UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20122013

or

[_]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 000-52186

KANDI TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in its charter)

Jinhua City Industrial Zone
Jinhua, Zhejiang Province
People’sPeople's Republic of China
Post Code 321016
(Address of principal executive offices) (Zip Code)

(86-579) 82239856
(Registrant’sRegistrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [_]      No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes [_]      No [X]

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 [X]      No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes [X]      No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]

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

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

Yes [_]      No [X]

The aggregate market value of thevoting common stock issued and outstanding and held by non-affiliates of the registrant based upon the closing sales price for the common stock on the NASDAQ Global Market onas of June 29, 2012,28, 2013, the last business day of the registrant’sregistrant's second fiscal quarter, was approximately $53,693,762. For the purposes$108,038,543.

The number of this calculation, executive officers, directors, and each person that owns 10% or more of our outstanding common stock are deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 22, 2013, the registrant had 32,539,867 shares of common stock par valueoutstanding as of $0.001 outstanding.March 11, 2014 was 40,105,321.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “our company believes,” “management believes” and similar language. These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under Item 1, “Business”, Item 1A, “Risk Factors” and Item 7, “Management’s“Management's Discussion and Analysis of Financial Condition and Results of Operations.” Our actual results may differ materially from results anticipated in these forward-looking statements. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe such comparisons cannot be relied upon as indicators of future performance.

Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

PART I

Except as otherwise indicated by the context, references in this Annual Report to “we,” “us,” “our,” “Kandi,” or the “Company” are to the combined businesses of Kandi Technologies Group, Inc. and its subsidiaries.

Item 1. Business.

Introduction

Our Corporate Structure

In 2013, the Company experienced growth in both its traditional off-road vehicle business and in its electric vehicle business, but the growth in the electric vehicle business was particularly significant and we believe validates the Company's increased focus on that business in the past several years. We first produced an electric automobile, the “Coco” in August 2008. We took initial steps toward expanding that effort in early 2010, when, on January 4, 2010, we announced we had forged “The Alliance for Chinese Electric Vehicle Development and Commercialization” with major Chines energy, IT and battery companies to help launch a new electric vehicle era in China.

Based upon market factors as we saw them, we expanded our operations in this market segment. The Company's shift in focus to the EV market has been the result of gradual and strategic efforts. We describe those factors below at “The Market For Electric Vehicles” and “Business Overview.” By mid-2012 we had begun programs for design, production and distribution of electric vehicles (which we sometimes refer to as “EVs” in this document). While we continue to actively engage in design, production and distribution of our traditional off-road vehicle products, we have greatly intensified our engagement in the EV market, principally in China. We believe our financial results in 2013 validate this expansion of our business strategy.

The Market for Electric Vehicles

Factors creating and driving the market

Research and Development of major EV technology projects in China began in 2001. Driven by two central government five-year plans for scientific and technological research as well as by the Olympics, World Expo and the “1000 cars in 10 cities” demonstration platform, the Chinese electric automobile sector was officially born. And the pressure to enhance relevant technologies continues. While the program for developing technology has been established, however, the market for EVs has developed slowly for various reasons.

There is growing consumer demand for motor vehicles in China and in connection with that demand, many cities are experiencing severe problems of pollution and traffic congestion. The major cities such as Beijing and Shanghai are already introducing policies restricting the purchase of cars and placing limits on their use. We expect that more cities will adopt such policies. Urban resources are limited and without effective urban transportation plans, central cities will face exhaustion of space available for traffic and ever-worsening environmental contamination. As a result, there may literally be insufficient road space for automobiles. Meanwhile, urban parking, other road and vehicle resources are wasting because they are not being effectively utilized.

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Issues confronting the market

We believe there are five major obstacles to extensive commercialization of EVs and the full development of the EV market: high cost, short driving range, long charging time, limited charging facilities, battery maintenance and pollution from non-recycling and improper disposition. We believe we have solutions and a strategy to address each of these issues.

Our Solutions and Growth Strategy

Given the economic and population growth in China, one solution to alleviate the increase in the number of resident-owned cars is to provide additional means of public transportation. Currently, subway, bus and taxi are the most common public transportation tools. The taxi is used by a small, subset of PRC residents. The subway and bus are used widely and are considered the main methods of mass public transportation. However, the cities lacks a form of capillary transportation that the residents need. Therefore, the Company provides a shared transportation platform for their convenience.

The best solution to slow an increase in the number of cars is to provide city public transportation. The taxi is relatively expensive compared to the mass transportation of subway or bus. However, these methods lack a form of specific transportation to meet residents' short-range transportation needs. A public EV sharing system, which we call “pure EV self-driving car rental sharing”, provides a shared transportation platform and commuting convenience to urban residents that is not afforded by or is complementary to that provided by mass transportation and is less expensive than taxis. Such a public EV leasing system, designed as a new business model for public transportation, maximizes the advantages of the EV and avoids its weakness compared to the traditional vehicles, will further stimulate the expansion of the EV market.

Kandi is the first in the market to have proposed the public pure electric vehicle sharing program (the “Car-Share” Project). Besides the zero-emission benefit, the Car-share Project combines city taxis, the resident cars, rental cars and traditional mass transportation advantages, along with vertical automatic charging/parking garage. It is a perfect transportation tool with all dynamics. This new business model for urban public transportation is designed to greatly improve the efficiency of urban car usage, ease traffic congestion, scarce parking resources, and the urban environment. Additionally, it will likely promote the global development of pure electric vehicles with significant impact.The project has already been launched in Hangzhou and, to date, it has been well received.

Individually driven pure EVs are utilized in the Car-Share Project. Its automated charging parking system is located at airports, train stations, hotels, business centers, selected residential areas and other places in the city that are the focus of commuter traffic. The network system provides EV rental service to individual drivers in and around the city. The network system also provides centralized management of EV maintenance, and battery charging to disperse self-service users. The EV rental station is the basic unit of the network system, providing a variety of services and transactions - - such as charging, maintenance, battery recycling and other services related to the rental of EVs. In addition, a tracking system allows the car-share project management to know at all times the precise location and the status of each vehicle.

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This Car-share Project model has been implemented since the second half of 2013 in Hangzhou. It has received significant recognition from a large group of well-known national and international press, such as China Central Television (CCTV), Xinhua News Agency, Associated Press (AP), Agence France Presse (AFP), Bloomberg, Forbes, China Information Daily. Furthermore, representatives from China's new energy vehicle pilot cities have come to visit us in recent months to learn more about this project and expressed their interest in partnering with us. Currently, we have been in discussion with Beijing, Shanghai, Chengdu, and Nantong City about expanding the Car-share.

The Joint Venture with Geely

As a part of our EV strategy, we concluded that we needed to have additional resources to respond effectively and timely to market needs. In November 2012, we started negotiating a joint venture arrangement with Shanghai Maple Guorun Automobile Co., Ltd., a 99% owned subsidiary of Geely Automobile Holdings Ltd. (“Geely”) for the design, production and distribution of EVs. Geely is the one of the largest automobile manufacturers in China. After careful negotiation, the companies entered into a joint venture agreement in March 2013 and established Zhejiang Kandi Electric Vehicles Investment Co, Ltd. (the "JV Company") in April 2013. The JV Company's mission is to utilize the advanced technologies, modern operational model and management methods to invest, develop, produce and sell EVs to satisfy the consumers' needs, and to maximize the return on the investors.

The Operations of the JV

The business scope of JV is to develop, manufacture and sell EVs and to develop, purchase, manufacture and sell auto parts, and invest in other companies which engage in such businesses. Each party agreed to establish a new wholly owned subsidiary, and contributed its EVs assets and businesses to such subsidiary. After each party established such subsidiary, the JV entered into transfer agreements with the parties to acquire and become the 100% shareholder of these subsidiaries. The parties agreed that the JV can use certain of their trademarks, patents and technologies free of charge and have entered into trademark and patent license agreements with the JV. The board of the JV consists of four members and each party has the right to assign two members to the board. Mr. Li Shufu, the Chairman of Geely was appointed as the first Chairman of the JV and Mr. Hu Xiaoming, the Chairman and CEO of Kandi, was appointed as the first general manager and the legal representative of the JV. The term of the JV is twenty years from the date of issuance of its business license and the parties may discuss the extension of the term at least two years prior to expiration.

Understanding the Contribution of the JV to the Financial Results of the Company

The economic impact of the Company's participation in the JV is reflected in its 50% ownership of the JV through its subsidiary Kandi Vehicles.All of the Company's production and development efforts for the whole cars of EV is conducted through the JV Company, and revenue generated from the sale of electric vehicles is received by the JV Company and then distributed pursuant to the Joint Venture Agreement.

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This means that the financial results of the JV are reflected as the results of an investment in the JV. Under existing accounting treatment for a joint venture position of 50% such as the Company's in the JV, it is difficult to discern in the Company's financial statements the effect of the financial results of the JV. These results are to some extent provided in Note 23 to the audited financial statements of the Company which are included as a part of this report and are discussed further at “Management's Discussion and Analysis – Financial results of the JV”, below.

Pure Electric Vehicle Subsidies

The process of receiving government subsidies is as follows: manufacturers receive central government subsidies through application and sell the EVs to local dealers at a price reflecting the deduction of the central government subsidy from the normal sale price. Local dealers establish their retail price based upon their purchase price from the manufacturers, then deduct the local government subsidy from the retail price before selling the EVs to consumers. Through the above steps, consumers receive two subsidies – from the central and local governments when they purchase EVs.

Because the central and local government subsidy amounts and policies are open and disclosed to the public and all the subsidies are reviewed and verified by the respective governments, consumers know what subsidized prices they will receive and pay for EVs. Therefore, even though dealers can sell vehicles at prices established at their discretion, programs are designed to assure that consumers should receive the entire benefit from both subsidies.

Currently, there are two subsidies from central and local governments for the pure electric vehicles (the “EVs”) in China – one from each of the central and local governments. The ultimate beneficiary for these subsidies is the consumer and the actual prices that consumers pay reflect the deduction of both subsidies.

(a) The central government provides a subsidy to manufacturers paid in advance quarterly upon application and approval and settled annually. After selling product to dealers, manufacturers can submit subsidy payment applications with invoices and other supporting documents at the end of each quarter to the requisite central government agencies through their regional offices. After the review and approval by the agencies, the central government makes advance subsidy payments to the manufacturers. At the end of the year, the final subsidy amounts are verified, reconciled according to the number of vehicles actually sold to consumers and settled on an annual basis.

(b) Pursuant to the requirement of the central government, the local governments provide a subsidy to consumers who purchase EVs by a price reduction from the dealer. After the consumer purchases an EV at a reduced selling price from the dealer, the dealer submits a subsidy application to the local government, including a consumer authorization letter for subsidy application, consumer personal I.D., EV Vehicle License, EV purchase invoice and other required documents and requests reimbursement (to the dealer) for the local government subsidy.

Our Organizational Structure

The Company was incorporated under the laws of the State of Delaware on March 31, 2004. On August 13, 2007, theThe Company changed its name from Stone Mountain Resources, Inc. to Kandi Technologies, Corp. on August 13, 2007. On December 21, 2012, the Company changed its name to Kandi Technologies Group, Inc.

On June 29, 2007,4

Headquartered in the Jinhua city, Zhejiang Province, China, the Company (Stone Mountain Resources, Inc.) executed an exchange agreement to acquire 100%is a producer and manufacturer of Continental Development Limited,electrical vehicles, all-terrain vehicles, go-karts, specialized utility vehicles and a Hong Kong corporation (“Continental”)variety of other specialty vehicles for sale in the PRC and global markets. The Company conducts its wholly ownedprimary business operations through its wholly-owned subsidiary, Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”). Continental became a wholly owned subsidiary and the partial and wholly-owned subsidiaries of Stone Mountain. Thereafter, the business of the Company was that of Continental’s wholly owned subsidiary, Kandi Vehicles.

On December 31, 2010, Jinhua Three Parties New Energy Vehicles Service Co., ltd. (“Jinhua Service”) was formed by a joint venture among the State Grid Power Corporation, Tianneng Power International, Inc. and Kandi Vehicles. The joint venture established the first Chinese electric super-mini automobile battery replacement service provider. The Company owns 30% of Jinhua Service.

In the first fiscal quarter of 2011, Jinhua Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) was incorporated by Kandi Vehicles and Mr. Xiaoming Hu, the Chairman and CEO of the Company.

On April 25 2012, The Company completed its acquisition of KO NGA Investment Limited and its subsidiaries, K S Asia Limited Group Limited, Yongkang K S Electric Limited and Yongkang Scrou Electric Co. (“Yongkang Scrou”), with consideration of 2,354,212 shares of the Company’s common stock. Yongkang Scrou manufactures various auto generators. On June 29, 2012, in connection with the completion of the Company’s internal reorganization, Yongkang Scrou became a wholly owned subsidiary of the Company.

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The Company’sCompany's organizational chart is as follows:

Kandi Vehicles has a 50% ownership interest and controls the Board of Directors in Kandi New Energy. Under Share Escrow and Trust Agreement, Loan Agreement, Contractor Agreement, between Kandi Vehicles and the other equity owner,Operating Subsidiaries

In January 2011, pursuant to relevant agreements, Kandi Vehicles is entitled to 100% of the economic benefits, voting rights and residual interests (100% profits and loss absorption rate) inof Kandi New Energy.

Jinhua Three Parties New Energy Vehicles Service Co., ltd. (“Jinhua Service”) was formed as a joint venture, by and among our wholly-owned subsidiary, Kandi Vehicles, the State Grid Power Corporation and Tianneng Power International. The primary operations ofCompany, indirectly through Kandi Vehicles, has a 30% ownership interest in Jinhua Service.

In April 2012, pursuant to a share exchange agreement, the Company are designing, developing, manufacturing, and commercializing electrical vehicles (“EVs”), all-terrain vehicles (“ATVs”), go-karts, and specialized automobiles related products for the PRC and global markets.

Business Overview

General

Kandi’s products include off-road vehicles (which include ATVs, utility vehicles (“UTVs”), and go-karts), motorcycles, refitted cars and super-mini-cars.

1) Includes the products called CoCo and EV in 2011’s filing, and Super-mini-cars are all EVs for year 2012.

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Off-Road Vehicles

Kandi produces a wide rangeacquired 100% of go-karts, from the 90cc class to the 1,000cc class in cylinder displacement. Kandi also produces four-wheeled ATVs and specialized UTVs, which are ATVs special-fitted for agricultural and industrial use. Kandi started mass production of its go-karts in 2006.

During the twelve months ended December 31, 2012, the market condition for ATV products continued to recover. The Company continued to develop price competitive products to meet market demands, causing good results and successfully increasing the Company’s sales. Revenues from our ATVs experienced an increase of $1,552,328 or 32% in fiscal year ended December 31, 2012 from the previous year; this increase is primarily attributable to a 45.3% increase in unit sales, from 9,958 units in the fiscal year 2011 to 14,467 units in 2012, and the effect of a 9.1% unit price reduction.

In 2012, our go-karts segment experienced a significant increase in revenue of $7,870,746, or 34.3% from fiscal year 2011. This increase was mainly attributable to a 34% increase in unit sales from 25,757 units in 2011 to 34,517 units in 2012. In the fiscal year ended 2012, the Company’s successful development of meet-market-demands products achieved good results and resulted in increase unit sales.

Utility vehicles (UTVs) experienced a significant decrease in revenue from $2,696,106 to $319,014. This 88.2% decrease is due to a 92.2% drop in unit sales from 1,198 units in 2011 to 93 units in 2012. This significant decrease in sales is primarily attributable to high competition in the UTV market, and the fact that the UTVs manufactured by the Company are relatively high end and more expensive than comparable products offered by our competitors, which caused our average unit price to manufacture a UTV to increase significantly compared to the same period of last year.

Super-Mini-Car EVs

Our EV products segment experienced a significant increase in revenues. For fiscal year 2012, the revenues generated from our Super-mini cars increased by $12,781,419 or 204.4% from $6,253,517 in year 2011 to $19,034,936 in year 2012, which was attributable to a 263.5% increase in unit sales from 1,077 units in year 2011 to 3,915 units in year 2012. This increase is primarily a result of certain beneficial local government’s policies that encourage the development of EVs. For the fiscal year 2012, the average unit price of our Super-mini cars decreased 16.3%, due to a change adopted by the Company for most of the reporting period; the Company adopted a new battery exchange business model for the EVs and started selling EVs without batteries.

Motorcycles

Sales of three-wheeled motorcycle (TT) experienced a significant decrease in revenue from $1,592,770 in year 2011 to $1,272,898 in year 2012, despite an increase in unit sales from 782 units in year 2011 to 1,060 units in year 2012. This 20.1% decrease in revenue was mainly attributable to a average unit price decrease of 41.0% . The average unit price decreased in year 2012 primarily because the Company developed price-competitive gas-electric hybrid three wheeled motorcycles to meet the growing demand of such units in the Chinese markets.

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Refitted Car

For the fiscal year ended December 31, 2012, revenues from our refitted car increased by $1,311,756, or 70.5% from fiscal year of 2011. This was mainly attributed to the 64.3% increase in unit sales from 70 units in year 2011 to 115 units in year 2012. In addition, the Company refitted other companies’ vehicles to meet special requirements for certain customers.

Auto generator

On April 25, 2012, the Company acquired Yongkang Scrou Electric Co. (“Yongkang Scrou”), whose main business is producing variousa manufacturer of driving motor, air-conditioning and controllers for electric vehicles and auto generators. From April 25, 2012

In March 2013, pursuant to December 31, 2012, a total of 93,881 sets of auto generators were sold with sales totaling $3,517,237.

The following table shows the breakdown of Kandi’s revenues from its customers by geographic markets based on the location of distributors, during the fiscal years ended December 31, 2012 and 2011:

For the year ended December 31, 2012, about 60% of our sales in China, mainly off-road vehicle sales, were sold to Chinese export agents, who resell the Company’s products to North America, Europe, and other regions. While for the year 2011, about 90% of our sales in China were sold to Chinese export agents, who resell the Company’s products to North America, Europe, and other regions.

Recent Development Activities

On February 1, 2013, our wholly owned subsidiary,joint venture agreement (the “JV Agreement”) entered into between Kandi Vehicles signed a cooperation framework agreement withand Shanghai Maple Guorun Automobile Co., Ltd. (“Shanghai Maple”), a 99% owned subsidiary of Geely Automobile Holdings Ltd.(“Geely Auto” (“Geely”), to establish a joint venture company, namedthe parties established Zhejiang Kandi Electric Vehicles Investment Co,Co., Ltd. (the “JV Company”). in connection with developing, manufacturing and selling electrical vehicles (“EVs”) and related auto parts. Each of Kandi Vehicles and Shanghai Maple has a 50% ownership interest in the JV Company. The strategic purpose of the JV Company is to engage inincrease the investment, researchdevelopment and development, production, marketinguse of neighborhood electric vehicles, which that parties believe address a growing and salesnecessary market, particularly considering their relatively low price and the notorious street congestion and pollution of electronic vehicles in China. Geely Auto is one of theChina's largest and most well-known automobile manufacturers in China. Pursuant to the terms of the framework agreement, the JV Company will be owned 50% by Shanghai Maple and 50% by Kandi Vehicles. The registered capital of the JV Company will be RMB1,000,000,000, with 50% to be contributed by each party. Upon the establishment of the JV Company, the JV Company will acquire certain assets from Kandi and Geely Auto in order for the JV Company to process the necessary properties, assets and technologies to conduct the EV business.cities

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On February 27,2013,In March 2013, Kandi Vehicles entered into an Assets Purchase Agreement (the “Purchase Agreement”) with Zhejiang New Energy Vehicle System Co., Ltd., a limited liability company in China (“New Energy”). The Purchase Agreement finalized the arrangements the Company negotiated in 2012 for the purchase by Kandi Vehicles of certain electric vehicle (“EV”) operating assets of New Energy, including a pressing assembly line, a welding assembly line, a coating assembly line, a general assembly line and related equipment, facilities, building and land use rights (the “Purchased Assets”) for a total cash price of RMB 272,767,553 (approximately $43,296,437). The price was based upon a third-party appraisal prepared by Jinhua Jinehen Assets Appraisal Co., Ltd. In connection with the initiation of exclusive negotiations with New Energy and pursuant to a letter of intent (“LOI”) between the parties on November 20, 2012, the Company, as of December 31, 2012, delivered RMB 154,100,000 (approximately $24,397967) as a refundable deposit. Pursuant to the LOI, the deposit was to be applied to the purchase price and to be returned to Kandi Vehicles within 5 days upon the termination of negotiations if the parties could not reach a final agreement. Pursuant to the Purchase Agreement, the remainder of the purchase price will be delivered within one month of the completion of the transfer by New Energy of titles to and ownership of the Purchased Assets. Under the Purchase Agreement, New Energy is to complete the transfer of ownership and title (for the land, land use rights and operating and other assets) within three months of the signing of the Purchase Agreement. The Purchase Agreement contains customary representations and warranties and pre- and post-closing covenants of each party. Breaches of the representations and warranties are subject to customary indemnification provisions.

On March 13, 2013, the Company's wholly owned subsidiary, Kandi Vehicles, establishedformed Kandi Electric Vehicles (Changxing) Co., Ltd. ('Kandi Changxing'(“Kandi Changxing”) in the Changxing (National) Economic and Technological Development Zone to meetZone. Kandi Changxing specializes in the requirementsproduction of the previously announced cooperationEVs. In fourth quarter of 2013, Kandi Vehicle entered into an ownership transfer agreement with Geely Auto.JV Company to transfer 100% ownership to Kandi Changxing to the JV Company. The newly established company is a wholly ownedCompany, indirectly, through its wholly-owned subsidiary, of Kandi Vehicles, that will specializehas a 50% ownership interest in EV production. Kandi Changxing has beenChangxing.

In April 2013, Kandi Electric Vehicles (Wanning) Co., Ltd. (“Kandi Wanning”) was formed with the assets acquired by Kandi Vehicles in connection with its recent purchase from Zhejiangand Jinhua Kandi New Energy Vehicle SystemsVehicles Co., Ltd., as well as certain molds and properties originally owned by (“Kandi Vehicles. Kandi Changxing is expected to begin production on March 29, 2013.

As set forth on the Company’s Current Report on Form 8-K, filed March 25, 2013, on March 22, 2013,New Energy”) in Wanning City of Hainan Province. Kandi Vehicles entered intohas a 90% ownership in Kandi Wanning, and Kandi New Energy has the Joint Venture Agreementremaining 10% interest. However, Kandi Vehicles is, effectively, entitled to 100% of Establishmentthe economic benefits, voting rights and residual interests (100% profits and loss absorption rate) of Kandi Wanning, since it is entitled to 100% of the economic benefits, voting rights and residual interests (100% profits and loss absorption rate) of Kandi New Energy.

In July 2013, Zhejiang ZuoZhongYou Electric Vehicle Service Co., Ltd. (the “Service Company”) was formed The JV Company has a 19% ownership interest in the Service Company. The Company, indirectly, through its wholly-owned subsidiary, Kandi Vehicles, has a 9.5% ownership interest in the Service Company.

In November 2013, Zhejiang Kandi Electric Vehicles Jinhua Co., Ltd. (“Kandi Jinhua”) was formed by the JV Company. The JV Company has 100% ownership interest in Kandi Jinhua, and the Company, indirectly, through its wholly-owned subsidiary, Kandi Vehicles, has a 50% ownership interest in Kandi Jinhua.

In November 2013, Zhejiang JiHeKang Electric Vehicle Sales Co., Ltd. (“JiHeKang”) was formed by the JV Company. The JV Company has 100% ownership interest in JiHeKang, and the Company, indirectly, through its wholly-owned subsidiary, Kandi Vehicles, has a 50% ownership interest in JiHeKang.

In December 2013, the JV Company entered into an ownership transfer agreement with Shanghai Maple Guorun Automobilein connection with acquiring 100% ownership of Kandi Electric Vehicles (Shanghai) Co., Ltd. (“Kandi Shanghai”). Kandi Shanghai is a wholly-owned subsidiary of the JV Company, and the Company, indirectly, through its 50% ownership interest in the JV Company owns 50% of Kandi Shanghai.

Our Vehicles and Products

General

Kandi's products include EVs, off-road vehicles (which include ATVs, utility vehicles (“UTVs”), and go-karts), motorcycles etc. According to our market research on consumer demand trends, the Company has adjusted its production line strategically and continues to develop and manufacture new products in an effort to meet market demands and better serve its customers.

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Off-Road Vehicles

In 2013, our ATVs experienced an increase in revenue of $4,005,105 or 62.6%, a 99% owned subsidiary26.5% increase in unit sales, and a 28.5% increase in the average unit price compared to fiscal year 2012. The increase in revenue was primarily attributable to the fact that market condition for ATV products continued to recover and the increase in the average unit price is because a higher percentage of Geely Automobile Holdings Ltd. whichhigh-end and middle-end products were sold in 2013.

In 2013, our go-karts experienced an increase in revenue of $2,393,462, or 7.8%, a 5.7% increase in unit sales, and a 1.9% increase in the average unit price compared to fiscal year 2012. The increase in revenue was mainly attributable to the relatively stable growth in go-karts sales. The Company manufactures both high-end, more expensive go-kart products and less expensive go-kart products to meet customers' various needs. The Company manufactures go-kart products at a range of prices to meet the various needs and budgets of our diverse customer base.

In 2013, our utility vehicles (“UTVs”) experienced an increase in revenue of $836,207 or 262.1%, a 373.1% increase in unit sales, and a 23.5% decrease in the average unit price compared to fiscal year 2012. The increase in revenue was mainly attributable to the increase of UTV orders. The decrease in the average unit price was due to the fact that cheaper model UTVs took a higher percentage of sales in year 2013.

EV Products

In 2013, our EV products experienced an increase in revenue of $27,584,267 or 144.9%, a 19.9% increase in unit sales, and a 104.3% increase in the average unit price compared to fiscal year 2012. In the fourth quarter, the EV revenues increased $26,382,915, or 193.7% compared to the same period of 2012. The unit sales grew by 27.2% and the average unit price increased by 130.9% . The significant increase was mainly attributable tothe newly added EV models –Kandi Brand SMA7000BEV, a five-door & five-seat vehicle and SMA7001BEV, an improved model of electric vehicle, were both sold at a higher price. The increasing sales were driven by Hangzhou Public EV Sharing System (the “Car share” Project). Thanks to the renewal of national subsidy policy in September of 2013, most of our EV sales occurred in the fourth quarter. We believe that sales in the first three quarters were negatively affected by the delay of the subsidy policy.

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Motorcycles

In 2013, our TT experienced a decrease in revenue of $889,138 or 69.9%, a 77.1% decrease in unit sales, and a 31.5% increase in the average unit price compared to fiscal year 2012. The decrease was primarily attributable to the change in the product structure. There were less TTs manufactured and we may decrease or stop manufacturing such products. The increase in the average unit price in 2013 was due to the fact that a higher percentage of TTs sold were more expensive models.

Refitted Car

In 2013, our refitted car experienced a decrease in revenue of $2,114,322, or 66.6%, a decrease of 66.1% in unit sales and a 1.7% decrease in the average unit price compared to fiscal year 2012. The decrease in revenue was mainly because the Company decided to discontinue this business during the third quarter of 2013 and focus its efforts on increasing its electric vehicles revenue in the Chinese market. “Refitted Car” is listeda term used by the Company to describe a line of business, where the Company modifies (refits) vehicles manufactured by unrelated, other companies to meet the special requirements of our customers. For example, the Company may make exterior changes, refit AMWS, or install nonstandard features, including, but not limited to, a rearview camera, TPMS, drive recorder, anti-theft device, reversing radar and DVD player.

Auto generator

In 2013, our auto generator experienced a decrease in revenue of $1,793,206 or 51.0%, a 45.0% decrease in unit sales and a 10.8% decrease in the average unit price compared to fiscal year 2012. The decrease in revenue was due to the adjustment in Yongkang Scrou's product offering from a manufacturer of auto alternators to a wide range of main products, such as driving motor, air-conditioning and controller for electric vehicles now. Yongkang Scrou provides these products for use with Hong Kong Exchangesour vehicles. Sales in connection with providing these products to our vehicles are categorized as inter-company transactions and Clearing Limited.have been eliminated in consolidation.

The following table shows the breakdown of Kandi's revenues from its customers by geographic markets:

The majority of our legacy products were sold to Chinese export agents, who resell the Company's products to North America, Europe, and other regions.

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Recent Development Activities

As disclosed on a Form 8-K, filed January 16, 2014, the Company entered into warrant subscription agreements (the “Subscription Agreements”) with certain institutional investors (the “Investors”). Pursuant to the Subscription Agreements, the Company issued and sold to the Investors private placement warrants to purchase an aggregate of 1,429,393 shares of the Company's common stock at an exercise price equal to $15.00 (the “Private Warrants”) for a total purchase price of approximately $14,294. Because this transaction was a private placement made in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act, neither the Private Warrants nor the underlying shares of common stock issuable upon the exercise of the Private Warrants have been registered under the Securities Act, and neither may be offered or sold in the United States absent registration or an applicable exemption from registration.

Immediately prior to entering into the Subscription Agreements, the Investors exercised then outstanding Series A Warrants and Series C Warrants (the “Registered Warrants”) that were issued to the Investors by the Company in connection with a direct registered offering that, as reported on a Form 8-K, filed on June 26, 2013, were entered into on June 26, 2013 (the “Registered Offering”). As a result of such exercise, the Investors purchased an aggregate of: (i) 1,750,415 shares of our common stock at an exercise price of $7.24 per share (pursuant to the Series A Warrants) and (ii) 291,574 shares of our common stock at an exercise price of $8.69 per share (pursuant to the Series C Warrants). On January 3, 2014, and, January 6, 2014, respectively, the Investors exercised all of the Series B Warrants issued to them in the Registered Offering, and, as a result of such exercise, purchased a total of 728,936 shares of common stock at an exercise price of $7.24 per share.

During January to March of 2014, the President of the Company Mr. Hu Xiaoming accepted special interviews respectively from multiple news organizations such as China Central Televsion (CCTV), the Xinhua News Agency, Agence France Press(AFP), Associated Press (AP) etc. to introduce them the business model- Mini-Public Transportation Pure EVs Program and the progress updates.

During January to March of 2014, the Company hosted respectively the researches on Hangzhou Mini-Public Transportation EVs Program from more than 60 fund anyalists both domestic and abroad from JP Morgan Securities, Schroders Equity Research, Morgan Stanley, China Merchants Securites, Shenyin & Wanguo Securities and so on.

During Janurary to March of 2014, the Company also received a visiting delegation , consisting of local leaders from more than 20 new energy vehicle pilot cities in China, who came to examine and learn Hangzhou Mini-Public Transportation Pure EVs Program.

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Sales and Distribution

Kandi’s sales are made through the Company’s own sales force and trading companies, which distribute Kandi’sThe Company sells its products to localexporters (from China), to importers (including U.S. importers) and internationalto distributors or dealers or our business partners (in China); the Company does not sell its products to retail (or end-user) customers. Independent third-party intermediaries distribute and resell our products on terms and conditions determined in their sole discretion. For example, the products exported to the U.S. market are sold to our U.S. importers. This model is used for all of our products, including the Semi Knocked Down (“SKD”) sets sold in our domestic market. SKD sets are complete sets of the main parts that can be assembled into whole vehicles. The SKD sets we sell are very close to the final whole vehicles, so we categorize them as vehicle products. The Company sells SKD sets to our regional partners (manufacturers or dealers), who then assemble, customize and resell the cars.

The terms of the products that we sell to our U.S. importers are similar to those for products that we export to other countries and regions where we sell to the independent intermediary companies. The re-sale terms of these products are determined by the intermediary companies and U.S. importers.

Customers

As of December 31, 2013, our major customers, in the aggregate, accounted for 78% and 91%, respectively, of our sales and accounts receivable. Currently, the Company is developing new business partners and clients for our legacy products to reduce our dependence on existing customers. New business development efforts, combined with our strategic focus on our Pure Electric Vehicles business, which includes a Pure Electric Vehicles Mini Public Transportation Program that has exhibited promising growth potential, should, hopefully, reduce our dependence on our legacy products and our current major customers.

The Company's major customers, each of whom accounted for more than 10% of our consolidated revenue, were as follows:

During fiscal year ended December 31, 2013, the Company sold products to Kandi USA Inc. carrying trade name of Eliteway Motorsports (“Eliteway”) amounting to $6,906,807 (2012:$5,297,548). At the fiscal year ended 2013, outstanding receivable due from Eliteway was $2,800,958 (2012: $2,678,349).

Mr. Hu Wangyuan was the sole shareholder and officer of Eliteway which served as a US importer of the Company's products. Mr. Hu Wangyuan is the adult son of the Company's chairman and Chief Executive Officer, Mr. Hu Xiaoming. As of and for the year ended December 31, 2013, Eliteway and Mr. Hu Wangyuan were financially independent from the Company. The transactions between the Company and Eliteway were carried at arm's-length without preferential terms comparing with other customers at the comparative order size or volume.

Sources of Supply

Kandi manufacturesAll the raw materials are purchased from the suppliers. The major componentsparts of its vehiclesour products are mainly manufactured by itself.Kandi. Other components and parts that are needed are purchased from expertise suppliers and specialized manufacturers.third-party suppliers. Kandi does not have, and does not anticipate having, any difficulty in obtaining its required materials from suppliers; inits suppliers. In reaching this determination, we considered our current contracts and our current satisfactory business relationshiprelationships with our suppliers.

Competition10

The global off-road vehicle market and new EV market are both highly competitive. Competition in such markets is based upon a numberCompany's material suppliers, each of factors, including price, quality, reliability, styling, product features and warranties. With respect to the Chinese domestic pure EV industry, manywhom accounted for more than 10% of our total purchases, were as follows:

Competitors

Despite the fact that we have other competitors, some of whom are larger and have greater financial and marketing resources that are substantially greater than Kandi; however, we do, we continue to believe that we are one of the industry leaders.leaders with respect to the Chinese pure EV industry.

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Employees

As of December 31, 2012,2013, excluding the contractors and employees in the JV Company, Kandi had a total of 516 full time430 full-time employees. None of our employees are represented by any collective bargaining agreements.

Pure Electric Vehicles Subsidies

Currently, there are two subsidies from central and local governments for the pure electric vehicles (the “EVs”) in China – one from each of the central and local governments. The ultimate beneficiary for these subsidies is the consumer and the actual prices that consumers pay reflect the deduction of both subsidies.

a) The central government provides a subsidy to manufacturers paid in advance quarterly upon application and approval and settled annually. After selling product to dealers, manufacturers can submit subsidy payment applications with invoices and other supporting documents at the end of each quarter to the requisite central government agencies through their regional offices. After the review and approval by the agencies, the central government makes advance subsidy payments to the manufacturers. At the end of the year, the final subsidy amounts are verified, reconciled according to the number of vehicles actually sold to consumers and settled on an annual basis.

b) Pursuant to the requirement of the central government, the local governments provide a subsidy to consumers who purchase EVs by a price reduction from the dealer. After the consumer purchases an EV at a reduced selling price from the dealer, the dealer submits a subsidy application to the local government, including a consumer authorization letter for subsidy application, consumer personal I.D., EV Vehicle License, EV purchase invoice and other required documents and requests reimbursement (to the dealer) for the local government subsidy.

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Environmental and Safety Regulation

Emissions

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

Kandi’s motorcycles are also subject to EPA and CARB emission standards. Kandi believes that its motorcyclesAll Kandi's products comply with these standards. CARB regulations, adopted by the EPA in January 2004, required additional motorcycle emission reductions in model year 2008, which the Company met.

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

Kandi believes that its off-road vehicles and super-mini-cars comply with applicable emission standards and related regulations inChina Environmental Protection Agency, the United States and internationally. Kandi isinternationally, the California Air Resources Board (“CARB”), Europe and Canada. However, we are unable to predict the ultimate impact of standards and regulations adopted in the future or proposed regulations on Kandi and its business.

Use regulation

The sale and use of products must be subject to the "Traffic Law" and relevant laws & regulations in China. National, State, and federal laws and regulations have been promulgated, or are under consideration, relating tothat impact the use or manner of use of Kandi’sKandi's products. SomeCertain states and localitieslocal authorities have adopted, or are considering the adoption of, legislation and local ordinances which restrict the use of ATVs and off-road vehicles to specified hours and locations. The federal government also has restricted the use of ATVs and off-road vehicles in some national parks and federal lands. In several instances, thisthe restriction has been a complete ban on the recreational use of these vehicles. Kandi is unable to predict the outcome of such actions or the possible effect on its business. Kandi believes that its business would be no more adversely affected than those of its competitors by the adoption of any such pending laws or regulations.

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Product Safety and Regulation

Safety Regulation

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

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

Kandi’s12

Kandi's motorcycles are subject to federal vehicle safety standards administered by NHTSA. Kandi’sKandi's motorcycles are also subject to various state vehicle safety standards. Kandi believes that its motorcycles comply with safety standards relevantapplicable to motorcycles.

Kandi’sKandi's products are also subject to international safety standards related to safety in places where it sells its products outside the United States. Kandi believes that its motorcycles and super-mini-carsEVs comply with applicable safety standards in the United States and internationally.

Principal Executive Offices

Our principal executive office is located in the Jinhua City Industrial Zone in Jinhua, Zhejiang Province, PRC, 321016 and our telephone number (86-579) 82239856.

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Item 1A. Risk Factors.

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this annual report on Form 10-KAnnual Report that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

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Risks Relating to Our Overall Business Operations

We may not be able to comply with all applicable government regulations.

We are subject to extensive governmental regulation by the central, regional and local authorities in the PRC, where our business operations take place. We believe that we are currently in substantial compliance with all laws and governmental regulations and that we have all material permits and licenses required for our operations. Nevertheless, we cannot assure investors that we will continue to be in substantial compliance with current laws and regulations, or that we will be able to comply with any future laws and regulations. To the extent that new regulations are adopted, we willmay be required to conform our activities in order to comply with such regulations. Failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, operations and finances.

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

Our business operations generate noise, waste water, and gaseous byproduct and other industrial wastes.waste. We are required to comply with all national and local regulations regarding protection of the environment. We are in compliance with current environmental protection requirements and have all necessary environmental permits to conduct our business. However, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. Additionally, if we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of, or to adequately restrict adequately the unauthorized discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions to our business operations. Certain laws, ordinances and regulations could limit our ability to develop, use, or sell our products.

Our business depends substantially on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose their services.

Our future success depends substantially on the continued services of our executive officers, especially our CEO and Chairman of the Board of Directors, Mr. Hu Xiaoming. We do not maintain key man life insurance on any of our executive officers. Although this possibility is low, ifIf any of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executivesexecutive officers joins a competitor or forms a competing company, we may lose some of our customers.

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

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

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

As disclosed in a numberIn recent years, the economy of areas, including Item 3 of this Form 10-K, there are two lawsuits currently pending in state court in Ripley County, Missouri against the Company and its subsidiary, Kandi Vehicles, as well as other third parties, in connection with the death of two individuals who died on March 3, 2006, while operating a go-cart that was allegedly manufactured by Kandi Vehicles. The Company intends to defend these cases vigorously and expects to prevail in this lawsuit since neither the Company nor its subsidiaries manufactured the subject vehicleChina has experienced unprecedented growth. This growth has slowed in the accident; however,last year, and if the Company does not prevail,growth of the economy continues to slow or resolve this lawsuit favorably, these lawsuitsif the economy contracts, our financial condition may be materially and adversely affected.

The rapid growth of the PRC economy has historically resulted in widespread growth opportunities in industries across China. As a result of the global financial crisis and the inability of enterprises to gain comparable access to the same amounts of capital available in past years, there may be an adverse effect on the business climate and growth of private enterprise in the PRC. An economic slowdown could have a materialan adverse effect on our results of operations.sales and may increase our costs. Further, if economic growth slows, and if, in conjunction, inflation is allowed to proceed unchecked, our costs would likely increase, and there can be no assurance that we would be able to increase our prices to an extent that would offset the increase in our expenses.

General economic conditions may negatively impact our results.

The consumption of entertainment products, such as go-karts, and super-mini-cars depends on continued economic growth. Due to the European Debt Crisis and the slow global economy, the uncertainty of the current economic environment remains. Moderate or severe economic downturns or adverse conditions may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions. AIn addition, a tightening of the labor markets in one or moreour geographic regionsregion may result in fewer qualified applicants for job openings in our facilities. HigherFurther, higher wages, related labor costs and other increasing cost trends may negatively impact our results.

Government policies may negatively affect our resultresults.

The Company’sCurrently, the Company's EV products currently are mainly sold to in the Chinese domestic market, and the EV industry is supported by the Chinese central and local governments. Therefore, our EV productsproducts' performance is significantly affected by the policies adopted by Chinese central and local governments.governmental authorities in China. Any significant adverse changes in the Chinese governments’government's supporting policies may negatively affect our results.

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The audit report included in this annual reportAnnual Report was prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as a result, you are deprived of the benefits of such inspection

The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the "PCAOB"“PCAOB”, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in Hong Kong,the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditors are not currently inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside the USChina have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lackThe inability of the PCAOB to conduct inspections in China and Hong Kong prevents the PCAOB from regularly evaluating our auditor's statements, audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

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The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control and audit procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

We face risks related to the ongoing SEC investigation

In November 2013, the SEC Denver office informed the Company that it was conducting an investigation of the Company and made a request for the production of documents and information. The Company is cooperating fully with the SEC in this matter. The Company is unable to predict what action, if any, might be taken in the future by the SEC as a result of the matters that are the subject of the investigation or what impact, if any, the cost of responding to the investigation might have on the Company's financial condition or results of operations. A protracted investigation could impose substantial costs and distractions, regardless of its outcome. There can be no assurance that any final resolution of this investigation will not have a material and adverse effect on the Company's financial condition and results of operations.

Risks Relating to Our Vehicle Machinery Production Operations

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

Through our machinery production operations, we may be subject to claims of product defects and/or product liability arising in the ordinary course of business. These claims are common to the machinery production industry and can be costly.

With respect to certain general liability exposures, including manufacturing defect and product liability, interpretation of underlying current and future trends, assessment of claims and the related liability and reserve estimation process is highly subjective due to the complex nature of these exposures, with each exposure exhibiting unique circumstances. Furthermore, once claims are asserted for constructionmanufacturing defects, it is difficult to determine the extent to which the assertion of these claims will expand geographically. We may not have sufficient funds available to cover any or all liability for damages, the cost of repairs, and/or the expense of litigation surrounding such claims, and future claims may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors.

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The vehicle machinery industry is highly competitive, and we are subject to risks relating to competition that may adversely affect our performance.

The vehicle machinery industry is highly competitive, and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors, some of which have significantly greater financial, marketing and other resources than we have. Competition may reduceaffect our pricing structures, potentially causing us to lower our prices, which may adversely impact our profits. New or existing competition that uses a business model that is different from our business model may put pressure on us to change our model so that we can remain competitive.

Our high concentration of sales to relatively few customers may result in significant uncollectible accounts receivable exposure, which may adversely impact our liquidity, business, results of operations and financial condition.

As of December 31, 2012,2013, our top five customers, in the aggregate, accounted for 83%78% and 86%91%, respectively, of our sales and accounts receivable. Due to the concentration of sales to relatively few customers, we face credit exposure from our customers and may experience uncollectible receivables fromloss of one or more of these customers should they face financial difficulties. If these customers fail to pay their accounts receivable, file for bankruptcy or significantly reduce their purchases of our programming, it wouldwill have an adverse effectrelatively high impact on our business, financial condition, results of operations, and liquidity.operational results.

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The Company’s major customers for the year ended December 31, 2012 accounted for the following percentages of total sales and accounts receivable as follows:

Our business is subject to the risk of supplier concentrations.

We depend on a limited number of suppliers for the sourcing of major components and parts and principal raw materials. As ofFor the years ended December 31, 2013 and 2012, and 2011, one supplierthe top two suppliers accounted for 32%65% and 61%58% of our purchases, respectively. As a result of this concentration in our supply chain, our business and operations would be negatively affected if any of our key suppliers were to experience significant disruption affecting the price, quality, availability or timely delivery of their products. The partial or complete loss of these suppliers, or a significant adverse change in our relationship with any of these suppliers, could result in lost revenue, added costs and distribution delays that could harm our business and customer relationships. In addition, concentration in our supply chain can exacerbate our exposure to risks associated with the termination by key suppliers of our distribution agreements or any adverse change in the terms of such agreements, which could have a negative impact on our revenues and profitability.

The Company’s major suppliers for the twelve months ended December 31, 2012 accounted for the following percentage of total purchases and accounts payable as follows:

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Risks Related to Doing Business in China

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

Since our business operations are primarily located in China, our business operations and financial position are subject, to a significant degree, to the economic, political and legal developments in China.

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While the Chinese government has not halted its economic reform policy since 1978, any significant adverse changes in the social, political and economic conditions of China may fundamentally impact China’sChina's economic reform policies, and thus the Company’sCompany's operations and profits may be adversely affected.

ChangeChanges in tax laws and regulations in China may affect our business operations.

Various tax reform policies have been implemented in the PRC in recent years. However, there can be no assurance that the existing tax laws and regulations will not be revised or amended in the future.

Uncertainties with respect to the Chinese legal system could have a material adverse effect on us and may restrict the level of legal protections to foreign investors.

China’sChina's legal system is based on statutory law. Unlike the common law system, statutory law is based primarily on written statutes. Previous court decisions may be cited as persuasive authority but do not have a binding effect. Since 1979, the PRC government has been promulgating and amending the laws and regulations regarding economic matters, such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, since these laws and regulations are relatively new, and the PRC legal system continues to rapidly evolve, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us.

In addition, any litigation in China may be protracted and may result in substantial costs and diversion of resources and management’smanagement's attention. The legal system in China cannot provide investors with the same level of protection as in the U.S. The Company is governed by the lawlaws and regulations generally applicable to local enterprises in China. Many of these laws and regulations were recently introduced and remain experimental in nature and subject to changes and refinements. Interpretation, implementation and enforcement of the existing laws and regulations can be uncertain and unpredictable and therefore may restrict the legal protections ofavailable to foreign investors.

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

Renminbi (“RMB”) is still not a freely exchangeable currency. Since 1998, the State Administration of Foreign Exchange of China has promulgated a series of circulars and rules in order to enhance verification of foreign exchange payments under a Chinese entity’sentity's current account items, and has imposed strict requirements on borrowing and repayments of foreign exchange debts from and to foreign creditors under the capital account items and on the creation of foreign security in favor of foreign creditors.

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

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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions based on United States or other foreign laws against us, our management or the experts named in the prospectus.

We conduct substantially all of our operations in China and substantiallyalmost all of our assets are located in China. In addition, almost all of our senior executive officers reside in China. As a result, it may not be possible to effect service of process on our senior executive officers within the United States or elsewhere outside China, upon our senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our PRC counsel has advised us that the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.court orders and final judgments.

Risks Relating to Ownership of Our Securities

Our stock price may be volatile, which may result in losses to our shareholders.

The stock markets have experienced significant price and trading volume fluctuations, and the market prices and trading volumes of companies listed on the NASDAQ CapitalGlobal Market and the NASDAQ Global Select Market have been volatile in the past and have experienced sharp share price and trading volume changes.volatile. Although our stock iswas listed on the NASDAQ Global Market and upgraded to the NASDAQ Global Select Market on January 2, 2014, the trading price of our common stock is likely to be volatile and could fluctuate widelysignificantly in response to many factors, including the following, some of which are beyond our control:

• variations in our operating results;

• changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

• changes in operating and stock price performance of other companies in our industry;

• additions or departures of key personnel; and

• future sales of our common stock.

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Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.

Mr. Hu, our CEO, President and Chairman of our Board of Directors is the beneficial owner of a substantial portion of our outstanding common stock, which may enable Mr. Hu to exert significant influence on corporate actions.

Excelvantage Group Limited controls approximately 37.9%32.4% of our outstanding shares of common stock as of December 31, 2012.2013. On March 29, 2010, Hu Xiaoming, the Company’sCompany's Chief Executive Officer, President and Chairman of the Board of Directors, became the sole stockholder of Excelvantage Group Limited. Excelvantage Group Limited has a substantial impact on matters requiring the vote of theour shareholders, including the election of our directors and most corporate actions. This control could delay, defer or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our other shareholders and the Company. This control could adversely affect the voting and other rights of our other shareholders and could depress the market price of our common stock.

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Our common shares may become thinly traded and you may be unable to sell your shares readilyreadily.

We cannot predict the extent to which an active public market for trading our common stock will be sustained. Although our trading volume has increased gradually in recent years, our stock has historically been sporadic or “thinly-traded,” meaning that the number of persons interested in purchasing our common shares at any given time may be relatively small.

This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume. Even if we came to the attention of such persons, those persons tend to be risk-averse and may be reluctant to follow, purchase, or recommend the purchase of shares of an unprovenunseasoned company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

The market price for our common stock is particularly volatile given our status as a relatively small company, which could lead to widesignificant fluctuations in our share price. You may be unable to sell your common stock, if at all, at or above your purchase price, if at all, which may result in substantial losses to you.

Substantial exercise of warrants could adversely affect our stock price or our ability to raise additional financing in the public capital markets.

As of December 31, 2012, there were 2,274,851 shares of warrants outstanding. If the warrant holders exercise the warrants and sell a substantial number of shares of our Common Stock in the future, or if investors perceive that these sales may occur, the market price of our Common Stock could decline or market demand for our Common Stock could be sharply reduced. The exercise of warrants and subsequent sale of a substantial number of shares of our Common Stock could also adversely affect demand for, and the market price of, our Common Stock. Each of these transactions could adversely affect our ability to raise additional financing by issuing equity or equity-based securities in the public capital markets. As of the filing date of this Form 10-K, the number warrant shares outstanding as of December 31, 2012 (2,274,851) has been reduced, as a result of expiration or exercises to 1,210,912.

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We do not anticipate paying any cash dividends to our common shareholders.

We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings after paying the interest for the preferred stock, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.

Fluctuation in the value of the RMB may have a material adverse effect on your investment.

The change in value of the RMB against the U.S. dollar, the Euro and other currencies is affected by changes in China’sChina's political and economic conditions, among other things. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. As a portion of our costs and expenses is denominated in RMB, the revaluation in July 2005 and potential future revaluation has and could further increase our costs. In addition, any significant revaluation of the RMB may have a material adverse effect on our financial condition. For example, to the extent that we need to convert U.S. dollars we receive from financings into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

We may be unable to maintain compliance with NASDAQ Marketplace Rules which could cause our common stock to be delisted from the NASDAQ Global Market. This could result in the lack of a market for our common stock, cause a decrease in the value of our common stock, and adversely affect our business, financial condition and results of operations.

Under the NASDAQ Marketplace Rules our common stock must maintain a minimum price of $1.00 per share for continued inclusion on the NASDAQ Global Market. We cannot guarantee that our stock price will remain at or above $1.00 per share and if the price again drops below $1.00 per share, the stock could become subject to delisting. If our common stock is delisted, trading of the stock will most likely take place on an over-the-counter market established for unlisted securities. An investor is likely to find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors may not buy or sell our common stock due to difficulty in accessing over-the-counter markets, or due to policies preventing them from trading in securities not listed on a national exchange or other reasons. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations by limiting our ability to attract and retain qualified executives and employees and limiting our ability to raise capital.

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Volatility in Our Common Share Price May Subject Usour common stock share price may subject us to Securities Litigation.securities litigation.

The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’smanagement's attention and resources.

The Eliminationlimitation of Monetary Liability Againstmonetary liability against our Directors, Officersdirectors, officers and Employeesemployees under Delaware law and the Existenceexistence of Indemnification Rightsstatutory indemnification rights of our Directors, Officersdirectors, officers and Employees May Resultemployees may result in Substantial Expendituressubstantial expenditures by our Company and may Discourage Lawsuits Againstdiscourage lawsuits against our Directors, Officersdirectors, officers and Employees.employees.

Our articles of incorporation do not contain any specific provisions that eliminatelimit the liability of our directors for monetary damages to our companyCompany and shareholders; however, we are prepared to give such indemnification toindemnify our directors and officers to the extent provided for by Delaware law. We may also have include contractual indemnification obligations underin our employment agreements with our officers. The foregoing indemnification obligations could result in our companythe Company incurring substantial expenditures to cover the cost of settlement or damage awards against its directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our companyCompany from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our companyCompany and shareholders.

We may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our shareholders.

In the future, we may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available, if at all, in amounts or on terms acceptable to us, if at all.us.

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

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

Item 1B. Unresolved Staff Comments.

Not applicable.

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Item 2. Properties.

All land in the PRC is owned by the government and its ownership cannot be sold or transferred by or to any individual or private entity. Instead, the government grants or allocates landholders a “land use right.” There are four methods to acquire land use rights:

• grant of the right to use land;

• assignment of the right to use land;

• lease of the right to use land; and

• allocated land use rights

rights.

In comparison with Western common law concepts, granted land use rights are similar to life estates and allocated land use rights are in some ways similar to leaseholds.

Granted land use rights are provided by the government in exchange for a grant fee and carry the rights to pledge, mortgage, lease, and transfer withinduring the term of the grant. Land is granted for a fixed term, -which is generally 70 years for residential use, 50 years for industrial use, and 40 years for commercial andor other use. The term is renewable in theory. Unlike the usual case in Western nations, grantedGranted land must be used for the specific purpose for which it was granted.

Allocated land use rights cannot be pledged, mortgaged, leased, or transferred. They are generally provided by the government for an indefinite period (usually to state-owned entities) and cannot be pledged, mortgaged, leased, or transferred by the user. Furthermore, allocated land can be reclaimed by the government at any time. Allocated land use rights may be converted into granted land use rights upon the payment of a grant fee to the government.

Kandi has the following granted land use rights:

Item 3. Legal Proceedings.

There are two lawsuits currently pending in state court inIn July 2013, Judge Michael M. Pritchett of the Circuit Court of Ripley County Missouri against the Company and its subsidiary, Kandi Vehicles as well as other third parties, Kandi Investment Group and SunL Group, in connection with the death of two individuals who died on March 3, 2006, while operating a go-cart that was allegedly manufactured by Kandi Vehicles. Kandi Investment Group was a major shareholder of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi Investment Group has been unrelated to the Company or its affiliates.

18

The cases were filed in 2009 and are identified as Elder vs. SunL Group and Griffen vs. SunL Group. In March 2010, the local trial court entered two default judgments, each in the amount of $20,000,000, against our subsidiary, Kandi Vehicles as well as other parties including Kandi Investment. A default judgment was not entered against the Company. The lawsuit and default judgments were not brought to the Company or Kandi Vehicles’ attention until May or June 2010; the Company was not served with the complaint or notified of the lawsuitsState of Missouri (the “Court”) entered final orders and only learned of their existence and of the default judgments in the coursefavor of commercial discussions with another of the defendants in the cases. The Company and Kandi Vehicles have filed answersand against plaintiffs Griffin and Elder, respectively, pursuant to the complaint denying any culpability. In addition,jury verdicts rendered in the Company requested that the court set aside the default judgments against Kandi Vehicles, a request granted, by the court, on February 28, 2011.following two cases: Griffin v. SunL Group, et al., and Elder v. SunL Group, et al. On March 3, 2011,October 31, 2013, the plaintiffs subsequently appealed the court order vacating the default judgments; however, the plaintiffs have since voluntarily withdrawn their appeal.

these decisions. The Company intends to defendcontinue its defense of these cases vigorouslythrough the appeals process and expects to prevail again in both cases.

23

The Company has been furnishing documents to the Denver Regional Office of the Securities and Exchange Commission in response to a document subpoena issued on November 21, 2013 regarding a matter known as In the Matter of Kandi Technologies Group, Inc. As indicated in the subpoena, the investigation is a fact-finding inquiry and does not mean that the Company or anyone has broken the law. The Company has cooperated, and is cooperating fully, with the SEC in this lawsuit sincematter and will continue to supply the SEC with whatever additional information and material that is requested. The Company including its subsidiaries did not manufacture the subject vehicle in the accident. This case is set for trial in July 2013.

At the present time, we believe that resolving the above matters willdoes not have any information, at present, as to the duration or outcome of this investigation. The Company does not anticipate a material adverse effect on our financial position, our results of operations, or our cash flows; however, these matters are subject to inherent uncertainties and our view of these matters may change in the future.negative result.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

OurOn January 2, 2014, our common stock began trading on the NASDAQ Capital Market on March 18, 2008, and on January 10, 2011, our common stock began trading on NASDAQ Global Select Market. The following are the high and low prices for our common stock for each quarter from January 1, 20102012 to December 31, 2012.2013.

Holders of Common Stock

As of December 31, 2012,March 11, 2014, there were 2319 shareholders of record of our common stock.

Dividends

We have never paid a dividend on our common stock. At present, we intend to retain any earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.

Item 6.Selected Financial Data.

Not applicable.

2025

Item 7.Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the CompanyOverview

Our core business is designing, developing, manufacturing and the notes thereto appearing elsewhere herein. Readers should carefully review the risk factors disclosed in this Form 10-Kcommercializing pure electric vehicles (“EVs”), all-terrain vehicles (“ATVs”), go-karts, three-wheeled motorcycles and other documents filed by the Company with the SEC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This section should be read together with the Summary of Significant Accounting Policiesspecialized vehicles. We conduct our business primarily through our wholly-owned subsidiaries that operate in the attached consolidated financial statements included in this report.

Estimates affecting accounts receivable and inventories

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

Accounts 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 relationChina and other factors. Accounts are written off after exhaustive efforts at collection. If accounts receivable areglobal markets, and most typically, we sell our non-EV products to be provided for, or written off, they would be recognizedChinese export agents who then resell our products in North America, Europe, and other regions.

During the consolidated statement of operations within operating expenses. Atyear ended December 31, 2012 and 2011, the Company has2013, we recognized total revenues of $94,536,045, an allowance for doubtful accountsincrease of $0 and $0 respectively, as per the management’s judgment based on their best knowledge.

Inventory is stated at the lower of cost, determined on a weighted average basis,$30,022,375, 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 was a $56,248 decline in net realizable value of inventory46.5%, over total revenues for the year ended of December 31, 2012. The majority of our revenues are generated by the sales of EV products, which account for 49% of the total revenue in 2013. The main reason of significant increase in revenue generated by EV business is becausethe newly added EV models –Kandi Brand SMA7000BEV, a five-door & five-seat vehicle and SMA7001BEV, an improved model of electric vehicle, were both sold at a higher price. In 2013, the Company recorded $21,742,528 gross profit, increased 68.6% from 2012, primarily due to the increase of revenue. However, we recorded a net loss in 2013, this is mainly because of the loss caused by the fair value change of financial instruments. After excluding the effects of fair value change of financial instruments and stock award, we still recorded a Non-GAAP net income, increased 23.9% compared to 2012.

The vehicle manufacturing industry is highly competitive. Current and future factors impacting our reserve for slow moving inventory.industry include: (i) the exponential growth of electrical vehicle sales and dedicated platforms in the global market place, (ii) the consolidation of supply chains and costs of components, (iii) rapid technology developments (including 3D printing technology) and (iv) emerging strategic partnerships and joint ventures in the automotive industry generally.

WhileOur business strategy includes our efforts to provide our customers with high-quality products and to expand our footprint in new and existing markets. As part of these efforts, we have invested in a joint venture company called Zhejiang Kandi Electric Vehicles Co., Ltd. (the “JV Company”), which develops, manufactures and sells EVs and related products. In December 2013, our EV business was recognized as producing the Company currently believes that there is little likelihood that actual results will differ materially from these current estimates, if customertop two model types of EVs in China. These EV model types have an impressive driving range of 150 kilometers or more, which entitles them to a higher rebate or subsidy than older models under Chinese policy. We are also advancing the profile and demand for our EV products decreases significantlythrough the EV sharing project. To further this initiative, we are working with our business partners to build a network of public EV sharing stations (for charging and parking) and partnering with high-end hotels in the near future, or ifHangzhou area of China to provide energy-efficient, convenient travel options for local citizens and tourists. We anticipate that our pure EV business in China, through operations of the financial conditionJV Company and the support of our customers deterioratesnew Chinese subsidy policies, will continue to develop and thrive in the near future, the Company could realize significant write downs for slow-moving inventories or uncollectible accounts receivable.future.

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Policy affecting recognitionResults of revenueOperations

Among the most important accounting policies affecting our consolidated financial statements is our policy of recognizing revenue. Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers, and are recognized when all of the following criteria are met:

Policy affecting options, warrants and convertible notes

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. There were no estimated forfeitures. ASC standards require 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 Company estimates the fair value of warrants that are classified as a liability 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. Warrants that are freestanding derivatives and classified as liabilities on the balance sheet are measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values recognized in expenses.

For those warrants that are not considered derivatives under ASC 815, the Company estimates that the fair value of equity based warrants 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.

In accordance with ASC 815, the conversion feature of the Convertible Notes is separated from the debt instrument and accounted for separately as a derivative instrument. On the date the Convertible Notes are issued, the conversion feature was recorded as a liability at its fair value, and future decreases in fair value are recognized in earnings while increases in fair values are recognized in expenses. The Company used the Black-Scholes-Merton option-pricing model to obtain the fair value of the conversion feature. 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 conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.

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RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

In July 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-02, Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles--Goodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not expect the adoption of 2012-02 to have a material effect on its operating results or financial position.

In August 2012, FASB issued Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections. This ASU amended various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics. The adoption of 2012-03 did not have a material effect on the Company’s operating results or financial position.

In October 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-04, Technical Corrections and Improvements. This ASU make technical corrections, clarifications, and limited-scope improvements to various Topics throughout the Codification. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013. The Company does not expect the adoption of 2012-02 to have a material effect on its operating results or financial position.

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Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

RESULTS OF OPERATIONS – YEAR ENDED DECEMBER 31, 2012 AS COMPARED TO YEAR ENDED DECEMBER 31, 2011

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the years ended December 31, 20122013 and 2011:2012:

For The Years Ended
December 31, 2013 and 2012

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Revenues

For the twelve monthsyear ended December 31, 2012,2013, our revenues increased by 60.6%46.5%, from $40,177,148 in 2011 to $64,513,670 in 2012 to $94,536,045 in 2013.

In 2013, our ATVs experienced an increase in revenue of $4,005,105 or 62.6%, a 26.5% increase in unit sales, and a 28.5% increase in the average unit price compared to fiscal year 2012. ThisThe increase in revenue was primarily dueattributable to a significant increase in sales of our EV products and included the Yongkang Scrou’s sales.

Off-Road Vehicles

Kandi produces a wide range of go-karts, from the 90cc class to the 1,000cc class in cylinder displacement. Kandi also produces four-wheeled ATVs and specialized UTVs, which are ATVs special-fitted for agricultural and industrial use. For clarification purposes, Kandi started mass production of its go-karts in 2006; in previous quarterly and annual reports, we inadvertently stated that the production of these go-karts started in 2003.

During the twelve months ended December 31, 2012, the market condition for ATV products, which continued to recover. The Company continued to developrecover and the increase in the average unit price competitiveis because a higher percentage of high-end and middle-end products to meet market demands, causing good results and successfully increasing the Company’s sales. Revenues fromwere sold in 2013.

In 2013, our ATVsgo-karts experienced an increase in revenue of $1,552,328$2,393,462, or 32% in fiscal year ended December 31, 2012 from the previous year; this increase is primarily attributable to7.8%, a 45.3%5.7% increase in unit sales, from 9,958 unitsand a 1.9% increase in the average unit price compared to fiscal year 20112012. The increase in revenue was mainly attributable to 14,467 unitsthe relative stable growth in 2012,go-karts sales. The Company manufactures both high-end, more expensive go-kart products and the effect of a 9.1% unit price reduction.less expensive go-kart products to meet customers' various needs.

In 2012,2013, our go-karts segmentutility vehicles (“UTVs”) experienced a significantan increase in revenue of $7,870,746,$836,207 or 34.3% from262.1%, a 373.1% increase in unit sales, and a 23.5% decrease in the average unit price compared to fiscal year 2011. This2012. The increase in revenue was mainly attributable to the increase of UTV orders. The decrease in the average unit price was due to the fact that cheaper model UTVs took a 34%higher percentage of sales in year 2013

EV Products

In 2013, our EV products experienced an increase in revenue of $27,584,267 or 144.9%, a 19.9% increase in unit sales, from 25,757 unitsand a 104.3% increase in 2011the average unit price compared to 34,517 units infiscal year 2012. In the fiscal year ended 2012,fourth quarter, the Company’s successful development of meet-market-demands products achieved good results and resulted in an increase unit sales.

Utility vehicles (UTVs) experienced a significant decrease in revenue from $2,696,106 to $319,014. This 88.2% decrease is due to a 92.2% drop in unit sales from 1,198 units in 2011 to 93 units in 2012. This significant decrease in sales is primarily attributable to high competition in this UTV market, and the fact that the UTVs manufactured by the Company are relatively high end and more expensive than comparable products offered by our competitors, which effected UTV’s sales significantlyEV revenues increased $26,382,915, or 193.7% compared to the same period of last year.

Super-Mini-Car EVs

2012. The EV products experienced a significant increase in revenues. For the fiscal year 2012, the revenues from our Super-mini car increased by $12,781,419 or 204.4% from $6,253,517 in year 2011 to $19,034,936 in year 2012, which was attributable to the significant increase in unit sales of 263.5% from 1,077 units in year 2011 to 3,915 units in year 2012. This increase is primarily a result of the benefit from local government’s policies which encourage the development of EVs. For the fiscal year 2012,grew by 27.2% and the average unit price increased by 130.9% . The significant increase was mainly attributable tothe newly added EV model –Kandi Brand SMA7000BEV, a five-door & five-seat vehicle and SMA7001BEV, an improved model of electric vehicle, are both sold at a much higher price. The increasing sales were driven by Hangzhou Public EV Sharing System (the “Carshare” Project). Thanks to the renewal of national subsidy policy in September of 2013, most of our Super-mini cars decreased 16.3%, due to a change adoptedEV sales occurred in the fourth quarter. We believe that sales in the first three quarters were negatively affected by the Company for mostdelay of the reporting period; the Company adopted the sales mode of charging or exchanging batteries and started selling EVs without batteries.subsidy policy.

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Motorcycles

Sales of three-wheeled motorcycle (TT)In 2013, our TT experienced a significant decrease in revenue from $1,592,770 in year 2011 to $1,272,898 in year 2012, despite an increaseof $889,138 or 69.9%, a 77.1% decrease in unit sales, from 782 unitsand a 31.5% increase in year 2011the average unit price compared to 1,060 units infiscal year 2012. This 20.1%The decrease was primarily attributable to the change in the product structure. There were less TTs manufactured and we may decrease or stop manufacturing such products. The increase in the average unit price in 2013 was because higher percentage of TTs sold were more expensive models.

Refitted Car

In 2013, our refitted car experienced a decrease in revenue of $2,114,322, or 66.6%, a decrease of 66.1% in unit sales and a 1.7% decrease in the average unit price compared to fiscal year 2012. The decrease in revenue was mainly attributable to an average unit price decrease of 41.0% . The average unit price decreased in year 2012 primarily because that the Company developed price-competitive gas-electric hybrid three wheeled motorcyclesdecided to discontinue this business during the third quarter of 2013 and focus its efforts on increasing its electric vehicles revenue in China market. “Refitted Car” is a term used by the Company to describe a line of business, where the Company modifies (refits) vehicles manufactured by unrelated, other companies to meet the growing demandspecial requirements of such units in the Chinese markets.

Refitted Car

our customers. For the fiscal year ended December 31, 2012, revenues from our refitted car increased by $1,311,756, or 70.5% from fiscal year of 2011. This was mainly attributed to the 64.3% increase in unit sales from 70 units in year 2011 to 115 units in year 2012. In addition,example, the Company refitted other companies’ vehiclesmay make exterior changes, refit AMWS, or install nonstandard features, including, but not limited to, meet special requirements for certain customers.a rearview camera, TPMS, drive recorder, anti-theft device, reversing radar and DVD player.

Auto generator

On April 25, 2012,In 2013, our auto generator experienced a decrease in revenue of $1,793,206 or 51.0%, a 45.0% decrease in unit sales and a 10.8% decrease in the Company acquiredaverage unit price compared to fiscal year 2012. The decrease in revenue was due to the adjustment in yongkang Scrou's product offering from a manufacturer of auto alternator to a wide range of main products, such as driving motor, air-conditioning system and controller for electric vehicles now. Yongkang Scrou Electric Co. (“Yongkang Scrou”), whose main business is producing various auto generators. From April 25, 2012provides these products for use with our vehicles; sales in connection with providing these products to December 31, 2012, a total of 93,881 sets of auto generators were sold with sales totaling $3,517,237our vehicles are categorized as inter-company transactions and have been eliminated in consolidation.

The following table listsshows the numberbreakdown of vehicles sold and sales revenue, categorizedKandi's revenues from its customers by vehicle type, within the twelve months ended December 31, 2012 and 2011:geographic markets:

1) Includes the products called CoCo and EV in 2011’s filing, and Super-mini-cars are all EVs for 2012.29

Cost of Goods Sold

Cost of goods sold during the year ended December 31, 20122013 was $51,620,280,$72,793,517, representing a 66.7%41.0% increase from $30,964,173$51,620,280 in 2011, which corresponds to2012. This was the result of an increase in our sales.

26However, sales increased by a higher percentage than related costs. Our sales had a 46.5% increase in 2013 compared to 2012; whereas our cost of goods sold only increased by 41.0% in 2013 compared to 2012. The main reasons that our costs increased by only 41.0% in 2013 compared to 2012 are as follows:

In consideration of the cost increase resulting from the increase of sales volume, the actual cost increase in 2013 is 5.5% less when compared to the increase in sales. This was the result of the following three factors:

1. In 2013, the cost of raw materials had a relatively slower increase, which is 5.7% less than the percentage of our sales increase in the same period of time, mainly because (i) the new products, especially our EV products were sold at higher price compared to 2012, therefore those products raw material costs had a relative low increase percentage compared to their sale increase; and (ii) the Company strengthened its cost control, reduced the waste of raw materials in manufacturing process.
   

2. With the labor cost increase in China, due to short supply and higher standard wages, our labor costs also increased. Total wages and salaries had a relatively higher increase of 0.3% in 2013, compared to the sale increase in the same period of time.
   

3. Our other overhead costs in 2013 had a relatively slower increase of 0.1% in 2013 compared to the sales increase in the same period of time, because some low value consumption goods, such as tools, which were acquired in previous years were still being used in 2013. The wear and tear costs for tools in the workshops booked in accounting increased in a slower pace compared to the pace of increase of our sale.

Gross Profit

Gross profits increased by $3,680,415,$8,849,138, or 39.9%68.6%, for the year ended December 31, 2012in 2013 as compared to the year ended December 31, 2011. This increase was primarily due to thea result of increased net sales. However,During 2013, the gross margin decreasedincreased from 22.9%20.0% in year 20112012 to 20%23.0% in year 2012.2013. This is mainly due to the fact that (i) the EV’s sales chain has many links, which affected the3% increase in our gross margin for EV products; (ii) processing techniques for refitted cares are relatively simple, therefore, its gross margin is comparatively lower; and (iii) Scrou’s adjustment to itsresulted mainly because in 2013 we adjusted our product structure its disposal of its oldand more high price products, and sales of price-competitive products.especially the EV products, are sold, while those high price products generally with higher gross margin.

SellingSales and Marketing

SellingSales and distribution expenses were $455,983$399,504 for fiscal year ended December 31, 2012,2013, as compared to $414,255$455,983 from the same period in 2011,2012, representing a 10.1% increase.12.4% decrease. This wasdecrease is primarily because an increaseattributable to a decrease in our sales caused related sellingexport and distribution expenses to increase.customs inspection fees during this reporting period.

General and Administrative

General and administrative expenses increased 22.9%277.7% during the fiscal year ended December 31, 2012,2013, from $3,458,388$4,250,832 to $4,250,832.$16,056,107. In addition to cash cost related to general and administrative expenses, in 2011,2012, the general and administrative expenses included $70,781$85,558 stock awards related expense, whereas in expenses2013, the expense for common stock awards to consultants for financingdirectors and investor relations services, whilecertain employees was $9,658,320. Additionally, in fiscal year 2012 the stock awards related expense was $85,558. Additionally, the general and administrative expenses also included $19,053 in stock-based compensation costs for the options issued to the Company’sCompany's executives and managerial level employees, while for the same period of last year 2013, this stock option based compensation cost was $252,632.$0. Excluding the effect of stock award cost and option cost, the net general and administrative expenses for the year ended December 31, 20122013 was $4,146,221,$6,397,787, increased 32.3%54.3% from $3,134,975$4,146,221 for the same period in 2011.2012. This increase was primarily becauseattributable to costs related to the Company has more subsidiariescapital raise that occurred in 2012 compared to year 2011,the third quarter of 2013, and due to expense caused by the acquisition, impairments of some assets value, higher depreciation and amortization cost and higher product insurance fees.costs.

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Research and Development

For the year ended December 31, 2012,2013, research and development expenses increased $572,910,$851,447, or 24.9%29.6%, to $2,877,283$3,728,730 from $2,304,373$2,877,283 for the year ended December 31, 2011.2012. This increase was primarily due to additional research and development efforts on new products and on quality improvement on existing products. In the fiscal year 2012, the Company strengthened its research and development for EVs equipped with lithium batteries in order to seek the leading position in the fourth quarter of 2013 for developing new EV market.products to meet market demands.

Government grantsGrants

Government grants totaled $132,139$228,396 for the year ended December 31, 2012,2013, representing a 55.7% decrease72.8% increase over the same period in 2011.2012. For the year ended December 31, 2012,2013, the government grants included $12,026$1,694 in subsidies for technology innovation and patent applications, $110,790$182,287 subsidies for supporting companies that have competitive advantages and $9,323$44,415 export subsidies.

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Investment income (loss)Share of (Loss) of Associated Company

Investment lossShare of (loss) of associated company was ($69,429)69,056) for the year ended December 31, 2012,2013, compared to loss of ($43,043)69,429) for the corresponding period in 2011.2012. For the twelve monthsyears ended December 31, 2013 and 2012, the investment loss is caused bythese losses were attributable to our 30% equity interest investment in Jinhua Service, which was ($43,043) for year 2011. During fiscal year 2012, Jinhua Service was in the initial launching period, so Jinhua Service recorded a net loss; however, the Company believes Jinhua Service will generate a profit in the near future.Service.

Other Income (Expense), Net

Net other income was $676,257 for the year ended December 31, 2013, compared to $332,936 for the year ended December 31, 2012, compared to $717,495 for the year ended December 31, 2011, a decreaserepresenting an increase of $384,559$343,321 or 53.6%103.1% . This decreaseincrease is primarily because comparedthe Company wrote off $841,251 payable to fiscal year 2011, the write off of other payables,Ever Lotts Investment Limited, which had not been claimed for more than 3three (3) years as of December 31, 2012, decreased.2013. Additional details regarding this write-off are set forth in Note 14 of our financial statements.

Interest Income (Expense), Net

Net interest expense was ($2,878,876) for the year ended December 31, 2013, a significant change from a net expense of ($117,787) for the year ended December 31, 2012, a significant change from a net income of $255,418 for the year ended December 31, 2011. For the fiscal year ended December 31, 2012,2012. In 2013, the interest expense for convertible notes was $0, and the interest incurred by the amortization of debt discount was $0, since the last $1,000 of convertible notes we previously issued were converted in the first quarter of 2012. The interest for the convertible notes in 2012 was ($2), and the interest incurred by the amortization of debt discount was ($43), since the remaining $1,000 of convertible notes we previously issued were converted in the first quarter of 2012. For the same period of last year, the interest for the convertible notes was ($135), and the interest incurred by the amortization of debt discount was ($659). Excluding the effects of interest expense related to convertible notes, the net interest expense for this reporting period was ($117,742)2,878,876), a significant change from $256,212($117,742) net interest incomeexpense for the same period in 2011.2012. This changeincrease was mainly attributedprimarily attributable to: (i) a decrease in interest-related income earned on note receivables issued to third parties and (ii) bond interest expenses incurred by the increase of interest expense caused by our short-term bank loans.Company.

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Change in Fair Value of Financial Instruments

For the year ended December 31, 2012,2013, the interest income,expense which was caused by the decreaseincrease of fair value of warrants issued to certain investors and placement agents and the changes of fair value of conversion features embedded in convertible notes, was $1,986,063,($16,647,283), while for the same period last year, the interest income which was caused by the increase in fair value change of financial instruments was $5,401,929.$1,986,063. This significant change was primarily due to warrants being exerciseda significant increase in our stock price in 2013 and the fact that our stock price wasthere were more stable duringwarrants outstanding as of December 31, 2013 compared to December 31, 2012.

Share of Profit (Loss) after Tax of the JV Company

The Company has absorbed a profit (loss) in fiscal year 2012 compared2013 due to 2011.

Income Taxes

On March 16, 2007,its 50% interest in the National People’s CongressJV Company. The JV Company recorded a loss in 2013 because it is still in the start-up phase, though the Company believes it will generate profit in the near future, particularly as demand for our EV products continues to build in China. We believe this is reflected by the fact that if the subsidies receivable from the relevant government agencies for vehicles sold by the JV in 2013 had been paid in 2013, the JV would have experienced a profit instead of a loss; these subsidies are scheduled to be received by the JV in April, 2014. The financial results of the PRC adopted a new corporate income tax lawJV and their relationship to the Company's investment in its fifth plenary session. The new corporate income tax law unifies the application scope, tax rate, tax deduction and preferential policy for both domestic and foreign-invested enterprises. The new corporate income tax law took effect on January 1, 2008. JV are more fully described in Note 23.

Income Taxes

In accordance with the relevant tax laws and regulations of the PRC, Kandi’sour applicable corporate income tax rate is 25%. However, Kandi Vehicle is a foreign-investedqualified as a high technology company which registeredin China and is therefore entitled to pay a reduced income tax rate of 15%.

Each of Kandi New Energy, Yongkang Scrou, and Kandi Wanning is a wholly-owned subsidiary of the Company with the PRC government before March 16, 2007 is still permitted to apply the formeran applicable corporate income tax rules. Thus, ourrate of 25%.

The Company was exempt fromhas a 50% ownership interest in the JV Company and its applicable corporate income tax for 2007is 25%.

Zhejiang ZuoZhongYou Electric Vehicle Service Co., Ltd. is a 19% investment of the JV Company and 2008 and is also entitled to a 50% tax reduction for 2009, 2010 and 2011, for which theits applicable corporate income tax rate is 12.5% 25%. In 2012, this foreign-invested company

Each of Kandi Electric Vehicles (Changxing) Co., Ltd., Zhejiang Kandi Electric Vehicles Jinhua Co., Ltd., Zhejiang JiHeKang Electric Vehicle Sales Co., Ltd. and Kandi Electric Vehicles (Shanghai) Co., Ltd. is a wholly-owned subsidiary of the JV Company with an applicable corporate income tax benefit ended. However, therate of 25%.

The Company, qualified as a high technology company in China, was entitled to pay a reduced income tax rate of 15% and a. After combining with the research and development tax credit of 36.5% .

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Kandi New Energy is a subsidiary of25% on certain qualified research and development expenses, the Company and its applicable corporate income tax rate is 25%. However, because Kandi New Energy’s profits were below a special standard amount in 2010, which entitled it to enjoy an initial tax benefit of a 50% reduction in taxable income and tax at a 20%final effective reduced rate in 2011, with an effective tax rate of 10%. The special reduced CIT tax rate benefit lasted for only one year. In 2012, the tax rate went back to normal at 25%.

Yongkang Scrou Electric. Co., Ltd is a subsidiary of the Company and its applicable corporate income tax rate was 16.68%. The combined tax benefits were 50.1%. The actual effective income tax rate was reduced from 25% in 2012.to 12.48% of the 2013 taxable corporate income.

The Company had a tax expense of $1,523,735 for the year ended December 31, 2012 and had a tax expense of $551,060 for the year ended December 31, 2011.32

Net Income (Loss)

For the fiscal year ended December 31, 2012,2013, the Company generated a net incomeloss of $6,049,479,($21,140,723), a decreasesignificant change from a net income of $9,114,770$6,049,479 in year 2011.2012. The decrease was primarily caused by a change(i) changes in the fair value of financial derivatives, higher income tax, and an increase(ii) increases in general and administrative expenses, research and development expenses, and(iii) interest expenses in 2012.expenses.

Excluding the effects of option related(i) option-related expenses, which waswere $0 and $19,053 for 2013 and $252,632 for the fiscal year 2012, and 2011 respectively, (ii) the stock award expense, which was $9,658,320 and $85,558 for 2013 and $70,781 for the year 2012, and 2011 respectively, (iii) the Convertible Note’sNote's interest expense, which was $0 and $2 for 2013 and $135 for years 2012, and 2011, respectively, (iv) the effect caused by amortization of discount on Convertible Notes, which was $0 and $43 for 2013 and $659 for year 2012, and 2011, respectively, and (v) the change of the fair value of financial derivatives, which was a ($16,647,283) expense and a $1,986,063 income for 2013 and $5,401,929 income for years 2012, and 2011, respectively, the Company’sCompany's net income for the year ended December 31, 2012,2013, was $4,168,072,$5,164,880. This net income figure represents an increase of 3.2%23.9% as compared with net income of $4,037,048$4,168,072 for the same period of 2011,2012, excluding the same effects. This increase is primarily due to our increased sales and gross profit.

33

Summary of 4thFourth Quarter Results

For the three months endedComparison of Three Months Ended December 31, 2013 and 2012

The following table sets forth the amounts and percentage relationship to revenue of certain items in our revenue increased by 131.2% from $11,387,382 to $26,331,459. The costcondensed consolidated statements of goods sold also increased 144.8% during the same period, while gross profit increased $2,056,179, or 82.8%, from 2,484,097 in the corresponding period last year to $4,540,276 in the fourth quarter of 2012.income and comprehensive income

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For the three months ended December 31, 2012, the general and administrative expenses2013, our revenue increased 94.4%by 92.0% from $26,331,459 to $1,730,232, mainly because of the impairments of some asset value, and the increase of depreciation and amortization expense. Research and development expenses increased 42.9%, primarily$50,560,582 due to the fact the Company sold more research and development for electrical vehicles. higher-priced EV products in the fourth quarter of 2013. The cost of goods sold also increased 79.5% during the same period, while gross profit increased $6,899,837, or 152.0%, from $4,540,276 in the corresponding period last year to $11,440,113 in the fourth quarter of 2013.

For the three months ended December 31, 2012,2013, the general and administrative expenses increased 549.0% to $11,229,485, mainly because of the expense related to stock awarded to directors and certain employees. Research and development expenses increased 114.2% as we hadengaged in additional research and development efforts for developing new EV products to meet market demands. For the three months ended December 31, 2013, we incurred a non-cash incomeexpense of $907,268($9,690,320) relating to the change in fair value of financial instruments, which was an expensea non-cash income of ($2,079,063)907,268 for the same period in 2011.2012.

For the three months ended December 31, 2012,2013, the company recorded a net incomeloss of $2,166,781,($14,671,319), compared to a net lossincome of ($829,831)$2,166,781 for the same period of last year. Excluding the effects of option relatedoption-related expenses, stock award expenses, Convertible Notes interest expense, the effects caused by the amortization of discount on Convertible Notes, and the change in the fair value of financial derivative, for the three months ended December 31, 2012,2013, the Company recorded a net income of $1,279,338,$4,596,279, a slight decreasesignificant increase from net income of $1, 346,907$1,279,338 for the same period in 2011,2012, excluding the same effects. This decreaseincrease is primarily due to the increased generalrevenue and administrative expense.gross profit.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Net cash usedprovided by operating activities was $14,687,446 for the year ended December 31, 2013, as compared to net cash used in operating activities of ($10,721,895) for the year ended December 31, 2012, as compared to net cash provided by operating activities of $12,642,070 for the year ended December 31, 2011.2012. The difference is mainlyin cash flow was because forin 2013, (i) the year ended December 31, 2012,Company focused more on collecting accounts receivable, and the change in accounts receivable caused a net cash outflowinflow of ($20,513,099),$3,251,168, compared to a net cash inflowoutflow of $4,647,184($20,513,099) for the same reporting period in 2011.2012, and (ii) the change in accounts payable caused a net cash inflow of $13,699,528, which was an increase from a net cash inflow of $3,566,354 in 2012.

Net cash used in investing activities was ($4,751,858)59,844,162) for the year ended December 31, 20122013 as compared to net cash flow used in investing activities of ($22,330,894)4,751,858) for the same reporting period in 2011.2012. This was primarily due to (1)the ($24,383,529) net80,668,972) cash outflow for the JV Company in 2013: The Company made a ($24,383,529) deposit for asset purchase,to acquire certain assets in 2012, and (2) a netspent an ($39,673,000) to acquire additional assets in 2013, all of which were transferred to Kandi Changxing; Kandi Changxing was then sold to the JV Company. In 2013, the Company recorded $64,535,177 cash inflow caused by the transfer of $28,591,350 in note receivable, as comparedKandi Changxing to a net cash outflow in notes receivable of ($11,845,363) for the same period last year.JV Company.

Net cash flow provided by financing activities was $25,622,819$46,317,978 for the year ended December 31, 2012, as2013, compared to net cash flow provided by financing activities of $4,333,237$25,622,819 for the same period of 2011.2012. This change is primarily attributable to (1)(i) a net cash inflow of $19,427,972$26,387,498 through issuing common stock and warrants, and (ii) a decrease in note payable, asrestricted cash for 2013 compared to a net cash outflow in notes payable of ($13,698,288) for the same period last year; (2) the Company issued 2,354,212 shares of common stock for acquisition in 2012, and more option and warrants exercised in 2012 compared to the fiscal year of 2011; and (3) thewhich caused a cash inflow $12,658,548of $16,135,044, in bond payable in yearcontrast to 2012, althoughwhen the Company recorded a net cash outflow in short-term bank loans andof ($9,143,907) for restricted cash (though these effects are partially offset by the net cash outflow ($9,357,601) caused by notes payable in year 20122013, compared to athe net cash inflow of $19,427,972 in these two areas in year 2011.2012).

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Working Capital

The Company had a working capital deficit of ($6,631,680)as of December 31, 2013, a decrease from a working capital surplus of $35,898,297 as of December 31, 2012, increase from a working capital surplus of $17,466,812 as of December 31, 2011.2012.

As of December 31, 2012,2013, the amount of advances to suppliers was $8,867,074, which included the advance of a RMB 47 million ($7,687,275) deposit by Kandi Electric Vehicles (Wanning) Co., Ltd (“Kandi Wanning”) to Nanjing Shangtong Auto Technologies Co., Ltd. (“Nanjing Shangton”) for an equipment purchase. Kandi Wanning and Nanjing Shangtong entered into a letter of intent contemplating the purchase of equipment up to RMB 180 million. The equipment will be purchased and delivered according to the construction schedule and development of Kandi Wanning. This advance will be used to offset the equipment purchase price upon delivery.

In fiscal year 2013, Kandi Changxing prepaid RMB 130 million to Zhejiang New Energy Auto System Co., Ltd. (“Zhejiang New Energy”) with the intent to acquire molds and equipment from Zhejiang New Energy, but the transaction did not close, and the advance was returned in full to Kandi Changxing.

As of December 31, 2013, the Company had credit lines from commercial banks for $53,830,687,in the total amount of $56,100,752, of which $29,765,203$34,020,281 had been used as of December 31, 2012.2013. The Company believes that its cash flows generated internally may not be sufficient to support growth of future operations and repay short termshort-term bank loans for the next twelve (12) 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 is 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 is confident that the short-term bank loans will be available on normal trademarket terms if needed.

On June 26, 2013, the Company entered into a securities purchase agreement with certain institutional investors (the “Investors”) that closed on July 1, 2013, pursuant to which the Company sold to the Investors, in a registered direct offering, an aggregate of 4,376,036 shares of our common stock at a negotiated purchase price of $6.03 per share, for aggregate gross proceeds of approximately $26,387,500, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. As part of the transaction, the Investors also received (i) Series A warrants for the purchase of up to 1,750,415 shares of our common stock at an exercise price of $7.24 per share; (ii) Series B warrants to purchase a maximum aggregate of 728,936 shares of our common stock at an exercise price of $7.24 per share; and (iii) Series C warrants to purchase a maximum aggregate of 291,574 shares of our common stock at an exercise price of $8.69.

36

Off-balance Sheet Arrangements

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

As of December 31, 2012,2013, the Company provided guarantees for the following third parties:

(1) Guarantees for bank loans

On December 26, 2012,27, 2013, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount of $4,749,766$4,906,771 by Zhejiang Kangli Metal Manufacturing Company. (“ZKMMC”) for the period from December 26, 201227, 2013 to December 26, 2013.27, 2014. ZKMMC is not related to the Company. Under this guarantee contract, the Company shallagrees to perform all obligations of ZKMMC under the loan contract if ZKMMC fails to perform its obligations as set forth in the loan contract.therein.

On October 9, 2012,February 26, 2013, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shenzhen Development Bank (changed the name to PingAn Bank in 2012) Hangzhou branch in the amount of $4,749,766$4,906,771 by Zhejiang Shuguang industrial Co., Ltd. (“ZSICL”) for the period from October 9, 2012February 26, 2013 to October 9, 2013.February 26, 2014. ZSICL is not related to the Company. Under thesethis guarantee contracts,contract, the Company shallagrees to perform all obligations of ZSICL under the loan contracts if ZSICL fails to perform its obligations as set forth in the loan contracts.therein. This guarantee contract has been renewed for an additional one-year term.

31

On January 9, 2012,6, 2013, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch in the amount of $791,628$817,795 by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from January 9, 20126, 2013 to January 9, 2013.6, 2014. YATCL is not related to the Company. Under thesethis guarantee contracts,contract, the Company shallagrees to perform all obligations of YATCL under the loan contracts if YATCL fails to perform its obligations as set forth in the loan contracts.therein. This guarantee contract was not renewed.

On August 7, 2012March 15, 2013 and December 26, 2012,27, 2013, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Jinhua Branch and Shanghai Bank Hangzhou branch in the amountamounts of $3,166,511$3,271,181 and 6,333,022$6,542,362, respectively, by Nanlong Group Co., Ltd. (“NGCL”) for the periodperiods from August 7, 2012March 15, 2013 to March 6, 2013,15, 2016, and December 26, 201227, 2013 to December 26, 201327, 2014, respectively. NGCL is not related to the Company. Under thisthese guarantee contract,contracts, the Company shallagrees to perform all obligations of NGCL under the loan contractcontracts if NGCL fails to perform its obligations as set forth in the loan contract.therein.

(2) Pledged collateral for a third party’sparty bank loans

As of December 31, 2012,2013, none of the Company provided theCompany's land use rights andor plant and equipment were pledged as collateral forsecuring bank loans to third parties.

37

Critical Accounting Policies and Related Estimates That Could Have a Material Effect on OurConsolidated Financial Statements

This section should be read together with the following third party:

It is a common business practice among companiesSummary of Significant Accounting Policies in the regionattached consolidated financial statements included in this Annual Report.

Estimates affecting accounts receivable and inventories

The preparation of Chinaour 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 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 bythey affect 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 thereported net bookrealizable value of the pledged collateral.Company's accounts receivable and inventories.

(b) Asset purchase

On February 27,2013, Kandi Vehicles entered intoAccounts receivable are recognized and carried at net realizable value. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an Assets Purchase Agreement (the “Purchase Agreement”) with Zhejiang New Energy Vehicle System Co., Ltd., a limited liability companyassessment of specific factors, such as troubled collection, historical experience, accounts aging, ongoing business relations 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 China (“New Energy”).the consolidated statement of operations within operating expenses. The Purchase Agreement finalized the arrangements the Company negotiated in 2012had an allowance for doubtful accounts of $0 for the purchase by Kandi Vehiclesyears ended December 31, 2013 and 2012, in accordance with our management's judgment based on their best knowledge.

Inventory is stated at the lower of certain electric vehicle (“EV”) operating assetscost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of New Energy, includingbusiness less the estimated cost of completion and the estimated costs necessary to make the sale. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. 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 was a pressing assembly line, a welding assembly line, a coating assembly line, a general assembly line and related equipment, facilities, building and land use rights (the “Purchased Assets”)$352,734 decline in net realizable value of inventory for a total cash price of RMB 272,767,553 (approximately $43,296,437). The price was based upon a third-party appraisal prepared by Jinhua Jinehen Assets Appraisal Co., Ltd. In connection with the initiation of exclusive negotiations with New Energy and pursuant to a letter of intent (“LOI”) between the parties on November 20, 2012, the Company, asyear ended of December 31, 2012,2013 due to our provision for slow moving inventory.

Although the Company believes that there is little likelihood that actual results will differ materially from 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.

Policy affecting recognition of revenue

Our revenue recognition policy plays a key role in our consolidated financial statements. Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers, and revenues are recognized when all of the following criteria are met:

38

The revenue recognition policies for our legacy products, including ATVs, go-karts, and EVs, are the same: When the products are delivered, RMB 154,100,000 (approximately $24,397967)the associated risk of loss is deemed transferred, and at that time the Company recognizes revenue.

Policy affecting options, warrants and convertible notes

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 recognition is based on awards expected to vest. There were no estimated forfeitures. ASC standards require 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 a warrant, which is classified as a refundable deposit. Pursuant toliability, is estimated using the LOI,Black-Scholes-Merton model and the deposit was to be applied tolattice valuation model. The Company's expected volatility assumption is based on the purchase price and to be returned to Kandi Vehicles within 5 days upon the termination of negotiations if the parties could not reach a final agreement. Pursuant to the Purchase Agreement, the remainderhistorical volatility of the purchase price will be delivered within one monthCompany's stock. The expected life assumption is primarily based on the expiration date of the completionwarrant. The risk-free interest rate for the expected term of the transfer by New Energywarrant is based on the U.S. Treasury yield curve in effect at the time of titles tomeasurement. The warrants, which are freestanding derivatives classified as liabilities on the balance sheet, are measured at fair value on each reporting date, with decreases in fair value recognized in earnings and ownershipincreases in fair values recognized in expenses.

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 Purchased Assets. UnderCompany's stock. The expected life assumption is primarily based on the Purchase Agreement, New Energy is to complete the transfer of ownership and title (for the land, land use rights and operating and other assets) within three monthsexpiration date of the signingwarrant. The risk-free interest rate for the expected term of the Purchase Agreement. The Purchase Agreement contains customary representations and warranties and pre- and post-closing covenantsoption is based on the U.S. Treasury yield curve in effect at the time of each party. Breachesgrant.

In accordance with ASC 815, the conversion feature of the representationsconvertible notes is separated from the debt instrument and warrantiesaccounted for separately as a derivative instrument. On the date the convertible notes are subjectissued, the conversion feature is recorded as a liability at its fair value, and future decreases in fair value are recognized in earnings while increases in fair values are recognized in expenses. The Company used the Black-Scholes-Merton option-pricing model to customary indemnification provisions.obtain the fair value of the conversion feature. 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 conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.

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Warranty Liability

Most of our non-EV products (the “Legacy Products”) are exported out of China to foreign countries that have legal and regulatory requirements with which we are not familiar. Development of warranty policies for our Legacy Products in each of these countries would be virtually impossible and prohibitively expensive. Therefore, we provide price incentives and free parts to our customers and in exchange, our customers establish appropriate warranty policies and assume warranty responsibilities. Consequently, warranty issues are taken into consideration during the price negotiation for our products. The free parts are delivered along with the products, and when products are sold, the related parts are recorded as cost of goods sold. Due to the reliable quality of our products, we have been able to maintain this warranty policy and we have not had any product liability attributed to the quality of our products.

For the EV products that we sell in China, there is a 3 year or 50,000 kilometer manufacturer warranty. This warranty affects the Company through our participation and investment in the JV Company, which manufactures the EVs.

Item Quantitative7A.Quantitative and Qualitative Disclosures About Market Risk.7A.

Not applicable.

Item 8.Financial Statements and Supplementary Data.

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KANDI TECHNOLOGIES GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 20122013 AND 20112012

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES

F-1

ALBERT WONG & CO.
CERTIFIED PUBLIC ACCOUNTANTS
7th Floor, Nan Dao Commercial Building
359-361 Queen’sQueen's Road Central
Hong Kong
Tel : +852 2851 7954
Fax: +852 2545 4086

ALBERT WONG
B.Soc., Sc., ACA., LL.B.,
CPA(Practising)

To: The board of directors and stockholders of
Kandi Technologies Group, Inc. and Subsidiaries

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheet of Kandi Technologies Group, Inc. and subsidiaries (“("the Company”Company") as of December 31, 20122013 and 20112012 and the related consolidated statements of income, stockholders’stockholders' equity and cash flow for the years then ended. TheseWe have also audited the internal control over financial reporting of Kandi Technologies Group, Inc. and subsidiaries ("the Company") as of December 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, are the responsibilityfor maintaining effective internal control over financial reporting and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audit. Our audit of, and opinion on, Kandi Technologies Group, Inc.'s internal control over financial reporting did not include internal control over financial reporting of Zhejiang Kandi Electric Vehicles Co. Ltd., a joint venture. As indicated in Management's Report, Zhejiang Kandi Electric Vehicles Co., Ltd. is a 50% owned joint venture of the Company established in March 2013 and is accounted as an equity method investment. The main operations of Zhejiang Kandi Electric Vehicles Co.,Ltd started on December 2013, and therefore, management's assertion of the effectiveness of Kandi Technologies Group, Inc.'s internal control over financial reporting excluded internal control over financial reporting of Zhejiang Kandi Electric Vehicles Co. Ltd.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.

We were not engaged to examine management’s assertion about the effectiveness of the Company’sA company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness and significant deficiencies have been identified and included in management's assessment as of December 31, 2012 included2013:

• Ineffective control environment — significant control deficiencies were identified in various components of internal control, which, in aggregate, lead us to conclude that a material weakness exist in the Company’s Item 9A “Controls and Procedures”control environment. The significant deficiencies noted in the Annual Reportcontrol environment are summarized as follows:

1. Lack of adequate policies and procedures in internal audit function, which may potentially result in: (1) lack of communication between internal audit department and the Audit Committee and the Board of Directors; (2) insufficient internal audit work to ensure that the Company's policies and procedures have been carried out as planned.
   

2. There was no self-assessment performed by the Audit Committee to assess the effectiveness of the Audit Committee in oversight of management.
   

3. The internal control audit department reported to the CEO instead of the Audit Committee. Such reporting structure impaired the independence and objectivity of the internal control audit department.
   

4. Inadequate design of internal controls over the approval procedures for related party transactions.

The material weakness or significant deficiencies were considered in determining the nature, timing and extent of audit tests applied in our audit of the Company's consolidated financial statements for the year ended December 31, 2013, and our opinion regarding the effectiveness of the Company's internal control over financial reporting does not affect our opinion on Form 10-K and, accordingly, we do not express an opinion thereon.those consolidated financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kandi Technologies Group, Inc. as of December 31, 2013 and 2012 and 2011 and the consolidated results of its operations and its cash flow for the years then ended in conformity with accounting principles generally accepted in the United States of America.

In our opinion, because of the effect of the material weakness describe above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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