NEW ENERGY SYSTEMS GROUP - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - NEW ENERGY SYSTEMS GROUP	ex312.htm
EX-32.1 - EXHIBIT 32.1 - NEW ENERGY SYSTEMS GROUP	ex321.htm
EX-31.1 - EXHIBIT 31.1 - NEW ENERGY SYSTEMS GROUP	ex311.htm
EX-32.2 - EXHIBIT 32.2 - NEW ENERGY SYSTEMS GROUP	ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

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- 49715

NEW ENERGY SYSTEMS GROUP

______________________________________________________

(Exact name of small business issuer as specified in its charter)

Nevada		91-2132336
(State or other jurisdiction of incorporation or organization)		(IRS Employer identification No.)

	116 West 23rd St., 5th Floor
	New York, NY 10011

(Address of principal executive offices)

(917) 573-0302

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 T No □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 □ No □

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.

Large accelerated filer  Accelerated filer

Non-accelerated filer  (Do not check if a smaller reporting company) Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes □ No T

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes □ No □

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,296,428 shares of common stock, $.001 par value, were outstanding as of May 17, 2011.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30
Item 4.	Controls and Procedures.	30
	PART II
Item 1.	Legal Proceedings.	31
Item 1A.	Risk Factors.	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 3.	Defaults Upon Senior Securities.	31
Item 4.	(Removed and Reserved).	31
Item 5.	Other Information.	31
Item 6.	Exhibits.	31
		31
SIGNATURES		32

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31, 2011		December 31, 2010
	(Unaudited)		(Restated)

Current assets
Cash and equivalents	$	10,121,795	$	13,065,008
Accounts receivable		17,169,890		11,192,150
Inventory		4,795,771		2,420,009
Other receivables		46,934		47,249
Due from shareholders		273,257		270,522
Deferred compensation		675,000		675,000

Total current assets		33,082,647		27,669,938

Noncurrent assets
Plant, property & equipment, net		1,115,997		1,134,029
Deferred compensation - noncurrent		929,743		1,098,493
Goodwill		60,863,441		60,555,607
Intangible assets, net		19,247,770		19,969,021

Total noncurrent assets		82,156,951		82,757,150

Total assets	$	115,239,598	$	110,427,088

Current liabilities
Accounts payable	$	11,066,372	$	6,655,592
Accrued expenses and other payables		1,193,653		1,127,133
Payable for Kimfai acquisition		-		6,325,985
Taxes payable		2,703,568		1,553,206
Loan payable to related party		549,082		543,585

Total current liabilities		15,512,675		16,205,501

Deferred tax liability		4,631,181		4,798,822

Total Liabilities		20,143,856		21,004,323

Stockholders' equity
Preferred stock, $.001 par value, 2,553,030 shares authorized, issued and outstanding as of March 31, 2011 and December 31, 2010, respectively		2,553		2,553
Common stock, $.001 par value, 140,000,000 shares authorized, 14,296,428 and 14,278,928 shares issued and outstanding as of March 31, 2011 and		14,296		14,279
December 31, 2010, respectively
Additional paid in capital		74,137,861		73,171,435
Statutory reserves		2,436,761		2,323,603
Other comprehensive income		1,949,192		1,834,341
Retained earnings		16,555,079		12,076,554

Total stockholders' equity		95,095,742		89,422,765

Total liabilities and stockholders' equity	$	115,239,598	$	110,427,088

The accompanying notes are an integral part of these consolidated financial statements.

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)



	2011			2010
				(Restated)

Revenue, net
Battery	$	20,052,391		$	19,399,150
Battery shell and cover		1,518,822			3,053,513
Solar panel		5,514,918			-
Total revenue		27,086,131			22,452,663

Cost of sales
Battery		12,710,728			14,073,985
Battery shell and cover		1,053,855			1,953,393
Solar panel		3,876,878			-
Total cost of sales		17,641,461			16,027,378

Gross profit		9,444,670			6,425,285

Operating expenses
Selling		364,180			125,974
General and administrative		1,755,619			1,374,155
Total operating expenses		2,119,799			1,500,129

Income from operations		7,324,871			4,925,156

Other income
Other income		5,379			8,287
Interest income		8,033			21,289
Total other income, net		13,412			29,576

Income before income taxes		7,338,283			4,954,732

Provision for income taxes		(1,877,728	)		(1,172,866	)

Net income		5,460,555			3,781,866

Other comprehensive income
Foreign currency translation		114,851			4,210

Comprehensive income	$	5,575,406		$	3,786,076

Net income per share
Basic	$	0.38		$	0.32
Diluted	$	0.38		$	0.30

Weighted average number of shares outstanding:
Basic		14,286,511			11,863,390
Diluted		14,558,566			12,623,895

The accompanying notes are an integral part of these consolidated financial statements.

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)


	2011			2010
				(Restated)

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	5,460,555		$	3,781,866
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		768,370			760,851
Deferred tax liability		(167,641	)		(134,717	)
Deferred compensation expense		168,750			168,750
Loss on disposal of fixed asset		-			121
Warrants expense		10,071			-
(Increase) / decrease in current assets:
Accounts receivable		(5,840,687	)		1,646,089
Inventory		(2,341,718	)		(847,367	)
Prepaid expenses, deposits and other receivables		790			433,887
Increase/(Decrease) in current liabilities:
Accounts payable		4,325,793			2,169,271
Accrued expenses and other payables		61,580			(2,265,368	)
Taxes payable		1,131,689			875,670

Net cash provided by operating activities		3,577,552			6,589,053

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in acquisition		-			24,550
Proceeds from sale of property and equipment		-			66
Acquisition of property and equipment		(12,456	)		(3,844	)

Net cash provided by (used in) investing activities		(12,456	)		20,772

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of acquisition liability for Subsidiaries		(6,714,060	)		(1,000,000	)
Cash proceeds from warrant exercise		87,500			-
Repayment to related party		-			(732,397	)

Net cash used in financing activities		(6,626,560	)		(1,732,397	)

Effect of exchange rate changes on cash and equivalents		118,251			1,449

Net increase (decrease) in cash and equivalents		(2,943,213	)		4,878,877

Cash and equivalents, beginning of the period		13,065,008			3,651,990

Cash and equivalents, ending of the period	$	10,121,795		$	8,530,867

SUPPLEMENTAL DISCLOSURES:

Cash paid during the year for:

Income taxes	$	1,396,883		$	556,427

Interest	$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010

Note 1 – ORGANIZATION

New Energy Systems Group ("New Energy" or the "Company", FKA: China Digital Communication Group) was incorporated under the laws of the State of Nevada on March 27, 2001, operates its business through its wholly owned subsidiaries E'Jenie Technology Development Co., Ltd ("E'Jenie"), Shenzhen Anytone Technology Co., Ltd. ("Shenzhen Anytone"), Shenzhen NewPower Technology Development Co., Ltd. ("NewPower"), Shenzhen Kim Fai Solar Energy Technology Co., Ltd. ("Kim Fai"), companies incorporated under the laws of the People's Republic of China ("PRC"). Through our subsidiaries, the Company manufactures and distributes lithium battery, battery shells and related application products primarily in China. When used in these notes, the terms "Company," "we," "our," or "us" mean New Energy Systems Group and its Subsidiaries.

On September 30, 2004, the Company entered into an Exchange Agreement with Billion Electronics Co., Ltd (“Billion”). Billion owned all of the issued and outstanding shares of E’Jenie. Billion was incorporated under the laws of the British Virgin Islands (“BVI”) on July 27, 2004. Pursuant to the Exchange Agreement, the Company purchased all of the issued and outstanding shares of Billion for $1,500,000 and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of then issued and outstanding shares.

On June 28, 2006, the Company finalized an Exchange Agreement with Galaxy View International Ltd (“Galaxy View”), and its shareholders. Galaxy View owned all of the issued and outstanding shares of Sono Digital Electronics Technologies Co., Ltd (“Sono”). Pursuant to the Exchange Agreement, the Company acquired 100% of Galaxy View in a cash and stock transaction valued at $6,787,879. Under the terms of the Agreement, the Company paid the Galaxy View shareholders $3,000,000 and delivered 7,575,757 unregistered shares of the Company’s preferred stock valued at $3,787,879.

On April 24, 2007, the Company entered into an Agreement to transfer shares of Sono to Liu Changqing and Wang Feng (collectively, the “Purchasers”) for the sale of its wholly-owned subsidiary Sono. Changqing purchased 60% and Feng purchased 40% of Sono. For all outstanding shares of Sono, the Purchasers paid $3,000,000. The Company disposed of Galaxy View and its wholly-owned subsidiary Sono, on April 24, 2007.

In connection with the acquisition of Galaxy View, the Company issued Series A Preferred Stock to the selling shareholders. On June 29, 2006, the Company filed with the Secretary of State of Nevada a Certificate of Designation of Series A Convertible Preferred Stock designating 7,575,757 of the Company’s previously authorized preferred stock. Each share of Series A Preferred Stock entitles the holder to seven votes per share on all matters to be voted on by the shareholders of the Company and is mandatorily convertible into one tenth of one share of the Company’s common stock on June 29, 2011 (after providing for the July 13, 2009, 10-to-1 reverse stock split of the Company’s common stock). Each share of Series A Preferred Stock shall, with respect to rights on liquidation, dissolution or winding up, ranks (i) on a parity with the Company’s common stock, and (ii) junior to any other class of the Company’s preferred stock. Series A Preferred Stock is not entitled to any preferred dividend. However, the preferred shareholders will share the dividend on common stock proportionately if and when the dividend on Common Stock is declared. On October 20, 2010, the Company filed an Amendment to its Certification of Designations, Preferences and Rights for its Series A Convertible Preferred Stock. As a result of the Amendment, the Series A is convertible at the option of the holder until June 29, 2011, when every ten (10) issued and outstanding shares of Series A shall be automatically convertible into one (1) share of common stock (on a post-split basis). Additionally, the Series A shall continue to be subject to a lock-up provision through June 29, 2011, provided, however, that the common stock issuable upon the optional conversion of the Series A shall not be subject to such lock-up limitations. As of March 31, 2011, 5,022,727 shares Series A preferred stock was converted to 502,273 shares of common stock, and there were 2,553,030 shares of Series A preferred stock outstanding.

On July 13, 2009, the Company effected a 10-to-1 reverse stock split. The principal effect of the Reverse Split was (i) that the number of shares of common stock issued and outstanding was reduced from 54,460,626 to approximately 5,446,062 (depending on the number of fractional shares that are issued or cancelled), and (ii) that each share of Series A Preferred Stock is convertible into one tenth of one share of the Company’s common stock. The number of authorized shares of common stock was not affected. All per share data was retroactively restated.

On September 8, 2009, the Company amended the Company’s Articles of Incorporation to change the Company’s name to “New Energy Systems Group.”

On December 7, 2009, the Company closed the transactions contemplated by the share exchange agreement dated November 19, 2009 with Anytone International (H.K.) Co., Ltd. (“Anytone International”) and Shenzhen Anytone-Technology Co., Ltd. (“Shenzhen Anytone”). Shenzhen Anytone is a subsidiary of Anytone International, collectively referred to as “Anytone”. Pursuant to the share exchange agreement, the Company issued the shareholders of Anytone International 3,593,939 shares of the Company's common stock with a restrictive legend, and agreed to pay $10,000,000. The acquisition was completed on December 7, 2009. Anytone is engaged in manufacturing and distribution of lithium batteries.

On January 12, 2010, the Company closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with NewPower. Pursuant to the share exchange agreement, the Company’s subsidiary E’jenie acquired NewPower. The Company issued the shareholders of NewPower, 1,823,346 shares of the Company’s common stock with a restrictive legend, and $3,000,000. NewPower is engaged in manufacturing and distribution of lithium batteries.

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone executed a share exchange agreement to acquire all the equity interest of Kim Fai, a Chinese company engaged in the technology development and sale of solar application products, with the shareholders of Kim Fai. The price for 100% of the outstanding stock of Kim Fai was $13,000,000 to be paid in cash and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy at the acquisition date. The $13,000,000 was paid in RMB 88,400,000 at an exchange rate of 6.8:1 as stated in the agreement; however, based on the exchange rate of 6.645:1 at the acquisition date, RMB 88,400,000 was equivalent to $13,303,236 which was the actual cash portion of the purchase consideration that was recorded.

The interim financial information presented in this Form 10-Q is not audited and is not necessarily indicative of the Company’s future consolidated financial position, results of operations or cash flows. The accompanying condensed consolidated balance sheet as of December 31, 2010 has been derived from audited financial statements included on Form 10-K (Restated) and the interim unaudited condensed consolidated financial statements contained in this Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual financial statements. Certain information and footnote disclosures normally included in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2011, its results of operations for the three months ended March 31, 2011 and March 31, 2010 (Restated) and its cash flows for the three months ended March 31, 2011 and March 31, 2010 (Restated) have been made. These financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K (Restated) filed with the SEC.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s functional currency is the Chinese Yuan Renminbi (CNY); however the accompanying consolidated financial statements were translated and presented in United States Dollars (“$”, or “USD”).

Exchange Gain (Loss)

During the three months ended March 31, 2011 and 2010, the transactions of E’Jenie, Anytone, Kim Fai and Newpower were denominated in foreign currency and were recorded in CNY at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

Foreign Currency Translation and Comprehensive Income (Loss)

During the three months ended March, 31, 2011 and 2010, the accounts of E’Jenie, Anytone, Kim Fai and NewPower were maintained, and its financial statements were expressed, in CNY. Such financial statements were translated into USD in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830) with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity (codified in FASB ASC Topic 220). There were no significant fluctuations in the exchange rate for the conversion of CNY to USD after the balance sheet date.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

Principles of Consolidation

The consolidated financial statements include the accounts of New Energy Systems Group and its wholly owned subsidiaries Billion, E’Jenie, Anytone, Kim Fai and Newpower, are collectively referred to the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

Revenue Recognition

The Company manufactures and distributes batteries, battery shells and covers for cellular phones in PRC. The Company’s revenue recognition policies are in compliance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due or the possible return of goods. Payments received before satisfaction of all relevant criteria for revenue recognition are recorded as unearned revenue.

Sales revenue is the invoiced value of goods, net of value-added tax (“VAT”). All of the Company’s products sold in the PRC are subject to Chinese value-added tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.

Stock-Based Compensation

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topic 718 and 505). The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” (codified in FASB ASC Topic 740), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company follows the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

At March 31, 2011 and December 31, 2010, the Company had not taken any significant uncertain tax positions on its tax returns for 2010 and prior years or in computing its tax provision for 2011.

Statement of Cash Flows

In accordance with SFAS No. 95, “Statement of Cash Flows” (codified in FASB ASC Topic 230), cash flows from the Company’s operations are based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Supplemental Cash Flow Disclosures

Cash from operating, investing and financing activities from changes in assets and liabilities, was net of effects from the acquisitions of NewPower and Kim Fai on January 12, 2010 and November 10, 2010, respectively (See Note 14).

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Equivalents

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At March 31, 2011 and December 31, 2010, the Company had $10,040,000 and $13,056,000 cash in state-owned banks, respectively, of which no deposits were covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowance for doubtful accounts was $0 at March 31, 2011 and December 31, 2010.

Inventory

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of March 31, 2011 and December 31, 2010 (audited), inventory consisted of the following:

	2011 (Unaudited)		2010

Raw Materials	$	2,195,143	$	1,713,403
Work-in-process		256,033		219,379
Finished goods		2,344,595		487,227
	$	4,795,771	$	2,420,009

Property, Plant & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

Furniture and Fixtures	5 years
Equipment	5 years
Computer Hardware and Software	5 years
Building	30 years

As of March 31, 2011 and December 31, 2010 (audited), Property, Plant & Equipment consisted of the following:

	2011 (Unaudited)			2010

Machinery	$	1,483,502		$	1,456,268
Automobile		26,234			25,972
Office equipment		116,672			115,504
Building		613,871			607,726
Subtotal		2,240,279			2,205,470
Accumulated depreciation		(1,124,282	)		(1,071,441	)
Plant, Property & Equipment, Net	$	1,115,997		$	1,134,029

Depreciation was $41,835 and $64,000 for the three months ended March 31, 2011 and 2010, respectively.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

As of March 31, 2011 and December 31, 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

Basic and Diluted Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Goodwill

Goodwill is the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of interests in its subsidiaries. Under SFAS No. 142, “Goodwill and Other Intangible Assets (“SFAS 142”) (codified in FASB ASC Topic 350), goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. At March 31, 2011 and December 31, 2010, the Company determined there was no impairment to the goodwill.

Intangible Assets

The Company applies criteria in SFAS No. 141(R), “Business Combinations” (codified in FASB ASC Topic 805) to determine if an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142, (codified in FASB ASC Topic 350), intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (codified in FASB ASC Topic 360). Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that assets may be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible to its future net undiscounted cash flows. If the intangible is considered impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible exceeds the fair value of the intangible, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, (codified in FASB ASC Topic 360) which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business (codified in FASB ASC Topic 225).” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 (codified in FASB ASC Topic 360). SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

Recent accounting pronouncements

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this Update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company intends to adopt the disclosure requirements for any business combinations in 2011and thereafter.

On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives — Recognition. All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU is effective for the Company on July 1, 2010. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. This standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2010, FASB issued ASU N0. 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. The update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and Topic 260, Earnings Per Share. This standard is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this standard did not have a material impact to the Company’s financial position or results of operations.

Note 3 – INTANGIBLE ASSETS

As of March 31, 2011 and December 31, 2010 (audited), intangible assets consisted of the following:

	2011 (Unaudited)			2010

Customer relationships	$	2,691,445		$	2,691,445
Designs		366,850			366,850
Proprietary technology		270,850			270,850
Land use rights		613,872			607,726
Patents		22,176,943			22,176,943
Totals		26,119,960			26,113,814
Impairment in 2007		(1,972,598	)		(1,972,598	)
Accumulated amortization		(4,899,592	)		(4,033,845	)
Intangible assets, net	$	19,247,770		$	19,969,021

During 2006, E’Jenie purchased the two facilities it previously leased for $1,103,596. Of that amount $551,798 was recorded as an intangible asset as land use rights. Because the laws of the PRC do not allow ownership of land, the Company received a Certificate of Real Estate from the Ministry of Land and Resources to use the land. E’Jenie incurred losses and also its revenue reduced significantly during 2007. The Company performed an intangible assets impairment test and concluded there was impairment as to the carrying value of intangible assets of E’Jenie of $1,972,598 as of December 31, 2007.

The intangible assets are amortized over 10-30 years. Amortization was $726,535 and $696,777 for the three months ended March 31, 2011 and 2010, respectively.

Amortization for the Company’s intangible assets over the next five fiscal years from March 31, 2011 is estimated to be:

March 31, 2012	$	2,806,000
March 31, 2013		2,806,000
March 31, 2014		2,806,000
March 31, 2015		2,806,000
March 31, 2016		2,806,000
Thereafter		5,217,771
Total	$	19,247,771

Note 4 – TAXES PAYABLE

As of March 31, 2011 and December 31, 2010 (audited), taxes payable are comprised of the following:

	2011 (Unaudited)		2010

Income tax	$	2,021,968	$	1,357,108
VAT tax		616,503		185,072
Other		65,097		11,026
Total	$	2,703,568	$	1,553,206

Note 5 –ACCRUED EXPENSES AND OTHER PAYABLES

As of March 31, 3011 and December 31, 2010 (audited), accounts payable and accrued expenses are comprised of the following:

	2011 (Unaudited)		2010

Payable for expense reimbursement	$	679,834	$	721,732
Payroll payables		388,894		237,469
Accrued expense		124,925		167,932
Total	$	1,193,653	$	1,127,133

Note 6 – RELATED PARTY TRANSACTIONS

Due from Shareholders

As of March 31, 2011 and December 31, 2010, the Company had $273,257 and $270,522 unsecured, due on demand, and non interest-bearing advances to the original owners of Anytone International.

Loan payable to Related Party

As of March 31, 2011 and December 31, 2010, the Company had $549,082 and $543,585 unsecured, due on demand and non interest-bearing loan payable to the original owner of Shenzhen Anytone for the acquisition of Shenzhen Anytone by Anytone International.

Note 7 – DEFERRED TAX LIABILITY

Deferred tax is the tax effect of the difference between the tax bases and book bases of intangible assets. At March 31, 2011 and December 31, 2010, deferred tax liability represents the difference between the fair value and the tax basis of patents acquired in the acquisition of Anytone and NewPower.

Note 8 – STOCK OPTIONS

On June 11, 2010, the Company granted stock options to acquire 25,000 shares of the Company’s common stock, par value $0.001, at $6.55 per share, with a life of 3 years to an independent director. The options vest in two equal installments, the first being on the date of grant and the second being on the first anniversary of the date of grant. The fair value of the options was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. The grant date fair value of options was $103,047.

The outstanding options (post-reverse stock split) as of March 31, 2011 listed as follow:

	Number of Shares
Outstanding at January 01, 2009		25,000

Granted		-
Exercised		-
Expired		(15,000	)

Outstanding at December 31, 2009		10,000
Exercisable at December 31, 2009		10,000

Granted		25,000
Exercised		-
Expired		(10,000	)

Outstanding at December 31, 2010		25,000
Exercisable at December 31, 2010		12,500

Granted		-
Exercised		-
Expired		-

Outstanding at March 31, 2011		25,000
Exercisable at March 31, 2011		12,500

Options outstanding (post-reverse stock split) at March 31, 2011 are as follows:

Exercise Price		Total Options Outstanding		Weighted Average Remaining Life (Years)		Total Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price

$	$6.55		25,000		2.19	$	6.55		12,500	$	6.55

Warrants

On November 11, 2009, The Company entered into a one-year consulting agreement with an IR firm. The Company granted the IR firm’s warrants to purchase 200,000 shares common stock of the Company as compensation for its service. The warrants included Series A warrant and Series B warrant with a term of two years (the “Series A Warrant”, the “Series B Warrant”), to purchase 50,000 shares at excise price of $5.00 and $5.50, respectively. The warrants included Series C warrant and Series D warrant with a term of three years (the “Series C Warrant”, the “Series D Warrant”), to purchase 50,000 shares at excise price of $6.00 and $6.50, respectively. 35% of all series warrants were vested at the grant date and 65% of all series of the warrants were vested upon the duty of service the IR completed, which was January 5, 2010.

The fair value of the warrants was calculated using the following assumptions: for the warrants with estimated life of two years, volatility of 100%, risk free interest rate of 0.85%, and dividend yield of 0%; for the warrants with estimated life of three years, volatility of 100%, risk free interest rate of 1.39%, and dividend yield of 0%. The total fair value of warrants was $868,872.

The Company entered into a one-year consulting agreement with an IR firm on November 1, 2010. The monthly payment at $8,550 will be made at the beginning of each month; on December 4, 2010, the Company also granted the IR firm a warrant to purchase 36,000 shares for each 6 months contract period at excise price of $5.90, a term of three years which will vest on November 1, 2011. If the agreement is cancelled after six months by either party, the IR firm will be entitled to a pro-rata of the warrants for the period services were provided. The fair value of the warrants was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. The grant date fair value of warrants was $188,993.

The Company accounted for warrants issued to investor relations firms based on ASC 505-50 at each balance sheet date and expense recorded based on the period elapsed at each balance sheet date, which is the date at which the counterparty’s performance is deemed to be completed for the period. The fair value of each warrant granted is estimated on the date of the grant using the Black-Scholes option pricing model under ASC 505-30-11 and is recognized as compensation expense over the service term of the investor relations agreement as it is a better matching of cost with services received. The warrants are classified as equity instruments and are exercisable into a fixed number of common shares. There is no commitment or requirement to change the quantity or terms based on conditions to the counterparty’s performance or market conditions.

The Company recorded $10,071 and $0 as compensation expense for stock options during the three months ended March 31, 2011 and 2010.

The outstanding warrants as of March 31, 2011 listed as follow:

	Number of Shares
Outstanding at January 01, 2009		-

Granted		200,000
Exercised		-
Expired		-

Outstanding at December 31, 2009		200,000
Exercisable at December 31, 2009		70,000

Granted		36,000
Exercised		-
Expired		-

Outstanding at December 31, 2010		36,000
Exercisable at December 31, 2010		200,000

Granted		-
Exercised		(17,500)
Expired		-

Outstanding at March 31, 2011		218,500
Exercisable at March 31, 2011		182,500

Warrants outstanding at March 31, 2011 are as follows:

Exercise Price		Total Warrants Outstanding		Weighted Average Remaining Life (Years)		Total Weighted Average Exercise Price		Warrants Exercisable		Weighted Average Exercise Price

$	$5.00-$6.50		218,500		1.60	$	5.83		182,500	$	5.82

Note 9 – COMMON STOCK AND NON-CASH STOCK COMPENSATION

Stock issued to consultants

On August 18, 2009, the Company entered into a four-year consulting agreement to promote the Company's image in both the industry and capital markets. In connection with this agreement, the Company issued 1,000,000 shares of Common Stock valued at $2.70 (stock price at grant date) to these eight consultants. During 2009, the Company issued 1,000,000 shares of the Company’s stock and recorded $2,700,000 as deferred compensation. During 2010, the Company amortized $675,000 as stock-based compensation. According to ASC 505-50-25-6, a grantor shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services received. A grantor may need to recognize an asset before it actually receives goods or services if it first exchanges share-based payment for an enforceable right to receive those goods or services; therefore, the Company recorded unamortized portion of deferred compensation as an asset, of which, $675,000 was current, and $929,743 was noncurrent as of March 31, 2011.

Stock issued for acquisition

On December 3, 2009, the Company issued 3,593,939 shares of common stock, valued at $6.60 per share which was the stock price at the acquisition date, to pay the stock portion of the purchase consideration for the acquisition of Anytone. The common stock was valued at $23,719,997 at the issuance date.

In connection with the acquisition of NewPower, on December 30, 2009, the Company issued 1,823,346 shares of common stock valued at $8.51 per share; however the acquisition closed on January 12, 2010. Accordingly, the Company recorded the shares at Par value of $0.001 at $1,823 as a result of the issuance of the shares. The fair value of the 1,823,346 shares of $ 15,516,674 was recorded on January 12, 2010.

On November 10, 2010, the Company issued 1,913,265 shares of common stock valued at $7.84 per share which was the stock price at the acquisition date, to pay the stock portion of the purchase consideration for the acquisition of Kim Fai. The common stock was valued at $14,999,998 at the issuance date. The transaction closed on November 10, 2010.

Note 10 – INCOME TAXES

As of March 31, 2011, the Company in the US had approximately $3,036,000 in net operating loss (“NOL”) carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the US entities at March 31, 2011consists mainly of NOL carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at the location as of March 31, 2011. Accordingly, the Company has no net deferred tax assets.

There is no income tax for companies domiciled in the BVI. Accordingly, the Company's consolidated financial statements do not present any income tax provisions related to BVI tax jurisdiction where Billion is domiciled.

Pursuant to the PRC Income Tax Laws, the Company's subsidiary in China is generally subject to Enterprise Income Taxes ("EIT") at a statutory rate of 25%. The subsidiary is qualified as a new technology enterprises and under PRC Income Tax Laws, it subject to a preferential tax rate of 18%.

Beginning January 1, 2008, the new PRC Enterprise Income Tax ("EIT") law replaced the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs"). The new standard EIT rate is 25%.

Subsidiary E’Jenie was qualified as new technology enterprise under PRC Income Tax Law and still subject to the tax holiday with applicable EIT of 24% for 2011 and 22% for 2010, respectively. The newly acquired subsidiary Anytone, NewPower and Kim Fai’s effective EIT for 2011 is 24% and 2010 is 22%.

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations for the three months ended March 31, 2011 and 2010, respectively:


	2011			2010

US statutory rates		34	%		34	%
Tax rate difference		(9	)%		(10	)%
Effect of tax holiday		(1	)%		(3	)%
Valuation allowance on deferred tax on US NOL		2	%		3	%
Tax expense at actual rate		26	%		24	%

The provisions for income taxes for the three months ended March 31, 2011 and 2010 consisted of the following:

	2011			2010

Income tax expense – current	$	2,045,369		$	1,307,583
Income tax benefit – deferred		(167,641	)		(134,717	)
Total income tax expense	$	1,877,728		$	1,172,866

Note 11 – STATUTORY RESERVES

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

Making up cumulative prior years' losses, if any;

ii)

Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;

iii)

Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and statutory common welfare fund is no longer required per the new cooperation law executed in 2006;

iv)

Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.

Note 12 - MAJOR CUSTOMERS AND VENDORS

One and two major customers each accounted for 10% of the sales during the three months ended March 31, 2011 and 2010. Accounts receivable from these customers were $0 as of March 31, 2011, and $3,406,232 as of March 31, 2010.

There was no vendor that accounted for more than 10% of the Company’s purchases during the three months ended March 31, 2011.

The Company’s purchases from three vendors during the three months ended March 31, 2010 were vendor accounting for 13%, 13% and 11% of purchases. Accounts payable to these vendors was $1,633,329 as of March 31, 2010.

Note 13 – SEGMENT REPORTING

The Company has two operating segments: battery components manufacture and battery assembly and distribution. These operating segments were determined based on the nature of the products offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company's chief executive and chief financial officers were identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and other measurement factors of each respective segment.

The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The following table shows the operations of the Company's reportable segments:

	Three Months Ended
	2011			2010

Revenues from unaffiliated customers:
Battery	$	20,052,391		$	19,399,150
Battery shell and cover		1,518,822			3,053,513
Solar panel		5,514,918			-
Consolidated	$	27,086,131		$	22,452,663
Operating income (loss):
Battery	$	5,987,865		$	4,243,469
Battery shell and cover		347,684			1,021,342
Solar panel		1,474,694			-
Corporation		(485,372	)		(339,655	)
Consolidated	$	7,324,871		$	4,925,156
Net income (loss) :
Battery	$	4,620,204		$	3,296,004
Battery shell and cover		204,295			825,579
Solar panel		1,121,641			-
Corporation		(485,585	)		(339,717	)
Consolidated	$	5,460,555		$	3,781,866
Depreciation and amortization:
Battery	$	706,071		$	693,156
Battery shell and cover		32,232			44,505
Solar panel		6,877			-
Corporation		23,190			23,190
Consolidated	$	768,370		$	760,851

The Company does not identify assets by segment.

Note 14 - ACQUISITION AND UNAUDITED PRO FORMA INFORMATION

On January 12, 2010, the Company closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with NewPower. Pursuant to the share exchange agreement, E’Jenie acquired NewPower. The Company issued to the shareholders of NewPower, proportionally among the NewPower shareholders in accordance with their respective ownership interests in NewPower immediately before the closing of the Share Exchange, 1,823,346 shares of the Company’s Common Stock with a restrictive legend, and $3,000,000. As of March 31, 2011, $3,000,000 was paid.

The price for NewPower was $3,000,000 and 1,823,346 shares of common stock valued at $15,516,674, which was determined by multiplying the 1,823,346 shares by the stock price of New Energy at the acquisition date. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at agreement date are used for the purpose of purchase price allocation. The excess of the purchase price over the fair value of the net assets acquired of $13,564,691 is recorded as goodwill. The Company expects synergy from combining the operations. Revenue and net income of NewPower included in the consolidated income statement for the three months ended March 31, 2011 was $7,995,017 and $1,688,735, respectively.

Cash	$	24,550
Accounts receivable		2,809,600
Tax receivable		100,584
Inventory		240,262
Property and equipment		327,354
Intangible assets		7,009,446
Goodwill		13,564,691
Accounts payable		(2,410,017	)
Other payable and accrued expenses		(66,589	)
Loan payable to related party		(1,361,999	)
Deferred tax liability		(1,721,208	)
Purchase price	$	18,516,674

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone Technology Co. Ltd, executed a share exchange agreement to acquire all the equity interest of Shenzhen Kim Fai Solar Energy Technology Co., Ltd., a Chinese company engaged in the technology development and sale of solar application products and solar energy batteries, with all of the shareholders of Kim Fai. The purchase price for 100% of the outstanding stock of Kim Fai was $13,000,000 to be paid in cash and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy at the acquisition date.

The $13 million was paid in RMB 88,400,000 at an exchange rate of 6.8:1 as stated in the agreement; however, based on the exchange rate of 6.645:1 at the acquisition date, RMB 88,400,000 was equivalent to $13,303,236 which was the actual cash portion of the purchase consideration that was recorded. As of March 31, 2011, $13,303,236 was paid and 1,913,265 shares were issued.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at agreement date are used for the purpose of purchase price allocation. The excess of the purchase price over the fair value of the net assets acquired of $26,541,178 is recorded as goodwill. The Company expects synergy from combining the operations. Revenue and net income of Kim Fai included in the consolidated income statement for the three months ended March 31, 2011 was $4,176,060 and $1,121,640, respectively.

Cash	$	680,964
Accounts receivable		1,775,936
Other receivable		8,369
Inventory		313,481
Property and equipment		139,409
Goodwill		26,844,414
Accounts payable		(1,317,263	)
Other payable and accrued expenses		(58,234	)
Taxes payable		(83,842	)
Purchase price	$	28,303,243

The following unaudited pro forma consolidated results of operations for New Energy, Anytone, Kim Fai and NewPower for the three months ended March 31, 2010 presents the operations of New Energy, Anytone, Kim Fai and NewPower as if the acquisitions occurred on January 1, 2010. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

	2010

Net revenue	$	28,204,212
Cost of revenue		19,958,352

Gross profit		8,245,860
Total operating expenses		1,632,045

Income from operations		6,613,815
Total non-operating income		31,859

Income before income tax		6,645,674
Income tax		1,544,873

Net income	$	5,100,801

Weighted average shares outstanding		13,776,655

Earnings per share	$	0.37

Note 15- COMMITMENTS

Anytone leases its office under a renewable operating lease with expiration date on December 30, 2013. The monthly rent is $12,900. For the three months ended March 31, 2011 and 2010, the rental expense was $38,600 and $37,200, respectively.

NewPower entered into a renewable rental agreement on October 12, 2010 with expiration date on October 11, 2011. The monthly payment is $930. For the three months ended March 2011 and 2010, the rental expense was $2,790 and $0, respectively.

On January 1, 2011, Kim Fai entered into a 3 years lease with monthly payments of $6,000. For the three months ended March 31, 2011, the rental expense was $22,700.

Future minimum rental payments required under operating leases as of March 31, 2011 are as follows by years:

2012	$	232,000
2013		226,000
2014		169,000
	$	627,000

Note 16- SUBSEQUENT EVENTS

Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd.

On April 21, 2011, the Company entered into a Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd. (“CIC”). Under the CIC Loan Agreement, CIC has committed to make advances to the Company in an aggregate amount of up to RMB 30,000,000 with an interest rate of 10% per annum (the “CIC Loan”). Repayments of the CIC Loan under the CIC Loan Agreement are due and payable 730 days from the date the CIC Loan is made. The Company can repay all principal and interest in one lump sum when the CIC Loan comes due, or can repay the CIC Loan in installments. The CIC Loan requires no processing fee or management fee.

The CIC Loan Agreement is guaranteed by Weihu Yu, the Company’s Chairman, pursuant to that certain Guarantee Letter, dated April 21, 2011, made by Weihu Yu to CIC (the “CIC Guarantee Letter”) for a period of two years commencing at the date of maturity of the CIC Loan Agreement. The CIC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver Industrial Holding Limited (“GoldRiver”) pursuant to that certain Security Agreement, dated April 21, 2011, by and between GoldRiver and CIC (the “CIC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the CIC Security Agreement terminates two years after the statute of limitation expires for which CIC can make a claim under the CIC Loan. The CIC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to CIC financial statements and other relevant materials. The CIC Loan Agreement also gives CIC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the CIC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

Loan Agreement with Beijing Guojincheng Asset Management Co., Ltd.

On April 21, 2011, the Company also entered into a Loan Agreement (the “GJC Loan Agreement”) with Beijing Guojincheng Asset Management Co., Ltd. (“GJC”). Under the GJC Loan Agreement, GJC has committed to make advances to the Company in an aggregate amount of up to RMB 30,000,000 with an interest rate of 10% per annum (the “GJC Loan”). Repayments of the Loan under the GJC Loan Agreement are due and payable 730 days from the date the GJC Loan is made. The Company can repay all principal and interest in one lump sum when the GJC Loan comes due, or can repay the GJC Loan in installments. The GJC Loan requires no processing fee or management fee.

The GJC Loan Agreement is guaranteed by Weihu Yu pursuant to that certain Guarantee Letter, dated April 21, 2011, made by Weihu Yu to GJC (the “GJC Guarantee Letter”) for a period of two years commencing at the date of maturity of the GJC Loan Agreement. The GJC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver pursuant to that certain Security Agreement, dated April 21, 2011, by and between GoldRiver and GJC (the “GJC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the GJC Security Agreement terminates two years after the statute of limitation expires for which GJC can make a claim under the GJC Loan. The GJC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to GJC financial statements and other relevant materials. The GJC Loan Agreement also gives GJC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the GJC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

Item 2.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2011. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year-ended December 31, 2010 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-Looking Statements

Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission (“SEC”).

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place too much reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

BUSINESS OVERVIEW

We operate our business through our wholly-owned subsidiaries, E'Jenie Technology Development Co., Ltd. ("E'Jenie"), Shenzhen Anytone Technology Co., Ltd. ("Shenzhen Anytone"), Shenzhen NewPower Technology Co., Ltd. ("NewPower"), and Shenzhen Kim Fai Solar Energy Technology Co., Ltd. ("Kim Fai"), companies incorporated under the laws of the Peoples Republic of China (PRC). Through our subsidiaries, we manufacture and distribute lithium battery shells and related products primarily in China. Based on customer specifications E'Jenie develops, customizes and produces steel, aluminum battery shells and aluminum caps. Currently, E'Jenie produces steel battery shell, aluminum battery shell, aluminum battery cap and steel battery cap.

We manufacture and distribute battery shells and covers for cellular phones. We maintain long-term relationships with large lithium battery manufacturers. We believe we will continue to receive orders from our customers because of our reputation and quality of our products. Our professional marketing team maintains relationships with our current customers and at the same time searches for potential new customers. We seek to maintain and strengthen our position as a provider of battery shells and caps while increasing the breadth of our product line and improving the quality of our products.

The lithium battery was created in the 1990s, with its first mass production in 1993 in Japan. Lithium batteries were first used in notebook computers and now are used in cellular phones, video machines, laptops, digital cameras, MP3 players, global positioning satellite systems, 3G communication devices, hybrid cars and other electronic products. Batteries are becoming smaller, lighter, more efficient, longer lasting and free of pollution. The lithium battery energy/weight ratio exceeds its counterparts and with an excellent safety standard we believe it is the future of the battery industry. China has become one of the largest producers and consumers of lithium ion batteries. According to BBC Research, annual lithium ion battery sales was estimated at around $6.8 billion. We anticipate that there will be greater demand for lithium batteries in China and worldwide in the next few years. We believe the current trend towards smaller, lighter portable consumer products will continue and because of its size, the demand for lithium batteries will keep increasing.

Under the current depressed economic environment, management of the Company made some strategic adjustments to keep the Company running and growing. To keep the existing battery pack accessories segment, the Company expanded into a related field in August 2008- battery assembly and finished battery distribution, to diversify our line of products; consequently, the Company competes in the entire battery industry.

Having engaged in the battery business for years, management of the Company has accumulated abundant knowledge about the battery industry, established a strong network among battery companies which are both upstream and downstream in the battery distribution flow, and gained a lot of experience in battery distribution; therefore, we believe the Company is in a more favorable position than other companies in distributing finished batteries. Assembling and distributing finished batteries has a higher profit margin than manufacturing battery accessories, so management of the Company is confident our battery distribution business will be profitable due to the outstanding battery quality and strong distribution network the Company has.

On December 7, 2009, we closed the transactions contemplated by the share exchange agreement dated November 19, 2009 with Anytone International and Shenzhen Anytone. Pursuant to the share exchange agreement, we issued the shareholders of Anytone International 3,593,939 shares of the Company's restricted common stock and paid $10,000,000 in cash. Anytone is engaged in production of battery and battery related products.

On January 12, 2010, we closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with NewPower. Pursuant to the share exchange agreement, our Chinese subsidiary E’jenie acquired NewPower. We issued the shareholders of NewPower 1,823,346 shares of the Company’s restricted common stock and paid them $3,000,000 in cash. NewPower is engaged in manufacturing and distribution of lithium battery cells.

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone executed a share exchange agreement to acquire all the equity interest of Kim Fai, a Chinese company engaged in the technology development and sale of solar application products and solar energy batteries, with all of the shareholders of Kim Fai. The price for the outstanding stock of Kim Fai was $13,303,236 to be paid in cash, and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy at November 10, 2010. As of March 31, 2011, $13,303,326 was paid and 1,913,265 shares were issued.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

The following table presents certain consolidated statement of operations information for the three months ended March 31, 2011 and 2010. The discussion following the table is based on these results. Certain columns may not add up due to rounding.


	2011		% of Sales			2010		% of Sales
Revenue, net
Battery	$	20,052,391		74	%	$	19,399,150		86	%
Battery shell and cover		1,518,822		6	%		3,053,513		14	%
Solar panel		5,514,918		20	%		-		-	%
Total		27,086,131		100	%		22,452,663		100	%

Cost of revenue
Battery		12,710,728		63	%		14,073,985		73	%
Battery shell and cover		1,053,855		69	%		1,953,393		64	%
Solar		3,876,878		70	%		-		-	%
Total		17,641,461		65	%		16,027,378		71	%

Gross profit		9,444,670		35	%		6,425,285		29	%

Operating expenses
Selling		364,180		1	%		125,974		1	%
General and administrative		1,755,619		7	%		1,374,155		6	%
Total		2,119,799		8	%		1,500,129		7	%

Income from operations		7,324,871		27	%		4,925,156		22	%

Other income, net		13,412		-	%		29,576		-	%

Income before income taxes		7,338,283		27	%		4,954,732		22	%

Provision for income taxes		1,877,728		7	%		1,172,866		5	%

Net income	$	5,460,555		20	%	$	3,781,866		17	%

Net Revenue

Net revenue for the three months ended March 31, 2011 was $27.09 million compared to $22.45 million for the 2010 period, an increase of $4.64 million, or 21%. The increase was primarily due to the acquisition of Kim Fai in November 2011, which brought us $5.51 million in solar panel sales during the first quarter of 2011. For the business of battery, sales increased $0.65 million, compared to $19.40 million in the first quarter of 2010. We have been able to integrate the industry chain, optimize the internal and external resource to improve our productivity and increase our market share. Therefore, during the first quarter of 2011, the Company switched the battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency and save on cost.

The Company’s existing battery shell and cover business generated net revenue of $1.52 million during three months ended March 31, 2011 compared with $3.05 million for the 2010 period, a decrease of $1.53 million, or 50%. The decrease in our sales in this segment was mainly due to the decreased demand from the market.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2011 was $17.64 million or 65% of net sales compared to $16.03 million or 71% of net sales for the comparable period of 2010, an increase of $1.61 million, or 10%.

Cost of revenue for the battery assembly and distribution business segment was $12.71 million, or 63% of total battery revenue for the three months ended March 31, 2011, compared with $14.07 million or 73% for the 2010 period, a decrease of $1.36 million or 10%. The percentage decrease in cost of revenue was mainly due to switching of our battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency and save on cost.

Cost of revenue for our existing battery shell and cover business during the three months ended March 31, 2011 was $1.0 million, or 69% of sales compared to $1.95 million for the 2010 period, or 64% of sales. The increase in our percentage cost of revenue for battery shell and cover business resulted from the decreased in sales and the increased in the lost of materials, especially the price of the steel and aluminum.

Cost of revenue for our new production line of solar products for the three months ended March 31, 2011 was $3,876,878, or 70% of sales.

Operating Expenses

Operating expenses for the three months ended March 31, 2011 were $2.12 million or 8% of net revenue, compared to $1.5 million, or 7% of net revenue for the 2010 period, an increase of $0.62 million, or 41%. The increase in operating expenses was primarily due to the operating expenses from our newly acquired subsidiary, which resulted in an increase of $163,347 in operating expenses.

Selling expenses for the three months ended March 31, 2011 were $364,180 or 1% of net revenue compared to $125,974 or 1% of net revenue for the 2010 period, an increase of $238,206, which was mainly due to the increased marketing expense which including advertisement, travel, exhibition fee and salary of sales personnel as a result of our efforts to expand the market for new customers.

General and administrative expenses for the three months ended March 31, 2011 were $1,755,619 or 7% of net revenue compared to $1,374,155 or 6% of net revenue for the 2010 period. The increase in general and administrative expenses of $381,464 was mainly due to one newly acquired subsidiary, which increased general and administrative expenses by $112,741. In addition, the Company increased product development cost and product design fee of $44,300, employees’ salary of $40,000, and the Company recorded $168,750 and $10,071 as stock-based compensation to consultants and an IR firm, respectively, during the three months ended March 31, 2011.

Those consultants who were granted stock as compensation work as branding strategy and financial consultants. The branding strategy consultants help the Company conduct stage analysis in the development of products and the industry; analyze customers’ motive of purchase; analyze market segmentation of similar brands; set strategic models and develop principles of the Company’s self-owned brands; assist the Company in identifying target consumers and designing brand development strategy; advise the Company on implementation of brand strategy including brand recognition, packaging, advertisement, etc. and draft brand strategy planning reports. The financial consultants provide the Company financial advice on matters including: mergers and acquisitions (“M&A”), management buy-outs (“MBO”), restructuring, asset management, investment and financing.

Net Income

Net income for the three months ended March 31, 2011 was $5.46 million compared to $3.78 million for the 2010 period, an increase in net income of $1.68 million or 44% due to the reasons listed above.

LIQUIDITY AND CAPITAL RESOURCES

Our operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and equivalents were $10,121,795 as of March 31, 2011. Working capital at March 31, 2011 was $17,569,972.

The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2011 and 2010:

	2011			2010
Cash provided by (used in):
Operating Activities		$	3,577,552		$	6,589,053
Investing Activities			(12,456)			20,772
Financing Activities			(6,626,560)			(1,732,397)

Net cash provided by operating activities was $3.58 million for the three months ended March 31, 2011, compared to net cash provided by operating activities of $6.59 million for the 2010 period. The decrease in net cash provided by operating activities for the three months ended March 31, 2011 was mainly due to the increase in accounts receivable outstanding as a result of the increased sales, and increased inventory level, for the first quarter of 2011, despite an increase in net income and slow payment on accounts and taxes payables which resulted a decrease in cash outflow during the three months ended March 31, 2011. Anytone’s standard payment term is 60 days while our other subsidies’ payment terms to their customers are 30 days. We have experienced timely payment from our customers.

Net cash used in investing activities was $12,456 for the three months ended March 31, 2011 and cash inflow of $20,772 in the 2010 period. The cash used in the first quarter of 2011 was $12,456 for the purchase of fixed assets.

Net cash used in financing activities was $6.63 million for the three months ended March 31, 2011 compared to net cash used in financing activities of $1.73 million for the 2010 period. During the first quarter of 2011, the cash outflow was due to repayment of acquisition liability for Kim Fai of $6.71 million and partially offset by cash inflow from warrants exercised. During the comparable period of 2010, we paid $1 million of the remaining balance of cash consideration for the acquisition of Anytone, and $0.73 million to related parties.

Related Party Loans

As of March 31, 2011, the Company had a $549,082 unsecured, due on demand, and non-interest bearing loans payable to Dongrong Xu and Zaoxian Fang, the original owners of Shenzhen Anytone, of $466,719 and $82,363, respectively, in connection with the acquisition of Shenzhen Anytone by Anytone International. As of May 17, 2011, the Company has $549,082 outstanding.

Working Capital Requirements

Historically, cash from operations, short term financing and the sale of our Company stock have been sufficient to meet our cash needs. We believe we will be able to generate sufficient cash from operations to meet our working capital needs. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by economic environment for the industry and opportunities, availability of financing and raising capital by selling stock. We acquired Kim Fai by issuing 1,913,265 shares of common stock and paying $13,303,236 by cash. As of March 31, 2011, the 1,913,265 shares of common stock were issued and $13,303,236 was paid.

OFF-BALANCE SHEET ARRANGEMENTS

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt of other entities or entered into any options on non-financial assets.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principle in the United States (“US GAAP”). The Company’s functional currency is the Chinese Yuan Renminbi (CNY); however the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

Principles of Consolidation

The consolidated financial statements include the accounts of New Energy Systems Group and its wholly owned subsidiaries Billion, E’Jenie, Anytone, NewPower and Kim Fai, are collectively referred to the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

Use of Estimates

Inventory

Property, Plant & Equipment

Furniture and Fixtures	5 years
Equipment	5 years
Computer Hardware and Software	5 years
Building	30 years

Revenue Recognition

The Company manufactures and distributes batteries, battery shells and covers for portable consumer electronic devices in the PRC. The Company’s revenue recognition policies are in compliance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, delivery is complete, no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due or the possible return of goods. Payments received before satisfaction of all relevant criteria for revenue recognition are recorded as unearned revenue.

Foreign Currency Translation and Comprehensive Income (Loss)

During three months ended March 31, 2011 and 2010, the accounts of E’Jenie, Anytone, Kim Fai and NewPower were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi ("CNY"). Such financial statements were translated into $ in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830) with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity (codified in FASB ASC Topic 220). There were no significant fluctuations in the exchange rate for the conversion of CNY to USD after the balance sheet date.

Recent Accounting Pronouncements

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

N/A.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company's principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of March 31, 2011. Based upon that evaluation, the Company’s CEO and CFO noted a material weakness and concluded that the Company’s disclosure controls and procedures were not effective. The Company’s material weakness in its internal control over financial reporting is related to a limited U.S. GAAP technical accounting expertise. The Company’s internal accounting department has been primarily engaged in ensuring compliance with PRC accounting and reporting requirements for our operating affiliates. As a result, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies. Although the Company’s accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP matters. As a result of such evaluation, the Company's CEO concluded that, as of the date of evaluation, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

Our management, with the participation of our CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the quarter ended March 31, 2011. Based on that evaluation, our CEO and CFO concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

To our knowledge, there is no material litigation pending or threatened against us.

Item 1A.

Risk Factors.

N/A.

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

To our knowledge, there are no material defaults upon senior securities.

Item 4.

(Removed and Reserved).

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

(a)

Exhibits

31.1		Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.
31.2		Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.
32.1		Certification Required Under Section 906 of Sarbanes-Oxley Act of 2002.
32.2		Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.

SIGNATURES

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


	NEW ENERGY SYSTEMS GROUP

Dated: May 19, 2011	By:	/s/ Nian Chen
		Name: Nian Chen
		Title: Chief Executive Officer


Dated: May 19, 2011	By:	/s/ Junfeng Chen
		Name: Junfeng Chen
		Title: Chief Financial Officer

NEW ENERGY SYSTEMS GROUP - FORM 10-Q - May 19, 2011

Attached files

NEW ENERGY SYSTEMS GROUP Reports