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 June 30, 2009
  or
   ̈
              TRANSITION
      REPORT PURSUANT TOSECTION 13 OR
      15(d) OF THE
      SECURITIES EXCHANGE ACT OF
1934
  For the
transition period from ______to______
  Commission
file number: 001-33997
 
 Kandi
Technologies, Corp.
 (Exact
name of registrant as specified in its charter)
  Delaware
                        
                        87-0700927(State
      or other jurisdiction of
                          incorporation
      or organization)
                        
                        (I.R.S.
      Employer Identification
No.)
 
 Jinhua
City Industrial Zone
 Jinhua,
Zhejiang Province
 People’s
Republic of China
 Post
Code 321016
 (Address
of principal executive offices)
 ___________
 
 (86
- 0579) 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  ̈  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
June 30, 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
                  
                  2Item
      2.
                  
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  28Item
      3.
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk.
                  
                  41Item
      4.
                  
                  Controls
      and Procedures
                  
                  42PART
      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
 
 June 30,
                    2009
                  
                  
                  December 31,
                    2008(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  84,056
                  
                  
                  $
                  141,380Restricted
      cash
                  
                  
                  9,350,164
                  
                  
                  
                  12,550,685Accounts
      receivable, net of allowance for doubtful accounts of  $0 as of
      June 30, 2009 and $7,123 as of December 31, 2008
                  
                  
                  6,629,949
                  
                  
                  
                  7,715,081Inventories,
      net of reserve for slow moving inventories of $152,109 and $0 as of June
      30, 2009 and December 31, 2008
                  
                  
                  10,115,102
                  
                  
                  
                  3,207,571Notes
      receivable
                  
                  
                  3,075,862
                  
                  
                  
                  13,235,961Other
      receivables
                  
                  
                  1,517,125
                  
                  
                  
                  289,315Prepayments
      and prepaid expenses
                  
                  
                  30,050
                  
                  
                  
                  60,017Due
      from employees
                  
                  
                  48,304
                  
                  
                  
                  19,805Advances
      to suppliers
                  
                  
                  1,993,603
                  
                  
                  
                  -Total
      Current Assets
                  
                  
                  32,844,215
                  
                  
                  
                  37,219,815LONG-TERM
      ASSETSPlant
      and equipment, net
                  
                  
                  19,386,292
                  
                  
                  
                  20,832,549Land
      use rights, net
                  
                  
                  9,255,992
                  
                  
                  
                  9,368,403Construction
      in progress
                  
                  
                  3,969,226
                  
                  
                  
                  1,913,456Deferred
      tax asset
                  
                  
                  122,368
                  
                  
                  
                  265,243Total
      Long-Term Assets
                  
                  
                  32,733,878
                  
                  
                  
                  32,379,651TOTAL
      ASSETS
                  
                  $
                  65,578,093
                  
                  
                  $
                  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
  June 30,2009
                  
                  
                  December 31,(Unaudited)
                  
                  
                  2008CURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  8,859,440
                  
                  
                  $
                  9,371,105Other
      payables and accrued expenses
                  
                  
                  2,260,779
                  
                  
                  
                  1,151,245Short-term
      bank loans
                  
                  
                  24,836,372
                  
                  
                  
                  26,115,375Customer
      deposits
                  
                  
                  22,536
                  
                  
                  
                  676,548Notes
      payable
                  
                  
                  10,080,645
                  
                  
                  
                  13,081,026Due
      to employees
                  
                  
                  30,488
                  
                  
                  
                  10,502Due
      to related party
                  
                  
                  823,125
                  
                  
                  
                  623,767Deferred
      tax liability
                  
                  
                  37,124
                  
                  
                  
                  139,500Total
      Current Liabilities
                  
                  
                  46,950,509
                  
                  
                  
                  51,169,068TOTAL
      LIABILITIES
                  
                  
                  46,950,509
                  
                  
                  
                  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 June 30, 2009 and December 31,
      2008, respectively
                  
                  
                  19,961
                  
                  
                  
                  19,961Additional
      paid-in capital
                  
                  
                  7,663,397
                  
                  
                  
                  7,138,105Retained
      earnings (the restricted portion is $534,040 at June 30, 2009 and December
      31, 2008)
                  
                  
                  9,690,673
                  
                  
                  
                  10,047,198Accumulated
      other comprehensive income
                  
                  
                  1,253,553
                  
                  
                  
                  1,225,134TOTAL
      STOCKHOLDERS’ EQUITY
                  
                  
                  18,627,584
                  
                  
                  
                  18,430,398TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
                  $
                  65,578,093
                  
                  
                  $
                  69,599,466
  See
accompanying notes to condensed consolidated financial
statements
  3
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
 COMPREHENSIVE INCOME
(LOSS)
 (UNAUDITED)
 
 Three Months Ended
                                              
                                              
                                              Six Months EndedJune 30, 2009
                                              
                                              
                                              June 30, 2008
                                              
                                              
                                              June 30, 2009
                                              
                                              
                                              June 30, 2008REVENUES,
      NET
                                              
                                              $
                                              5,481,551
                                              
                                              
                                              $
                                              12,424,373
                                              
                                              
                                              $
                                              9,487,455
                                              
                                              
                                              $
                                              21,753,075COST
      OF GOODS SOLD
                                              
                                              
                                              (4,037,629
                                              )
                                              
                                              
                                              (9,139,131
                                              )
                                              
                                              
                                              (7,063,351
                                              )
                                              
                                              
                                              (16,316,178
                                              )GROSS
      PROFIT
                                              
                                              
                                              1,443,922
                                              
                                              
                                              
                                              3,285,242
                                              
                                              
                                              
                                              2,424,104
                                              
                                              
                                              
                                              5,436,897Research
      and development
                                              
                                              
                                              580,772
                                              
                                              
                                              
                                              224,146
                                              
                                              
                                              
                                              1,106,973
                                              
                                              
                                              
                                              264,816Selling
      and distribution expenses
                                              
                                              
                                              97,810
                                              
                                              
                                              
                                              180,596
                                              
                                              
                                              
                                              183,994
                                              
                                              
                                              
                                              409,102General
      and administrative expenses
                                              
                                              
                                              363,103
                                              
                                              
                                              
                                              432,238
                                              
                                              
                                              
                                              930,918
                                              
                                              
                                              
                                              704,682Stock
      based compensation expense
                                              
                                              
                                              315,175
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              525,292
                                              
                                              
                                              
                                              -INCOME
      (LOSS) FROM OPERATIONS
                                              
                                              
                                              87,062
                                              
                                              
                                              
                                              2,448,262
                                              
                                              
                                              
                                              (323,073
                                              )
                                              
                                              
                                              4,058,297Interest
      expense, net
                                              
                                              
                                              (109,253
                                              )
                                              
                                              
                                              (395,087
                                              )
                                              
                                              
                                              (418,557
                                              )
                                              
                                              
                                              (1,009,699
                                              )Government
      grants
                                              
                                              
                                              24,951
                                              
                                              
                                              
                                              17,274
                                              
                                              
                                              
                                              124,005
                                              
                                              
                                              
                                              40,574Other
      income, net
                                              
                                              
                                              245,971
                                              
                                              
                                              
                                              (1,948
                                              )
                                              
                                              
                                              302,185
                                              
                                              
                                              
                                              20,047INCOME
      (LOSS) FROM OPERATIONS BEFORE INCOME TAXES
                                              
                                              
                                              248,731
                                              
                                              
                                              
                                              2,068,501
                                              
                                              
                                              
                                              (315,440
                                              )
                                              
                                              
                                              3,109,219INCOME
      TAX (EXPENSE) BENEFIT
                                              
                                              
                                              (22,358
                                              )
                                              
                                              
                                              33,920
                                              
                                              
                                              
                                              (41,085
                                              )
                                              
                                              
                                              73,660INCOME
      (LOSS) FROM CONTINUING OPERATIONS
                                              
                                              
                                              226,373
                                              
                                              
                                              
                                              2,102,421
                                              
                                              
                                              
                                              (356,525
                                              )
                                              
                                              
                                              3,182,879DISCONTINUED
      OPERATIONLoss
      from discontinued operation
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (34,219
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (33,379
                                              )Gain
      from disposition of discontinued operation
                                              
                                              
                                              -
                                              
                                              
                                              
                                              368,249
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              360,913NET
      GAIN FROMDISCONTINUED
      OPERATION
                                              
                                              
                                              -
                                              
                                              
                                              
                                              334,030
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              327,534NET
      INCOME (LOSS)
                                              
                                              
                                              226,373
                                              
                                              
                                              
                                              2,436,451
                                              
                                              
                                              
                                              (356,525
                                              )
                                              
                                              
                                              3,510,413
  See
accompanying notes to condensed consolidated financial
statements
 4
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
 COMPREHENSIVE INCOME
(LOSS)
 (UNAUDITED)
  Three Months Ended
                    
                    
                    Six Months EndedJune 30, 2009
                    
                    
                    June 30, 2008
                    
                    
                    June 30, 2009
                    
                    
                    June 30, 2008OTHER
      COMPREHENSIVEINCOMEForeign
      currency translation
                    
                    
                    16,121
                    
                    
                    
                    93,622
                    
                    
                    
                    28,419
                    
                    
                    
                    350,834COMPREHENSIVE
      (LOSS) INCOME
                    
                    
                    242,494
                    
                    
                    
                    2,530,073
                    
                    
                    
                    (328,106
                    )
                    
                    
                    3,861,247WEIGHTED
      AVERAGE SHARES OUTSTANDING BASIC
                    
                    
                    19,961,000
                    
                    
                    
                    19,961,000
                    
                    
                    
                    19,961,000
                    
                    
                    
                    19,961,000WEIGHTED
      AVERAGE SHARES OUTSTANDING DILUTED
                    
                    
                    21,126,517
                    
                    
                    
                    19,961,000
                    
                    
                    
                    19,961,000
                    
                    
                    
                    19,961,000NET
      INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS, BASIC
                    
                    $
                    0.01
                    
                    
                    $
                    0.11
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.16NET
      INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS,
DILUTED
                    
                    $
                    0.01
                    
                    
                    $
                    0.11
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.16NET
      INCOME PER SHARE FROM DISCONTINUED OPERATIONS, BASIC AND
      DILUTED
                    
                    $
                    -
                    
                    
                    $
                    0.01
                    
                    
                    $
                    -
                    
                    
                    $
                    0.01NET
      INCOME (LOSS) PER SHARE, BASIC
                    
                    $
                    0.01
                    
                    
                    $
                    0.12
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.18NET
      INCOME (LOSS) PER SHARE, DILUTED
                    
                    $
                    0.01
                    
                    
                    $
                    0.12
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.18
 See
accompanying notes to condensed consolidated financial
statements
 5
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six Months Ended June 302009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
                  
                  $
                  (356,525
                  )
                  
                  $
                  3,510,413Net
      (gain) from discontinued operation
                  
                  
                  -
                  
                  
                  
                  (327,534
                  )(Loss)
      income from continuing operations
                  
                  
                  (356,525
                  )
                  
                  
                  3,182,879Adjustments
      to reconcile net (loss) income to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  1,630,498
                  
                  
                  
                  749,994Deferred
      taxes
                  
                  
                  41,085
                  
                  
                  
                  (75,980
                  )Stock
      based compensation expense
                  
                  
                  525,292
                  
                  
                  
                  -Inventory
      reserve
                  
                  
                  152,109
                  
                  
                  
                  -Changes
      in operating assets and liabilities:(Increase)
      Decrease In:Accounts
      receivable
                  
                  
                  1,085,132
                  
                  
                  
                  (3,100,029
                  )Inventories
                  
                  
                  (6,907,531
                  )
                  
                  
                  (2,132,390
                  )Other
      receivables
                  
                  
                  (1,227,810
                  )
                  
                  
                  285,175Due
      from employees
                  
                  
                  (28,499
                  )
                  
                  
                  46,708Prepayments
      and prepaid expenses
                  
                  
                  (1,963,636
                  )
                  
                  
                  (51,145
                  )Increase
      (Decrease) In:Accounts
      payable
                  
                  
                  (511,665
                  )
                  
                  
                  5,064,815Other
      payables and accrued liabilities
                  
                  
                  1,109,534
                  
                  
                  
                  224,483Customer
      deposits
                  
                  
                  (654,013
                  )
                  
                  
                  306,612Net
      cash (used in) provided by operating activities from continuing
      operations
                  
                  
                  (7,106,029
                  )
                  
                  
                  4,501,122Net
      cash provided by operating activities from discontinued
      operation
                  
                  
                  -
                  
                  
                  
                  738,472Net
      cash (used in) provided by operating activities
                  
                  $
                  (7,106,029
                  )
                  
                  $
                  5,239,594CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                  
                  
                  (23,718
                  )
                  
                  
                  (1,887,802
                  )Purchase
      of construction in progress
                  
                  
                  (2,110,952
                  )
                  
                  
                  (545,134
                  )Purchase
      of a subsidiary, net of cash acquired
                  
                  
                  -
                  
                  
                  
                  (44,129
                  )Issuance
      of notes receivable
                  
                  
                  (18,490,767
                  )
                  
                  
                  (6,477,313
                  )Repayments
      of notes receivable
                  
                  
                  28,545,269
                  
                  
                  
                  19,057
  See
accompanying notes to condensed consolidated financial statements
 6
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 Six Months Ended June 302009
                      
                      
                      2008Net
      cash provided by (used in) investing activities from continuing
      operations
                      
                      
                      7,919,832
                      
                      
                      
                      (8,935,321
                      )Net
      cash provided by investing activities from discontinued
      operation
                      
                      
                      -
                      
                      
                      
                      -Net
      cash provided by (used in) investing activities
                      
                      $
                      7,919,832
                      
                      
                      $
                      (8,935,321
                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Decrease
      (Increase) in restricted cash
                      
                      
                      3,200,521
                      
                      
                      
                      (5,181,280
                      )Proceeds
      from short-term bank loans
                      
                      
                      17,829,741
                      
                      
                      
                      20,197,548Repayments
      of short-term bank loans
                      
                      
                      (19,145,049
                      )
                      
                      
                      (13,927,505
                      )Proceeds
      from notes payable
                      
                      
                      10,084,034
                      
                      
                      
                      3,442,053Repayments
      of notes payable
                      
                      
                      (13,102,078
                      )
                      
                      
                      (1,455,223
                      )Repayments
      of advances to related parties
                      
                      
                      199,358
                      
                      
                      
                      164,249Net
      cash provided by (used in) financing activities from continuing
      operations
                      
                      
                      (933,473
                      )
                      
                      
                      3,239,842Net
      cash (used in) financing activities from discontinued
      operation
                      
                      
                      -
                      
                      
                      
                      -Net
      cash provided by (used in) financing activities
                      
                      
                      (933,473
                      )
                      
                      
                      3,239,842NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                      
                      
                      (119,670
                      )
                      
                      
                      (455,885
                      )Effect
      of exchange rate changes on cash
                      
                      
                      62,346
                      
                      
                      
                      (536,359
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      141,380
                      
                      
                      
                      1,149,140CASH AND CASH EQUIVALENTS AT END OF
      PERIOD
                      
                      $
                      84,056
                      
                      
                      $
                      156,896SUPPLEMENTARY
      CASH FLOW INFORMATIONIncome
      taxes paid
                      
                      $
                      -
                      
                      
                      $
                      -Interest
      paid
                      
                      $
                      808,100
                      
                      
                      $
                      937,362SUPPLEMENTAL
      NON-CASH DISCLOSURE:
 During
the six months ended June 30, 2009 and 2008, $57,120 and $613,097 were
transferred from construction in progress to plant and equipment,
respectively.
  See
accompanying notes to condensed consolidated financial
statements
  7
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 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 a purchase in
accordance with Statements of Financial Accounting Standards (“SFAS”) No. 141
“Business Combinations.” The consolidated statements of income include the
results 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 June 11,
2009, KNE changed its name back to KSV.
 
 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
automobiles and automobile-related products for the PRC 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
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
2 – LIQUIDITY
  The
Company’s working capital deficit is $14,106,294 as of June 30,
2009.
  As of
June 30, 2009, the Company has credit lines from commercial banks for
$30,680,224, of which $24,836,372 was used at June 30, 2009.
 
 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 additional 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 for the six
months ended June 30, 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
 JUNE 30, 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
      Special Vehicles Co., Ltd, (“KSV”, formerly known as Kandi New Energy
      Vehicles Co. Ltd. “KNE”) (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 $1,106,973 and $264,816 for the six months ended June
30, 2009 and 2008, respectively.
  10
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 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.
 
 June
      30,
                      2009
                    
                    
                    December
      31,
                      2008
                    
                    
                    June
      30,
                      2008Period
      end RMB : USD exchange rate
                    
                    
                    6.8448
                    
                    
                    
                    6.8542
                    
                    
                    
                    6.8718Average
      quarterly RMB : USD exchange rate
                    
                    
                    6.8425
                    
                    
                    
                    7.0842
                    
                    
                    
                    7.0930
 
 (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 June 30, 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
 JUNE 30, 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 June 30, 2009 are as follows:
 
 Fair Value Measurements at Reporting Date Using Quoted Prices inCarrying value
                      asof June 30,
                    
                    
                    Active Markets
                      for Identical
                      Assets
                    
                    
                    Significant Other
                      Observable
                      Inputs
                    
                    
                    Significant
                      Unobservable
                      Inputs2009
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Cash
      and cash equivalents
                    
                    $
                    84,056
                    
                    
                    $
                    84,056
                    
                    
                    
                    -
                    
                    
                    
                    -Restricted
      cash
                    
                    $
                    9,350,164
                    
                    
                    $
                    9,350,164
                    
                    
                    
                    -
                    
                    
                    
                    -
 
 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 represents 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 six months ended June 30, 2009 is $525,292.
Also see Note 17.
  12
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 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
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
8 – CONCENTRATIONS
 
 (a)
Customers
 
 The
Company’s major customers for the period ended June 30, 2009 accounted for the
following percentages of total sales and accounts receivable as
follows:
 
 Sales
                      
                      
                      Accounts ReceivableMajor
                        Customers
                      
                      Six Months
                        Ended June 30,
                        2009
                      
                      
                      Six Months
                        Ended June 30,
                        2008
                      
                      
                      June 30, 2009
                      
                      
                      December 31,
                        2008Company
      A(dingji)
                      
                      
                      80
                      %
                      
                      
                      65
                      %
                      
                      
                      89
                      %
                      
                      
                      78
                      %Company
      B (jing li ma)
                      
                      
                      17
                      %
                      
                      
                      3
                      %
                      
                      
                      10
                      %
                      
                      
                      13
                      %Company
      C (zongcheng)
                      
                      
                      3
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Company
      D (kandi guoji)
                      
                      
                      -
                      
                      
                      
                      20
                      %
                      
                      
                      -
                      
                      
                      
                      -Company
      E (shuguang)
                      
                      
                      -
                      
                      
                      
                      6
                      %
                      
                      
                      -
                      
                      
                      
                      2
                      %
 
 (b)
Suppliers
 
 The
Company’s major suppliers for the six months ended June 30, 2009 accounted for
the following percentage of total purchases and accounts payable as
follows:
 
 Purchases
                      
                      
                      Accounts PayableMajor
                        Suppliers
                      
                      Six Months
                        Ended June 30,
                        2009
                      
                      
                      Six Months
                        Ended June 30,
                        2008
                      
                      
                      June 30, 2009
                      
                      
                      December 31,
                        2008Company
      F(zmec)
                      
                      
                      66
                      %
                      
                      
                      52
                      %
                      
                      
                      25
                      %
                      
                      
                      21
                      %Company
      G(sz dadihe)
                      
                      
                      2
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Company
      H (jinlong)
                      
                      
                      1
                      %
                      
                      
                      -
                      
                      
                      
                      1
                      %
                      
                      
                      3
                      %Company
      I
                      
                      
                      1
                      %
                      
                      
                      -
                      
                      
                      
                      1
                      %
                      
                      
                      2
                      %Company
      J (zhuhai yingbo)
                      
                      
                      1
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
  14
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
9 – INCOME (LOSS) PER SHARE
 
 Basic
income (loss) per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted income 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 six
months ended June 30, 2009, the Company has a net loss, and therefore the
options are anti-dilutive. As a result, there were no potentially dilutive
securities for the six months ended June 30, 2009 and 2008.
 
 For the
three months ended June 30, 2009, Company’s net income is $226,373, and for this
period, the Company’s average stock price is $1.45, if all of the options were
exercised, the number of shares of common stock outstanding would increase to
21,126,517. Also see Note 17.
 
 NOTE
10 - INVENTORIES
 
 Inventories
are summarized as follows:
 
 June30,2009
                      (Unaudited)
                    
                    
                    December31,2008Raw
      material
                    
                    $
                    2,423,611
                    
                    
                    $
                    988,426Work-in-progress
                    
                    
                    6,897,292
                    
                    
                    
                    1,980,413Finished
      goods
                    
                    
                    946,308
                    
                    
                    
                    238,73210,267,211
                    
                    
                    
                    3,207,571Less:
      reserve for slowing moving inventories
                    
                    
                    (152,109
                    )
                    
                    
                    -Inventories,
      net
                    
                    
                    10,115,102
                    
                    
                    
                    3,207,571
  15
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
11 - NOTES RECEIVABLE
 
 Notes
receivable are summarized as follows:
 
 June 30, 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
                    
                    
                    -
                    
                    
                    
                    729,480Due
      June 30, 2009, interest at 5.31% per annum (subsequently settled on July
      9, 2009)
                    
                    
                    810,781
                    
                    
                    
                    8,147,091Due
      February 24, 2010, interest at 5.0% per annum
                    
                    
                    1,145,301
                    
                    
                    
                    -Due
      February 24, 2010, interest at 5.0% per annum
                    
                    
                    389,298
                    
                    
                    
                    -Due
      April 29, 2010, interest at 5.31% per annum
                    
                    
                    730,482
                    
                    
                    
                    -Notes
      receivable from unrelated companies
                    
                    
                    3,075,862
                    
                    
                    
                    12,805,568Bank
      acceptance notes:Due
      January 5, 2009
                    
                    
                    -
                    
                    
                    
                    430,393Bank
      acceptance notes
                    
                    
                    -
                    
                    
                    
                    430,393Notes
      receivable
                    
                    $
                    3,075,862
                    
                    
                    $
                    13,235,961
 
 Notes
receivable are unsecured.
  16
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
12 – LAND USE RIGHTS
 
 Land use
rights consist of the following:
 
 June
      30, 2009
                        (Unaudited)
                      
                      
                      December
      31, 2008Cost
      of land use rights
                      
                      $
                      9,575,316
                      
                      
                      $
                      9,575,316Less:
      Accumulated amortization
                      
                      
                      (319,324
                      )
                      
                      
                      (206,913
                      )Land
      use rights, net
                      
                      $
                      9,255,992
                      
                      
                      $
                      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
KSV.
 
 As of
June 30, 2009 and December 31, 2008, the net book value of land use rights
pledged as collateral for bank loans was $3,275,727 and $374,454 respectively.
Also see Note 14.
 
 As of
June 30, 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 $5,980,265 and
$6,463,282. Also see Notes 14 and 18.
 
 The
amortization expense for the six months ended June, 2009 and 2008 was $112,411
and $22,718, respectively.
 
 Amortization
expense for the next five years and thereafter is as follows:
 
 2009
      (six months)
                      
                      $
                      112,4122010
                      
                      
                      224,8232011
                      
                      
                      224,8232012
                      
                      
                      224,8232013
                      
                      
                      224,823Thereafter
                      
                      
                      8,244,288Total
                      
                      $
                      9,255,992
  17
 KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
  NOTE
13 – PLANT AND EQUIPMENT
 
 Plant and
equipment consist of the following:
 
 June 30, 2009
                      (Unaudited)
                    
                    
                    December 31, 2008At
      cost:Buildings
                    
                    $
                    8,151,151
                    
                    
                    $
                    8,139,972Machinery
      and equipment
                    
                    
                    9,241,891
                    
                    
                    
                    9,150,387Office
      equipment
                    
                    
                    109,595
                    
                    
                    
                    107,574Motor
      vehicles
                    
                    
                    166,431
                    
                    
                    
                    166,203Moulds
                    
                    
                    9,603,689
                    
                    
                    
                    9,590,51927,272,757
                    
                    
                    
                    27,154,655Less
      : Accumulated depreciationBuildings
                    
                    $
                    (792,412
                    )
                    
                    $
                    (664,872
                    )Machinery
      and equipment
                    
                    
                    (5,133,117
                    )
                    
                    
                    (4,677,133
                    )Office
      equipment
                    
                    
                    (90,891
                    )
                    
                    
                    (85,826
                    )Motor
      vehicles
                    
                    
                    (81,315
                    )
                    
                    
                    (67,049
                    )Moulds
                    
                    
                    (1,788,730
                    )
                    
                    
                    (827,226
                    )(7,886,465
                    )
                    
                    
                    (6,322,106
                    )Plant
      and equipment, net
                    
                    $
                    19,386,292
                    
                    
                    $
                    20,832,549
 
 As of
June 30, 2009 and December 31, 2008, the net book value of plant and equipment
pledged as collateral for bank loans was $4,284,611 and $1,404,236,
respectively. Also see Note 14. Depreciation expense for six months ended June
30, 2009 and 2008 was $1,518,087 and $727,276 respectively.
  18
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
14 – SHORT TERM BANK LOANS
  Short-term
loans are summarized as follows:
 June 30,
                                            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.  (repaid on its due
      date)
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          656,532Monthly
      interest only payments at 6.21% per annum, due March 23, 2009.
      Collateralized by a time deposit.  (repaid on its due
      date)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          656,532Monthly
      interest only payments at 7.84% per annum, due April 7, 2009, secured by
      the assets of the Company. (repaid on its due date)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          729,480Monthly
      interest only payments at 7.47% per annum, due June 4, 2009, secured by
      the assets of the Company.  (repaid on its due
    date)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          729,480Monthly
      interest only payments at 7.47% per annum, due August 4, 2009, secured by
      the assets of the Company. Also see Notes 12 and 13. (repaid on its due
      date)
                                          
                                          
                                          438,289
                                          
                                          
                                          
                                          437,688Monthly
      interest only payments at 7.47% per annum, due September 2, 2009, secured
      by the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          394,460
                                          
                                          
                                          
                                          393,919Monthly
      interest only payments at 6.93% per annum, due October 8, 2009, secured by
      the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          438,289
                                          
                                          
                                          
                                          437,688Monthly
      interest only payments at 6.93% per annum, due October 14, 2009, secured
      by the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          555,166
                                          
                                          
                                          
                                          554,405Monthly
      interest only payments at 6.93% per annum, due October 22, 2009, secured
      by the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          511,337
                                          
                                          
                                          
                                          510,636Monthly
      interest only payments at 5.58% per annum, due December 4, 2009, secured
      by the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          584,385
                                          
                                          
                                          
                                          583,584Monthly
      interest only payments at 5.84% per annum, due April 6, 2010, secured by
      the assets of the Company. Also see Notes 12 and 13.
                                          
                                          
                                          730,482
                                          
                                          
                                          
                                          -
  19
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
  NOTE 14 - SHORT TERM BANK LOANS (CONTINUED)
 June 30,
                                                                                          2009
                                                                                          (Unaudited)
                                                                                        
                                                                                        
                                                                                        December 31,
                                                                                          2008Monthly
      interest only payments at 5.31% per annum, due April 15,
      2010.  Collateralized by a time deposit.
                                                                                        
                                                                                        
                                                                                        1,314,866
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Monthly
      interest only payments at 5.31% per annum, due June 3, 2010, secured by
      the assets of the Company. Also see Notes 12 and 13.
                                                                                        
                                                                                        
                                                                                        730,482
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Loans
      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. (repaid on its
      due date)
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,917,919Monthly
      interest only payments at 8.22% per annum, due May 9, 2009, secured by the
      assets of the Company. Also see Notes 12 and 13. (repaid on its due
      date)
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        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.
                                                                                        
                                                                                        
                                                                                        2,921,926
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Monthly
      interest only payments at 8.22% per annum, due May 5, 2010, secured by the
      assets of the Company. Also see Notes 12 and 13.
                                                                                        
                                                                                        
                                                                                        1,460,963
                                                                                        
                                                                                        
                                                                                        
                                                                                        -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.
                                                                                        
                                                                                        
                                                                                        2,483,637
                                                                                        
                                                                                        
                                                                                        
                                                                                        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.
                                                                                        
                                                                                        
                                                                                        4,382,889
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
  20
 KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 NOTE
14 - SHORT TERM BANK LOANS (CONTINUED)
  June
      30,
                                2009
                                (Unaudited)
                              
                              
                              December
      31,
                                2008Loans
      from Shanghai Pudong Development BankMonthly
      interest only payments at 6.72% per annum, due April 8, 2009.
      Collateralized by a time deposit. (repaid on its due date)
                              
                              
                              -
                              
                              
                              
                              1,313,064Monthly
      interest only payments at 6.72% per annum, due April 9, 2009.
      Collateralized by a time deposit. (repaid on its due date)
                              
                              
                              -
                              
                              
                              
                              1,313,064Monthly
      interest only payments at 7.28% per annum, due May 21, 2009, guaranteed by
      Nanlong Group Co., Ltd. and Mr. Hu Xiaoming. (repaid on its due
      date)
                              
                              
                              -
                              
                              
                              
                              2,917,918Monthly
      interest only payments at 4.78% per annum, due April 28, 2010.
      Collateralized by a time deposit.
                              
                              
                              1,314,867
                              
                              
                              
                              -Monthly
      interest only payments at 5.10% per annum, due November 27, 2010,
      guaranteed by Nanlong Group Co., Ltd. and Mr. Hu Xiaoming.
                              
                              
                              2,921,926
                              
                              
                              
                              -Loans
      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.
                              
                              
                              2,921,926
                              
                              
                              
                              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.
                              
                              
                              730,482
                              
                              
                              
                              -Total
                              
                              $
                              24,836,372
                              
                              
                              $
                              26,115,375
  Interest
expense for the six month ended June 30, 2009 and 2008 was $848,450, and
$1,013,464, respectively.
 
 As of
June 30, 2009, the aggregated amount of short term loans that are guaranteed by
various third parties is $16,362,786, among which $2,921,926 is guaranteed by
Zhejiang Mengdeli Electric Company whose bank loans of $4,295,231 are also
guaranteed by the Company. Also see Note 18.
  21
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2009
(UNAUDITED)
 
 NOTE
15 – NOTES PAYABLE
 
 Notes
payable are summarized as follows:
 
 June 30,
                      2009
                      (Unaudited)
                    
                    
                    December 31,
                      2008Bank
      acceptance notes:Due
      January 18, 2009 (repaid on its due date)
                    
                    $
                    -
                    
                    
                    $
                    1,458,959Due
      January 31, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    875,378Due
      March 17, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    1,458,959Due
      March 17, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    4,376,878Due
      March 18, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    729,480Due
      March 23, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    1,458,959Due
      June 12, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    1,458,959Due
      June 19, 2009 (repaid on its due date)
                    
                    
                    -
                    
                    
                    
                    437,688Due
      September 05, 2009
                    
                    
                    1,460,963
                    
                    
                    
                    -Due
      September 18, 2009
                    
                    
                    4,382,890
                    
                    
                    
                    -Due
      September 24, 2009
                    
                    
                    1,460,963
                    
                    
                    
                    -Due
      October 9, 2009
                    
                    
                    657,433
                    
                    
                    
                    -Due
      October 9, 2009
                    
                    
                    657,433
                    
                    
                    
                    -Due
      December 15, 2009
                    
                    
                    1,460,963
                    
                    
                    
                    -Subtotal
                    
                    $
                    10,080,645
                    
                    
                    $
                    12,255,260Notes
      payable to unrelated companies:Due
      March 25, 2009
                    
                    $
                    -
                    
                    
                    $
                    825,766Subtotal
                    
                    
                    -
                    
                    
                    
                    825,766Total
                    
                    $
                    10,080,645
                    
                    
                    $
                    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 $3,652,408 is held as collateral for the following notes payable at June
30, 2009:
 
 Due
      September 05, 2009
                    
                    $
                    1,460,963Due
      September 18, 2009
                    
                    
                    4,382,890Due
      September 24, 2009
                    
                    
                    1,460,963Total
                    
                    $
                    7,304,816
  22
  KANDI
TECHNOLOGIES, CORP.
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 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.
 
 KSV 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 June 30, 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 June 30,
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 June 30, 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 six
months ended June 30, 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


JUNE 30, 2009
(UNAUDITED)




NOTE
16 – TAXES (CONTINUED)





Income
tax expense (benefit) for the six months ended June 30, 2009 and 2008 is
summarized as follows:




For the Six Months Ended
                      June 30,(Unaudited)2009
                    
                    
                    2008Current:Provision
      for CIT
                    
                    $
                    -
                    
                    
                    $
                    -Deferred:Provision
      for CIT
                    
                    
                    41,085
                    
                    
                    
                    (39,965
                    )Income
      tax expense (benefit)
                    
                    $
                    41,085
                    
                    
                    $
                    (39,965
                    )




The
Company’s income tax expense (benefit) differs from the “expected” tax expense
for the six months ended June 30, 2009 and 2008 (computed by applying the CIT
rate of 25%, respectively to income before income taxes) as
follows:





For the Six Months Ended
                      June 30,(Unaudited)2009
                    
                    
                    2008Computed
      "expected" (benefit) expense
                    
                    $
                    (78,860
                    )
                    
                    $
                    767,791Favorable
      tax rate
                    
                    
                    83,196
                    
                    
                    
                    (800,034
                    )Permanent
      differences
                    
                    
                    30,118
                    
                    
                    
                    (41,417
                    )Valuation
      Allowance
                    
                    
                    6,631
                    
                    
                    
                    -Income
      tax expense (benefit)
                    
                    $
                    41,085
                    
                    
                    $
                    (73,660
                    )





The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of June 30, 2009 and December 31, 2008 are
summarized as follows:


24


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30, 2009
(UNAUDITED)




NOTE
16 – TAXES (CONTINUED)





June 30, 2009
                    (Unaudited)
                  
                  
                  December 31,
                    2008Current
      portion:Deferred
      tax assets:Expense
                  
                  $
                  43,619
                  
                  
                  $
                  23,026Subtotal
                  
                  
                  43,619
                  
                  
                  
                  23,026Deferred
      tax liabilities:Sales
      cut-off
                  
                  
                  (62,486
                  )
                  
                  
                  (104,783
                  )Other
                  
                  
                  (18,259
                  )
                  
                  
                  (57,743
                  )Subtotal
                  
                  
                  (80,745
                  )
                  
                  
                  (162,526
                  )Total
      deferred tax liabilities – current portion
                  
                  
                  (37,124
                  )
                  
                  
                  (139,500
                  )Non-current
      portion:Deferred
      tax assets:Depreciation
                  
                  
                  418,879
                  
                  
                  
                  561,754Loss
      carried forward
                  
                  
                  62,563
                  
                  
                  
                  55,932Valuation
      allowance
                  
                  
                  (62,563
                  )
                  
                  
                  (55,932
                  )Subtotal
                  
                  
                  418,879
                  
                  
                  
                  561,754Deferred
      tax liabilities:Accumulated
      other comprehensive gain
                  
                  
                  (296,511
                  )
                  
                  
                  (296,511
                  )Subtotal
                  
                  
                  (296,511
                  )
                  
                  
                  (296,511
                  )Total
      deferred tax assets – non-current portion
                  
                  
                  122,368
                  
                  
                  
                  265,243Net
      deferred tax assets
                  
                  $
                  85,244
                  
                  
                  $
                  125,743





(b)
Tax Holiday Effect





For the
six months ended June 30, 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 six months ended June 30, 2009 and 2008.





The
combined effects of the income tax expense exemptions and reductions available
to the Company for the six months ended June 30, 2009 and 2008 are as
follows:




For the Six Months Ended
                    June 30
                    (Unaudited)2009
                  
                  
                  2008Tax
      holiday effect
                  
                  $
                  (83,196
                  )
                  
                  $
                  800,034Basic
      net (loss) income per share effect
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.04


25


KANDI
TECHNOLOGIES, CORP.


AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30, 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 is a summary of the stock option activities of the
Company:





Activity
                  
                  
                  WeightedAverage
                    ExercisePriceOutstanding
      as of January 1, 2009
                  
                  
                  
                  
                  $Granted
                  
                  
                  2,600,000
                  
                  
                  
                  0.80Exercised
                  
                  
                  -
                  
                  
                  
                  -Cancelled
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      as of June 30, 2009
                  
                  
                  2,600,000
                  
                  
                  
                  0.80





The
following table summarizes information about stock options outstanding as of
June 30, 2009:





OptionsOutstanding
                      
                      
                      OptionsExercisableNumberof
                        shares
                      
                      Exercise
                        Price
                      
                      
                      Remaining
                        Contractuallife
                        (inyears)
                      
                      
                      Numberof
                        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


JUNE 30, 2009
(UNAUDITED)




NOTE
18 – COMMITMENTS AND CONTINGENCIES





(a)           On
July 14, 2008, KSV entered into a guarantee contract to serve as guarantor for
the bank loans borrowed from Huaxia Bank Hangzhou branch in the amount of
$2,483,637 during the period from July 14, 2008 to July 14, 2009 by Zhejiang
Mengdeli Electronic Co. Ltd (“ZMEC”), a company unrelated to KSV. Under this
guarantee contract, KSV shall perform all obligations of ZMEC under the loan
contract if ZMEC fails to perform its obligations as set forth in the loan
contract. Also see Note 12.





(b)           On
June 30, 2009, KSV entered into a guarantee contract to serve as guarantor for
the bank loans obtained from China Agriculture Bank with a maximum guarantee
amount of $5,769,416 during the period from June 30, 2009 to June 28, 2011 by
ZMEC, a company unrelated to KSV. Under this guarantee contract, KSV shall
perform all obligations of ZMEC under the loan contract if ZMEC fails to perform
its obligations as set forth in the loan contract. Also see Note
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 at
http://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 in effect at the time of
grant.


28


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.





The stock
based compensation expense for the period ended June 30, 2009 is
$525,292.





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 June 30, 2009 are as follows:





Fair
      Value Measurements at Reporting Date Using Quoted Prices
inCarrying
      value
                  as
      of June 30,
                  2009
                
                
                Active
      Markets
                  for
      Identical
                  Assets
                
                
                Significant
      Other
                  Observable
                  Inputs
                
                
                Significant
                  Unobservable
                  Inputs(Level
      1)
                
                
                (Level
      2)
                
                
                (Level
      3)Cash
      and cash equivalents
                
                $
                84,056
                
                
                $
                84,056
                
                
                
                -
                
                
                
                -Restricted
      cash
                
                $
                9,350,164
                
                
                $
                9,350,164
                
                
                
                -
                
                
                
                -





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 Operation


Comparison
of Six Months Ended June 30, 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





ForSix
                            MonthsEnded
                            June 30,
                            2009
                          
                          
                          %Of
                            Revenue
                          
                          
                          ForSix
                            MonthsEnded
                            June 30,
                            2008
                          
                          
                          %Of
                            Revenue
                          
                          
                          ChangeIn
                            Amount
                          
                          
                          Change
                            In%REVENUES,
      NET
                          
                          $
                          9,487,455
                          
                          
                          
                          100.0
                          %
                          
                          $
                          21,753,075
                          
                          
                          
                          100.0
                          %
                          
                          $
                          (12,265,620
                          )
                          
                          
                          (56.4
                          )%COST
      OF GOODS SOLD
                          
                          
                          (7,063,351
                          )
                          
                          
                          (74.4
                          )%
                          
                          
                          (16,316,178
                          )
                          
                          
                          (75.0
                          )%
                          
                          
                          9,252,827
                          
                          
                          
                          (56.7
                          )GROSS
      PROFIT
                          
                          
                          2,424,104
                          
                          
                          
                          25.6
                          %
                          
                          
                          5,436,897
                          
                          
                          
                          25.0
                          %
                          
                          
                          (3,012,793
                          )
                          
                          
                          (55.4
                          )Research
      and development
                          
                          
                          1,106,973
                          
                          
                          
                          11.7
                          %
                          
                          
                          264,816
                          
                          
                          
                          1.2
                          %
                          
                          
                          842,157
                          
                          
                          
                          318.0
                          %Selling
      and distribution expenses
                          
                          
                          183,994
                          
                          
                          
                          1.9
                          %
                          
                          
                          409,102
                          
                          
                          
                          1.9
                          %
                          
                          
                          (225,108
                          )
                          
                          
                          (55.0
                          )%General
      and administrative expenses
                          
                          
                          930,918
                          
                          
                          
                          9.8
                          %
                          
                          
                          704,682
                          
                          
                          
                          3.2
                          %
                          
                          
                          226,236
                          
                          
                          
                          32.1
                          %Stock
      based compensation expense
                          
                          
                          525,292
                          
                          
                          
                          5.5
                          %
                          
                          
                          -
                          
                          
                          
                          0.0
                          %
                          
                          
                          525,292
                          
                          
                          
                          100
                          %(LOSS)
      INCOME FROM OPERATIONS
                          
                          
                          (323,073
                          )
                          
                          
                          (3.4
                          )%
                          
                          
                          4,058,297
                          
                          
                          
                          18.7
                          %
                          
                          
                          (4,381,370
                          )
                          
                          
                          (108.0
                          )%Interest
      expense, net
                          
                          
                          (418,557
                          )
                          
                          
                          (4.4
                          )%
                          
                          
                          (1,009,699
                          )
                          
                          
                          (4.6
                          )%
                          
                          
                          591,142
                          
                          
                          
                          (58.5
                          )%Government
      grants
                          
                          
                          124,005
                          
                          
                          
                          1.3
                          %
                          
                          
                          40,574
                          
                          
                          
                          0.2
                          %
                          
                          
                          83,431
                          
                          
                          
                          205.6
                          %Other
      income, net
                          
                          
                          302,185
                          
                          
                          
                          3.2
                          %
                          
                          
                          20,047
                          
                          
                          
                          0.1
                          %
                          
                          
                          282,138
                          
                          
                          
                          1,407.4
                          %(LOSS)
      INCOME FROM OPERATIONS BEFORE INCOME TAXES
                          
                          
                          (315,440
                          )
                          
                          
                          (3.3
                          )%
                          
                          
                          3,109,219
                          
                          
                          
                          14.3
                          %
                          
                          
                          (3,424,659
                          )
                          
                          
                          (110.1
                          )%INCOME
      TAX (EXPENSE) BENEFIT
                          
                          
                          (41,085
                          )
                          
                          
                          (0.2
                          )%
                          
                          
                          73,660
                          
                          
                          
                          0.3
                          %
                          
                          
                          (114,745
                          )
                          
                          
                          (155.8
                          )%(LOSS)
      INCOME FROM CONTINUING OPERATIONS
                          
                          
                          (356,525
                          )
                          
                          
                          (3.5
                          )%
                          
                          
                          3,182,879
                          
                          
                          
                          14.7
                          %
                          
                          
                          (3,539,404
                          )
                          
                          
                          (111.2
                          )%DISCONTINUED
      OPERATIONLoss
      from discontinued operation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (33,379
                          )
                          
                          
                          (0.2
                          )%
                          
                          
                          33,379
                          
                          
                          
                          (100
                          )%Gain
      from disposition of discontinued operation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          360,913
                          
                          
                          
                          1.7
                          %
                          
                          
                          (360,913
                          )
                          
                          
                          (100
                          )%NET
      GAIN FROMDISCONTINUED
      OPERATION
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          327,534
                          
                          
                          
                          1.5
                          %
                          
                          
                          (327,524
                          )
                          
                          
                          (100
                          )%NET
      (LOSS) INCOME
                          
                          
                          (356,525
                          )
                          
                          
                          (3.5
                          )%
                          
                          
                          3,510,413
                          
                          
                          
                          16.1
                          %
                          
                          
                          (3,844,601
                          )
                          
                          
                          (109.5
                          )%


32


(a)
Revenue





For the
six months ended June 30, 2009, our revenue decreased by 56.4% from $21,753,075
to $9,487,455 as compared to the six months ended June 30, 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 number of vehicles sold, categorized by vehicle types,
within the six months ended June 30, 2009 and 2008:





SixMonthsEndedJune302009
                    
                    
                    2008All-terrain
      Vehicles(“ATV”)
                    
                    
                    2,537
                    
                    
                    
                    3,658Super-mini
      car (“CoCo”)
                    
                    
                    646
                    
                    
                    
                    568Go-Kart
                    
                    
                    2,940
                    
                    
                    
                    24,906Mini
      Pick-up
                    
                    
                    -
                    
                    
                    
                    25Utility
      vehicles (“UTVs”)
                    
                    
                    1,558
                    
                    
                    
                    962Three-wheeled
      motorcycle (“TT”)
                    
                    
                    283
                    
                    
                    
                    1Total
                    
                    
                    7,964
                    
                    
                    
                    30,120





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 anticipate sales of the Coco to begin
in China in the second half of 2009.





(b)
Cost of goods sold





Cost of
goods sold during the six months ended June 30, 2009 was $7,063,351 representing
a 56.7% decrease from $16,316,178 from the six months ended June 30, 2008, which
corresponded with the decrease in sales. Cost of goods sold was 74.4% of the
total revenue for the six-month period, remaining unchanged from the comparable
period of 2008.





(c)
Gross profit





Gross
profit for the first half of 2009 is consistent with the decrease in revenue,
falling 55.4% from $5,436,897 to $2,424,104 from the same period in
2008.


33


(d)
Selling and distribution expenses





Selling
and distribution expenses were $183,994 for the six months ended June 30, 2009,
as compared to $409,102 from the same period in 2008, representing a 55%
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 $930,918 for the six months ended June 30,
2009, as compared to $704,682 for the same period in 2008, representing a 32.1%
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.





(f)
Research and development





Research
and development expenses were $1,106,973 for the six months ended June 30, 2009,
as compared to $264,816 from the same period in 2008, representing a 318%
increase.  The increase was due to additional research and development
efforts associated with the electric-powered CoCo and a new diesel powered
farmer pick up truck, which included additional studies done to market these
vehicles in the PRC.





(g)
Stock-based compensation expense





In
February 2009, the Company issued options to purchase a total of 2,600,000
shares of common stock 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 six months ended June 30, 2009, the compensation expense was $525,292,
accounting for 5.5% of the total revenue of the reporting period.





(h)
Government grants





Government
grants totaled $124,005 for the six months ended June 30, 2009, representing a
205.6% increase over the same period in 2008, primarily due to the PRC
government’s grant of subsidies research related to electric-powered
vehicles.  The government grants consist of $37,779 in subsidies for
patent applications and other intellectual property expenses, $71,611 in
subsidies for technological innovation, $1,462 in subsidies for IT development,
and $13,153 in export subsidies.  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 $418,557 for the six months ended June 30, 2009, as
compared to $1,009,699 for the same period last year, a decrease of 58.5%. This
decrease is mainly the result of the decrease in interest expense of $165,064
paid for short term bank loans due to the lower interest rate, and the increase
of interest revenue received from the note receivable.





(j)
Other income





Net other
income for the six months ended June 30, 2009 was $302,185, increased 1,407.4%
from $20,047 of the same period of last year. This is mainly due to the damage
award amount of $216,034 Company received from the lawsuit 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. The Company
has prevailed in the final ruling of court, and therefore recorded a gain in the
second quarter of 2009.





(k)
Net (loss) income





The
operating performance of the Company for the six months ended June 30, 2009
resulted in a net loss of $356,525 as compared to a net profit of $3,510,413 for
the same period last year, primarily due to a decrease in sales and the increase
in research and development expense.  The net loss also includes the
compensation cost of $525,292 incurred during the first half 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 $152,109 for slow moving
inventory.


35


Comparison
of Three Months Ended June 30, 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





ForThree
                        MonthsEnded
                        June 30,
                        2009
                      
                      
                      %Of
                        Revenue
                      
                      
                      ForThree
                        MonthsEnded
                        June 30,
                        2008
                      
                      
                      %Of
                        Revenue
                      
                      
                      ChangeIn
                        Amount
                      
                      
                      Change
                        In%REVENUES,
      NET
                      
                      $
                      5,481,551
                      
                      
                      
                      100.0
                      %
                      
                      $
                      12,424,373
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (6,942,822
                      )
                      
                      
                      (55.9
                      )%COST
      OF GOODS SOLD
                      
                      
                      (4,037,629
                      )
                      
                      
                      (73.7
                      )%
                      
                      
                      (9,139,131
                      )
                      
                      
                      (73.6
                      )%
                      
                      
                      5,101,502
                      
                      
                      
                      (55.8
                      )%GROSS
      PROFIT
                      
                      
                      1,443,922
                      
                      
                      
                      26.3
                      %
                      
                      
                      3,285,242
                      
                      
                      
                      26.4
                      %
                      
                      
                      (1,841,320
                      )
                      
                      
                      (56.0
                      )%Research
      and development
                      
                      
                      580,772
                      
                      
                      
                      10.6
                      %
                      
                      
                      224,146
                      
                      
                      
                      1.8
                      %
                      
                      
                      356,626
                      
                      
                      
                      159.1
                      %Selling
      and distribution expenses
                      
                      
                      97,810
                      
                      
                      
                      1.8
                      %
                      
                      
                      180,596
                      
                      
                      
                      1.5
                      %
                      
                      
                      (82,786
                      )
                      
                      
                      (45.8
                      )%General
      and administrative expenses
                      
                      
                      363,103
                      
                      
                      
                      6.6
                      %
                      
                      
                      432,238
                      
                      
                      
                      3.5
                      %
                      
                      
                      (69,135
                      )
                      
                      
                      (16.0
                      )%Stock
      based compensation expense
                      
                      
                      315,175
                      
                      
                      
                      5.7
                      %
                      
                      
                      -
                      
                      
                      
                      0.0
                      %
                      
                      
                      315,175
                      
                      
                      
                      100
                      %INCOME
      FROM OPERATIONS
                      
                      
                      87,062
                      
                      
                      
                      1.6
                      %
                      
                      
                      2,448,262
                      
                      
                      
                      19.6
                      %
                      
                      
                      (2,361,200
                      )
                      
                      
                      (96.4
                      )%Interest
      expense, net
                      
                      
                      (109,253
                      )
                      
                      
                      (2.0
                      )%
                      
                      
                      (395,087
                      )
                      
                      
                      (3.2
                      )%
                      
                      
                      285,834
                      
                      
                      
                      (72.3
                      )%Government
      grants
                      
                      
                      24,951
                      
                      
                      
                      0.5
                      %
                      
                      
                      17,274
                      
                      
                      
                      0.1
                      %
                      
                      
                      7,677
                      
                      
                      
                      44.4
                      %Other
      income, net
                      
                      
                      245,971
                      
                      
                      
                      4.5
                      %
                      
                      
                      (1,948
                      )
                      
                      
                      (0.0
                      )%
                      
                      
                      247,919
                      
                      
                      
                      (12,726.8
                      )%INCOME
      FROM OPERATIONS BEFORE INCOME TAXES
                      
                      
                      248,731
                      
                      
                      
                      4.5
                      %
                      
                      
                      2,068,501
                      
                      
                      
                      16.5
                      %
                      
                      
                      (1,819,770
                      )
                      
                      
                      (88.0
                      )%INCOME
      TAX (EXPENSE) BENEFIT
                      
                      
                      (22,358
                      )
                      
                      
                      (0.4
                      )%
                      
                      
                      33,920
                      
                      
                      
                      0.3
                      %
                      
                      
                      (56,278
                      )
                      
                      
                      (165.9
                      )%(LOSS)
      INCOME FROM CONTINUING OPERATIONS
                      
                      
                      226,373
                      
                      
                      
                      4.1
                      %
                      
                      
                      2,102,421
                      
                      
                      
                      16.8
                      %
                      
                      
                      (1,876,048
                      )
                      
                      
                      (89.2
                      )%DISCONTINUED
      OPERATIONLoss
      from discontinued operation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (34,219
                      )
                      
                      
                      (0.3
                      )%
                      
                      
                      34,219
                      
                      
                      
                      (100
                      )%Gain
      from disposition of discontinued operation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      368,249
                      
                      
                      
                      3.0
                      %
                      
                      
                      (368,249
                      )
                      
                      
                      (100
                      )%NET
      GAIN FROMDISCONTINUED
      OPERATION
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      334,030
                      
                      
                      
                      (2.7
                      )%
                      
                      
                      (334,030
                      )
                      
                      
                      (100
                      )%NET
      (LOSS) INCOME
                      
                      
                      226,373
                      
                      
                      
                      4.1
                      %
                      
                      
                      2,436,451
                      
                      
                      
                      19.5
                      %
                      
                      
                      (2,210,078
                      )
                      
                      
                      (90.7
                      )%


36


(a)
Revenue





For the
three months ended June 30, 2009, our revenue decreased by 55.9% from
$12,424,373 to $5,481,551 as compared to the three months ended June 30, 2008.
The global economic crisis continuing from 2008 negatively affected sales of all
of our vehicles. Although the Company plans to shift its focus to the Chinese
market and has spent much time and resources on developing products targeting
the Chinese market,sales of Company’s products in China have not been launched
by the end of second quarter of 2009.





(b)
Cost of goods sold





Cost of
goods sold during the three months ended June 30, 2009 was $4,037,629
representing a 55.8% decrease from the three months ended June 30, 2008, which
is in line with the decrease in sales.





(c)
Selling and distribution expenses





Selling
and distribution expenses were $97,810 for the three months ended June 30, 2009,
as compared to $180,596 from the same period in 2008, representing a 45.8%
decrease.  This is in line with the decrease in sales.





(d)
General and administrative expenses





General
and administrative expenses were $363,103 for the three months ended June 30,
2009, as compared to $432,238 for the same period in 2008, representing a 16%
decrease.  The decrease reflects the Company’s continuing effort on
cost saving in this challenging climate.





(e)
Research and development





Research
and development expenses were $580,772 for the three months ended June 30, 2009,
as compared to $224,146 from the same period in 2008, representing a 159.1%
increase.  The increase was due to additional research and development
efforts associated with the products targeting the Chinese market.





(f)
Net interest expense





Net
interest expense was $109,253 for the three months ended June 30, 2009, as
compared to $395,087 for the same period last year, a decrease of 72.3%. This
decrease is mainly the result of the increase in interest revenue received from
the notes receivable, and the decrease of interest expense for short term bank
loans.


37


(g)
Other income





Net other
income for the three months ended June 30, 2009 was $245,971, an increase of
$247,919 from ($1,948) for the same period last year. This is mainly due to the
judgment amount of $216,034 the Company received in the second quarter of 2009
from the lawsuit 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.





(h)
Net (loss) income





The
operating performance of the Company for the three months ended June 30, 2009
resulted in a net profit of $226,373 as compared to $2,436,451 for the same
period last year. The significant drop was primarily due to a decrease in sales,
the compensation cost of $315,175 for stock options, and higher research and
development expenses.





Financial
Condition





Working
Capital





The
Company suffered a loss of $356,525 and cash flows used in operating activities
of $7,106,029 for the six months ended June 30, 2009. The Company also had a
working capital deficit of $14,140,556 at June 30, 2009, which was a decrease
from a working capital deficit of $10,256,613 as of June 30, 2008, which was
principally due to the Company using the cash proceeds collected from note
receivable to support the new plant construction to prepare for the launch of
new products targeting the Chinese market.





The
Company has credit lines for $30,680,224 from commercial banks, of which
$24,836,372 was used at June 30, 2009.





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 two years and the first half of this
year:


38





2007
                                                    
                                                    2008
                                                    
                                                    2009 (By June 30)Bank
                                                    
                                                    Loan
                                                      amount
                                                    
                                                    Release date
                                                    
                                                    Due date
                                                    
                                                    Loan
                                                      amount
                                                    
                                                    Release date
                                                    
                                                    Due date
                                                    
                                                    Loan
                                                      amount
                                                    
                                                    Release date
                                                    
                                                    Due dateCommercial
      Bank
                                                    
                                                    
                                                    20,000
                                                    
                                                    01/19/07
                                                    
                                                    01/10/08
                                                    
                                                    
                                                    20,000
                                                    
                                                    01/16/08
                                                    
                                                    01/10/09
                                                    
                                                    
                                                    20,000
                                                    
                                                    01/19/09
                                                    
                                                    01/05/10-Jiangnan
      Branch
                                                    
                                                    
                                                    10,000
                                                    
                                                    05/14/07
                                                    
                                                    05/10/08
                                                    
                                                    
                                                    10,000
                                                    
                                                    05/09/08
                                                    
                                                    05/09/09
                                                    
                                                    
                                                    10,000
                                                    
                                                    05/13/09
                                                    
                                                    05/05/10ICBC-
                                                    
                                                    
                                                    5,000
                                                    
                                                    06/15/07
                                                    
                                                    04/10/08
                                                    
                                                    
                                                    5,000
                                                    
                                                    04/08/08
                                                    
                                                    04/07/09
                                                    
                                                    
                                                    5,000
                                                    
                                                    04/08/09
                                                    
                                                    04/06/10Exploration
      Zone
                                                    
                                                    
                                                    5,000
                                                    
                                                    06/11/07
                                                    
                                                    06/05/08
                                                    
                                                    
                                                    5,000
                                                    
                                                    06/06/08
                                                    
                                                    06/04/09
                                                    
                                                    
                                                    5,000
                                                    
                                                    06/05/09
                                                    
                                                    06/03/10Branch
                                                    
                                                    
                                                    3,000
                                                    
                                                    09/18/07
                                                    
                                                    08/05/08
                                                    
                                                    
                                                    3,000
                                                    
                                                    08/06/08
                                                    
                                                    08/04/092,700
                                                    
                                                    09/18/07
                                                    
                                                    08/05/08
                                                    
                                                    
                                                    2,700
                                                    
                                                    09/03/08
                                                    
                                                    09/02/093,000
                                                    
                                                    10/19/07
                                                    
                                                    10/16/08
                                                    
                                                    
                                                    3,000
                                                    
                                                    10/10/08
                                                    
                                                    10/08/093,800
                                                    
                                                    10/19/07
                                                    
                                                    10/16/08
                                                    
                                                    
                                                    3,800
                                                    
                                                    10/22/08
                                                    
                                                    10/14/093,500
                                                    
                                                    11/02/07
                                                    
                                                    10/23/08
                                                    
                                                    
                                                    3,500
                                                    
                                                    10/24/08
                                                    
                                                    10/22/094,000
                                                    
                                                    11/30/07
                                                    
                                                    11/24/08
                                                    
                                                    
                                                    4,000
                                                    
                                                    12/10/08
                                                    
                                                    12/04/094,500
                                                    
                                                    09/19/08
                                                    
                                                    03/18/09
                                                    
                                                    
                                                    9,000
                                                    
                                                    04/16/09
                                                    
                                                    04/15/104,500
                                                    
                                                    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
                                                    
                                                    04/08/09
                                                    
                                                    
                                                    9,000
                                                    
                                                    04/29/09
                                                    
                                                    04/28/109,000
                                                    
                                                    04/09/08
                                                    
                                                    04/09/09China
      Everbright Bank
                                                    
                                                    
                                                    30,000
                                                    
                                                    08/10/07
                                                    
                                                    08/09/08
                                                    
                                                    
                                                    30,000
                                                    
                                                    09/06/08
                                                    
                                                    02/05/09
                                                    
                                                    
                                                    30,000
                                                    
                                                    02/23/09
                                                    
                                                    02/22/10China
      Communication Bank-Jinhua Branch
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    5,000
                                                    
                                                    02/26/08
                                                    
                                                    02/18/09
                                                    
                                                    
                                                    5,000
                                                    
                                                    02/19/09
                                                    
                                                    02/15/10HuaXia
      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




39




Capital
Requirements and Capital Provided





Capital
requirements and capital provided for the six months ended June 30, 2009 is as
follows:





SixMonthsEnded
                              June30,2009
                              (In thousands)CapitalrequirementsPurchase
      of plant and equipment
                            
                            $
                            24Purchase
      of construction in progress
                            
                            
                            2,111Issuance
      of notes receivable
                            
                            
                            18,491Repayments
      of short-term bank loans
                            
                            
                            19,145Repayments
      of notes payable
                            
                            
                            13,102Internal
      cash used in operation
                            
                            
                            7,106Total
      capital requirements
                            
                            $
                            59,979Capital
      providedDecrease
      in cash
                            
                            
                            57Decrease
      in restricted cash
                            
                            
                            3,201Proceeds
      from short-term bank loans
                            
                            
                            17,830Proceeds
      from notes payable
                            
                            
                            10,084Repayments
      of notes receivable
                            
                            
                            28,545Other
      financing activities
                            
                            
                            199Total
      capital provided
                            
                            $
                            59,916For
      further information, see the Statement of Cash Flows.





Cash
Flow





Net cash
flow used in operating activities was ($7,106,029) for the six months ended June
30, 2009, as compared to net cash flow provided by operating activities of
$4,501,122 in the same period in 2008. The difference is mainly attributable to
an increase in accounts payable of $5,576,480 and an  increase in
inventories of $4,775,141.





Net cash
flow provided by investing activities was $7,919,832 for the six months ended
June 30, 2009 as compared to net cash flow used in investing activities of
($8,935,321) for the same reporting period in 2008. The was primarily due to a
net cash inflow from notes receivable of $10,054,502, as compared to a net cash
outflow in notes receivable of $6,458,256 for the same period last
year.





Net cash
flow used in financing activities was ($933,473) for the six months ended June
30, 2009, as compared to net cash flow provided by financing activities of
$3,239,842 for the six months ended June 30, 2008. During the six months ended
June 30, 2009, the Company repaid short term bank loans and notes payable,
whereas during the same period in 2008, the Company received an inflow of cash
from short term bank loans and notes payable.


40


Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Not
applicable.


41


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 June 30, 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 quarter of 2009 ended June 30, 2009 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.


42


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.





ExhibitNumber
            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:
      August 14, 2009
            By:
            /s/ Hu XiaomingHu
      XiaomingPresident
      and Chief Executive Officer
              (Principal
      Executive Officer)Date:  August
      14, 2009
            By:
            /s/ Zhu XiaoyingZhu
      XiaoyingChief
      Financial Officer
              (Principal
      Financial and Accounting Officer)


II-2