCOME
                                (UNAUDITED)Three
      Months EndedMarch
      31, 2009
                              
                              
                              March
      31, 2008NET
      (LOSS) INCOME
                              
                              
                              (582,899
                              )
                              
                              
                              1,110,176OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation
                              
                              
                              12,298
                              
                              
                              
                              46,440COMPREHENSIVE
      (LOSS) INCOME
                              
                              
                              (570,601
                              )
                              
                              
                              1,156,616WEIGHTED
      AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
                              
                              
                              19,961,000
                              
                              
                              
                              19,961,000NET
      (LOSS) INCOME PER SHARE FROM CONTINUING OPERATIONS, BASIC AND
      DILUTED
                              
                              $
                              (0.03
                              )
                              
                              $
                              0.06NET
      (LOSS) INCOME PER SHARE, BASIC AND DILUTED
                              
                              $
                              (0.03
                              )
                              
                              $
                              0.06




See
accompanying notes to condensed consolidated financial statements


5


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




Three
      Months Ended March 312009
                      
                      
                      2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
                      
                      $
                      (582,899
                      )
                      
                      $
                      1,110,176Net
      gain from discontinued operation
                      
                      
                      -
                      
                      
                      
                      (157
                      )(Loss)
      income from continuing operations
                      
                      
                      (582,899
                      )
                      
                      
                      1,110,019Adjustments
      to reconcile net (loss) income to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                      
                      
                      844,728
                      
                      
                      
                      362,750Deferred
      taxes
                      
                      
                      18,727
                      
                      
                      
                      (40,795
                      )Stock
      based compensation expense
                      
                      
                      210,117
                      
                      
                      
                      -Inventory
      reserve
                      
                      
                      151,996
                      
                      
                      
                      -Changes
      in operating assets and liabilities:(Increase)
      Decrease In:Accounts
      receivable
                      
                      
                      701,590
                      
                      
                      
                      1,101,521Inventories
                      
                      
                      (586,108
                      )
                      
                      
                      (905,114
                      )Other
      receivables and prepaid expenses
                      
                      
                      82,563
                      
                      
                      
                      331,315Due
      from employees
                      
                      
                      (5,736
                      )
                      
                      
                      32,431Prepayments
      and prepaid expenses
                      
                      
                      (471,406
                      )
                      
                      
                      17,774Increase
      (Decrease) In:Accounts
      payable
                      
                      
                      (4,308,304
                      )
                      
                      
                      159,300Other
      payables and accrued liabilities
                      
                      
                      (103,813
                      )
                      
                      
                      (27,323
                      )Customer
      deposits
                      
                      
                      (656,498
                      )
                      
                      
                      (211,914
                      )Net
      cash (used in) provided by operating activities from continuing
      operations
                      
                      
                      (4,705,043
                      )
                      
                      
                      1,929,964Net
      cash provided by operating activities from discontinued
      operation
                      
                      
                      -
                      
                      
                      
                      405,710Net
      cash (used in) provided by operating activities
                      
                      $
                      (4,705,043
                      )
                      
                      $
                      2,335,674CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                      
                      
                      (23,333
                      )
                      
                      
                      (611,471
                      )Purchase
      of construction in progress
                      
                      
                      (30,971
                      )
                      
                      
                      (55,351
                      )Issuance
      of notes receivable
                      
                      
                      (5,203,029
                      )
                      
                      
                      (1,859,256
                      )Repayments
      of notes receivable
                      
                      
                      11,462,957
                      
                      
                      
                      49,842








6




KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
 (UNAUDITED)


Three
      Months Ended March 312009
                        
                        
                        2008Net
      cash provided by (used in) investing activities from continuing
      operations
                        
                        
                        6,205,624
                        
                        
                        
                        (2,476,236
                        )Net
      cash provided by investing activities from discontinued
      operation
                        
                        
                        -
                        
                        
                        
                        11,782Net
      cash provided by (used in) investing activities
                        
                        $
                        6,205,624
                        
                        
                        $
                        (2,464,454
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Restricted
      cash
                        
                        
                        1,740,822
                        
                        
                        
                        (2,192,916
                        )Proceeds
      from short-term bank loans
                        
                        
                        9,349,071
                        
                        
                        
                        9,776,805Repayments
      of short-term bank loans
                        
                        
                        (9,316,263
                        )
                        
                        
                        (9,051,887
                        )Proceeds
      from notes payable
                        
                        
                        9,511,583
                        
                        
                        
                        1,485,435Repayments
      of notes payable
                        
                        
                        (11,198,429
                        )
                        
                        
                        (712,027
                        )Repayments
      of advances to related parties
                        
                        
                        52,315
                        
                        
                        
                        90,709Net
      cash provided by (used in) financing activities from continuing
      operations
                        
                        
                        139,099
                        
                        
                        
                        (603,881
                        )Net
      cash (used in) financing activities from discontinued
      operation
                        
                        
                        -
                        
                        
                        
                        (432,827
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        139,099
                        
                        
                        
                        (1,036,708
                        )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        1,639,680
                        
                        
                        
                        (1,165,488
                        )Effect
      of exchange rate changes on cash
                        
                        
                        (13,366
                        )
                        
                        
                        226,350Cash
      and cash equivalents at beginning of period
                        
                        
                        141,380
                        
                        
                        
                        1,149,140CASH AND CASH EQUIVALENTS AT END OF
      PERIOD
                        
                        $
                        1,767,694
                        
                        
                        $
                        210,002SUPPLEMENTARY
      CASH FLOW INFORMATIONIncome
      taxes paid
                        
                        $
                        -
                        
                        
                        $
                        -Interest
      paid
                        
                        $
                        425,186
                        
                        
                        $
                        439,961SUPPLEMENTAL
      NON-CASH DISCLOSURE:


During
the three months ended March 31, 2009 and 2008, $57,059 and $380 were
transferred from construction in progress to plant and equipment,
respectively.







7


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





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 August 13, 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.





On June
24, 2008 the Company closed its acquisition of 100% of the shares of Kandi
Special Vehicles Co., Ltd. (“KSV”), 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 KSV at the date of acquisition. On March 10, 2009, KSV
changed its name to Kandi New Energy Vehicles Co., Ltd. (“KNE”).





On May 9,
2008, the Company sold Zhejiang Yongkang Top Import & Export Co., Ltd.
(“Dingji”), a subsidiary of the Company, to certain individuals. In accordance
with SFAS 144, “Accounting for the Impairment or Disposal of Long−Lived Assets,”
the results of operations of 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 the Company are 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.


8


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
2 – LIQUIDITY




The
Company’s working capital deficit is $13,457,954 as of March 31,
2009.




As of
March 31, 2009, the Company has credit lines from commercial banks for
$21,349,480, of which $10,517,705 was used at March 31, 2009. Subsequent to
March 31, 2009, the Company collected approximately $4.3 million of its notes
receivable. The Company expects to collect the remaining notes receivable by
June 30, 2009 according to the contractual terms.





The
Company believes that its cash flows generated internally may not be sufficient
to sustain operations and repay short term bank loans for the next twelve
months. Therefore, from time to time, the Company may require extra funding
through short term borrowing from PRC banks or other financing activities if
needed in the near future. Nevertheless, the Company believes that financing
will be available on normal trade terms if needed.





NOTE
3 - BASIS OF PRESENTATION





The
Company’s unaudited condensed consolidated financial statements and for the
three months ended March 31, 2009 and 2008 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the requirements for reporting on Rule 8-03 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements.





However,
such information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the consolidated financial position and the consolidated results
of operations. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full year. The condensed consolidated
balance sheet information as of December 31, 2008 was derived from the audited
consolidated financial statements included in the Company’s Annual Report on
Form 10-K. These interim condensed consolidated financial statements should be
read in conjunction with that report.


9


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
4 – PRINCIPLES OF CONSOLIDATION




The
consolidated financial statements include the accounts of Kandi Technologies
Corp., and the following subsidiaries:





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


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


(iii)
            Kandi
      New Energy Vehicles Co. Ltd., (“KNE”, formerly known as Kandi Special
      Vehicles Co., Ltd. “KSV”) (a wholly-owned subsidiary of the
      Company)





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





NOTE
5 – USE OF ESTIMATES





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





NOTE
6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





(a)
Revenue Recognition





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





·       Persuasive
evidence of an arrangement exists;


·       Delivery
has occurred or services have been rendered;


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


·       Collectability
is reasonably assured.





(b)
Research and Development





Expenditures
relating to the development of new products and processes, including significant
improvement to existing products are expensed as incurred. Research and
development expenses were $526,201 and $46,610 for the three months ended March
31, 2009 and 2008, respectively.


10


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





(c)
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.





March
      31,
                    2009
                  
                  
                  December
      31,
                    2008
                  
                  
                  March
      31,
                    2008Period
      end RMB : USD exchange rate
                  
                  
                  6.8456
                  
                  
                  
                  6.8542
                  
                  
                  
                  7.0222Average
      quarterly RMB : USD exchange rate
                  
                  
                  6.8499
                  
                  
                  
                  7.0842
                  
                  
                  
                  7.1682





(d)
Comprehensive Income





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





(e)
Income Taxes





The
Company accounts for income tax using an asset and liability approach and allows
for recognition of deferred tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future realization is uncertain.





(f)
Cash and Cash Equivalents





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





Restricted
cash on March 31, 2009 and December 31, 2008 represent time deposits on account
to secure short-term bank loans and notes payable. Also see Notes 14 and
15.


11


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
6 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





(g)
Fair Value of Financial Instruments





SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. The hierarchy prioritizes the inputs into three levels
based on the extent to which inputs used in measuring fair value are observable
in the market.





These
tiers include:





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


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


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





The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of SFAS 157 as of March 31, 2009 are as follows:





Fair
      Value Measurements at Reporting Date UsingCarrying
      value
                  as
      of March 31,
                  2009
                
                
                Quoted
      Prices in
                  Active
      Markets
                  for
      Identical
                  Assets
                
                
                Significant
      Other
                  Observable
                  Inputs
                
                
                Significant
                  Unobservable
                  Inputs(Level
      1)
                
                
                (Level
      2)
                
                
                (Level
      3)Cash
      and cash equivalents
                
                $
                1,767,694
                
                
                $
                1,767,694
                
                
                
                -
                
                
                
                -Restricted
      cash
                
                $
                10,809,863
                
                
                $
                10,809,863
                
                
                
                -
                
                
                
                -





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





(h)
Stock Based Compensation





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





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 the
Company’s stock. The expected life assumption is primarily based on the
expiration date of the option. The risk-free interest rate for the expected term
of the option is based on the U.S. Treasury yield curve in effect at the time of
grant.





Stock
compensation expense recognized is based on awards expected to vest, and there
were no estimated forfeitures as the current options outstanding were only
issued to founders, directors 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.





The stock
based compensation expense for the period ended March 31, 2009 is $210,117. Also
see Note 17.


12


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
7 – NEW 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 acquiree 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
interest in 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 the beginning of an entity’s first
fiscal year that begins after December 15, 2008. The Company has determined that
SFAS No. 160 does not materially affect, or is reasonably likely to materially
affect 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 has determined that SFAS No. 161 does not materially affect,
or is reasonably likely to materially affect its financial
statements.





During
June 2008, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 07-05,
Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock (“EITF 07-05”), which is effective for fiscal years beginning
after December 15, 2008. EITF 07-05 addresses the determination of whether an
instrument (or an embedded feature) is indexed to an entity's own stock, which
is the first part of the scope exception in paragraph 11(a) of FASB SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).
If an instrument (or an embedded feature) that has the characteristics of a
derivative instrument under paragraphs 6–9 of SFAS 133 is indexed to an entity's
own stock, it is still necessary to evaluate whether it is classified in
stockholders' equity (or would be classified in stockholders' equity if it were
a freestanding instrument). Other applicable authoritative accounting
literature, including Issues EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and
EITF 05-2, The Meaning of “Conventional Debt Instrument” in Issue No. 00-19,
provides guidance for determining whether an instrument (or an embedded feature)
is classified in stockholders' equity (or would be classified in stockholders'
equity if it were a freestanding instrument). EITF 07-05 does not address that
second part of the scope exception in paragraph 11(a) of SFAS 133. The Company
has determined that EITF 07-05 does not materially affect, or is reasonably
likely to materially affect its financial statements.


13


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
8 – CONCENTRATIONS





(a)
Customers





The
Company’s major customers for the period ended March 31, 2009 accounted for the
following percentages of total sales and accounts receivable as
follows:





Sales
                  
                  
                  Accounts
      ReceivableMajor
                    Customers
                  
                  Three
      Months
                    Ended
      March
                    31,
      2009
                  
                  
                  Three
      Months
                    Ended
      March
                    31,
      2008
                  
                  
                  March
      31, 2009
                  
                  
                  December
      31,
                    2008Company
      A
                  
                  
                  64
                  %
                  
                  
                  31
                  %
                  
                  
                  85
                  %
                  
                  
                  52
                  %Company
      B
                  
                  
                  35
                  %
                  
                  
                  -
                  
                  
                  
                  1
                  %
                  
                  
                  -Company
      C
                  
                  
                  1
                  %
                  
                  
                  -
                  
                  
                  
                  1
                  %
                  
                  
                  -Company
      D
                  
                  
                  -
                  
                  
                  
                  23
                  %
                  
                  
                  -
                  
                  
                  
                  12
                  %Company
      E
                  
                  
                  -
                  
                  
                  
                  13
                  %
                  
                  
                  -
                  
                  
                  
                  1
                  %





(b)
Suppliers





The
Company’s major suppliers for the three months ended March 31, 2009 accounted
for the following percentage of total purchases and accounts payable as
follows:





Purchases
                  
                  
                  Accounts
      PayableMajor
                    Suppliers
                  
                  Three
      Months
                    Ended
      March
                    31,
      2009
                  
                  
                  Three
      Months
                    Ended
      March
                    31,
      2008
                  
                  
                  March
      31, 2009
                  
                  
                  December
      31,
                    2008Company
      F
                  
                  
                  84
                  %
                  
                  
                  1
                  %
                  
                  
                  6
                  %
                  
                  
                  3
                  %Company
      G
                  
                  
                  7
                  %
                  
                  
                  8
                  %
                  
                  
                  3
                  %
                  
                  
                  3
                  %Company
      H
                  
                  
                  2
                  %
                  
                  
                  7
                  %
                  
                  
                  5
                  %
                  
                  
                  2
                  %Company
      I
                  
                  
                  2
                  %
                  
                  
                  4
                  %
                  
                  
                  1
                  %
                  
                  
                  2
                  %Company
      J
                  
                  
                  1
                  %
                  
                  
                  4
                  %
                  
                  
                  1
                  %
                  
                  
                  2
                  %


14


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
9 – (LOSS) INCOME PER SHARE





Basic
(loss) income per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted loss per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the stock options
were exercised and if the additional common shares were dilutive. For the three
months ended March 31, 2009 the Company has a net loss, and therefore the
options are anti-dilutive, therefore there were no potentially dilutive
securities for the three months ended March 31, 2009 and 2008. Also see Note
17.





NOTE
10 - INVENTORIES





Inventories
are summarized as follows:





March
      31, 2009
                    (Unaudited)
                  
                  
                  December
      31, 2008Raw
      material
                  
                  $
                  748,216
                  
                  
                  $
                  988,426Work-in-progress
                  
                  
                  2,640,229
                  
                  
                  
                  1,980,413Finished
      goods
                  
                  
                  405,329
                  
                  
                  
                  238,7323,793,774
                  
                  
                  
                  3,207,571Less:
      reserve for slow moving inventories
                  
                  
                  (152,091
                  )
                  
                  
                  -Inventories,
      net
                  
                  
                  3,641,683
                  
                  
                  
                  3,207,571


15


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
11 - NOTES RECEIVABLE





Notes
receivable are summarized as follows:





March
      31,
                      2009
                      (Unaudited)
                    
                    
                    December
      31,
                      2008Notes
      receivable from unrelated companies:Due
      March 31, 2009, interest at 7.2% per annum
                    
                    $
                    -
                    
                    
                    $
                    3,928,997Due
      April 29, 2009, interest at 7.2% per annum (subsequently settled on its
      due date)
                    
                    
                    730,396
                    
                    
                    
                    729,480Due
      June 30, 2009, interest at 5.31% per annum
                    
                    
                    2,204,403
                    
                    
                    
                    8,147,091Due
      June 30, 2009, interest at 5.31% per annum
                    
                    
                    1,460,792
                    
                    
                    
                    -Due
      June 30, 2009, interest at 5.31% per annum
                    
                    
                    389,253
                    
                    
                    
                    -Notes
      receivable from unrelated companies
                    
                    
                    4,784,844
                    
                    
                    
                    12,805,568Bank
      acceptance notes:Due
      January 5, 2009
                    
                    
                    -
                    
                    
                    
                    430,393Due
      April 20, 2009 (subsequently settled on its due date)
                    
                    
                    2,191,189
                    
                    
                    
                    -Bank
      acceptance notes
                    
                    
                    2,191,189
                    
                    
                    
                    430,393Notes
      receivable
                    
                    $
                    6,976,033
                    
                    
                    $
                    13,235,961





Notes
receivable are unsecured.


16


KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 2009
(UNAUDITED)
  NOTE
12 – LAND USE RIGHTS





Land use
rights consist of the following:





March
      31, 2009
                      (Unaudited)
                    
                    
                    December
      31, 2008Cost
      of land use rights
                    
                    $
                    9,575,316
                    
                    
                    $
                    9,575,316Less:
      Accumulated amortization
                    
                    
                    (263,154
                    )
                    
                    
                    (206,913
                    )Land
      use rights, net
                    
                    $
                    9,312,162
                    
                    
                    $
                    9,368,403





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
KNE.





As of
March 31, 2009 and December 31, 2008, the net book value of land use rights
pledged as collateral for bank loans was $371,588 and $374,454 respectively.
Also see Note 14.





As of
March 31, 2009 and December 31, 2008, the net book value of land use rights
pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electronic
Co., Ltd. (“ZMEC”), an unrelated party of the Company was $6,424,926 and
$6,463,282. Also see Notes 14 and 18.





The
amortization expense for the three months ended March 31, 2009 and 2008 was
$56,241 and $2,739, respectively.





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




2009
      (nine months)
                  
                  $
                  168,6172010
                  
                  
                  224,8232011
                  
                  
                  224,8232012
                  
                  
                  224,8232013
                  
                  
                  224,823Thereafter
                  
                  
                  8,244,253Total
                  
                  $
                  9,312,162


17


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
13 – PLANT AND EQUIPMENT





Plant and
equipment consist of the following:





March
      31, 2009
                              (Unaudited)
                            
                            
                            December
      31, 2008At
      cost:Buildings
                            
                            $
                            8,150,198
                            
                            
                            $
                            8,139,972Machinery
      and equipment
                            
                            
                            9,240,401
                            
                            
                            
                            9,150,387Office
      equipment
                            
                            
                            109,582
                            
                            
                            
                            107,574Motor
      vehicles
                            
                            
                            166,412
                            
                            
                            
                            166,203Moulds
                            
                            
                            9,602,567
                            
                            
                            
                            9,590,51927,269,160
                            
                            
                            
                            27,154,655Less
      : Accumulated depreciationBuildings
                            
                            $
                            (733,625
                            )
                            
                            $
                            (664,872
                            )Machinery
      and equipment
                            
                            
                            (4,914,847
                            )
                            
                            
                            (4,677,133
                            )Office
      equipment
                            
                            
                            (87,814
                            )
                            
                            
                            (85,826
                            )Motor
      vehicles
                            
                            
                            (74,351
                            )
                            
                            
                            (67,049
                            )Moulds
                            
                            
                            (1,308,393
                            )
                            
                            
                            (827,226
                            )(7,119,030
                            )
                            
                            
                            (6,322,106
                            )Plant
      and equipment, net
                            
                            $
                            20,150,130
                            
                            
                            $
                            20,832,549





As of
March 31, 2009 and December 31, 2008, the net book value of plant and equipment
pledged as collateral for bank loans was $1,391,702 and $1,404,236,
respectively. Also see Note 14. Depreciation expense for three months ended
March 31, 2009 and 2008 was $788,487 and $360,011 respectively.





Application
for ownership certificates of two of the buildings above with a net book value
of $3,064,173 is in progress. 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 in progress and expected to be completed in
May 2009.


18


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
14 – SHORT TERM BANK LOANS




Short-term
loans are summarized as follows:




March
      31,
                                            2009
                                            (Unaudited)
                                          
                                          
                                          December
      31,
                                            2008Loans
      from ICBC-Exploration Zone BranchMonthly
      interest only payments at 6.21% per annum, due March 18, 2009.
      Collateralized by a time deposit.
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          656,532Monthly
      interest only payments at 6.21% per annum, due March 23, 2009.
      Collateralized by a time deposit.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          656,532Monthly
      interest only payments at 7.84% per annum, due April 7, 2009, secured by
      the assets owned by the Company. Also see Notes 12 and 13 (subsequently
      repaid on its due date).
                                          
                                          
                                          730,396
                                          
                                          
                                          
                                          729,480Monthly
      interest only payments at 7.47% per annum, due June 4, 2009, secured by
      the assets owned by the Company. Also see Notes 12 and 13.
                                          
                                          
                                          730,396
                                          
                                          
                                          
                                          729,480Monthly
      interest only payments at 7.47% per annum, due August 4, 2009, secured by
      the assets owned by the Company. Also see Notes 12 and 13.
                                          
                                          
                                          438,238
                                          
                                          
                                          
                                          437,688Monthly
      interest only payments at 7.47% per annum, due September 2, 2009, secured
      by the assets owned by the Company. Also see Notes 12 and
    13.
                                          
                                          
                                          394,413
                                          
                                          
                                          
                                          393,919Monthly
      interest only payments at 4.86% per annum, due September 17, 2009.
      Collateralized by a time deposit.
                                          
                                          
                                          657,357
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 4.86% per annum, due September 22, 2009.
      Collateralized by a time deposit.
                                          
                                          
                                          657,357
                                          
                                          
                                          
                                          -Monthly
      interest only payments at 6.93% per annum, due October 8, 2009, secured by
      the assets owned by the Company. Also see Notes 12 and 13.
                                          
                                          
                                          438,238
                                          
                                          
                                          
                                          437,688Monthly
      interest only payments at 6.93% per annum, due October 14, 2009, secured
      by the assets owned by the Company. Also see Notes 12 and
    13.
                                          
                                          
                                          555,101
                                          
                                          
                                          
                                          554,405Monthly
      interest only payments at 6.93% per annum, due October 22, 2009, secured
      by the assets owned by the Company. Also see Notes 12 and
    13.
                                          
                                          
                                          511,277
                                          
                                          
                                          
                                          510,636Monthly
      interest only payments at 5.58% per annum, due December 4, 2009, secured
      by the assets owned by the Company. Also see Notes 12 and
    13.
                                          
                                          
                                          584,317
                                          
                                          
                                          
                                          583,584


19


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
      14 - SHORT TERM BANK LOANS (CONTINUED)March 31,
                                                2009
                                                (Unaudited)
                                              
                                              
                                              December 31,
                                                2008Loans
      from Commercial Bank-Jiangnan BranchMonthly
      interest only payments at 8.22% per annum, due January 10, 2009,
      guaranteed by Yongkang Tangxian Colour Metal Die-casting Company and
      pledged by Jingdezhen De'er Industrial Investment Co.,
Ltd.
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,917,919Monthly
      interest only payments at 8.22% per annum, due May 9, 2009, secured by the
      assets owned by the Company. Also see Notes 12 and 13.
                                              
                                              
                                              1,460,792
                                              
                                              
                                              
                                              1,458,959Monthly
      interest only payments at 5.84% per annum, due January 5, 2010, guaranteed
      by Yongkang Kangli Metal Manufacturing Co. and pledged by Jingdezhen De'er
      industrial investment Co., Ltd.
                                              
                                              
                                              2,921,585
                                              
                                              
                                              
                                              -Loans
      from Huaxia BankMonthly
      interest only payments at 6.13% per annum, due September 12, 2009, pledged
      by construction in progress of the Company, Jiangxi De'er Industrial
      Investment Co., Ltd., guaranteed by Zhejiang Kangli Metal Manufacturing
      Company and Kandi Investment Group Co.
                                              
                                              
                                              2,483,347
                                              
                                              
                                              
                                              2,480,231Loans
      from China Everbright BankMonthly
      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).
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,376,878Monthly
      interest only payments at 5.58% per annum, due February 22, 2010, pledged
      office building of Mr. Hu Xiaoming and Ms. Ling Yueping, guaranteed by
      Nanlong Group Co., Ltd., and Zhejiang Mengdeli Electric Co.,
      Ltd.
                                              
                                              
                                              4,382,377
                                              
                                              
                                              
                                              -Loans
      from Shanghai Pudong Development BankMonthly
      interest only payments at 6.72% per annum, due April 8, 2009.
      Collateralized by a time deposit. (subsequently repaid on its due
      date).
                                              
                                              
                                              1,314,713
                                              
                                              
                                              
                                              1,313,064Monthly
      interest only payments at 6.72% per annum, due April 9, 2009.
      Collateralized by a time deposit. (subsequently repaid on its due
      date).
                                              
                                              
                                              1,314,713
                                              
                                              
                                              
                                              1,313,064




20




KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
      14 - SHORT TERM BANK LOANS (CONTINUED)March 31,
                                        2009
                                        (Unaudited)
                                      
                                      
                                      December 31,
                                        2008Monthly
      interest only payments at 7.28% per annum, due May 21, 2009, guaranteed by
      Nanlong Group Co., Ltd. and Mr. Hu Xiaoming.
                                      
                                      
                                      2,921,585
                                      
                                      
                                      
                                      2,917,918Loans
      from Evergrowing 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.
                                      
                                      
                                      2,921,585
                                      
                                      
                                      
                                      2,917,918Loans 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).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      729,480Monthly
      interest only payments at 5.58% per annum, due February 15, 2010,
      guaranteed by Zhejiang Shuguang industrial Co., Ltd. and Mr. Hu
      Xiaoming.
                                      
                                      
                                      730,396
                                      
                                      
                                      
                                      -Total
                                      
                                      $
                                      26,148,183
                                      
                                      
                                      $
                                      26,115,375





Interest
expense for the three months ended March 31, 2009 and 2008 was $516,869, and
$523,785, respectively.





As of
March 31, 2009, the aggregated amount of short term loans that are guaranteed by
various third parties is $16,340,874, among which $7,303,962 is guaranteed by
Zhejiang Mengdeli Electric Company whose bank loans of $6,245,820 are also
guaranteed by the Company. Also see Note 18.




21


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
15 – NOTES PAYABLE





Notes
payable are summarized as follows:





March 31,
                    2009(Unaudited)
                  
                  
                  December 31,
                    2008Bank
      acceptance notes:Due
      January 18, 2009
                  
                  $
                  -
                  
                  
                  $
                  1,458,959Due
      January 31, 2009
                  
                  
                  -
                  
                  
                  
                  875,378Due
      March 17, 2009
                  
                  
                  -
                  
                  
                  
                  1,458,959Due
      March 17, 2009
                  
                  
                  -
                  
                  
                  
                  4,376,878Due
      March 18, 2009
                  
                  
                  -
                  
                  
                  
                  729,480Due
      March 23, 2009
                  
                  
                  -
                  
                  
                  
                  1,458,959Due
      June 12, 2009
                  
                  
                  1,460,792
                  
                  
                  
                  1,458,959Due
      June 19, 2009
                  
                  
                  438,238
                  
                  
                  
                  437,688Due
      September 05, 2009
                  
                  
                  1,460,792
                  
                  
                  
                  -Due
      September 18, 2009
                  
                  
                  4,382,377
                  
                  
                  
                  -Due
      September 24, 2009
                  
                  
                  1,460,792
                  
                  
                  
                  -Subtotal
                  
                  $
                  9,202,991
                  
                  
                  $
                  12,255,260Notes
      payable to unrelated companies:Due
      March 25, 2009
                  
                  $
                  -
                  
                  
                  $
                  825,766Due
      April 03, 2009 (subsequently settled on its due date)
                  
                  
                  2,191,189
                  
                  
                  
                  -Subtotal
                  
                  
                  2,191,189
                  
                  
                  
                  825,766Total
                  
                  $
                  11,394,180
                  
                  
                  $
                  13,081,026





All the
bank acceptance notes do not bear interest, but are subject to bank charges of
0.005% of the principal as commission on each loan transaction.





Restricted
cash of $5,112,773 is held as collateral for the following notes payable at
March 31, 2009:





Due
      June 12, 2009
                  
                  $
                  1,460,792Due
      September 05, 2009
                  
                  
                  1,460,792Due
      September 18, 2009
                  
                  
                  4,382,377Due
      September 24, 2009
                  
                  
                  1,460,792Total
                  
                  $
                  8,764,753




22


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
16 – 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
effect 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 the Company is 33%. Kandi’s first
profitable tax year for income tax purposes as a foreign-invested company was
2007. As a foreign-invested company, the income tax rate of Kandi is entitled to
a 50% tax holiday based on 25% for the years from 2009 through 2011. During the
transition period, the above tax concession granted to the Company prior to the
new CIT law will be grandfathered according to the interpretations of the new
CIT law.





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





Effective
January 1, 2007, the Company adopted 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, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. 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 March 31, 2009, 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 carry forwards (“NOLs”) for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these NOLs may be utilized in future periods, they remain subject to
examination. The Company also files certain tax returns in China. As of March
31, 2009 the Company was not aware of any pending income tax examinations by
China tax authorities. The Company's policy is to record interest and
penalties on uncertain tax provisions as income tax expense. As of March 31,
2009, the Company has no accrued interest or penalties related to uncertain tax
positions. The Company has not recorded a provision for U.S federal income tax
for the three months ended March 31, 2009 due to the net operating loss carry
forward in the United States.


23


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
16 – TAXES (CONTINUED)





Income
tax expense (benefit) for the three months ended March 31, 2009 and 2008 is
summarized as follows:




For the Three Months Ended
                      March 31,(Unaudited)2009
                    
                    
                    2008Current:Provision
      for CIT
                    
                    $
                    -
                    
                    
                    $
                    -Deferred:Provision
      for CIT
                    
                    
                    18,727
                    
                    
                    
                    (39,965
                    )Income
      tax expense (benefit)
                    
                    $
                    18,727
                    
                    
                    $
                    (39,965
                    )





The
Company’s income tax expense (benefit) differs from the “expected” tax expense
for the three months ended March 31, 2009 and 2008 (computed by applying the CIT
rate of 25%, respectively to income before income taxes) as
follows:





For the Three Months Ended
                        March 31,(Unaudited)2009
                      
                      
                      2008Computed
      "expected" (benefit) expense
                      
                      $
                      (141,043
                      )
                      
                      $
                      267,514Favorable
      tax rate
                      
                      
                      123,021
                      
                      
                      
                      (249,188
                      )Permanent
      differences
                      
                      
                      30,118
                      
                      
                      
                      (58,291
                      )Valuation
      Allowance
                      
                      
                      6,631
                      
                      
                      
                      -Income
      tax expense (benefit)
                      
                      $
                      18,727
                      
                      
                      $
                      (39,965
                      )





The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of March 31, 2009 and December 31, 2008 are
summarized as follows:




24


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
16 – TAXES (CONTINUED)





March 31, 2009
                  (Unaudited)
                
                
                December 31,
                  2008Current
      portion:Deferred
      tax assets:Expense
                
                $
                55,633
                
                
                $
                23,026Subtotal
                
                
                55,633
                
                
                
                23,026Deferred
      tax liabilities:Sales
      cut-off
                
                
                (71,948
                )
                
                
                (104,783
                )Other
                
                
                (54,887
                )
                
                
                (57,743
                )Subtotal
                
                
                (126,835
                )
                
                
                (162,526
                )Total
      deferred tax liabilities – current portion
                
                
                (71,202
                )
                
                
                (139,500
                )Non-current
      portion:Deferred
      tax assets:Depreciation
                
                
                474,717
                
                
                
                561,754Loss
      carried forward
                
                
                62,563
                
                
                
                55,932Valuation
      allowance
                
                
                (62,563
                )
                
                
                (55,932
                )Subtotal
                
                
                474,717
                
                
                
                561,754Deferred
      tax liabilities:Accumulated
      other comprehensive gain
                
                
                (296,511
                )
                
                
                (296,511
                )Subtotal
                
                
                (296,511
                )
                
                
                (296,511
                )Total
      deferred tax assets – non-current portion
                
                
                178,206
                
                
                
                265,243Net
      deferred tax assets
                
                $
                107,004
                
                
                $
                125,743





(b)
Tax Holiday Effect





For the
three months ended March 31, 2009 and 2008 the PRC corporate income tax rate was
25%. Certain subsidiaries of the Company are entitled to tax exemptions (tax
holidays) for the three months ended March 31, 2009 and 2008.





The
combined effects of the income tax expense exemptions and reductions available
to the Company for the three months ended March 31, 2009 and 2008 are as
follows:




For the Three Months Ended
                    March 31
                    (Unaudited)2009
                  
                  
                  2008Tax
      holiday (benefit) expense
                  
                  $
                  (123,021
                  )
                  
                  $
                  249,188Basic
      net (loss) income per share
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.04





25


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)




NOTE
17 - STOCK OPTIONS




On
February 11, 2009, the Compensation Committee of the Board of Directors of the
Company approved the grant of stock options for 2,600,000 shares of common stock
to ten of the Company's employees and directors. The stock options vest ratably
over three years and expire in ten years from the grant date. The Company valued
the stock options at $2,062,964 and amortizes the stock compensation expense
using the straight-line method over the service period from February 11, 2009
through February 11, 2012. The value of the options was estimated using the
Black Scholes Model with an expected volatility of 164%, expected life of 10
years, risk-free interest rate of 2.76% and expected dividend yield of
0.00%.





The
following table summarized the stock option activities of the
Company:





Activity
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      as of January 1, 2009
                  
                  -
                  
                  
                  $
                  -Granted
                  
                  
                  2,600,000
                  
                  
                  
                  0.80Exercised
                  
                  
                  -
                  
                  
                  
                  -Cancelled
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      as of March 31, 2009
                  
                  
                  2,600,000
                  
                  
                  
                  0.80





The
following table summarizes information about stock options outstanding as of
March 31, 2009:





Options Outstanding
                      
                      
                      Options ExercisableNumber of shares
                      
                      Exercise
                        Price
                      
                      
                      RemainingContractual life
                        (in years)
                      
                      
                      Number of
                        shares
                      
                      
                      Exercise
                        Price2,600,000
                      
                      $
                      0.80
                      
                      
                      
                      10
                      
                      
                      
                      2,600,000
                      
                      
                      $
                      0.80





All the
options were granted with an exercise price equal to the market price and
therefore there was no intrinsic value at the grant date. The fair value per
share of the 2,600,000 options issued under the agreement is $0.7934 per
share.




26





KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2009
(UNAUDITED)





NOTE
18 – COMMITMENTS AND CONTINGENCIES





(a)                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
prevailed in the lawsuit and Zhejiang Yuegong Steel Structure Co. and Zhejiang
Jinhua No.1 Construction Co., Ltd. are required to pay $186,331 in damages to
the Company. However, the two defendants appealed the ruling to a higher level
court and the Company has not received the damage award as of March 31, 2009.
Considering the uncertainties of the legal proceeding, the Company did not
record a gain for this at March 31, 2009.





(b)                On
July 14, 2008, KNE entered into a guarantee contract to serve as guarantor for
the bank loans borrowed from Huaxia Bank Hangzhou branch in the amount of
$2,480,231 during the period from July 14, 2008 to July 14, 2009 by Zhejiang
Mengdeli Electronic Co. Ltd (“ZMEC”), a company independent of KNE. Under this
guarantee contract, KNE 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 12.





(c)                On
June 25, 2008, KNE entered into a guarantee contract to serve as guarantor for
the bank loans borrowed from China Agriculture Bank with a maximum guarantee
amount of $3,765,589 during the period from June 25, 2008 to June 24, 2009 by
ZMEC, a company independent of KNE. Under this guarantee contract, KNE 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
12.




27





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





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





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





Forward-looking
statements are only predictions. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. All
of our forward-looking information is subject to risks and uncertainties that
could cause actual results to differ materially from the results expected.
Although it is not possible to identify all factors, these risks and
uncertainties include the risk factors and the timing of any of those risk
factors described in the Company’s Form 10-K for the year ended December 31,
2008 and those set forth from time to time in our filings with the Securities
and Exchange Commission (“SEC”). These documents are available on the SEC’s
Electronic Data Gathering and Analysis Retrieval System
athttp://www.sec.gov.





Critical
Accounting Policies and Estimates




Stock
Based Compensation




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





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 the
Company’s stock. The expected life assumption is primarily based on the
expiration date of the option. The risk-free interest rate for the expected term
of the option is based on the U.S. Treasury yield curve in effect at the time of
grant.





Stock
compensation expense recognized is based on awards expected to vest, and 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.




28




The stock
based compensation expense for the period ended March 31, 2009 is
$210,117.





Fair
Value of Financial Instruments





SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. The hierarchy prioritizes the inputs into three levels
based on the extent to which inputs used in measuring fair value are observable
in the market.





These
tiers include:





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


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


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





The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of SFAS 157 as of March 31, 2009 are as follows:





Fair Value Measurements at Reporting Date Using Quoted Prices InCarrying valueas of March 31,2009
                
                
                Active Marketsfor IdenticalAssets
                
                
                Significant OtherObservableInputs
                
                
                SignificantUnobservableInputs(Level
      1)
                
                
                (Level
      2)
                
                
                (Level
      3)Cash
      and cash equivalents
                
                $
                1,767,694
                
                
                $
                1,767,694
                
                
                
                -
                
                
                
                -Restricted
      cash
                
                $
                10,809,863
                
                
                $
                10,809,863
                
                
                
                -
                
                
                
                -





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




29


Revenue
Recognition





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





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred or services have been
rendered;


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


·
            Collectability
      is reasonably assured.





New 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 acquiree 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 that 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 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 the beginning of an entity’s first
fiscal year that begins after December 15, 2008. The Company has determined that
SFAS No. 160 does not materially affect, or is reasonably likely to materially
affect 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 has determined that SFAS No. 161 does not materially affect,
or reasonably likely to materially affect, its financial
statements.




30




During
June 2008, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 07-05,
Determining Whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock (“EITF 07-05”), which is effective for fiscal years beginning
after December 15, 2008. EITF 07-05 addresses the determination of whether an
instrument (or an embedded feature) is indexed to an entity's own stock, which
is the first part of the scope exception in paragraph 11(a) of FASB SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).
If an instrument (or an embedded feature) that has the characteristics of a
derivative instrument under paragraphs 6–9 of SFAS 133 is indexed to an entity's
own stock, it is still necessary to evaluate whether it is classified in
stockholders' equity (or would be classified in stockholders' equity if it were
a freestanding instrument). Other applicable authoritative accounting
literature, including Issues EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company Own Stock, and
EITF 05-2, The Meaning of “Conventional Debt Instrument” in Issue No. 00-19,
provides guidance for determining whether an instrument (or an embedded feature)
is classified in stockholders' equity (or would be classified in stockholders'
equity if it were a freestanding instrument). EITF 07-05 does not address that
second part of the scope exception in paragraph 11(a) of SFAS 133. The Company
has determined that EITF 07-05 does not materially affect, or is reasonably
likely to materially affect its financial statements.




31


Results
of Operations





Comparison
of Three Months Ended March 31, 2009 and 2008





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





For ThreeMonths EndedMarch 31,2009
                            
                            
                            % OfRevenue
                            
                            
                            For ThreeMonths EndedMarch 31,2008
                            
                            
                            % OfRevenue
                            
                            
                            Change InAmount
                            
                            
                            ChangeIn %REVENUES,
      NET
                            
                            $
                            4,005,904
                            
                            
                            
                            100.0
                            %
                            
                            $
                            9,487,285
                            
                            
                            
                            100.0
                            %
                            
                            $
                            (5,481,381
                            )
                            
                            
                            (57.8
                            )%COST
      OF GOODS SOLD
                            
                            
                            (3,025,722
                            )
                            
                            
                            (75.5
                            )%
                            
                            
                            (7,305,277
                            )
                            
                            
                            (77.0
                            )%
                            
                            
                            4,279,555
                            
                            
                            
                            (58.6
                            )%GROSS
      PROFIT
                            
                            
                            980,182
                            
                            
                            
                            24.5
                            %
                            
                            
                            2,182,008
                            
                            
                            
                            23.0
                            %
                            
                            
                            (1,201,826
                            )
                            
                            
                            (55.1
                            )%Research
      and development
                            
                            
                            526,201
                            
                            
                            
                            13.1
                            %
                            
                            
                            46,610
                            
                            
                            
                            0.5
                            %
                            
                            
                            479,591
                            
                            
                            
                            1,028.9
                            %Selling
      and distribution expenses
                            
                            
                            86,184
                            
                            
                            
                            2.2
                            %
                            
                            
                            215,776
                            
                            
                            
                            2.3
                            %
                            
                            
                            (129,592
                            )
                            
                            
                            (60.1
                            )%General
      and administrative expenses
                            
                            
                            567,815
                            
                            
                            
                            14.2
                            %
                            
                            
                            279,120
                            
                            
                            
                            2.9
                            %
                            
                            
                            288,695
                            
                            
                            
                            103.4
                            %Stock
      based compensation expense
                            
                            
                            210,117
                            
                            
                            
                            5.2
                            %
                            
                            
                            -
                            
                            
                            
                            0.0
                            %
                            
                            
                            210,117
                            
                            
                            
                            100
                            %(LOSS)
      INCOME FROM OPERATIONS
                            
                            
                            (410,135
                            )
                            
                            
                            (10.2
                            )%
                            
                            
                            1,640,502
                            
                            
                            
                            17.3
                            %
                            
                            
                            (2,050,637
                            )
                            
                            
                            (125.0
                            )%Interest
      expense, net
                            
                            
                            (309,304
                            )
                            
                            
                            (7.7
                            )%
                            
                            
                            (615,540
                            )
                            
                            
                            (6.5
                            )%
                            
                            
                            306,236
                            
                            
                            
                            (49.8
                            )%Government
      grants
                            
                            
                            99,053
                            
                            
                            
                            2.5
                            %
                            
                            
                            23,381
                            
                            
                            
                            0.2
                            %
                            
                            
                            75,672
                            
                            
                            
                            323.6
                            %Other
      income, net
                            
                            
                            56,214
                            
                            
                            
                            1.4
                            %
                            
                            
                            21,711
                            
                            
                            
                            0.2
                            %
                            
                            
                            34,503
                            
                            
                            
                            158.9
                            %(LOSS)
      INCOME FROM OPERATIONS BEFORE INCOME TAXES
                            
                            
                            (564,172
                            )
                            
                            
                            (14.1
                            )%
                            
                            
                            1,070,054
                            
                            
                            
                            11.3
                            %
                            
                            
                            (1,634,226
                            )
                            
                            
                            (152.7
                            )%INCOME
      TAX (EXPENSE) BENEFIT
                            
                            
                            (18,727
                            )
                            
                            
                            (0.5
                            )%
                            
                            
                            39,965
                            
                            
                            
                            0.4
                            %
                            
                            
                            (58,692
                            )
                            
                            
                            (146.9
                            )%(LOSS)
      INCOME FROM CONTINUING OPERATIONS
                            
                            
                            (582,899
                            )
                            
                            
                            (14.6
                            )%
                            
                            
                            1,110,019
                            
                            
                            
                            11.7
                            %
                            
                            
                            (1,692,918
                            )
                            
                            
                            (152.5
                            )%DISCONTINUED
      OPERATIONIncome
      from discontinued operation
                            
                            
                            -
                            
                            
                            
                            0.0
                            %
                            
                            
                            157
                            
                            
                            
                            0.0
                            %
                            
                            
                            (157
                            )
                            
                            
                            (100
                            )%NET
      GAIN FROM
                              DISCONTINUED
      OPERATION
                            
                            
                            -
                            
                            
                            
                            0.0
                            %
                            
                            
                            157
                            
                            
                            
                            0.0
                            %
                            
                            
                            (157
                            )
                            
                            
                            (100
                            )%NET
      (LOSS) INCOME
                            
                            
                            (582,899
                            )
                            
                            
                            (14.6
                            )%
                            
                            
                            1,110,176
                            
                            
                            
                            11.7
                            %
                            
                            
                            (1,693,075
                            )
                            
                            
                            (152.5
                            )%




32


(a)
Revenue





For the
three months ended March 31, 2009, our revenue decreased by 57.8% from
$9,487,285 to $4,005,904 as compared to the three months ended March 31, 2008.
The global economic crisis continuing from 2008 negatively affected sales of all
of our vehicles, particularly our recreational vehicle lines.





The
following table lists the numbers of vehicles sold, categorized by vehicle
types, within the three months ended March 31, 2009 and 2008:





Three Months Ended March 312009
                      
                      
                      2008All-terrain
      Vehicles (“ATV”)
                      
                      
                      746
                      
                      
                      
                      1,735Super-mini
      car (“CoCo”)
                      
                      
                      169
                      
                      
                      
                      -Go-Kart
                      
                      
                      275
                      
                      
                      
                      7,331Mini
      Pick-up
                      
                      
                      -
                      
                      
                      
                      1Utility
      vehicles (“UTVs”)
                      
                      
                      1,039
                      
                      
                      
                      123Three-wheeled
      motorcycle (“TT”)
                      
                      
                      198
                      
                      
                      
                      1Total
                      
                      
                      2,427
                      
                      
                      
                      9,191





Based on
a determination that China will be among the first markets to recover from the
global economic crisis, we have spent much time and resources on developing
products targeting the Chinese market.  In addition to the relative
health of the Chinese economy, the Company expects to also benefit from the
stimulus package enacted by the PRC government in November 2008.  The
November stimulus package includes cash subsidies of 60,000 RMB (approximately
$8,765) provided to the purchaser of each renewable energy
vehicle.  We believe that our electric Coco super-mini car will
qualify for such subsidies.  We have submitted an application with the
PRC government to sell the electric Coco in China and expect approval by the end
of the second quarter of 2009 and anticipate sales of the Coco to begin in China
in the third quarter of 2009.





(b)
Cost of goods sold





Cost of
goods sold during the three months ended March 31, 2009 was $3,025,722
representing a 58.6% decrease of $7,305,277 from the three months ended March
31, 2008, which corresponded with the decrease in sales. Cost of goods sold was
75.5% of the total revenue for the period as compared to 77% of the comparable
period, reflecting the Company’s continued efforts on cost control and sourcing
efficiencies on manufacturing materials whose costs were comparatively lower
than those of previous year.





(c)
Gross profit





Gross
profit for the first quarter of 2009 is consistent with the decrease in revenue,
falling 55.1% from $2,182,008 to $980,182 from the same period in
2008.


33





(d)
Selling and distribution expenses





Selling
and distribution expenses were $86,184 for the three months ended March 31,
2009, as compared to $215,776 from the same period in 2008, representing a 60.1%
decrease.  The significant drop in these expenses was the result of
decreased shipping expenses as the Company shipped fewer vehicles overseas,
partly due to decreased sales and partly due to the Company's change from direct
exports to shipping through an export agent who will bear the shipping
expenses.





(e)
General and administrative expenses





General
and administrative expenses were $567,815 for the three months ended March 31,
2009, as compared to $279,120 for the same period in 2008, representing a 103.4%
increase.  The increase was primarily due to increased expenses in
reserve made for slow moving inventories, the depreciation of fixed assets, and
amortization of the land use right of the subsidiary, KNE that had not commenced
business at this reporting quarter.





(f)
Research and development





Research
and development expenses were $526,201 for the three months ended March 31,
2009, as compared to $46,610 from the same period in 2008, representing a 1,028%
increase.  The increase was due to additional research and development
efforts associated with the electric-powered CoCo, which included additional
studies done to market this vehicle in the PRC.





(g)
Stock-based compensation expense





In
February 2009, the Company issued 2,600,000 shares option to 10 executives and
managerial level employees. The fair value of the stock option on the grant date
was $2,062,964.  The Company amortized the stock compensation expense
using the straight-line method over the service period from February 11, 2009
through February 11, 2011. During the three months ended March 31, 2009, the
compensation expense was $210,117 accounting for 5.2% of the total revenue of
the reporting period.





(h)
Government grants





Government
grants totaled $99,053 for the three months ended March 31, 2009,
representing a 323.6% increase over the same period in 2008, primarily due to
the PRC government’s grant of subsidies for electric-powered vehicles sales. Our
electric-powered vehicles were launched in October 2008 and will become our
focus product in 2009.


34


(i)
Net interest expense





Net
interest expense was $309,304 for the three months ended March 31, 2009, as
compared to $615,540 for the same period last year, a decrease of 49.8%. This
decrease is mainly the result of the increase in interest revenue of $208,634
received from the notes receivable. Also, while the exchange rate of RMB versus
the USD remained steady in the reporting quarter, exchange loss was reduced
significantly to $215 from $156,383.





(j)
Net (loss) income





The
operating performance of the Company for the three months ended March 31, 2009
resulted in a net loss of ($582,899) as compared to a net profit of $1,110,176
for the same period last year, primarily due to a decrease in sales and a
ten-fold higher research and development expense.  The net loss also
includes the compensation cost of $210,117 incurred during the first quarter of
2009 for the issuance of options to purchase 2,600,000 shares of common stock to
Company employees and directors as well as the write down of $151,996 for slow
moving inventory.


35


Financial
Condition





Working
Capital





The
Company suffered a loss of $582,899 and cash flows used in operating activities
of $4,705,043 for the three months ended March 31, 2009. The Company also had a
working capital deficit of $13,457,954 at March 31, 2009, which was a decrease
from a working capital surplus of $1,298,063 as of March 31, 2008, which was
principally due to the Company using the cash proceeds borrowed from short-term
loans to acquire KNE in June, 2008 to support the new plant construction and to
expand the production capacity of super-mini cars and go-karts.





The
Company has credit lines for $21,349,480 from commercial banks, of which
$10,517,705 was used at March 31, 2009. Subsequent to March 31, 2009, the
Company paid approximately $2 million of its notes payable and collected
approximately $4.3 million of its notes receivable. The Company expects to
collect the remaining notes receivable by June 30 of 2009 according to
contractual terms.





The
Company believes that its cash flows generated internally may not be sufficient
to sustain operations and repay short term bank loans for the next twelve
months. Therefore, from time to time, the Company may require extra funding
through short term borrowing from PRC banks or other financing activities if
needed in the near future. Nevertheless, the Company believes that financing
will be available on normal trade terms if needed.





The
Company has historically financed itself through short-term commercial bank
loans from PRC banks.  The term of these loans are typically for one
year, and upon the payment of all outstanding principal and interest in a
respective loan, the banks have typically rolled over the loans for additional
one-year terms, with adjustments made to the interest rate to reflect prevailing
market rates.  The following table lists all of such loans obtained by
the Company within the past three years:


36





2006
                                                                                                                      
                                                                                                                      2007
                                                                                                                      
                                                                                                                      2008Bank
                                                                                                                      
                                                                                                                      Loan
                                                                                                                        amount
                                                                                                                      
                                                                                                                      Release date
                                                                                                                      
                                                                                                                      Due 
      date
                                                                                                                      
                                                                                                                      Loan
                                                                                                                        amount
                                                                                                                      
                                                                                                                      Release date
                                                                                                                      
                                                                                                                      Due date
                                                                                                                      
                                                                                                                      Loan
                                                                                                                        amount
                                                                                                                      
                                                                                                                      Release date
                                                                                                                      
                                                                                                                      Due dateCommercial
      Bank
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      03/25/06
                                                                                                                      
                                                                                                                      01/15/07
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      01/19/07
                                                                                                                      
                                                                                                                      01/10/08
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      01/16/08
                                                                                                                      
                                                                                                                      01/10/09-Jiangnan
      Branch
                                                                                                                      
                                                                                                                      
                                                                                                                      10,000
                                                                                                                      
                                                                                                                      05/19/06
                                                                                                                      
                                                                                                                      05/11/07
                                                                                                                      
                                                                                                                      
                                                                                                                      10,000
                                                                                                                      
                                                                                                                      05/14/07
                                                                                                                      
                                                                                                                      05/10/08
                                                                                                                      
                                                                                                                      
                                                                                                                      10,000
                                                                                                                      
                                                                                                                      05/09/08
                                                                                                                      
                                                                                                                      05/09/09ICBC-
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      06/06/06
                                                                                                                      
                                                                                                                      06/05/07
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      06/15/07
                                                                                                                      
                                                                                                                      04/10/08
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      04/08/08
                                                                                                                      
                                                                                                                      04/07/09Exploration
      Zone
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      06/06/06
                                                                                                                      
                                                                                                                      06/05/07
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      06/11/07
                                                                                                                      
                                                                                                                      06/05/08
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      06/06/08
                                                                                                                      
                                                                                                                      06/04/09Branch
                                                                                                                      
                                                                                                                      
                                                                                                                      3,000
                                                                                                                      
                                                                                                                      07/27/06
                                                                                                                      
                                                                                                                      01/24/07
                                                                                                                      
                                                                                                                      
                                                                                                                      3,000
                                                                                                                      
                                                                                                                      09/18/07
                                                                                                                      
                                                                                                                      08/05/08
                                                                                                                      
                                                                                                                      
                                                                                                                      3,000
                                                                                                                      
                                                                                                                      08/06/08
                                                                                                                      
                                                                                                                      08/04/092,700
                                                                                                                      
                                                                                                                      09/08/06
                                                                                                                      
                                                                                                                      09/07/07
                                                                                                                      
                                                                                                                      
                                                                                                                      2,700
                                                                                                                      
                                                                                                                      09/18/07
                                                                                                                      
                                                                                                                      08/05/08
                                                                                                                      
                                                                                                                      
                                                                                                                      2,700
                                                                                                                      
                                                                                                                      09/03/08
                                                                                                                      
                                                                                                                      09/02/093,000
                                                                                                                      
                                                                                                                      10/20/06
                                                                                                                      
                                                                                                                      10/17/07
                                                                                                                      
                                                                                                                      
                                                                                                                      3,000
                                                                                                                      
                                                                                                                      10/19/07
                                                                                                                      
                                                                                                                      10/16/08
                                                                                                                      
                                                                                                                      
                                                                                                                      3,000
                                                                                                                      
                                                                                                                      10/10/08
                                                                                                                      
                                                                                                                      10/08/093,800
                                                                                                                      
                                                                                                                      10/20/06
                                                                                                                      
                                                                                                                      10/17/07
                                                                                                                      
                                                                                                                      
                                                                                                                      3,800
                                                                                                                      
                                                                                                                      10/19/07
                                                                                                                      
                                                                                                                      10/16/08
                                                                                                                      
                                                                                                                      
                                                                                                                      3,800
                                                                                                                      
                                                                                                                      10/22/08
                                                                                                                      
                                                                                                                      10/14/093,500
                                                                                                                      
                                                                                                                      11/02/06
                                                                                                                      
                                                                                                                      11/01/07
                                                                                                                      
                                                                                                                      
                                                                                                                      3,500
                                                                                                                      
                                                                                                                      11/02/07
                                                                                                                      
                                                                                                                      10/23/08
                                                                                                                      
                                                                                                                      
                                                                                                                      3,500
                                                                                                                      
                                                                                                                      10/24/08
                                                                                                                      
                                                                                                                      10/22/094,000
                                                                                                                      
                                                                                                                      12/01/06
                                                                                                                      
                                                                                                                      11/27/07
                                                                                                                      
                                                                                                                      
                                                                                                                      4,000
                                                                                                                      
                                                                                                                      11/30/07
                                                                                                                      
                                                                                                                      11/24/08
                                                                                                                      
                                                                                                                      
                                                                                                                      4,000
                                                                                                                      
                                                                                                                      12/10/08
                                                                                                                      
                                                                                                                      12/4/094,500
                                                                                                                      
                                                                                                                      09/19/08
                                                                                                                      
                                                                                                                      03/18/094,500
                                                                                                                      
                                                                                                                      09/24/08
                                                                                                                      
                                                                                                                      03/23/09Shanghai
      Pudong
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      08/14/07
                                                                                                                      
                                                                                                                      02/14/08
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      10/21/08
                                                                                                                      
                                                                                                                      05/21/09Development
      Bank
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      9,000
                                                                                                                      
                                                                                                                      04/08/08
                                                                                                                      
                                                                                                                      04/8/099,000
                                                                                                                      
                                                                                                                      04/09/08
                                                                                                                      
                                                                                                                      04/9/09China
      Everbright Bank
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      30,000
                                                                                                                      
                                                                                                                      08/10/07
                                                                                                                      
                                                                                                                      08/09/08
                                                                                                                      
                                                                                                                      
                                                                                                                      30,000
                                                                                                                      
                                                                                                                      09/06/08
                                                                                                                      
                                                                                                                      02/05/09China
      Communication Bank-Jinhua Branch
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      5,000
                                                                                                                      
                                                                                                                      02/26/08
                                                                                                                      
                                                                                                                      02/18/09HuaXia
      Bank
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      12/24/07
                                                                                                                      
                                                                                                                      12/27/08
                                                                                                                      
                                                                                                                      
                                                                                                                      17,000
                                                                                                                      
                                                                                                                      09/12/08
                                                                                                                      
                                                                                                                      09/12/09Evergrowing
      Bank
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      20,000
                                                                                                                      
                                                                                                                      10/24/08
                                                                                                                      
                                                                                                                      10/23/09


Note: The
loan amount is in thousands of RMB


37


Capital
Requirements and Capital Provided





Capital
requirements and capital provided for the three months ended March 31, 2009 is
as follows:




Three Months Ended
              March 31, 2009Capital requirementsPurchase
      of plant and equipment
            
            $
            23,000Purchase
      of construction in progress
            
            
            31,000Issuance
      of notes receivable
            
            
            5,203,000Repayments
      of short-term bank loans
            
            
            9,316,000Repayments
      of notes payable
            
            
            11,199,000Internal
      cash used in operation
            
            
            4,705,000Total
      capital requirements
            
            $
            30,477,000Capital provided(Increase)
      in cash
            
            
            (1,640,000
            )Decrease
      in restricted cash
            
            
            1,741,000Proceeds
      from short-term bank loans
            
            
            9,349,000Proceeds
      from notes payable
            
            
            9,512,000Repayments
      of notes receivable
            
            
            11,463,000Other
      financing activities
            
            
            52,000Total
      capital provided
            
            $
            30,477,000




For
further information, see the Statement of Cash Flows.





Cash
Flow





Net cash
flow used in operating activities was $4,705,043 for the three months ended
March 31, 2009, as compared to net cash flow provided by operating activities of
$2,335,674 in the same period in 2008. The decrease of net cash flow by
operating activities was mainly due to the decrease in accounts payable of
$4,308,304 and the increase in inventories of $586,108 and prepayments and
prepaid expenses of $471,406.





Net cash
flow provided by investing activities was $6,205,624 for the three months ended
March 31, 2009 as compared to net cash flow used in investing activities of
$2,464,454 for the same reporting period in 2008. Cash flow provided by
investing activities in this quarter was primarily due to a repayment of notes
receivables of $11,462,957 offset by the issuance of notes receivable of
$5,203,029.





Net cash
flow provided by financing activities was $139,099 for the three months ended
March 31, 2009, as compared to net cash flow used in financing activities of
$1,036,708 for the three months ended March 31, 2008. Cash flow provided by
financing activities in this quarter was primarily due to proceeds from notes
payable of $9,511,583, and restricted cash of $1,740,822.





Other
Matters





Management
Software





In March
of 2009, the Company decided to adopt the Kingdee K3 ERP Supply Chain management
software (K3 SCM), and integrate it with current running Kingdee K3 finance
system. This system offers functions such as purchase management, sales
management, warehouse management, quality management, inventory accounting,
import management and export management to completely manage the business supply
chain. Implementing integration of K3 SCM, we believe, will yield the following
benefits:





·
            Realize
      the integration of finance and supply chain management, the information
      sharing between finance and supply chain become more transparent and
      timely;


38





·
            Optimize
      the logistic operation, closely watch the inventory change, and follow the
      orders;





·
            Optimize
      the supplier management and the purchase order management, cut purchasing
      cost, improve the delivery of purchasing materials, and reduce the raw
      material buffer;





·
            Control
      the account payable and account receivable in a more efficient and
      effective way; and





·
            Optimize
      the inventory management, provide the accurate inventory information in a
      timely manner.





The
integration of K3 SCM is planned to be implemented by the end of May this year,
and we believe the successful implementation will improve the Company’s
operating efficiency, and reduce our expenses.





Government
policies





In
November 2008, the Chinese government launched an economic stimulus package to
boost the PRC economy in the wake of the global economic crisis. The impact of
this stimulus package has begun to become apparent during the first quarter of
2009, and we believe the positive impact will continue for at least the next two
years.





In
January, 2009, The State Council of China announced a wide-ranging plan to boost
China’s auto industry, which is included in the November stimulus package.
According to this plan, China would cut in half, to 5%, the sales tax on
purchases of cars with engine sizes below 1.6 liters. That rate will take effect
on Jan. 20, 2009 and run until the end of 2009. The Chinese government will also
give one-off cash subsidies totaling 5 billion RMB ($732 million) to owners of
high-emission vehicles who trade them in for more fuel-efficient and cleaner
vehicles.





At the
same time, China will set up a 10 billion RMB fund to promote new technology,
including renewable energy, over the next three years, while supporting the
eventual mass production of electric vehicles.





Our UTVs,
which mainly target the agriculture market, and electric-powered CoCo super-mini
car both fit in this category and benefit from this package. These two lines of
vehicles are the main products the Company plans to sell in China. We believe
this is a great opportunity for us to expand our sales in
China.


39





Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Not
applicable.


40


Item
4. Controls and Procedures.





The
Company maintains a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed by the Company in
this Form 10-Q, and in other reports required to be filed under the Securities
Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the rules and forms for such
filings. Management of the Company, under the direction of the Company's Chief
Executive Officer and Chief Financial Officer, reviewed and performed an
evaluation of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15a(e) and 15d-15(e) under the Exchange Act)
as of March 31, 2009. 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.





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 the first quarter of 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.


41


PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





None.





Item
1A.  Risk Factors.





As of the
date of this filing, there have been no material changes from the risk factors
previously disclosed in our “Risk Factors” in the Form 10-K for the period ended
December 31, 2008. An investment in our common stock involves various risks.
When considering an investment in our company, you should consider carefully all
of the risk factors described in our most recent Form 10-K. These risks and
uncertainties are not the only ones facing us and there may be additional
matters that we are unaware of or that we currently consider immaterial. All of
these could adversely affect our business, financial condition, results of
operations and cash flows and, thus, the value of an investment in our
company.





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





None.





Item
3.  Defaults Upon Senior Securities.





None.





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





None.





Item
5.  Other Information.





None.





Item
6. Exhibits





Exhibit
      Number
            Description31.1
            Certification
      pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of
      193431.2
            Certification
      pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of
      193432.1
            Certification
      of CEO and CFO pursuant to 18 U.S.C.§ 1350,
      as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of
    2002




II-1


SIGNATURES




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





Kandi
      Technologies, Corp.Date:
      May 15, 2009
                  By:
                  /s/
      Hu XiaomingHu
      XiaomingPresident
      and Chief Executive Officer
                    (Principal
      Executive Officer)Date:
      May 15, 2009
                  By:
                  /s/
      Zhu XiaoyingZhu
      XiaoyingChief
      Financial Officer
                    (Principal
      Financial and Accounting Officer)




II-2