NEW ENERGY SYSTEMS GROUP - FORM 10-Q/A

Attached files

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1 to

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 June 30, 2010

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

For the transition period from _______ to _______

Commission file number: 001-34837

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 x No o

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 o No o

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 o	Accelerated filero
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

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 o No o

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: 11,863,390 shares of common stock, $.001 par value, were outstanding as of August 10, 2010.

EXPLANATORY NOTE

New Energy Systems Group, a Nevada corporation (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 (the “Form 10-Q/A”), which was originally filed with the Securities and Exchange Commission (“SEC”) on August 16, 2010 (the “Original Form 10-Q”), to restate the financial statements at June 30, 2010 to reflect the following:

The Company initially valued the stock components of the acquisition price of Anytone and Newpower based on the average stock price of New Energy two days before and two days after the agreement date. The Company revised the stock price used to value the stock components of the acquisitions based on the guidance at FASB ASC 805-30-30-7 that is the stock price of New Energy at the acquisition date. Accordingly, the goodwill amount was changed as a result of revised acquisition price by using the stock price at the acquisition date.

The Company initially presented equity-based compensation for stock issued to consultants for services not yet provided as a contra account in equity. The Company now recorded such prepaid compensation as an asset in the balance sheet according to FASB ASC 505-50.

The aforementioned, however, did not have any impact on the statement of income and other comprehensive income and cash flows.

The Company is also revising the following disclosures, as required by the Securities and Exchange Commission in their letters of comments:

Part I- Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.

Part I- Item 4: Controls and Procedures.

This Form 10-Q/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosures and reclassification described above, the information in this Form 10-Q/A has not been updated to reflect events that occurred after June 30, 2010, the filing date of the Original Form 10-Q. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Form 10-Q, including any amendments to those filings.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4T.	Controls and Procedures	9
	PART II
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	11
Item 4.	(Removed and Reserved)	11
Item 5.	Other Information	11
Item 6.	Exhibits	11
SIGNATURES		12

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NEW ENERGY SYSTEMS GROUP

INDEX TO FINANCIAL STATEMENTS

JUNE 30, 2010, AND 2009

(UNAUDITED)


Financial Statements-

Balance Sheets as of June 30, 2010, and December 31, 2009	F-2

Statements of Operations and Comprehensive Income for the Six Months Ended June 30, 2010, and 2009	F-3

Statements of Cash Flows for the Six Months Ended June 30, 2010, and 2009	F-4

Notes to Financial Statements June 30, 2010, and 2009	F-5

F-1

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	June 30, 2010 (Unaudited)		December 31, 2009
	(RESTATED)		(RESTATED)
Current assets
Cash and cash equivalents	$	3,781,165	$	3,651,990
Accounts receivable		16,821,827		9,776,041
Inventory		1,935,226		502,702
Prepaid expenses		175,612		-
Deposit		37,833		-
Other receivables		-		433,804
Due from shareholders		263,821		262,380
Deferred Compensation		675,000		675,000

Total current assets		23,690,484		15,301,917

Plant, property & equipment, net		938,854		699,790

Other assets
Prepayment for Newpower acquisition		-		2,999,473
Deposits		-		37,626
Deferred Compensation-noncurrent		1,435,993		1,773,493
Goodwill		33,010,047		19,775,939
Intangible assets, net		21,390,830		15,772,344

Total other assets		55,836,870		40,358,875

Total assets	$	80,466,208	$	56,360,582

Current liabilities
Accounts payable and accrued expenses	$	8,438,211	$	9,095,623
Taxes payable		1,443,546		762,430
Loan payable to related party		530,121		527,225

Total current liabilities		10,411,878		10,385,278

Deferred tax liability		4,133,977		3,001,584

Total Liabilities		14,545,855		13,386,862

Stockholders' equity
Preferred stock, $.001 par value, 7,575,757 shares authorized, issued and outstanding		7,576		7,576
Common stock, $.001 par value, 140,000,000 shares authorized, 11,863,390 shares issued and outstanding		11,863		11,863
Additional paid in capital		58,198,401		42,697,186
Statutory reserve		2,070,081		2,070,081
Other comprehensive income		1,320,564		1,225,986
Retained earnings (Accumulated deficit)		4,311,868		(3,038,972	)

Total stockholders' equity		65,920,353		42,973,720

Total liabilities and stockholders' equity	$	80,466,208	$	56,360,582

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

F-2

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(UNAUDITED)

	Six Months Ended June 30,						Three Months Ended June 30,
	2010			2009			2010			2009

Revenue, net
Battery	$	40,330,653		$	5,452,243		$	20,931,503		$	3,677,785
Battery shell and cover		5,527,349			2,557,870			2,473,836			1,700,208
Total revenue		45,858,002			8,010,113			23,405,339			5,377,993

Cost of sales
Battery		29,582,795			3,729,291			15,508,810			2,538,448
Battery shell and cover		3,700,517			1,949,757			1,747,124			1,221,860
Total cost of sales		33,283,312			5,679,048			17,255,934			3,760,308

Gross profit		12,574,690			2,331,065			6,149,405			1,617,685

Operating expenses
Selling expenses		245,816			39,432			119,842			21,293
General and administrative expenses		2,834,987			179,236			1,460,832			78,189
Total operating expenses		3,080,803			218,668			1,580,674			99,482

Income from operations		9,493,887			2,112,397			4,568,731			1,518,203

Other income (expenses)
Other income (expense)		7,541			1,418			(746	)		(1,480	)
Interest income (expense)		45,164			(57,793	)		23,875			(26,751	)
Total other income (expense), net		52,705			(56,375	)		23,129			(28,231	)

Income before income taxes		9,546,592			2,056,022			4,591,860			1,489,972

Provision for income taxes		(2,195,752	)		(213,084	)		(1,022,886	)		(151,316	)

Net income		7,350,840			1,842,938			3,568,974			1,338,656

Other comprehensive income
Foreign currency translation		94,578			17,326			88,139			31,954

Comprehensive income	$	7,445,418		$	1,860,264		$	3,657,113		$	1,370,610

Net income per share
Basic	$	0.62		$	0.34		$	0.30		$	0.25
Diluted	$	0.58		$	0.30		$	0.28		$	0.22

Weighted average number of shares outstanding:
Basic		11,863,390			5,446,062			11,863,390			5,446,062
Diluted		12,623,880			6,203,637			12,623,866			6,203,637

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

F-3

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(UNAUDITED)

	Six Months Ended June 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	7,350,840		$	1,842,938
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		1,520,631			156,486
Deferred tax liability		(269,495	)		-
Deferred compensation expense		337,500			-
Loss on disposal of fixed asset		672			-
(Increase) / decrease in current assets:
Accounts receivable		(4,139,758	)		2,327,997
Inventory		(1,182,208	)		535,730
Prepaid expenses, deposits and other receivables		433,995			-
Increase/(Decrease) in current liabilities:
Accounts payable and accrued expenses		1,818,392			(1,641,333	)
Taxes payable		613,118			(164,280	)

Net cash provided by operating activities		6,483,687			3,057,538

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in acquisition of Newpower		24,550			-
Proceeds from sale of property and equipment		623			-
Acquisition of property and equipment		(34,609	)		-

Net cash used in investing activities		(9,436	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of acquisition liability for Anytone		(5,000,000	)		-
Payment on loan payable		-			(87,813	)
Loan from (repayment to) related party		(1,362,597	)		40,966

Net cash used in financing activities		(6,362,597	)		(46,847	)

Effect of exchange rate changes on cash and cash equivalents		17,521			(15,197	)

Net increase in cash and cash equivalents		129,175			2,995,494

Cash and cash equivalents, beginning balance		3,651,990			6,969,454

Cash and cash equivalents, ending balance	$	3,781,165		$	9,964,948

SUPPLEMENTAL DISCLOSURES:

Cash paid during the period for:

Income tax payments	$	1,864,696		$	364,310

Interest expense	$	-		$	68,397

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

F-4

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010 (UNAUDITED) and DECEMBER 31, 2009

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, operating its business through its wholly owned subsidiary E'Jenie Technology Development Co., Ltd (“E’Jenie”), a company incorporated under the laws of the Peoples Republic of China (“PRC”). Through E'Jenie, the Company manufactures and distributes lithium battery shells and related 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 owns 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 the shareholders of Galaxy View. 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 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 of shares of Sono with Liu Changqing and Wang Feng (collectively, the “Purchasers”) for the sale of its wholly-owned subsidiary Sono. Changqing purchased 60% and Feng purchased 40% in Sono. In exchange for all of the outstanding shares of Sono, the Purchasers paid $3,000,000 for the acquisition. The Company disposed 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 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.

F-5

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 Shenzhen NewPower Technology Co., Ltd. (“Newpower”). Pursuant to the Share Exchange Agreement, the Company’s subsidiary 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 standard restrictive legend, and cash of $3,000,000. Newpower is engaged in manufacturing and distribution of lithium batteries.

The unaudited financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) was omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2009 audited financial statements included in the Company’s Annual Report on Form 10-K. The results for the six and three months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with 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 ($).

Exchange Gain (Loss)

During the six and three months ended June 30, 2010 and 2009, the transactions of E’Jenie, Anytone 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 six and three months ended June 30, 2010 and 2009, the accounts of E’Jenie, Anytone and Newpower were maintained, and its financial statements were expressed, in 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.

F-6

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 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 battery shells and covers for cellular phones. The Company established a new division in 2008, through which the Company began selling batteries in PRC. The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480). Sales revenue is recognized when the significant risks and rewards of the ownership of goods were transferred to the buyers. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

Sales revenue represents 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). 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 adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740) on January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48. As a result of the implementation of Interpretation 48, the Company recognized no material adjustments to liabilities or stockholders’ equity. 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 are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements .

F-7

At June 30, 2010 and December 31, 2009, the Company had not taken any significant uncertain tax position on its tax return for 2009 and prior years or in computing its tax provision for 2010.

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 the acquisition of NewPower on January 12, 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, intense 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 Cash Equivalents

Cash and cash 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 June 30, 2010 and December 31, 2009, the Company had approximately $3,781,000 and $3,651,990 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.

F-8

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 June 30, 2010 and December 31, 2009.

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 June 30, 2010 and December 31, 2009, inventory consisted of the following:

	2010		2009
Raw Materials	$	1,221,345	$	133,358
Work-in-process		281,815		44,250
Finished goods		432,066		334,095
		1,935,226		511,703
Less: reserve for impairment of inventory		-		(9,001	)
	$	1,935,226	$	502,702

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 June 30, 2010 and December 31, 2009, Property, Plant & Equipment consisted of the following:

	2010			2009
Machinery	$	1,468,749		$	936,049
Automobile		25,328			25,189
Office equipment		101,824			81,674
Building		592,674			589,436

Subtotal		2,188,575			1,632,348

Accumulated depreciation		(1,249,721	)		(932,558	)

Plant, Property & Equipment, Net	$	938,854		$	699,790

Depreciation was approximately $127,000 and $110,000 for the six months ended June 30, 2010 and 2009, and approximately $63,000 and $57,000 for the three months ended June 30, 2010 and 2009, respectively.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and cash 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 .

F-9

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 June 30, 2010 and December 31, 2009, 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 net earnings per share are 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. Under this 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.

Goodwill

Goodwill represents 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.

Intangible Assets

The Company applies criteria specified in SFAS No. 141(R), “Business Combinations” (codified in FASB ASC Topic 805) to determine whether 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.

Effective January 1, 2002, the Company adopted 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 (codified in FASB ASC Topic 360) 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.

F-10

Recent accounting pronouncements

On July 1, 2009, the Company adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments based on Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01 re-defines authoritative GAAP for nongovernmental entities to be only comprised of the FASB Accounting Standards Codification (“Codification”) and, for SEC registrants, guidance issued by the SEC. The Codification is a reorganization and compilation of all then-existing authoritative GAAP for nongovernmental entities, except for guidance issued by the SEC. The Codification is amended to effect non-SEC changes to authoritative GAAP. Adoption of ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to the Consolidated Financial Statements.

On February 25, 2010, the FASB issued ASU No. 2010-09 Subsequent Events Topic 855 “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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 will not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB codified the consensus reached in Emerging Issues Task Force Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU No. 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. FASB ASU No. 2010-17 is effective for fiscal years beginning on or after June 15, 2010, and is effective on a prospective basis for milestones achieved after the adoption date. The Company does not expect this ASU will have a material impact on its financial position or results of operations when it adopts this update on January 1, 2011.

Note 3 – INTANGIBLE ASSETS

As of June 30, 2010 and December 31, 2009, intangible assets consisted of the following:

	2010			2009

Customer relationships	$	2,691,445		$	2,691,445
Design		366,850			366,850
Proprietary technology		270,850			270,850
Land rights		592,674			589,436
Patent right		22,176,943			15,167,497
Intangible assets		26,098,762			19,086,078

Impairment in 2007		(1,972,598	)		(1,972,598	)

Accumulated amortization		(2,735,334	)		(1,341,136	)

Intangible assets, net	$	21,390,830		$	15,772,344

During the year ended December 31, 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 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 the year ended December 31, 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.

F-11

The intangible assets are amortized over 10-30 years. Amortization expenses were approximately $1,394,000 and $46,000 for the six months ended June 30, 2010 and 2009, and approximately $697,000 and $18,000 for the three months ended June 30, 2010 and 2009, respectively.

Amortization expenses for the Company’s intangible assets over the next five fiscal years from June 30, 2010 are estimated to be:

June 30, 2011	$	2,806,000
June 30, 2012		2,806,000
June 30, 2013		2,806,000
June 30, 2014		2,806,000
June 30, 2015		2,806,000
Thereafter		7,360,830
Total	$	21,390,830

Note 4 – TAXES PAYABLE

As of June 30, 2010 and December 31, 2009, taxes payable comprised the following:

	2010		2009

Income tax payable	$	1,132,518	$	526,043
VAT tax payable		297,531		224,137
Other tax		13,497		12,250
Total	$	1,443,546	$	762,430

Note 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of June 30, 2010 and December 31, 2009, accounts payable and accrued expenses comprised of the following:

	2010		2009

Accounts payable	$	7,498,275	$	3,579,714
Payable of purchase of Anytone		-		5,000,000
Payable for expense reimbursement		555,136		297,318
Accrued payroll		245,196		137,316
Other		139,604		81,275

Total	$	8,438,211	$	9,095,623

Note 6 – RELATED PARTY TRANSACTIONS

Due from Shareholders

As of June 30, 2010 and December 31, 2009, the Company had $263,821 and $262,380 unsecured, due on demand, and non interest-bearing advance to the original owners of Anytone International.

Loan payable to Related Party

As of June 30, 2010 and December 31, 2009, the Company had $530,121and $527,225 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 represented differences between the tax bases and book bases of intangible assets. At June 30, 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. At December 31, 2009, deferred tax liability represents the difference between the fair value and the tax basis of patents acquired in the acquisition of Anytone.

F-12

Note 8 – STOCK OPTIONS

On November 4, 2005, the Company issued a nonqualified stock option for 10,000 shares (post-reverse stock split) to a member of the board with an exercise price of $5.3 (the exercise price for 10,000 shares of options post-reverse stock split) that expires on November 3, 2010. The option vested and became exercisable immediately.

The Company's 2005 Stock Option Incentive Plan provides for the grant of 10,000 option rights (post-reverse stock split) to a non-employee director. The Plan is administered by the Company's Compensation Committee, who has the authority to select plan participants and determine the terms and conditions of such awards.

The Company adopted SFAS 123(R) (codified in FASB ASC Topic 718) on November 1, 2005 using the modified prospective method. Prior to the adoption of SFAS 123(R) the Company did not have any stock options.

Risk-free interest rate	4.00 %
Expected life of the options	5 years
Expected volatility	58.0 %
Expected dividend yield	0 %

On March 20, 2006, the Company issued a non-incentive stock option for 15,000 shares (post-reverse stock split) to a consultant with an exercise price of $7.02 (post-reverse stock split) that expired on March 19, 2009.

Risk-free interest rate	4.77 %
Expected life of the options	3 years
Expected volatility	126.76 %
Expected dividend yield	0 %

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 as of June 11, 2010 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 June 30, 2010 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		-

Outstanding at June 30, 2010		35,000
Exercisable at June 30, 2010		35,000

F-13

Options outstanding (post-reverse stock split) at June 30, 2010 and related weighted average price and intrinsic value are as follows:

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

$5.30 - $6.55	35,000	2.24	$6.19	22,500	$5.99

Note 9 – COMMON STOCK AND NON-CASH STOCK COMPENSATION

On August 18, 2009, the Company entered into a four-year consulting agreement for promoting 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 the year ended December 31, 2009, the Company issued 1,000,000 shares of the Company’s stock and recorded $2,700,000 as deferred compensation. During the six and three months ended June 30, 2010, the Company amortized $338,000 and $169,000 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 $1,435,993 was noncurrent.

On December 3, 2009, the Company issued 3,593,939 shares of common stock, valued at $6.6 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 total valued at $23,719,997 at the acquisition date.

On December 30, 2009, the Company issued 1,823,346 shares of common stock valued at $8.51 per share which was the stock price at the acquisition date, to pay the stock portion of the total purchase consideration for the acquisition of Newpower. The common stock total valued at $15,516,674 at the acquisition date.

Note 10 – INCOME TAXES

As of June 30, 2010, the Company in the US had approximately $1,869,000 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 June 30, 2010 consists 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 June 30, 2010. 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 22% for 2010 and 10% for 2009, respectively. The newly acquired subsidiary Anytone and Newpower’s effective EIT for 2010 is 22% and was 20% for 2009.

Foreign pretax earnings approximated $10,324,000 and $2,131,000 for the six months ended June 30, 2010 and 2009, respectively. Pretax earnings of a foreign subsidiary are subject to U.S. taxation when effectively repatriated. The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent those earnings are indefinitely invested outside the United States. At June 30, 2010, approximately $25,004,000 of accumulated undistributed earnings of non-U.S. subsidiaries was indefinitely invested. At the existing U.S. federal income tax rate, additional taxes of approximately $4,262,000 would have to be provided if such earnings were remitted currently.

F-14

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 six and three months ended June 30, 2010 and 2009, respectively:

	Six Months Ended June 30,						Three Months Ended June 30,
	2010			2009			2010			2009
US statutory rates		34	%		34	%		34	%		34	%
Tax rate difference		(10	)%		(9	)%		(10	)%		(9	)%
Effect of tax holiday		(4	)%		(16	)%		(5	)%		(16	)%
Valuation allowance on deferred tax on US NOL		3	%		1	%		3	%		1	%
Tax expense at actual rate		23	%		10	%		22	%		10	%

The provisions for income tax expenses for the six and three months ended June 30, 2010 and 2009 consisted of the following:

	Six Months Ended June 30,					Three Months Ended June 30,
	2010			2009		2010		2009
Income tax expense - current	$	2,465,247		$	213,084	$	1,157,664	$	151,316
Income tax benefit - deferred		(269,495	)		-		(134,778)		-
Total income tax expenses	$	2,195,752		$	213,084	$	1,022,886	$	151,316

Note 11 – STATUTORY RESERVE

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:

i)	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

The Company purchased from three vendors during the six months ended June 30, 2010 with each vendor accounting for about 13%, 13% and 12% of purchases. Accounts payable to the vendors were $1,508,198, $845,617 and $868,497 as of June 30, 2010.

The Company purchased its products from four vendors during the six months ended June 30, 2009 with each vendor accounting for 27%, 26%, 20% and 12% of the total purchases. Accounts payable to these venders amounted to $390,814, $411,306, $309,943 and $163,951 as of June 30, 2009.

One customer accounted for 10% of the sales during the six months ended June 30, 2010. Accounts receivable from this customer was $2,697,216 as of June 30, 2010.

One customer accounted for 65% of the total sales during the six months ended June 30, 2009. Accounts receivable from this customer were $3,974,270 as of June 30, 2009.

The Company purchased from three vendors during the three months ended June 30, 2010 with each vendor accounting for about 15%, 13% and 12% of the total purchases.

There were four vendors which the Company purchased more than 10% of its products for the three months ended June 30, 2009 with each vendor accounting for 28%, 25%, 20% and 12% of the total purchases.

The Company had one customer which accounted for 10% and 63% of the revenue for the three months ended June 30, 2010 and 2009, respectively.

F-15

Note 13 – SEGMENT REPORTING

The Company had two principal operating segments which were: 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 have been 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:

	Six months ended June 30,						Three months ended June 30,
	2010			2009			2010			2009
Revenues from unaffiliated customers:
Battery	$	40,330,653		$	5,452,243		$	20,931,502		$	3,677,785
Battery shell and cover		5,527,349			2,557,870			2,473,836			1,700,208
Consolidated	$	45,858,002		$	8,010,113		$	23,405,338		$	5,377,993
Operating income (loss):
Battery	$	8,600,302		$	1,722,952		$	4,356,833		$	1,171,080
Battery shell and cover		1,670,724			464,149			649,382			370,313
Corporation		(777,140	)		(74,704	)		(437,485	)		(23,190	)
Consolidated	$	9,493,887		$	2,112,397		$	4,568,730		$	1,518,203
Net income (loss) before taxes:
Battery	$	8,610,664		$	1,722,952		$	4,362,745		$	1,171,080
Battery shell and cover		1,713,298			407,894			666,768			342,082
Corporation		(777,371	)		(74,824	)		(437,654	)		(23,190	)
Consolidated	$	9,546,592		$	2,056,022		$	4,591,859		$	1,489,972
Net income (loss) :
Battery	$	6,823,003		$	1,578,055		$	3,526,999		$	1,067,824
Battery shell and cover		1,305,208			339,707			479,628			294,022
Corporation		(777,371	)		(74,824	)		(437,654	)		(23,190	)
Consolidated	$	7,350,840		$	1,842,938		$	3,568,973		$	1,338,656
Depreciation and amortization:
Battery	$	1,387,250		$	-		$	694,094		$	-
Battery shell and cover		87,000			110,106			42,495			51,399
Corporation		46,380			46,380			23,190			23,190
Consolidated	$	1,520,630		$	156,486		$	759,779		$	74,589

The Company does not identify assets by segment.

Note 14- ACQUISITION OF ANYTONE, NEWPOWER AND UNAUDITED PRO FORMA INFORMATION

On November 19, 2009, the Company entered into a share exchange agreement with Anytone International and Shenzhen Anytone. Shenzhen Anytone is a subsidiary of Anytone International, collectively referred 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 closed on December 7, 2009. As of June 30, 2010, $10,000,000 was paid. Revenue and net income of Anytone included in the consolidated income statement for the six months ended June 30, 2010 was $21,102,828 and $3,329,854, and for the three months ended June 30, 2010 was $10,828,150 and $1,737,769, respectively.

F-16

The price for Anytone was $10,000,000 cash and 3,593,939 shares of common stock equivalent to $23,719,997, which was determined by multiplying the 3,593,939 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 $19,775,939 is recorded as goodwill.

Cash	$	2,401,140
Accounts receivable		651,062
Other receivables		842,463
Due from shareholder		262,396
Inventory		2,316,835
Property and equipment		42,209
Intangible assets		15,167,497
Goodwill		19,775,939
Accounts payable		(4,178,789	)
Deferred tax liability		(3,033,499	)
Loan payable		(527,256	)
Purchase price	$	33,719,997

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, an aggregate of 1,823,346 shares of the Company’s Common Stock with standard restrictive legend, and cash of $3,000,000. As of June 30, 2010, $3,000,000 was paid.

The price for Newpower was $3,000,000 cash and 1,823,346 shares of common stock equivalent to $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 $13,234,108 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 six months ended June 30, 2010 was $16,025,051 and $915,605, and for the three months ended June 30, 2010 was $8,317,278 and $247,819, respectively.

Cash	$	24,550
Accounts receivable		2,809,600
Tax receivable		111,848
Inventory		240,262
Property and equipment		327,354
Intangible assets		7,009,446
Goodwill		13,234,108
Accounts payable		(2,410,017	)
Other payable and accrued expenses		(66,589	)
Loan payable to related party		(1,361,999	)
Deferred tax liability		(1,401,889	)
Purchase price	$	18,516,674

The following unaudited pro forma consolidated results of operations for New Energy, Anytone and Newpower for the six months ended June 30, 2009 presents the operations of New Energy , Anytone and Newpower as if the acquisitions occurred on January 1, 2009. 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.

	2009
Net revenue	$	30,957,001
Cost of revenue		24,376,099

Gross profit		6,580,903
Total operating expenses		2,324,617

Income from operations		4,256,286
Total non-operating expense		(42,556	)

Income before income tax		4,213,730
Income tax		481,806

Net income	$	3,731,924

Weighted average shares outstanding		10,863,348

Earnings per share	$	0.34

F-17

Note 15- COMMITMENTS

Anytone leased its office under a long term, non-cancelable, and renewable operating lease on January 1, 2009 with expiration date on December 31, 2013. The monthly rent is $12,400. For the six and three months ended June 30, 2010, the rental expense was approximately $74,000 and $37,000, respectively.

Newpower entered into a long term, non-cancelable and renewable rental agreement on September 1, 2009 with expiration date on August 31, 2012. The monthly payment is $6,300. For the six and three months ended June 30, 2010, the rental expense was approximately $38,000 and $19,000, respectively.

Future minimum rental payments required under operating leases as of June 30, 2010 are as follows:

2011	$	224,200
2012		224,200
2013		161,300
2014		74,300
	$	684,000

Note 16- RESTATEMENT OF FINANCIAL STATEMENTS

The financial statements at June 30, 2010 were restated to reflect the following:

	1.	The Company initially valued the stock components of the acquisition price of Anytone and Newpower based on the average stock price of New Energy two days before and two days after the agreement date. The Company revised the stock price used to value the stock components of the acquisitions based on the guidance at FASB ASC 805-30-30-7 that is the stock price of New Energy at the acquisition date. Accordingly, the goodwill amount was changed as a result of revised acquisition price by using the stock price at the acquisition date.
	2.	The Company initially presented equity-based compensation for stock issued to consultants for services not yet provided as a contra account in equity. The Company now recorded such prepaid compensation as an asset in the balance sheet according to FASB ASC 505-50.

The above restatement did not have any impact on the statement of income and other comprehensive income and cash flows.

The following table presents the effects of the restatement adjustment on the accompanying consolidated balance sheet at June 30, 2010:

Consolidated Balance Sheet at June 30, 2010	As Previously Reported			Restated		Net Adjustment

Deferred compensation	$	-		$	675,000	$	675,000
Deferred compensation-noncurrent	$	-		$	1,435,993	$	1,435,993
Goodwill	$	28,452,196		$	33,010,047	$	4,557,851
Total assets	$	73,797,364		$	80,466,208	$	6,668,844
Additional paid in capital	$	53,640,550		$	58,198,401	$	4,557,851

Less: Deferred compensation	$	(2,110,993	)	$	-	$	2,110,993
Total stockholders’ equity	$	59,251,509		$	65,920,353	$	6,668,844

F-18

Item 2. Management’s Discussion and Analysis or Plan of Operation

Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q and other reports filed by Registrant from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Registrant’s management as well as estimates and assumptions made by Registrant’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Registrant or Registrant’s management identify forward-looking statements. Such statements reflect the current view of Registrant with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the risks contained in the section of this report entitled “Risk Factors”) relating to Registrant’s industry, Registrant’s operations and results of operations, and any businesses that Registrant may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although Registrant believes that the expectations reflected in the forward-looking statements are reasonable, Registrant cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.

BUSINESS OVERVIEW

We operate our business through our wholly-owned subsidiary E'Jenie Technology Development Co., Ltd (E’Jenie), a company incorporated under the laws of the Peoples Republic of China (PRC). Through E'Jenie, we manufacture and distribute lithium battery shells and related products primarily in China. Based upon specifications from its customers E'Jenie develops, customizes and produces steel, aluminum battery shells and aluminum caps. Currently, E'Jenie produces fourteen steel battery shell lines, nine aluminum battery shell lines, three aluminum battery cap lines and three steel battery cap lines.

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 continually receive orders from our loyal customers because of our reputation and quality of the products. Our professional marketing team maintains relationships with our current customers and at the same time searches for other 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 an array of other electronic products. Batteries are becoming smaller, lighter, more efficient, longer lasting and free of pollution. The lithium battery energy/weight ratio exceeds that of its counterparts and with an excellent safety standard we believe that it is the future of the battery industry. China has become one of the largest producers and consumers of lithium ion batteries. According to the China Chemistry and Physics Electronic Industry Association, there were over $4.0 billion of lithium ion batteries sold in China in 2005. We anticipate that there will be even greater demand for lithium batteries in China and worldwide in the next few years. We believe that the current trend towards smaller, lighter portable consumer products will continue to grow and because of its size, the demand for the lithium battery will increase.

Under the current depressed economic environment, management of the Company has made some strategic adjustments to keep the Company running and growing. On the basis of keeping the existing battery pack accessories segment, the Company has gotten into a related business field since August 2008- battery assembly and finished battery distribution, to diversify the line of products; consequently, the Company has opportunity to compete in the whole 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 many battery companies which are on both lower and upper position of 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 the battery distribution business will be profitable due to the outstanding battery quality and the strong distribution network the Company has been building for years.

On December 7, 2009, we 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, we issued to the shareholders of Anytone International 3,593,939 shares of the Company's Common Stock with a restrictive legend, and paid US $10,000,000. 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 Shenzhen NewPower Technology Co., Ltd. (“Newpower”). Pursuant to the Share Exchange Agreement, our Chinese subsidiary E’jenie acquired Newpower. We 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, an aggregate of 1,823,346 shares of the Company’s Common Stock with standard restrictive legend, and cash consideration of US $3,000,000. Newpower is engaged in manufacturing and distribution of lithium batteries.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

The following table presents our consolidated statement of operations for the three months ended June 30, 2010 and 2009. The discussion following the table is based on these results. Certain columns may not add due to rounding.

	2010					2009
			% of Sales						% of Sales
Revenue, net
Battery	$	20,931,503		89	%	$	3,677,785			68	%
Battery shell and cover		2,473,836		11	%		1,700,208			32	%
Total revenue		23,405,339		100	%		5,377,993			100	%

Cost of revenue
Battery		15,508,810		74	%		2,538,448			69	%
Battery shell and cover		1,747,124		71	%		1,221,860			72	%
Total cost of revenue		17,255,934		74	%		3,760,308			70	%

Gross profit		6,149,405		26	%		1,617,685			30	%

Operating expenses
Selling expenses		119,842		1	%		21,293			0	%
General and administrative expenses		1,460,832		6	%		78,189			1	%
Total operating expenses		1,580,674		7	%		99,482			1	%

Income from operations		4,568,731		20	%		1,518,203			29	%

Other income (expenses)		23,129		0	%		(28,231	)		(1)	%

Income before income taxes		4,591,860		20	%		1,489,972			28	%

Provision for income taxes		1,022,886		4	%		151,316			3	%

Net income	$	3,568,974		16	%	$	1,338,656			25	%

Net Revenue

Net revenue for the three months period ended June 30, 2010 totaled $23,405,339 compared to $5,377,993 for the three months period ended June 30, 2009, an increase of $18.03 million, or approximately 335%. The increase was primarily due to continuous growth in sales as a result of successful development of new customers to whom are provided terms of credit, as well the recovery of PRC economy which increased demand for our products. In addition, we acquired Anytone in December of 2009, which brought us additional $10,828,150 sales of battery and Newpower in January of 2010, which brought us additional $10,294,507 sales of battery. We have been able to integrate the industry chain and increase our market share from these two acquisitions.

The Company’s existing battery shell and cover business generated net revenue of $2,473,836 during the three months period ended June 30, 2010 compared with $1,700,208 for the three months period ended March 31, 2009, an increase of $773,628, or 46%. The increase in our sales in this segment was related to the increased demand from our existing customers.

Cost of Revenue

Cost of Revenue for the three months period ended June 30, 2010 totaled $17,255,934 or approximately 74% of net sales compared to $3,760,308 or 70% of net sales for the three months period ended June 30, 2009, an increase of $13,495,626 or approximately 359%. The increase was mainly due to the increased sales and production volume.

Cost of revenue of the battery assembly and distribution was $15,508,810, or 74 % of total battery revenue for the three months period ended June 30, 2010, compared with $2,538,448 or 69% for the comparable period in 2009, an increase of $12,970,362 or 511%. The increase in cost of revenue to the sales was mainly due to the relatively higher production cost of Newpower as well as an overall price inflation in China.

Cost of revenue related to our existing battery shell and cover business during the three months period ended June 30, 2010 was $1,747,124, or 71% of its sales compared to $1,221,860, or 72% for the three months period ended June 30, 2009.

Operating Expenses

Operating expenses for the three months period ended June 30, 2010 totaled $1,580,674 or approximately 7% of net revenue, compared to $99,482 or approximately 1% of net revenue for the three months period ended June 30, 2009, representing an increase of $1,481,192, or approximately 1489%. The increase in operating expenses was primarily due to the operating expense from two newly acquired subsidiaries, which brought us $1,046,292 in operating expenses.

Selling expenses for the three months period ended June 30, 2010 totaled $119,842 compared to $21,293 for the comparable period in 2009.

General and administrative expenses for the three months period ended June 30, 2010 totaled $1,460,832 compared to $78,189 for the comparable period in 2009. The increase in general and administrative expenses of $1,382,643 was mainly due to expenses from two newly acquired subsidiaries, which increased the general and administrative expenses by $933,047. In addition, the Company recorded $169,000 as stock based compensation to the consultants in the three months ended June 30, 2010.

Net Income

Net income for the three months period ended June 30, 2010 totaled $3,568,974 compared to $1,338,656 for the three months period ended June 30, 2009, an increase in net income of $2,230,318 or approximately 167%, which was due to sales resulted from newly acquired subsidiaries. Net income as percentage to sales was 16% for the three months ended June 30, 2010 as compared to 25% for the same period of 2009; the decrease was mainly due to relatively higher production cost in Newpower, increased operating expenses as a result of overall price inflation in China, as well as non cash stock compensation expense of $169,000 to consultants.

Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

The following table presents certain consolidated statement of operations information for the six months ended June 30, 2010 and 2009. The discussion following the table is based on these results. Certain columns may not add due to rounding.

	2010					2009
			% of Sales					% of Sales
Revenue, net
Battery	$	40,330,653		88	%	$	5,452,243		68	%
Battery shell and cover		5,527,349		12	%		2,557,870		32	%
Total revenue		45,858,002		100	%		8,010,113		100	%

Cost of sales
Battery		29,582,795		73	%		3,729,291		68	%
Battery shell and cover		3,700,517		67	%		1,949,757		76	%
Total cost of revenue		33,283,312		73	%		5,679,048		71	%

Gross profit		12,574,690		27	%		2,331,065		29	%

Operating expenses
Selling expense		245,816		1	%		39,432		1	%
General and administrative expenses		2,834,987		6	%		179,236		2	%
Total operating expenses		3,080,803		7	%		218,668		3	%

Income (loss) from operations		9,493,887		21	%		2,112,379		26	%

Other income (expenses), net		52,705		0	%		(56,375)		(1)	%

Income (loss) before income taxes		9,546,592		21	%		2,056,022		26	%

Provision for income taxes		2,195,752		5	%		213,084		3	%

Net income (loss)	$	7,350,840		16	%	$	1,842,938		23	%

Net Revenue

Net revenue for the six months ended June 30, 2010 totaled $45,858,002 compared to $8,010,113 for the six months ended June 30, 2009, an increase of $37,847,889, or 473%. The increase was primarily due to the acquisition of Anytone in December of 2009, which brought us additional $21,102,828 sales of battery this year, and acquisition of Newpower in January of 2010, which brought us additional $16,025,051 sales of battery. We have been able to integrate the industry chain and increase our market share from these two acquisitions. In addition, we provide a 60 day credit term to our customers which resulted in an increased demand from them.

The Company’s existing battery shell and cover business generated net revenue of $5,527,349 during the six months ended June 30, 2010 compared with $2,557,870 for the six months ended June 30, 2009, an increase of $2,969,479, or 116%. The increase in our sales in this segment was mainly related to a general increase in sales to our existing and new customers.

Cost of Sales

Cost of sales for the six months ended June 30, 2010 totaled $33,283,312 or 73% of net sales compared to $5,679,048 or 71% of net sales for the six months ended June 30, 2009, an increase of $27,604,264 or 486%.

Cost of revenue of the battery assembly and distribution was $29,582,795, or 73 % of total battery revenue for the six months ended June 30, 2010, compared with $3,729,291 or 68% for the comparable period in 2009, an increase of $25,853,504 or 693%. The increase in cost of revenue to the sales was mainly due to the relatively higher production cost in Newpower as well as an overall price inflation in China.

Cost of sales related to our existing battery shell and cover business during the six months ended June 30, 2010 was $3,700,517, or 67% of sales of the battery shell and cover compared to $1,949,757 for the six months ended June 30, 2009, or 76% of sales. The reduction in our cost of sales as a percentage of sales for battery shell and cover was due to our efforts on cost control as well as the economy of scale on our increased production.

Operating Expense

Operating expenses for the six months ended June 30, 2010 totaled $3,080,803 or 7% of net revenue compared to $218,668 or 3% of net revenue for the six months ended June 30, 2009, an increase of $2,862,135, or 1309%. The increase in operating expenses was primarily due to the operating expense from two newly acquired subsidiaries, which brought us $2,106,531 in operating expenses.

Selling expenses for the six months period ended June 30, 2010 totaled $245,816 compared to $39,432 for the comparable period in 2009.

General and administrative expenses for the six months period ended June 30, 2010 totaled $2,834,987 compared to $179,236 for the comparable period in 2009. The increase in general and administrative expenses of $2,655,751 was mainly due to expenses from two newly acquired subsidiaries, which increased the general and administrative expenses by $1,876,622. In addition, the salary of employees was increased due to an overall price inflation in China and the Company recorded $338,000 as stock-based compensation to the consultant during the six months ended June 30, 2010.

Net Income

Net income for the six months ended June 30, 2010 totaled $7,350,840 compared to $1,842,938 for the six months ended June 30, 2009, an increase in net income of $5,507,902 due to the reasons listed above .

LIQUIDITY AND CAPITAL RESOURCES

Cash has been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $3,781,165 as of June 30, 2010. Working capital at June 30, 2010 was $12,603,606.

The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2010 and 2009:

	2010				2009
Cash provided by (used in):
Operating Activities		$	6,483,687			$	3,057,538
Investing Activities			(9,436)				-
Financing Activities			(6,362,597	)			46,847

Net cash flow provided by operating activities was $6,483,687 for the six months ended June 30, 2010, compared to net cash flow provided by operating activities of $3,057,538 for 2009. The increase in net cash flow provided by operating activities for 2010 was mainly due to an increase in sales and account payable outstanding but was partially offset by payment for inventory purchase and increased account receivable, which resulted from our new accounts receivable policy that provided our customers with a 60 day credit term.

Net cash flow used in investing activities was $9,436 for the six months ended June 30, 2010 and $0 in the comparable period of 2009. The cash inflow in the six months ended June 30, 2010 consisted of $24,550 cash received from Newpower through the acquisition, despite the cash payment of approximately $35,000 for purchase of fixed assets.

Net cash flow used in financing activities was $6,362,597 for the six months ended June 30, 2010 compared to net cash provided by financing activities of $46,847 for the comparable period in 2009. As of June 30, 2010, we paid off $5 million for the remaining balance of the cash consideration of the acquisition of Anytone. We also repaid $1.36 million to related parties in the six months ended June 30, 2010.

Shareholder loans

As of June 30, 2010, the Company had a $530,121 unsecured, due on demand, and non-interest bearing loan payable to Dongrong Xu and Zaoxian Fang, the original owners of Shenzhen Anytone, for $450,603 and $79,518, respectively, in connection with the acquisition of Shenzhen Anytone by Anytone International. As of March 31, 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 do not have any plans to sell our securities and there is no guarantee that if we do seek to sell securities in the future that we will be successful.

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 or commitments of other entities or entered into any options on non-financial assets.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 2 to the unaudited consolidated financial statements included in this quarter report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our Company's operating results and financial condition.

Recent accounting pronouncements

On July 1, 2009, the Company adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments based on Statement of Financial Accounting Standards No. 168 , “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01 re-defines authoritative GAAP for nongovernmental entities to be only comprised of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC registrants, guidance issued by the SEC. The Codification is a reorganization and compilation of all then-existing authoritative GAAP for nongovernmental entities, except for guidance issued by the SEC. The Codification is amended to effect non-SEC changes to authoritative GAAP. Adoption of ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to the Consolidated Financial Statements.

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 June 30, 2010. 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

The Company hired a SOX consulting firm in 2009 to evaluate our SOX 404 internal control and procedures. Their primary objective was to streamline our internal control structure. The consulting firm had studied and examined our lines of responsibility and delegation of authority for our functional financial reporting areas so that they can evaluate whether responsibility lines are clearly be drawn. They documented and tested our key controls over financial reporting in 2009 and introduced key auditable internal controls and procedures integrated with our financial reporting processes. Through their studies and examinations, management realized that our internal control over financial reporting was subject to the following weaknesses, which management will need to take remediating actions in accordance with their suggestion in 2010:

·	Lack of expertise in U.S. accounting principle among the personnel in the Company;

·	Dependency on U.S. external accountant and auditors for adjustments and footnote disclosures;

·	Lack of Internal Audit system;

·	Lack of adequate staffing and supervision with enough basic knowledge and requirement of SOX 404 within the accounting operations of the Company;

·	Lack of periodic meeting of Audit Committee;

·	Lack of periodic review of our accounting manual, policy, and procedures; and

·	Lack of periodic review of the accounting books.

During the quarter ended June 30, 2010, the Company has taken the following actions with respect to our internal control over financial reporting to remediate our material weaknesses as described above:

The Company established an Audit Committee on June 17, 2010 to enhance our financial statement’s control and will continue to conduct periodic internal control risk assessments and control testing so that we will be improving our internal systems’s integrity and to assess areas of material risk. Our internal audit staff will develop additional control activities to ensure the effective function of our controls.

The Company has hired three independent directors, which enhanced our Board of Directors’ right to review and determine the Company’s major capital expense.

Moreover, during the quarter ended June 30, 2010, the Company has, with our internal staff, continued to conduct periodic internal control risk assessments and control testing so that we will be improving our internal control system’s integrity and to assess areas of material risk. Our internal audit staff during the quarter ended June 30, 2010 continued to develop additional control activities to ensure the effective function of our controls. The anticipated changes in internal control over financial reporting will enhance our control environment while also improving internal information flow and communication network. We will identify new risks through a constant risk assessment process and make our control activities an effective tool of monitoring our internal controls. The sole responsibility for establishing and maintaining our internal controls over financial reporting and all internal control systems improvement is that our management and company personnel including our internal audit department, which will all ensure proper and reliable financial reporting. Other than as described above, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control 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: June 6, 2011	By:	/s/ Nian Chen
		Name: Nian Chen
		Title: Chief Executive Officer



Dated: June 6, 2011	By:	/s/ Junfeng Chen
		Name: Junfeng Chen
		Title: Chief Financial Officer

NEW ENERGY SYSTEMS GROUP - FORM 10-Q/A - June 6, 2011

Attached files

NEW ENERGY SYSTEMS GROUP Reports