NEW ENERGY SYSTEMS GROUP - FORM 10-Q/A

Attached files

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 September 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: 001-34847

NEW ENERGY SYSTEMS GROUP

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

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

116 West 23rd ST., 5th Floor

New York, NY 10011

(Address of principal executive offices)

(917) 573-0302

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes □ No □

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

Large accelerated filer o	Accelerated filer o

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 □ No T

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,365,663 shares of common stock, $.001 par value, were outstanding as of November 11, 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 September 30, 2010 (the “Form 10-Q/A”), which was originally filed with the Securities and Exchange Commission (“SEC”) on November 15, 2010 (the “Original Form 10-Q”), to restate the financial statements at September 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 disclosure, as requested 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 September 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	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
	PART II
Item 1.	Legal Proceedings
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	(Removed and Reserved)	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
SIGNATURES		29

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30, 2010 (Unaudited)		December 31, 2009
	(RESTATED)		(RESTATED)
Current assets
Cash and cash equivalents	$	8,898,046	$	3,651,990
Accounts receivable		18,775,653		9,776,041
Inventory		2,052,490		502,702
Prepaid expenses		62,831		-
Other receivables		38,340		433,804
Due from shareholders		267,357		262,380
Deferred Compensation		675,000		675,000

Total current assets		30,769,717		15,301,917

Plant, property & equipment, net		895,111		699,790

Other assets
Prepayment for Newpower acquisition		-		2,999,473
Deposits		-		37,626
Deferred Compensation-noncurrent		1,267,243		1,773,493
Goodwill		33,010,047		19,775,939
Intangible assets, net		20,695,543		15,772,344

Total other assets		54,972,833		40,358,875

Total assets	$	86,637,661	$	56,360,582

Current liabilities
Accounts payable and accrued expenses	$	9,437,250	$	9,095,623
Taxes payable		2,148,788		762,430
Loan payable to related party		537,225		527,225

Total current liabilities		12,123,263		10,385,278

Deferred tax liability		3,998,137		3,001,584

Total Liabilities		16,121,400		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		58,225,325		42,697,186
Statutory reserves		2,070,081		2,070,081
Other comprehensive income		1,617,647		1,225,986
Retained earnings (Accumulated deficit)		8,583,769		(3,038,972	)

Total stockholders' equity		70,516,261		42,973,720

Total liabilities and stockholders' equity	$	86,637,661	$	56,360,582

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

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2010			2009			2010			2009

Revenue, net
Battery	$	64,414,149		$	11,515,218		$	24,083,496		$	6,062,975
Battery shell and cover		7,804,386			4,343,093			2,277,037			1,785,223
Total		72,218,535			15,858,311			26,360,533			7,848,198

Cost of revenue
Battery		47,079,061			7,904,212			17,496,266			4,174,921
Battery shell and cover		5,353,483			3,194,067			1,652,966			1,244,310
Total		52,432,544			11,098,279			19,149,232			5,419,231

Gross profit		19,785,991			4,760,032			7,211,301			2,428,967

Operating expenses
Selling		369,251			74,697			123,435			35,265
General and administrative		4,319,026			319,198			1,484,039			139,962
Total		4,688,277			393,895			1,607,474			175,227

Income from operations		15,097,714			4,366,137			5,603,827			2,253,740

Other income (expenses), net
Other income (expenses)		7,031			1,346			(510	)		(72	)
Interest income (expense)		63,824			(66,331	)		18,660			(8,538	)
Total net		70,855			(64,985	)		18,150			(8,610	)

Income before income taxes		15,168,569			4,301,152			5,621,977			2,245,130

Provision for income taxes		(3,545,827	)		(445,538	)		(1,350,075	)		(232,454	)

Net income		11,622,742			3,855,614			4,271,902			2,012,676

Other comprehensive income (loss)
Foreign currency translation		391,661			(65,713	)		294,854			(83,039	)

Comprehensive income	$	12,014,403		$	3,789,901		$	4,566,756		$	1,929,637

Net income per share
Basic	$	0.98		$	0.71		$	0.36		$	0.37
Diluted	$	0.92		$	0.62		$	0.34		$	0.32

Weighted average number of shares outstanding:
Basic		11,863,390			5,446,105			11,863,390			5,446,105
Diluted		12,623,411			6,203,680			12,622,276			6,203,680

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

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Nine Months Ended September 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	11,622,742		$	3,855,614
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		2,278,815			232,706
Deferred tax liability		(405,336	)		-
Deferred compensation expense		506,250			-
Loss on disposal of fixed asset		674			-
Stock option compensation expense		67,333
(Increase) / decrease in current assets:
Accounts receivable		(5,834,898	)		938,173
Inventory		(1,275,317	)		549,823
Prepaid expenses, deposits and other receivables		548,502			-
Increase/(decrease) in current liabilities:
Accounts payable and accrued expenses		2,689,020			(846,567	)
Taxes payable		1,291,215			(38,292	)

Net cash provided by operating activities		11,489,000			4,691,457

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in acquisition of Newpower		24,550			-
Proceeds from sale of property and equipment		624			-
Acquisition of property and equipment		(34,702	)		-

Net cash used in investing activities		(9,528	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of acquisition liability for Anytone		(5,000,000	)		-
Repayment of loan payable		-			(2,195,508	)
Repayment to related party		(1,366,281	)		-

Net cash used in financing activities		(6,366,281	)		(2,195,508	)

Effect of exchange rate changes on cash and cash equivalents		132,865			(11,470	)

Net increase in cash and cash equivalents		5,246,056			2,484,479

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

Cash and cash equivalents, ending balance	$	8,898,046		$	9,453,933

SUPPLEMENTAL DISCLOSURES:

Cash paid during the period for:

Income tax payments	$	3,298,884		$	515,750

Interest expense	$	-		$	91,245

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

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

On January 12, 2010, the Company closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with Shenzhen NewPower Technology Co., Ltd. (“Newpower”). Pursuant to the share exchange agreement, the Company’s subsidiary E’jenie acquired Newpower. The Company issued the shareholders of Newpower, proportionally among the Newpower Shareholders in accordance with their respective ownership interests in Newpower immediately before the closing of the share exchange, 1,823,346 shares of the Company’s common stock with a restrictive legend, and $3,000,000. 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 nine and three months ended September 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 (“$”, or “USD”).

Exchange Gain (Loss)

During the nine and three months ended September 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 nine and three months ended September 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.

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 and 505). The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

Income Taxes

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

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

At September 30, 2010 and December 31, 2009, the Company had not taken any significant uncertain tax positions on its tax returns 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 September 30, 2010 and December 31, 2009, the Company had $8,898,000 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.

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

	2010		2009
Raw Materials	$	1,160,285	$	133,358
Work-in-process		338,320		44,250
Finished goods		553,885		334,095
		2,052,490		511,703
Less: reserve for impairment of inventory		-		(9,001	)
	$	2,052,490	$	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 September 30, 2010 and December 31, 2009, Property, Plant & Equipment consisted of the following:

	2010			2009
Machinery	$	1,488,431		$	936,049
Automobile		25,667			25,189
Office equipment		103,189			81,674
Building		600,616			589,436

Subtotal		2,217,903			1,632,348

Accumulated depreciation		(1,322,792	)		(932,558	)

Plant, Property & Equipment, Net	$	895,111		$	699,790

Depreciation was $183,000 and $163,000 for the nine months ended September 30, 2010 and 2009, and $56,000 and $53,000 for the three months ended September 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.

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 September 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 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 for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Goodwill

Goodwill 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. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.

Intangible Assets

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

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.

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 did 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 September 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		600,616			589,436
Patent right		22,176,943			15,167,497
Intangible assets		26,106,704			19,086,078
Impairment in 2007		(1,972,598	)		(1,972,598	)
Accumulated amortization		(3,438,563	)		(1,341,136	)

Intangible assets, net	$	20,695,543		$	15,772,344

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

The intangible assets are amortized over 10-30 years. Amortization was $2,096,000 and $69,000 for the nine months ended September 30, 2010 and 2009, and $702,000 and $23,000 for the three months ended September 30, 2010 and 2009, respectively.

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

September 30, 2011	$	2,806,000
September 30, 2012		2,806,000
September 30, 2013		2,806,000
September 30, 2014		2,806,000
September 30, 2015		2,806,000
Thereafter		6,665,543
Total	$	20,695,543

Note 4 – TAXES PAYABLE

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

	2010		2009

Income tax payable	$	1,471,508	$	526,043
VAT tax payable		653,416		224,137
Other tax		23,864		12,250
Total	$	2,148,788	$	762,430

Note 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

	2010		2009

Accounts payable	$	8,309,349	$	3,579,714
Payable of purchase of Anytone		-		5,000,000
Payable for expense reimbursement		735,795		297,318
Accrued payroll		240,751		137,316
Other		151,355		81,275

Total	$	9,437,250	$	9,095,623

Note 6 – RELATED PARTY TRANSACTIONS

Due from Shareholders

As of September 30, 2010 and December 31, 2009, the Company had $267,357 and $262,380 unsecured, due on demand, and non interest-bearing advances to the original owners of Anytone International.

Loan payable to Related Party

As of September 30, 2010 and December 31, 2009, the Company had $537,225 and $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 September 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.

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 expired 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	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	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 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 Company recorded $67,333 as compensation expense for stock options during the nine and three months ended September 30, 2010.

The outstanding options (post-reverse stock split) as of September 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 September 30, 2010		35,000
Exercisable at September 30, 2010		22,500

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

Exercise Price		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		1.99	$	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 to promote the Company's image in both the industry and capital markets. In connection with this agreement, the Company issued 1,000,000 shares of Common Stock valued at $2.70 (stock price at grant date) to these eight consultants. During 2009, the Company issued 1,000,000 shares of the Company’s stock and recorded $2,700,000 as deferred compensation. During the nine and three months ended September 30, 2010, the Company amortized $506,000 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 $1,267,243 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 September 30, 2010, the Company in the US had approximately $2,299,000 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 September 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 September 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 $14,727,000 and $4,455,000 for the nine months ended September 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 September 30, 2010, approximately $29,287,000 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 $4,829,000 would have to be provided if such earnings were remitted currently.

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 nine and three months ended September 30, 2010 and 2009, respectively:

	Nine Months Ended September 30,						Three Months Ended September 30,
	2010			2009			2010			2009
US statutory rates		34	%		34	%		34	%		34	%
Tax rate difference		(10	)%		(9	)%		(10	)%		(9	)%
Effect of tax holiday		(3	)%		(16	)%		(3	)%		(16	)%
Valuation allowance on deferred tax on US NOL		2	%		1	%		1	%		1	%
Tax expense at actual rate		23	%		10	%		22	%		10	%

The provisions for income taxes for the nine and three months ended September 30, 2010 and 2009 consisted of the following:

	Nine Months Ended					Three Months Ended
	2010			2009		2010			2009
Income tax expense – current	$	3,951,163		$	445,538	$	1,485,915		$	232,454
Income tax benefit – deferred		(405,336	)		-		(135,840	)		-
Total income tax expense	$	3,545,827		$	445,538	$	1,350,075		$	232,454

Note 11 – STATUTORY RESERVES

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

Making up cumulative prior years' losses, if any;

ii)

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

iii)

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

iv)

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

Note 12 - MAJOR CUSTOMERS AND VENDORS

The Company purchased from three vendors during the nine months ended September 30, 2010 with each vendor accounting for about 13%, 13%, and 12% of purchases. Accounts payable to the vendors were $1,501,612, $1,061,169, and $997,392 as of September 30, 2010.

The Company purchased its products from three major vendors during the nine months ended September 30, 2009 with each vendor individually accounting for 27%, 27% and 23% of the total purchases. Accounts payable to these vendors amounted to $705,813, $656,392 and $612,095 as of September 30, 2009.

One customer accounted for 14% of the sales during the nine months ended September 30, 2010. Accounts receivable from this customer was $3,787,910 as of September 30, 2010.

Two customers accounted for 72% of the sales, each accounted for 58% and 14%, during the nine months ended September 30, 2009. Accounts receivable from these customers were $ 4,739,419 as of September 30, 2009.

The Company purchased from four vendors during the three months ended September 30, 2010 with each vendor accounting for about 13%, 12%, 12% and 10% of the total purchases.

The Company purchased from three vendors during the three months ended September 30, 2009 with each vendor individually accounting for 28%, 27% and 26% of the total purchases.

The Company had one customer which accounted for 17% of revenue for the three months ended September 30, 2009. Two customers accounted for 52% and 26% for the three months ended September 30, 2010.

Note 13 – SEGMENT REPORTING

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

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

	Nine months ended September 30,						Three months ended September 30,
	2010			2009			2010			2009
Revenues from unaffiliated customers:
Battery	$	64,414,149		$	11,515,218		$	24,083,496		$	6,062,975
Battery shell and cover		7,804,386			4,343,093			2,277,037			1,785,223
Consolidated	$	72,218,535		$	15,858,311		$	26,360,533		$	7,848,198
Operating income (loss):
Battery	$	14,108,397		$	3,611,006		$	5,508,094		$	1,888,054
Battery shell and cover		2,219,004			909,221			548,280			445,072
Corporation		(1,229,687	)		(154,090	)		(452,547	)		(79,386	)
Consolidated	$	15,097,714		$	4,366,137		$	5,603,827		$	2,253,740
Net income (loss) before taxes:
Battery	$	14,126,073		$	3,611,006		$	5,515,408		$	1,888,054
Battery shell and cover		2,272,915			844,371			559,617			436,477
Corporation		(1,230,419	)		(154,225	)		(453,048	)		(79,401	)
Consolidated	$	15,168,569		$	4,301,152		$	5,621,977		$	2,245,130
Net income (loss) :
Battery	$	11,217,178		$	3,308,040		$	4,394,175		$	1,729,985
Battery shell and cover		1,635,983			701,799			330,775			362,092
Corporation		(1,230,419	)		(154,225	)		(453,048	)		(79,401	)
Consolidated	$	11,622,742		$	3,855,614		$	4,271,902		$	2,012,676
Depreciation and amortization:
Battery	$	2,087,266		$	-		$	700,015		$		-
Battery shell and cover		121,979			163,136			34,979			53,030
Corporation		69,570			69,570			23,190			23,190
Consolidated	$	2,278,815		$	232,706		$	758,184		$	76,220

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 September 30, 2010, $10,000,000 was paid. Revenue and net income of Anytone included in the consolidated income statement for the nine months ended September 30, 2010 was $33,120,017 and $5,324,214, and for the three months ended September 30, 2010 was $12,017,189 and $1,994,360, respectively.

The price for Anytone was $10,000,000 and 3,593,939 shares of common stock valued at $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, 1,823,346 shares of the Company’s Common Stock with a restrictive legend, and $3,000,000. As of September 30, 2010, $3,000,000 was paid.

The price for Newpower was $3,000,000 and 1,823,346 shares of common stock valued at $15,516,674, which was determined by multiplying the 1,823,346 shares by the stock price of New Energy at the acquisition date. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at agreement date are used for the purpose of purchase price allocation. The excess of the purchase price over the fair value of the net assets acquired of $13,234,208 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 nine months ended September 30, 2010 was $25,331,109 and $2,155,713, and for the three months ended September 30, 2010 was $9,306,058 and $798,820, 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 nine months ended September 30, 2009 presents the operations of New Energy, Anytone and Newpower as if the acquisitions occurred 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	$	47,048,315
Cost of revenue		35,652,243

Gross profit		11,396,072
Total operating expenses		3,558,268

Income from operations		7,837,804
Total non-operating expenses		(43,257	)

Income before income tax		7,794,547
Income tax		836,242

Net income	$	6,958,304

Weighted average shares outstanding		10,863,347

Earnings per share	$	0.64

Note 15- COMMITMENTS

Anytone leased its office under a renewable operating lease on January 1, 2009 with expiration date on March 31, 2014. The monthly rent is $12,400. For the nine and three months ended September 30, 2010, the rental expense was $112,000 and $37,000, respectively.

Newpower entered into a renewable rental agreement on September 1, 2009 with expiration date on August 31, 2012. The monthly payment is $6,300. For the nine and three months ended September 30, 2010, the rental expense was $57,000 and $19,000, respectively.

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

2011	$	224,000
2012		218,000
2013		149,000
2014		37,000
	$	628,000

Note 16- SUBSEQUENT EVENT

New Energy Parent Company entered into a one-year consulting agreement with an IR firm on November 1, 2010. The monthly payment at $8,550 will be made at the beginning of each month; the Company also granted the IR firm a warrant to purchase 36,000 shares for each 6 months contract period with excise price of $5.99, a term of three years which will vest on November 1, 2011. The first tranche of warrants will be issued by November 30, 2010 and the second issued by May 31, 2011. If the agreement is cancelled after six months by either party, the IR firm will be entitled to a pro-rata of the warrants for the period services were provided. The Company would agree to issue a new warrant covering those shares as the second tranche surrendered.

On October 20, 2010, the Company filed an Amendment to its Certification of Designations, Preferences and Rights for its Series A Convertible Preferred Stock. As a result of the Amendment, which was approved by Company's board of directors and a majority of the Series A holders, the Series A is convertible at the option of the holder until June 29, 2011, when every ten (10) issued and outstanding shares of Series A shall be automatically convertible into one (1) share of common stock (on a post-split basis). Additionally, the Series A shall continue to be subject to a lock-up provision through June 29, 2011, provided, however, that the common stock issuable upon the optional conversion of the Series A shall not be subject to such lock-up limitations.

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone Technology Co. Ltd, executed a share exchange agreement to acquire all the equity interest of Shenzhen Kim Fai Solar Energy Technology Co., Ltd., a Chinese company engaged in the technology development and sale of solar application products and solar energy batteries ("Kim Fai Solar"), with all of the shareholders of Kim Fai Solar. The purchase price for 100% of the outstanding stock of Kim Fai Solar was $24,000,000, of which $13,000,000 is to be paid in cash and $11,000,000 is to be paid in the form of shares of common stock of the Company. The purchase consideration is payable as follows: (i) $13,000,000 to be paid in cash within one year of the execution of the Agreement, and (ii) $11,000,000 to be paid in shares of restricted common stock of the Company within 3 days of the completion of the share exchange formalities with the local governmental authorities. Such shares are to be issued with a per share price of $5.75 and amount to an aggregate of 1,913,265 shares of restricted common stock. The Company did not disclose the pro forma supplemental information in this footnote due to the fact that initial accounting for this acquisition is not completed and financial statements of the acquiree are in the process of being compiled. The purchase of Kim Fai Solar will be accounted for as a business combination under FASB ASC Topic 805, “Business Combinations”.

Note 17- RESTATEMENT OF FINANCIAL STATEMENTS

The financial statements at September 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 September 30, 2010:

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

Deferred compensation	$	-		$	675,000	$	675,000
Deferred compensation-noncurrent	$	-		$	1,267,243	$	1,267,243
Goodwill	$	28,452,196		$	33,010,047	$	4,557,851
Total assets	$	80,137,567		$	86,637,661	$	6,500,094
Additional paid in capital	$	53,667,474		$	58,225,325	$	4,557,851
Less: Deferred compensation	$	(1,942,243	)	$	-	$	1,942,243
Total stockholders’ equity	$	64,016,167		$	70,516,261	$	6,500,094

Item 2

Management’s Discussion and Analysis or Plan of Operation

Cautionary Notice Regarding Forward-Looking Statements

In this quarterly report, references to “New Energy Systems Group,” “NEWN,” “the Company,” “we,” “our,” “us,” refer to New Energy Systems Group.

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

	·	the effect of political, economic, and market conditions and geopolitical events;
	·	legislative and regulatory changes that affect our business;

	·	the availability of funds and working capital;
	·	the actions and initiatives of current and potential competitors;

	·	investor sentiment; and
	·	our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report.

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 on customer specifications 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 other electronic products. Batteries are becoming smaller, lighter, more efficient, longer lasting and free of pollution. The lithium battery energy/weight ratio exceeds its counterparts and with an excellent safety standard we believe 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 the current trend towards smaller, lighter portable consumer products will continue and because of its size, the demand for lithium batteries will keep on increasing.

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

Having engaged in the battery business for years, management of the Company has accumulated abundant knowledge about the battery industry, established a strong network among 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 built 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 the shareholders of Anytone International 3,593,939 shares of the Company's restricted common stock and paid US $10,000,000 in cash. Anytone is engaged in production of battery and battery related products.

On January 12, 2010, we closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with Shenzhen NewPower Technology Co., Ltd. (“Newpower”). Pursuant to the share exchange agreement, our Chinese subsidiary E’jenie acquired Newpower. We issued 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 restricted common stock and $3,000,000 in cash. Newpower is engaged in manufacturing and distribution of lithium battery cells.

RESULTS OF OPERATIONS

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

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

	2010					2009
			% of Sales						% of Sales
Revenue, net
Battery	$	24,083,496		91	%	$	6,062,975			77	%
Battery shell and cover		2,277,037		9	%		1,785,223			23	%
Total revenue		26,360,533		100	%		7,848,198			100	%

Cost of revenue
Battery		17,496,266		73	%		4,174,921			69	%
Battery shell and cover		1,652,966		73	%		1,244,310			70	%
Total cost of revenue		19,149,232		73	%		5,419,231			69	%

Gross profit		7,211,301		27	%		2,428,967			31	%

Operating expenses
Selling expenses		123,435		0	%		35,265			0	%
General and administrative expenses		1,484,039		6	%		139,962			2	%
Total operating expenses		1,607,474		6	%		175,227			2	%

Income from operations		5,603,827		21	%		2,253,740			29	%

Other income (expenses)		18,150		0	%		(8,610	)		0	%

Income before income taxes		5,621,977		21	%		2,245,130			29	%

Provision for income taxes		1,350,075		5	%		232,454			3	%

Net income	$	4,271,908		16	%	$	2,012,676			26	%

Net Revenue

Net revenue for the three months ended September 30, 2010 totaled $26,360,533 compared to $7,848,198 for the three months ended September 30, 2009, an increase of $18,512,335, or 236%. The increase was primarily due to the development of new customers who are provided terms of credit, as well as the recovery of the PRC economy which increased demand for our products. In addition, we acquired Anytone in December of 2009, which brought us $12,017,189 in battery sales, and Newpower in January of 2010, which brought us $9,306,058 in battery cell sales. We were able to integrate the industry chain, share each subsidiary’s sale channel, optimize the internal and external resources and increase our market share from these two acquisitions.

The Company’s existing battery shell and cover business generated net revenue of $2,277,037 during the three months ended September 30, 2010 compared with $1,785,223 for the three months ended September 30, 2009, an increase of $491,814, or 28%. The increase in our sales in this segment was due to the increased demand from our existing and new customers.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2010 was $19,149,232 or 73% of net sales compared to $5,419,231 or 69% of net sales for the three months period ended September 30, 2009, an increase of $13,730,001 or 253%. The increase was mainly due to the increased sales and production volume. $5,079,343 and $8,312,214 of our revenue during the period was attributable to sales by Newpower and Anytone, respectively.

Cost of revenue for the battery assembly and distribution business segment was $17,496,266, or 73% of battery revenue for the three months ended September 30, 2010, compared with $4,174,921 or 69% for the comparable period in 2009, an increase of $13,321,345 or 319%. The percentage increase in cost of revenue was mainly due to the relatively higher production cost of Newpower as well as an overall price inflation in China.

Cost of revenue for our existing battery shell and cover business during the three months ended September 30, 2010 was $1,652,966, or 73% of sales, compared to $1,244,310, or 70%, for the three months ended September 30, 2009.

Operating Expenses

Operating expenses for the three months ended September 30, 2010 were $1,607,474 or 6% of net revenue, compared to $175,227 or 2% of net revenue for the three months ended September 30, 2009, representing an increase of $1,432,247, or 817%. The increase in operating expenses was primarily due to the higher cost of operating our two newly acquired subsidiaries, which resulted in an increase of $1,054,178 in operating expenses during the period.

Selling expenses for the three months ended September 30, 2010 were $123,435 compared to $35,265 for the comparable period in 2009, representing an increase of $88,070, which was mainly due to the increased salary but partially offset by the decreased marketing expenses.

General and administrative expenses for the three months ended September 30, 2010 were $1,484,039 compared to $139,962 for the comparable period in 2009. The increase in general and administrative expenses of $1,344,077 was mainly due to our two newly acquired subsidiaries, which increased the general and administrative expenses by $937,984. In addition, the Company recorded $169,000 and $67,000 as stock based compensation to consultants and an independent director, respectively, in the three months ended September 30, 2010.

Net Income

Net income for the three months ended September 30, 2010 was $4,271,902 compared to $2,012,676 for the three months ended September 30, 2009, an increase in net income of $2,259,226 or 112%, which was primarily due to the increased sales from our newly acquired subsidiaries. Net income as percentage of sales was 16% for the three months ended September 30, 2010 as compared to 26% for the period; the decrease was mainly due to the relatively higher production cost at Newpower, increased operating expenses as described above, as well as non-cash stock compensation expense of $169,000 and $67,000 to consultants and an independent director during the quarter.

Nine months Ended September 30, 2010 Compared to the Nine months Ended September 30, 2009

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

	2010					2009
			% of Sales					% of Sales
Revenue, net
Battery	$	64,414,149		89	%	$	11,515,218		73	%
Battery shell and cover		7,804,386		11	%		4,343,093		27	%
Total revenue		72,218,535		100	%		15,858,311		100	%

Cost of revenue
Battery		47,079,061		73	%		7,904,212		69	%
Battery shell and cover		5,353,483		69	%		3,194,067		74	%
Total cost of revenue		52,432,544		73	%		11,098,279		70	%

Gross profit		19,785,991		27	%		4,760,032		30	%

Operating expenses
Selling expense		369,251		1	%		74,697		1	%
General and administrative expenses		4,319,026		6	%		319,198		2	%
Total operating expenses		4,688,277		7	%		393,895		2	%

Income from operations		15,097,714		21	%		4,366,137		28	%

Other income (expenses), net		70,855		0	%		(64,985)		0	%

Income before income taxes		15,168,569		21	%		4,301,152		27	%

Provision for income taxes		3,545,827		5	%		445,538		3	%

Net income	$	11,622,742		15	%	$	3,855,614		25	%

Net Revenue

Net revenue for the nine months ended September 30, 2010 totaled $72,218,535 compared to $15,858,311 for the nine months ended September 30, 2009, an increase of $56,360,224, or 355%. The increase was primarily due to the acquisition of Anytone in December 2009, which brought us $33,120,017 in battery sales, and the acquisition of Newpower in January of 2010, which brought us $25,331,109 in battery cell sales. We have been able to integrate the industry chain, optimize the internal and external resource to improve our productivity and increase our market share from these two acquisitions. In addition, during 2010 we began providing 60 day credit terms to our customers which results in increased sales to them.

The Company’s existing battery shell and cover business generated net revenue of $7,804,386 during the nine months ended September 30, 2010 compared with $4,343,093 for the nine months ended September 30, 2009, an increase of $3,461,293, or 80%. The increase in our sales in this segment was mainly due to a general increase in sales to our existing and new customers.

Cost of Revenue

Cost of revenue for the nine months ended September 30, 2010 was $52,432,544 or 73% of net sales compared to $11,098,279 or 70% of net sales for the nine months ended September 30, 2009, an increase of $41,334,265 or 372%.

Cost of revenue for the battery assembly and distribution business segment was $47,079,061, or 73% of total battery revenue for the nine months ended September 30, 2010, compared with $7,904,212 or 69% for the comparable period in 2009, an increase of $39,174,849 or 496%. The percentage increase in cost of revenue was mainly due to the relatively higher production cost at Newpower as well as an overall price inflation in China.

Cost of revenue for our existing battery shell and cover business during the nine months ended September 30, 2010 was $5,353,483, or 69% of sales compared to $3,194,067 for the nine months ended September 30, 2009, or 74% of sales. The reduction in our percentage cost of revenue for battery shell and cover business resulted from cost control efforts as well as the economies of scale from our increased production.

Operating Expenses

Operating expenses for the nine months ended September 30, 2010 were $4,688,277 or 7% of net revenue, compared to $393,895, or 2% of net revenue, for the nine months ended September 30, 2009, an increase of $4,294,382, or 1090%. The increase in operating expenses was primarily due to the higher cost of operating our two newly acquired subsidiaries, which resulted in an increase of $3,160,709 in operating expenses.

Selling expenses for the nine months ended September 30, 2010 totaled $369,251 compared to $74,697 for the comparable period in 2009, representing an increase of $294,554, which was mainly due to the increased salary of sales person but partially offset by the decreased marketing expense.

General and administrative expenses for the nine months ended September 30, 2010 were $4,319,026 compared to $319,198 for the comparable period in 2009. The increase in general and administrative expenses of $3,999,828 was mainly due to our two newly acquired subsidiaries, which increased the general and administrative expenses by $2,814,606. In addition, the employee salaries increased by $36,000 due to an overall price inflation in China and the Company recorded $506,000 and $67,000 as stock-based compensation to consultants and an independent director, respectively, during the nine months ended September 30, 2010.

Net Income

Net income for the nine months ended September 30, 2010 was $11,622,742 compared to $3,855,614 for the nine months ended September 30, 2009, an increase in net income of $7,767,128 due to the reasons listed above.

LIQUIDITY AND CAPITAL RESOURCES

Our operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $8,898,046 as of September 30, 2010. Working capital at September 30, 2010 was $17,971,454.

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

	2010				2009
Cash provided by (used in):
Operating Activities		$	11,489,000			$	4,691,457
Investing Activities			(9,528)				-
Financing Activities			(6,366,281	)			(2,195,508)

Net cash provided by operating activities was $11,489,000 for the nine months ended September 30, 2010, compared to net cash provided by operating activities of $4,691,457 for 2009. The increase in net cash provided by operating activities for 2010 was mainly due to the significant increase in net income and accounts payable partially offset by payment for inventory purchases and increased accounts receivable resulting from our new accounts receivable policy that provided our customers with 60 day credit terms.

Net cash used in investing activities was $9,528 for the nine months ended September 30, 2010 and $0 in the comparable period of 2009. The cash used in the nine months ended September 30, 2010 consisted of approximately $35,000 for the purchase of fixed assets partially offset by $24,550 of cash received from Newpower as a result of the acquisition.

Net cash used in financing activities was $6,366,281 for the nine months ended September 30, 2010 compared to net cash used in financing activities of $2,195,508 for the comparable period in 2009. During the nine months ended September 30, 2010, we paid in full the $5 million of the remaining balance of the cash consideration for the acquisition of Anytone and $1.36 million to related parties in the nine months ended September 30, 2010. In the 2009 period, we paid a bank loan that was borrowed in August 2008.

Related Party Loans

As of September 30, 2010, the Company had a $537,225 unsecured, due on demand, and non-interest bearing loan payable to Dongrong Xu and Zaoxian Fang, the original owners of Shenzhen Anytone, for $456,641 and $80,584, 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.

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 September 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 September 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:

·	Audit Committee has conducted periodic meetings.

Moreover, during the quarter ended September 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 September 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 September 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