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

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

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

Critical Accounting Policies and Estimates

Policy affecting options, and warrants

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

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

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

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

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

Estimates affecting accounts receivable and inventories

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

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

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

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

Revenue Recognition

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

· Persuasive evidence of an arrangement exists;

· Delivery has occurred or services have been rendered;

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

· Collectability is reasonably assured.

Results of Operations



Comparison of Three Months Ended March 31, 2012 and 2011



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



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

INCOME TAX (EXPENSE)                      (519,966 )         (3.6 )%            (90,694 )         (1.1 )%       (429,272 )        473.3 %

NET (LOSS) INCOME                        2,382,952           16.6 %           5,938,400          (71.2 )%     (3,555,448 )        (59.9 )%

(a) Revenue

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

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

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

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

Off-Road Vehicles

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

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

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

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

Super-mini-Car Products

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

Refitted car

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

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

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

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

(b) Cost of goods sold

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

(c) Gross profit

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

(d) Selling and distribution expenses

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

(e) General and administrative expenses

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

(f) Research and development

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

(g) Government grants

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

(h) Net interest income (expense)

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

(i) Change in fair value of financial instruments

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

(j) Other Income, Net

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

(k) Investment (loss) income

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

(l) Net income

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

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

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

Financial Condition

Liquidity and Capital Resources

Working Capital

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

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

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

Capital Requirements and Capital Provided



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



                                        Three Months Ended
                                          March 31, 2012
                                          (In thousands)
Capital requirements
Purchase of plant and equipment        $                 17
Purchase of Construction in progress                    181
Issuance of notes receivable                              -
Repayments of short-term bank loans                   6,329
Repayments of notes payable                           3,753
Increase in restricted cash                          15,759
Increase in cash                                      2,723
Internal cash used in operations                      4,299
Total capital requirements             $             33,061

Capital provided
Proceeds from short-term bank loan                    6,297
Proceeds from notes payable                           8,687
Repayments of notes receivable                       18,033
Other financing activities                               41
Total capital provided                 $             33,058

For further information, see the Statement of Cash Flows.

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

Cash Flow

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

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

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

Off-Balance Sheet Arrangements:

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

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

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

(1) Guarantees for bank loans

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

(2) Guarantees for Bank notes:

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

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

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

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

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

Recent Development Activities:

On February 13, 2012, the Company entered into a Share Exchange Agreement (the "Exchange Agreement") with KO NGA Investment Limited ("KO NGA") and each of the shareholders of KO NGA ("KO NGA Shareholders," and, together with KO NGA, the "Sellers"). Pursuant to the terms of the Exchange Agreement, the Sellers . . .