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 at http://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.

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 June 30, 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 six months ended June 30, 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:

º Persuasive evidence of an arrangement exists;
º Delivery has occurred or services have been rendered;
º The seller's price to the buyer is fixed or determinable; and
º Collectability is reasonably assured.

Results of Operations

Comparison of Six Months Ended June 30, 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 Six Months                 For Six Months
                 Ended June 30,      % Of       Ended June 30,      % Of       Change In      Change In
                      2012          Revenue          2011          Revenue       Amount           %

REVENUES, NET  $     25,416,517        100%   $     18,479,208        100%   $  6,937,309         37.5%
COST OF GOODS
SOLD                (20,287,410 )    (79.8% )      (14,076,060 )    (76.2% )   (6,211,350 )       44.1%
GROSS PROFIT          5,129,107       20.2%          4,403,148       23.8%        725,959         16.5%
Research and
development          (1,376,186 )     (5.4% )       (1,086,540 )     (5.9% )     (289,646 )       26.7%
Selling and
distribution
expenses               (173,036 )     (0.7% )         (149,615 )     (0.8% )      (23,421 )       15.7%
General and
administrative
expenses             (1,579,670 )     (6.2% )       (1,501,396 )     (8.1% )      (78,274 )        5.2%
INCOME FROM
OPERATIONS            2,000,215        7.9%          1,665,597        9.0%        334,618         20.1%
Interest
income
(expense), net          (56,940 )     (0.2% )          (21,804 )     (0.1% )      (35,136 )      161.1%
Change in fair
value of
financial
instruments           1,961,526        7.7%          7,752,772       42.0%     (5,791,246 )      (74.7% )
Government
grants                   25,308        0.1%            280,727        1.5%       (255,419 )      (91.1% )
Investment
(loss) income           (27,411 )     (0.1% )           (7,276 )     (0.1% )      (20,135 )      276.7%
Other income,
net                      46,602        0.2%            167,232        0.9%       (120,630 )      (72.1% )
(LOSS) INCOME
FROM
OPERATIONS
BEFORE INCOME
TAXES                 3,949,300       15.5%          9,837,248       53.2%     (5,887,948 )      (59.9% )

INCOME TAX
(EXPENSE)              (661,120 )     (2.6% )         (277,505 )     (1.5% )     (383,615 )      138.2%

NET (LOSS)
INCOME                3,288,180       12.9%          9,559,743       51.7%     (6,271,563 )      (65.6% )

For the six months ended June 30, 2012, our revenue increased by 37.5%, from $18,479,208 to $25,416,517 as compared to the six months ended June 30, 2011.

The following table lists the number of vehicles sold, categorized by vehicle types, within the six months ended June 30, 2012 and 2011:

                                       Six Months Ended June 30
                                    2012                      2011
                             Unit        Sales         Unit        Sales
ATV                          7,078   $  2,961,947      2,665   $  1,725,754
Super-mini car 1               639      2,636,852        542      3,407,857
Go-Kart                     16,982     15,733,057     11,394     11,153,315
Utility vehicles ("UTVs")       35        133,382        393      1,220,237
Three wheeled motorcycle       498        683,966        284        681,923
Refitted car                    64      1,734,629         11        290,122

Auto generator              28,298      1,532,684          -              -
Total                       53,594     25,416,517     15,289     18,479,208

1) include the products called CoCo, EV in the previous filing.

Off-Road Vehicles

During the six months ended June 30, 2012, the market condition for ATV products continued 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 $1,236,193, or 71.6% in the six months ended June 30, 2012 over the comparable period, which was attributable to a 165.6% increase in units sold, from 2,665 units in the first six months of 2011 to 7,078 units in 2012. This increase was partially caused by a 35.4% unit price reduction.

In the first six months of 2012, our Go-Karts experienced a significant increase in revenue of $4.6 million or 41.1% over the same period of last year, which was mainly attributable to a 49.0% increase in unit sales from 11,394 units in the six months ended June 30, 2011 to 16,982 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 six months ended June 30, 2012, the sales of TT increased $2,043, or 0.3% from the same period of last year, which was attributable to an increase in unit sales from 284 units to 498 units, with the average unit price dropped 42.8%.

Utility vehicles (UTVs) experienced a significant decrease in revenues from $1,220,237 to $133,382. This 89.1% decrease is mainly due to the 91.1% drop in unit sales in the six months ended June 30, 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 to increase 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 six months ended June 30, 2012, revenues from our Super-mini car decreased by $771,005, or 22.6% from the same period of 2011, which was attributable to an increase in unit sales of 17.9% from 542 units in the first six months of 2011 to 639 units in 2012. For the six months ended June 30, 2012, the average unit price of our super-mini-cars decreased 34.4%, because during this reporting period, the Company adopted the sales mode of charging or exchanging batteries to sell the super-mini-cars without batteries.

For the six months ended June 30, 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.

Auto generator

On April 25, 2012, the Company acquired Yongkang Scrou Electric Co. ("Yongkang Scrou"), whose main business is producing various auto generators. From April 25, 2012 to June 30, 2012, a total 28,298 sets of auto generators were sold with sales totaling $1,532,684.

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 6 months ended June 30, 2012 and 2011:

                                          Six Months Ended June 30
                                     2012                           2011
                             Sales        Percentage        Sales        Percentage
  North America         $   3,195,806            13%   $   2,184,124            12%
  China                    21,675,976            85%      15,772,767            85%
  Europe & other region       544,735             2%         522,317             3%
  Total                 $  25,416,517           100%   $  18,479,208           100%

For the six months ended June 30, 2012, about 85% of our sales in China were 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 six months ended June 30, 2012 was $20,287,410, representing an increase of $6,211,350, or 44.1% from the six months ended June 30, 2011, corresponding to the Company's significant increase of revenue.

(c) Gross profit

Gross profit for the first half of 2012 increased 16.5% to $5,129,107 compared to $4,403,148 at the same period of last year, as a result of increased revenue. However, gross margin decreased to 20.2% compared to 23.8% for the same period of 2011. This was primarily due to the fact that processing techniques for refitted cares are relatively simple; therefore its gross margin is comparatively lower, in addition, Yongkang Scrou's adjustment to its product structure and disposal of its old products affected the gross margin, all of which reduced the overall gross margin of the Company for this reporting period.

(d) Selling and distribution expenses

Selling and distribution expenses were $173,036 for the six months ended June 30, 2012, as compared to $149,615 for the same period in 2011, representing a 15.7% 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 $1,579,670 for the six months ended June 30, 2012, as compared to $1,501,396 for the same period in 2011, representing a 5.2% increase. For the six months ended June 30, 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, the stock based compensation cost was $138,315. In addition, general and administrative expenses also included $27,808 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 $28,826. Excluding the effect of stock based compensation cost and stock award cost, the net general and administrative expenses for the six months ended June 30, 2012 was $1,532,809, an increase of 14.9% from $1,334,255 for the same period of 2011. This increase was primarily due to the higher product insurance fee, directors and officers liability insurance fee and the increase of employee welfare.

Research and development expenses were $1,376,186 for the six months ended June 30, 2012, as compared to $1,086,540 from the same period in 2011, representing a 26.7% 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 six 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. In addition, the Company successfully developed price- competitive Three Wheels with gas-electric hybrid drives to meet the demand of China urban and rural markets.

(g) Government grants

Government grants totaled $25,308 for the six months ended June 30, 2012, representing a 91% decrease over the same period in 2011.

(h) Net interest income (expense)

Net interest expenses was $56,940 for the six months ended June 30, 2012, as compared to $21,804 net interest expense for the same period last year, representing a significant increase. For the six months ended June 30, 2012, 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 $30, and the interest incurred by the amortization of debt discount was $222. Excluding the effects of interest expense related to convertible notes, the net interest expenses for this reporting period was $ 56,895, improved from net interest expense of $21,552 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 six months ended June 30, 2012, the interest income, which was caused by the changes of fair value of warrants issued to investors and placement agents was $1,961,526, while for the same period of last year, the interest income, which was caused by the changes of fair value of financial instruments, was $7,752,772. This significant decrease was primarily because the stock price was more stable in the first half of 2012 compared to the same period of last year.

(j) Other Income, Net

Net other income was $46,602 for the six months ended June 30, 2012, compared to $167,232 for the same period of last year, a decrease of $120,630 or 72.1%. This decrease was primarily due to a fine in the amount of $89,194 that the Company received in the first six months of 2011 as a result of a contractor not completing a construction project on time. Therefore, there was a lower net other income for the six months ended June 30, 2012 compared to the same period in 2011.

(k) Investment (loss) income

Investment loss was $27,411 for the first six months ended June 30, 2012, compared to $7,276 for the corresponding period in 2011. For the six months ended June 30, 2012, the investment loss was solely the result of our 30% equity interest investment in Jinhua Service, which was $16,819 for the same period of 2011. During the first six months ended June 30, 2011, the $9,543 investment income was from trading securities.

(l) Net income

The operating performance of the Company for the six months ended June 30, 2012 reflected a net income of $3,288,180, a decrease of $6,271,563 or 65.6% from a net income of $9,559,743 for the same period of last year, which was primarily due to changes in the fair value of certain warrants issued to investors and placement agents.

Excluding the effects of option related expenses, which was $19,053 and $138,315 for the six months ended June 30, 2012 and 2011, respectively; stock award expenses of $27,808 and $28,826 for the six months ended June 30, 2012 and 2011, respectively; Convertible Note interest expenses of $2 and $30 for the six months ended June 30, 2012 and 2011, respectively, which was caused by an amortization of discount on the Convertible Notes of $43 and $222 for the six months ended June 30, 2012 and 2011, respectively; a change in the fair value of financial derivatives to $1,961,526 and $7,752,772 for the six months ended June 30, 2012 and 2011, respectively; for the six months ended June 30, 2012, the Company's net income was $1,373,560, a decrease of 30.4% compared to net income of $1,974,364 for the same period of 2011, excluding the same effects. This decrease was primarily due to a decrease in gross profit. As of June 30, 2012, all of the Convertible Notes have been converted.

Comparison of Three Months Ended June 30, 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
                 June 30, 2012     Revenue     June 30, 2011     Revenue       Amount           %

REVENUES, NET  $    11,060,976        100%   $    10,137,702        100%   $    923,274          9.1%
COST OF GOODS
SOLD                (9,272,719 )    (83.8% )      (7,795,987 )    (76.9% )   (1,476,732 )       18.9%
GROSS PROFIT         1,788,257       16.2%         2,341,715       23.1%       (553,458 )      (23.6% )
                                     (5.6% )                                                     7.9%
Research and
development           (620,090 )                    (574,588 )     (5.7% )      (45,502 )

Selling and
distribution
expenses               (79,201 )     (0.7% )         (92,679 )     (0.9% )       13,478        (14.5% )
General and
administrative
expenses              (896,050 )     (8.1% )        (827,529 )     (8.2% )      (68,521 )        8.3%
INCOME FROM
OPERATIONS             192,916        1.7%           846,919        8.4%       (654,003 )      (77.2% )
Interest
income
(expense), net        (188,542 )     (1.7% )         275,466        2.7%       (464,008 )     (168.4% )
Change in fair
value of
financial
instruments          1,018,576        9.2%         2,367,594       23.4%     (1,349,018 )      (57.0% )
Government
grants                  25,308        0.2%           273,139        2.7%       (247,831 )      (90.7% )
Investment
(loss) income          (14,010 )     (0.1% )          (8,490 )     (0.1% )       (5,520 )       65.0%
Other income,
net                     12,134        0.1%            53,526        0.5%        (41,392 )      (77.3% )
(LOSS) INCOME
FROM
OPERATIONS
BEFORE INCOME
TAXES                1,046,382        9.5%         3,808,154       37.6%     (2,761,772 )      (72.5% )

INCOME TAX
(EXPENSE)             (141,154 )     (1.3% )        (186,811 )     (1.8% )       45,657        (24.4% )

NET (LOSS)
INCOME                 905,228        8.2%         3,621,343       35.7%     (2,716,115 )      (75.0% )

For the three months ended June 30, 2012, our revenues increased 9.1% from $10,137,702 to $11,060,976 as compared to the three months ended June 30, 2011.

The following table lists the number of vehicles sold, categorized by vehicle types, for the three months ended June 30, 2012 and 2011:

                                              Three Months Ended June 30
                                            2012                      2011
                                    Unit         Sales        Unit        Sales
  ATV                                1,954   $    961,647     1,045   $    311,238
  Super-mini car 1                     343      1,450,935       333      2,375,094
  Go-Kart                            4,001      6,093,381     6,028      6,205,124
  Utility vehicles ("UTVs")             15         58,949       160        729,992
  Three wheeled motorcycle ("TT")      250        181,611        93        226,132
  Refitted car                          29        781,769        11        290,122
  Auto generator                    28,298      1,532,684         -              -
  Total                             34,890     11,060,976     7,670     10,137,702

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

Off-Road Vehicles

During the three months ended June 30, 2012, the market condition for our ATV products continued to recover. The Company developed some price competitive products to meet markets demands that caused good results and successfully increased the Company's sales. Revenues from our ATVs experienced a significant increase of $650,409, or 209.0% in the three months ended June 30, 2012, compared to the comparable period in 2011, which was attributable to a 87.0% increase from 1,045 units in the first three months of 2011 to 1,954 units in 2012. This increase was partially caused by a 65.2% unit price increase.

During the three months ended June 30, 2012, our Go-Karts experienced a slight decrease in revenue of $111,743 or 1.8% compared to the same period in 2011, which was attributable to a 33.6% decrease in unit sales from 6,028 units in the three months ended June 30, 2011 to 4,001 units in 2012. Just as with ATVs, the Company's successful development of price competitive products that meet market demands achieved good results.

In the three months ended June 30, 2012, sales of our TT decreased $44,521, or 19.7% compared to the same period of last year, despite an increase in unit sales from 93 units to 250 units. This decrease was primarily caused by a 70.1%. decrease in unit price. The unit price decreased because the Company developed price-competitive, gas-electric hybrid driven three wheeled motorcycles to meet the growing demand of such units in the Chinese urban and rural markets.

UTVs experienced a significant decrease in revenues from $729,992 to $58,949. This 91.9% decrease was mainly due to a 90.6% drop in unit sales in the three months ended June 30, 2012 compared to the same period of 2011. This significant drop was primarily due to continuing high competition in the UTV market. The UTVs manufactured by the Company are relatively high end and more expensive, which caused the average unit price to increase significantly compared to the same period of last year.

Super-mini-Car Products

. . .