NEW ENERGY SYSTEMS GROUP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - NEW ENERGY SYSTEMS GROUP	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - NEW ENERGY SYSTEMS GROUP	ex312.htm
EX-32.1 - EXHIBIT 32.1 - NEW ENERGY SYSTEMS GROUP	ex321.htm
EX-31.1 - EXHIBIT 31.1 - NEW ENERGY SYSTEMS GROUP	ex311.htm
EX-32.2 - EXHIBIT 32.2 - NEW ENERGY SYSTEMS GROUP	ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

For the transition period from _______ to _______

Commission file number: 000-52763

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 T No □

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

Large accelerated filer  Accelerated filer

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,551,731 shares of common stock, $.001 par value, were outstanding as of November 11, 2011.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
	PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	(Removed and Reserved)	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	September 30, 2011 (Unaudited)		December 31, 2010 (Restated)

Current assets
Cash and equivalents	$	9,596,616	$	13,065,008
Accounts receivable		10,891,541		11,192,150
Inventory		3,726,328		2,420,009
Prepayment		322,498		-
Other receivables		614,914		47,249
Tax receivables		397,237		-
Due from shareholders		281,922		270,522
Deferred compensation		675,000		675,000

Total current assets		26,506,056		27,669,938

Noncurrent assets
Plant, property & equipment, net		1,144,341		1,134,029
Deferred compensation - noncurrent		592,243		1,098,493
Goodwill		47,294,151		60,555,607
Intangible assets, net		17,783,357		19,969,021

Total noncurrent assets		66,814,092		82,757,150

Total assets	$	93,320,148	$	110,427,088

Current liabilities
Accounts payable	$	5,160,247	$	6,655,592
Accrued expenses and other payables		1,346,278		1,127,133
Payable for Kimfai acquisition		-		6,325,985
Taxes payable		-		1,553,206
Loan payable to related party		566,492		543,585

Total current liabilities		7,073,017		16,205,501

Deferred tax liability		4,289,266		4,798,822

Total Liabilities		11,362,283		21,004,323

Commitments and Contingency

Stockholders' equity
Preferred stock, $.001 par value, 2,553,030 shares authorized, 0 and 2,553,030 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		-		2,553
Common stock, $.001 par value, 140,000,000 shares authorized, 14,551,731 and 14,278,928 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		14,552		14,279
Additional paid in capital		74,163,916		74,040,307
Statutory reserves		2,410,573		2,323,603
Other comprehensive income		2,493,892		1,834,341
Retained earnings		2,874,932		11,207,682

Total stockholders' equity		81,957,865		89,422,765

Total liabilities and stockholders' equity	$	93,320,148	$	110,427,088

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


	Nine Months Ended September 30,					Three Months Ended September 30,
	2011			2010		2011			2010

Revenue, net
Battery	$	45,498,684		$	64,414,149	$	9,777,572		$	24,083,496
Battery shell and cover		3,279,948			7,804,386		502,685			2,277,037
Solar panel		16,649,096			-		4,973,124			-
Total revenue		65,427,728			72,218,535		15,253,381			26,360,533

Cost of sales
Battery		34,371,287			47,079,061		10,705,241			17,496,266
Battery shell and cover		2,574,434			5,353,483		528,396			1,652,966
Solar panel		13,089,801			-		4,536,292			-
Total cost of sales		50,035,522			52,432,544		15,769,929			19,149,232

Gross profit (loss)		15,392,206			19,785,991		(516,548	)		7,211,301

Operating expenses
Selling		1,196,044			369,251		444,818			123,435
General and administrative		6,424,474			4,319,026		2,816,714			1,484,039
Impairment of goodwill		13,564,691			-		13,564,691			-
Total operating expenses		21,185,209			4,688,277		16,826,223			1,607,474

Income (loss) from operations		(5,793,003	)		15,097,714		(17,342,771	)		5,603,827

Other income (expenses)
Other income (expenses)		10,361			7,031		2,487			(510	)
Interest income		36,981			63,824		16,528			18,660
Total other income, net		47,342			70,855		19,015			18,150

Income (loss) before income taxes		(5,745,661	)		15,168,569		(17,323,756	)		5,621,977

Provision (benefit) for income taxes		2,500,119			3,545,827		(470,549	)		1,350,075

Net income (loss)		(8,245,780	)		11,622,742		(16,853,207	)		4,271,902

Other comprehensive income
Foreign currency translation		659,551			391,661		298,160			294,854

Comprehensive income (loss)	$	(7,586,229	)	$	12,014,403	$	(16,555,047	)	$	4,566,756

Net income per share
Basic	$	(0.57	)	$	0.98	$	(1.16	)	$	0.36
Diluted	$	(0.57	)	$	0.92	$	(1.16	)	$	0.34

Weighted average number of shares outstanding:
Basic		14,381,065			11,863,390		14,551,731			11,863,390
Diluted		14,548,462			12,623,411		14,551,731			12,622,276

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

	Nine Months Ended September 30,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Net Loss)	$	(8,245,780	)	$	11,622,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		2,328,860			2,278,815
Deferred taxes		(509,557	)		(405,336	)
Deferred stock compensation		506,250			506,250
Loss on disposal of fixed asset		-			674
Stock and warrants expense		33,828			67,333
Impairment of goodwill		13,564,691			-
(Increase) / decrease in current assets:
Accounts receivable		755,306			(5,834,898	)
Inventory		(1,177,906	)		(1,275,317	)
Prepaid expenses, deposits and other receivables		(868,679	)		548,502
Increase/(Decrease) in current liabilities:
Accounts payable		(1,736,844	)		2,643,732
Accrued expenses and other payables		193,518			45,288
Taxes payable		(1,969,979	)		1,291,215

Net cash provided by operating activities		2,873,708			11,489,000

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in acquisition		-			24,550
Proceeds from sale of property and equipment		-			624
Acquisition of property and equipment		(84,771	)		(34,702	)

Net cash used in investing activities		(84,771	)		(9,528	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of acquisition liability for Subsidiaries		(6,802,616	)		(5,000,000	)
Cash proceeds from warrant exercise		87,500			-
Repayment to related party		-			(1,366,281	)

Net cash used in financing activities		(6,715,116	)		(6,366,281	)

Effect of exchange rate changes on cash and equivalents		457,787			132,865

Net increase (Decrease) in cash and equivalents		(3,468,392	)		5,246,056

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

Cash and equivalents, ending of the period	$	9,596,616		$	8,898,046

SUPPLEMENTAL DISCLOSURES:

Cash paid during the period for:

Income taxes	$	4,745,614		$	3,298,884

Interest	$	-		$	-

NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010

Note 1 – ORGANIZATION

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

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

On June 28, 2006, the Company finalized an Exchange Agreement with Galaxy View International Ltd (“Galaxy View”), and its shareholders. Galaxy View owned all of the issued and outstanding shares of Sono Digital Electronics Technologies Co., Ltd (“Sono”). Pursuant to the Exchange Agreement, the Company acquired 100% of Galaxy View in a cash and stock transaction valued at $6,787,879. Under the 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”). Changqing purchased 60% and Feng purchased 40% of Sono. For all outstanding shares of Sono, the Purchasers paid $3,000,000. The Company disposed of Galaxy View and its wholly-owned subsidiary Sono, on April 24, 2007.

In connection with the acquisition of Galaxy View, the Company issued Series A Preferred Stock to the selling shareholders. On June 29, 2006, the Company filed with the Secretary of State of Nevada a Certificate of Designation of Series A Convertible Preferred Stock designating 7,575,757 of the Company’s previously authorized preferred stock. Each share of Series A Preferred Stock entitled 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. In 2011, 5,022,727 shares Series A preferred stock were converted to 502,273 shares of common stock, and there were 2,553,030 shares of Series A preferred stock outstanding, however, all the outstanding Series A preferred stock was automatically converted.

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

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

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

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

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

The interim financial information presented in this Form 10-Q is not audited and is not necessarily indicative of the Company’s future consolidated financial position, results of operations or cash flows. The accompanying consolidated balance sheet as of December 31, 2010 was derived from audited financial statements included on Form 10-K (Restated) and the interim unaudited consolidated financial statements contained in this Form 10-Q was prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual financial statements. Certain information and footnote disclosures normally included in the financial statements prepared according to Generally Accepted Accounting Principles (“US GAAP”) of the United States of America was condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2011, its results of operations for the nine and three months ended September 30, 2011 and 2010 and its cash flows for the nine and three months ended September 30, 2011 and 2010 were made. These financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K (Restated) filed with the SEC.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Exchange Gain (Loss)

During the nine and three months ended September 30, 2011 and 2010, the transactions of E’Jenie, Anytone, Kim Fai and Newpower were denominated in foreign currency and were recorded in CNY at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

Foreign Currency Translation and Comprehensive Income (Loss)

During the nine and three months ended September 30, 2011 and 2010, the accounts of E’Jenie, Anytone, Kim Fai and NewPower were maintained, and its financial statements were expressed, in CNY. Such financial statements were translated into USD in accordance with Statement of Financial Accounting 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 Topic 830, all assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity (codified in FASB ASC Topic 220). There were no significant fluctuations in the exchange rate for the conversion of CNY to USD after the balance sheet date.

Use of Estimates

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

Principles of Consolidation

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

Revenue Recognition

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

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

Stock-Based Compensation

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

Income Taxes

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

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

At September 30, 2011 and December 31, 2010, the Company had not taken any significant uncertain tax positions on its tax returns for 2010 and prior years or in computing its tax provision for 2011.

Statement of Cash Flows

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

Supplemental Cash Flow Disclosures

Cash from operating, investing and financing activities from changes in assets and liabilities, was net of effects from the acquisitions of NewPower and Kim Fai on January 12, 2010 and November 10, 2010, respectively (See Note 15).

Concentration of Credit Risk

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

Risks and Uncertainties

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

Contingencies

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

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

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

Cash and Equivalents

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At September 30, 2011 and December 31, 2010, the Company had $9,571,000 and $13,056,000 cash in state-owned banks, respectively, of which no deposits were covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowance for doubtful accounts was $0 at September 30, 2011 and December 31, 2010.

Inventory

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of September 30, 2011 and December 31, 2010, inventory consisted of the following:

	2011		2010

Raw Materials	$	1,867,016	$	1,713,403
Work-in-process		425,207		219,379
Finished goods		1,434,105		487,227
	$	3,726,328	$	2,420,009

Property, Plant & Equipment

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

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

As of September 30, 2011 and December 31, 2010, Property, Plant & Equipment consisted of the following:

	2011			2010

Machinery	$	1,575,513		$	1,456,268
Automobile		31,966			25,972
Office equipment		144,268			115,504
Building		633,336			607,726
Subtotal		2,385,083			2,205,470
Accumulated depreciation		(1,240,742	)		(1,071,441	)
Plant, Property & Equipment, Net	$	1,144,341		$	1,134,029

Depreciation was $121,000 and $38,000 for the nine and three months ended September 30, 2011; $183,000 and $56,000 for the nine and three months ended September 30, 2010, respectively.

Fair Value of Financial Instruments

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

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

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

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

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

As of September 30, 2011 and December 31, 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

Basic and Diluted Earnings per Share (EPS)

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

	Nine Months Ended September 30,
	2011		2010

Net income (loss)	$	(8,245,780)	$	11,622,742

Weighted average shares outstanding - basic		14,381,065		11,863,390
Effect of dilutive securities:
Preferred stock		255,303		757,575
Options issued		-		2,446

Weighted average shares outstanding - diluted		14,548,462		12,623,411
Earnings (loss) per share – basic	$	(0.57)	$	0.98
Earnings (loss) per share – diluted	$	(0.57)	$	0.92

	Three Months Ended September 30,
	2011		2010

Net income (loss)	$	(16,853,207)	$	4,271,902

Weighted average shares outstanding - basic		14,551,731		11,863,390
Effect of dilutive securities:
Preferred stock		-		757,575
Options issued		-		1,311

Weighted average shares outstanding - diluted		14,551,731		12,622,276
Earnings (loss) per share – basic	$	(1.16)	$	0.36
Earnings (loss) per share – diluted	$	(1.16)	$	0.34

The warrants and options to purchase up to 261,000 shares of common stock were anti-dilutive during the nine months ended September 30, 2011. The diluted earnings per share was anti-dilutive for the nine and three months ended September 30, 2011 due to the Company’s net loss.

Goodwill

Goodwill is the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of interests in its subsidiaries. Under SFAS No. 142, “Goodwill and Other Intangible Assets (“SFAS 142”) (codified in FASB ASC Topic 350), goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. At September 30, 2011, the Company determined and recorded a $13,564,691 impairment to the goodwill of NewPower reporting entity due to the continues slow-down of the battery industry in China, increased competition resulting from counterfeit products and decreased selling price from other manufacturers, Newpower incurred net loss for the third quarter of 2011, and the Company expected the continues loss for the foreseeable future.

Intangible Assets

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

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

Recent accounting pronouncements

In December 2010, the FASB issued ASU 2010-28, Intangibles-Goodwill and Other (Topic 350), to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating impairment may exist, and the qualitative factors are consistent with the existing guidance. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010 and 2011 for public and nonpublic entities, respectively. Early adoption is not permitted. Management did not expect the material impact of adopting this standard on the Company's consolidated financial statements.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

Note 3 – INTANGIBLE ASSETS

As of September 30, 2011 and December 31, 2010, intangible assets consisted of the following:

	2011			2010

Customer relationships	$	2,691,445		$	2,691,445
Designs		366,850			366,850
Proprietary technology		270,850			270,850
Land use rights		633,336			607,726
Patents		22,176,943			22,176,943
Totals		26,139,424			26,113,814
Impairment in 2007		(1,972,598	)		(1,972,598	)
Accumulated amortization		(6,383,469	)		(4,033,845	)
Intangible assets, net	$	17,783,357		$	19,969,021

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

The intangible assets are amortized over 10-30 years. Amortization was $2,207,000 and $745,000 for the nine and three months ended September 30, 2011; $2,096,000 and $702,000 for the nine and three months ended September 30, 2011 and 2010, respectively.

Amortization for the Company’s intangible assets over the next five fiscal years from September 30, 2011 is estimated to be:

Years ending

September 30, 2012	$	2,806,000
September 30, 2013		2,806,000
September 30, 2014		2,806,000
September 30, 2015		2,806,000
September 30, 2016		2,806,000
Thereafter		3,753,357
Total	$	17,783,357

Note 4 – TAXES PAYABLE (RECEIVABLE)

As of September 30, 2011 and December 31, 2010, taxes payable are comprised of the following:

	2011			2010

Income tax payable (receivable)	$	(360,596)		$	1,357,108
VAT payable (receivable)		(61,940)			185,072
Other		25,299			11,026
Total payable (receivable)	$	(397,237	)	$	1,553,206

Note 5 –ACCRUED EXPENSES AND OTHER PAYABLES

As of September 30, 3011 and December 31, 2010, accrued expenses and other payable are comprised of the following:

	2011		2010

Payable for expense reimbursement	$	453,883	$	721,732
Payroll payables		537,698		237,469
Accrued lawsuit expense (see Note 17)		314,718		-
Accrued expenses		39,979		167,932
Total	$	1,346,278	$	1,127,133

Note 6 – RELATED PARTY TRANSACTIONS

Due from Shareholders

As of September 30, 2011 and December 31, 2010, the Company had $281,922 and $270,522 unsecured, due on demand, and non interest bearing advances to the original owners of Anytone International.

Loan payable to Related Party

As of September 30, 2011 and December 31, 2010, the Company had $566,492 and $543,585 unsecured, due on demand and non interest-bearing loan payable to the original owner of Shenzhen Anytone for the acquisition of Shenzhen Anytone by Anytone International.

Note 7 – DEFERRED TAX LIABILITY

Deferred tax is the tax effect of the difference between the tax bases and book bases of intangible assets. At September 30, 2011 and December 31, 2010, deferred tax liability represents the difference between the fair value and the tax basis of patents acquired in the acquisition of Anytone and NewPower.

Note 8 – STOCK OPTIONS AND WARRANTS

Options

On June 11, 2010, the Company granted stock options to acquire 25,000 shares of the Company’s common stock, par value $0.001, at $6.55 per share, with a life of 3 years to an independent director. The options vested 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. On June 11, 2011, the Company granted stock options to acquire 25,000 shares of the Company’s common stock, par value $0.001, at $3.13 per share, with a life of 3 years to the same independent director. The options vested 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 0.71%, and dividend yield of 0%. The grant date fair value of options was $48,329.

The outstanding options (post-reverse stock split) as of September 30, 2011 listed as follow:

	Number of Shares
Outstanding at January 1, 2010		10,000
Exercisable at January 1, 2010		10,000

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

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

Granted		25,000
Exercised		-
Expired		-

Outstanding at September 30, 2011		50,000
Exercisable at September 30, 2011		37,500

Options outstanding (post-reverse stock split) at September 30, 2011 are as follows:

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

$	6.55 - 3.13		50,000		2.19	$	4.84		37,500	$	5.41

Warrants

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

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

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

On May 30, 2011, the Company granted the IR firm a warrant to purchase the second 36,000 shares at excise price of $5.90, a term of three years which vested on November 1, 2011. If the agreement is cancelled after six months by either party, the IR firm will be entitled to a pro-rata of the warrants for the period services were provided. The fair value of the warrants was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 0.81%, and dividend yield of 0%. The grant date fair value of warrants was $33,055.

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

The outstanding warrants as of September 30, 2011 listed were as follows:

	Number of Shares
Outstanding at January 1, 2010		200,000
Exercisable at January 31, 2010		70,000

Granted		36,000
Exercised		-
Expired		-

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

Granted		36,000
Exercised		(17,500)
Expired		-

Outstanding at September 30, 2011		254,500
Exercisable at September 30, 2011		182,500

Warrants outstanding at September 30, 2011 are as follows:

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

$	$5.00-$6.50		254,500		1.16	$	5.84		182,500	$	5.82

Note 9 – COMMON STOCK AND NON-CASH STOCK COMPENSATION

Stock issued to consultants

On August 18, 2009, the Company entered into four-year consulting agreements to promote the Company's image in both the industry and capital markets. In connection with the agreements, the Company issued 1,000,000 shares of Common Stock valued at $2.70 (stock price at grant date) to eight consultants. During 2009, the Company issued 1,000,000 shares of the Company’s stock and recorded $2,700,000 as deferred compensation. During 2010, the Company amortized $675,000 as stock-based compensation. According to ASC 505-50-25-6, a grantor shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services received. A grantor may need to recognize an asset before it actually receives goods or services if it first exchanges share-based payment for an enforceable right to receive those goods or services; therefore, the Company recorded unamortized portion of deferred compensation as an asset, of which, $675,000 was current, and $592,243 was noncurrent as of September 30, 2011.

Stock issued for acquisition

In connection with the acquisition of Anytone International, on December 7, 2009, the Company issued 3,593,939 shares of common stock valued at $6.60 per share; the acquisition closed on December 7, 2009, the fair value of the 3,593,939 shares was $23,719,997.

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

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

Note 10 – INCOME TAXES

As of September 30, 2011, the Company in the US had approximately $3,632,000 in net operating loss (“NOL”) carry forwards available to offset future taxable income. Federal NOLS can generally be carried forward 20 years. The deferred tax assets for the US entities at September 30, 2011 consisted 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, 2011. Accordingly, the Company has no net deferred tax assets.

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

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

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

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

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations for the nine and three months ended September 30, 2011 and 2010, respectively:

	Nine Months Ended September 30,				Three Months Ended September 30,
	2011		2010		2011		2010
US statutory rates		(34)%		34%		(34)%		34.0%
Tax rate difference		7.2%		(10)%		8.8%		(10.
Effect of tax holiday		0.8%		(2.6)%		1.0%		(1.0)%
Impairment of goodwill		56.7%		-%		18.8%		-%
Valuation allowance on deferred tax on US NOL		6.8%		2%		0.7%		1.0%
Other		6.0%		-%		2.0%		-%
Tax expense (benefit) at actual rate		43.5%		23.4%		(2.7)%		24.0%

The provisions for income tax expense (benefit) for the nine and three months ended September 30, 2011 and 2010 consisted of the following:

	Nine Months Ended September 30,						Three Months Ended September 30,
	2011			2010			2011		2010
Income tax expense (benefit) - current	$	3,009,676		$	3,951,163		$	(642,666)	$	1,485,915
Income tax expense (benefit) - deferred		(509,557	)		(405,336	)		172,117		(135,840	)
Total income tax expense (benefit)	$	2,500,119		$	3,545,827		$	(470,549)	$	1,350,075

Note 11 – LONG TERM PAYABLE

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

On April 21, 2011, the Company entered into a Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd. (“CIC”). Under the CIC Loan Agreement, CIC has committed to make advances to the Company up to RMB 30,000,000 ($4,635,639) with interest of 10% (the “CIC Loan”). Repayments of the CIC Loan under the CIC Loan Agreement are due and payable 730 days from the date the CIC Loan is made. The Company can repay all principal and interest in one lump sum when the CIC Loan comes due, or can repay the CIC Loan in installments. The CIC Loan requires no processing fee or management fee.

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

As of September 30, 2011, the Company did not have any loan from CIC.

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

On April 21, 2011, the Company also entered into a Loan Agreement (the “GJC Loan Agreement”) with Beijing Guojincheng Asset Management Co., Ltd. (“GJC”). Under the GJC Loan Agreement, GJC has committed to make advances to the Company up to RMB 30,000,000 ($4,635,639) with interest of 10% (the “GJC Loan”). Repayments of the Loan under the GJC Loan Agreement are due and payable 730 days from the date the GJC Loan is made. The Company can repay all principal and interest in one lump sum when the GJC Loan comes due, or can repay the GJC Loan in installments. The GJC Loan requires no processing fee or management fee.

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

As of September 30, 2011, the Company did not borrow any money under the loan from GJC.

Note 12 – STATUTORY RESERVES

Surplus Reserve Fund

The Company’s Chinese subsidiaries are required to transfer 10% of each subsidiary’s net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The Company’s Chinese subsidiaries are not required to make appropriation to other reserve funds and do not have any intentions to make appropriations to any other reserve funds. There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Company’s Chinese subsidiaries do not do so.

The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Common Welfare Fund

Common welfare fund is a voluntary fund that the Company can elect to transfer 5% to 10% of its net income to this fund. This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. The Company did not contribute to this fund.

Note 13 - MAJOR CUSTOMERS AND VENDORS

There was no customer that accounted for more than 10% of the Company’s sales during the nine months ended September 30, 2011. One customer accounted for 14% of the sales during the nine months ended September 30, 2010.

There was no customer that accounted for more than 10% of the Company’s sales during the three months ended September 30, 2011. The Company had two customers which accounted for 52% and 26% of the sales for the three months ended September 30, 2010, respectively.

There was no vendor that accounted for more than 10% of the Company’s purchases during the nine months ended September 30, 2011. 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.

The Company purchased from one vendor during the three months ended September 30, 2011, with 12% of its total purchases. Accounts payable to the vendor was $479,158 as of September 30, 2011. 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 total purchases.

Note 14 – SEGMENT REPORTING

The Company has three operating segments: battery components manufacture,, battery assembly and distribution, and solar panel manufacture. 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,
	2011			2010			2011			2010
Revenues from unaffiliated customers:
Battery	$	45,498,684		$	64,414,149		$	9,777,573		$	24,083,496
Battery shell and cover		3,279,948			7,804,386			502,684			2,277,037
Solar panel		16,649,096			-			4,973,124			-
Consolidated	$	65,427,728		$	72,218,535		$	15,253,381		$	26,360,533
Operating income (loss):
Battery	$	(7,973,719)		$	14,108,397		$	(16,906,619)		$	5,508,094
Battery shell and cover		485,064			2,219,004			(219,674)			548,280
Solar panel		2,846,648			-			117,965			-
Corporation		(1,150,996	)		(1,229,687	)		(334,443	)		(452,547	)
Consolidated	$	(5,793,003)		$	15,097,714		$	(17,342,771)		$	5,603,827
Net income (loss) :
Battery	$	(9,652,487)		$	11,217,178		$	(16,396,631)		$	4,394,175
Battery shell and cover		390,910			1,635,983			(213,051	)		330,775
Solar panel		2,167,293			-			91,083			-
Corporation		(1,151,496	)		(1,230,419	)		(334,608	)		(453,048	)
Consolidated	$	(8,245,780)		$	11,622,742		$	(16,853,207	)	$	4,271,902
Depreciation and amortization:
Battery	$	2,145,344		$	2,087,266		$	724,515		$	700,015
Battery shell and cover		92,411			121,979			29,065			34,979
Solar panel		21,535			-			7,378			-
Corporation		69,570			69,570			23,190			23,190
Consolidated	$	2,328,860		$	2,278,815		$	784,148		$	758,184

The Company does not identify assets by segment.

Note 15 - ACQUISITION AND UNAUDITED PRO FORMA INFORMATION

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

The price for NewPower was $3,000,000 and 1,823,346 shares of common stock valued at $15,516,674, which was determined by multiplying the 1,823,346 shares by the stock price of New Energy at the acquisition date. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at agreement date are used for the purpose of purchase price allocation. The excess of the purchase price over the fair value of the net assets acquired of $13,564,691 is recorded as goodwill. Revenue and net loss (before goodwill impairment) of NewPower included in the consolidated income statement for the nine months ended September 30, 2011 was $17,875,746 and $13,053,628, respectively. During the quarter ended September 30, 2011, the Company performed the goodwill impairment test and determined a $13,564,691 impairment to the goodwill.

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

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

The $13,000,000 was paid in RMB 88,400,000 at an exchange rate of 6.8:1 as stated in the agreement; however, based on the exchange rate of 6.645:1 at the acquisition date, RMB 88,400,000 was equivalent to $13,303,236 which was the actual cash portion of the purchase consideration that was recorded.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at agreement date are used for the purpose of purchase price allocation. The excess of the purchase price over the fair value of the net assets acquired of $26,541,178 was recorded as goodwill. The Company expects synergy from combining the operations. Revenue and net income of Kim Fai included in the consolidated income statement for the nine months ended September 30, 2011 was $16,649,096 and $2,167,293, respectively.

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

The following unaudited pro forma consolidated results of operations for New Energy, Anytone, Kim Fai and NewPower for the nine months ended September 30, 2010 presents the operations of New Energy, Anytone, Kim Fai and NewPower as if the acquisitions occurred on January 1, 2010. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.



Net revenue	$	85,454,945
Cost of revenue		61,483,255

Gross profit		23,971,690
Total operating expenses		5,089,491

Income from operations		18,882,199
Total non-operating income		78,117

Income before income tax		18,960,316
Income tax		4,380,011

Net income	$	14,580,305

Weighted average shares outstanding		13,776,655

Earnings per share	$	1.06

Note 16- COMMITMENTS

Anytone leases its office under a renewable operating lease expiring on December 30, 2013. The monthly rent is $13,000. For the nine and three months ended September 30, 2011, the rental expense was $117,200 and $39,600; $112,000 and $37,000 for the nine and three months ended September 30, 2010, respectively.

NewPower entered into a renewable rental agreement on October 12, 2010 expiring on October 11, 2011. The monthly payment is $940. For the nine and three months ended September 30, 2011, the rental expense was $8,500 and $2,900, respectively.

On January 1, 2011, Kim Fai entered into a 3 years lease with monthly payments of $6,000. For the nine and three months ended September 30, 2011, the rental expense was $69,000 and $23,400, respectively.

Future minimum rental payments required under operating leases as of September 30, 2011 are as follows by years:

2012	$	229,000
2013		229,000
2014		57,000
	$	515,000

Note 17- CONTINGENCY

On November 9, 2011, Shenzhen NewPower Technology Co., Ltd. was served notice of a lawsuit filed in Longgang District People’s Court in Shenzhen, China on October 24, 2011. In the complaint filed in the lawsuit, Shenzhen Zhongte Industry and Trade Co., Ltd. (“SZIT”), alleges, among other things, that NewPower breached a Sales Agreement, dated May 9, 2011 between NewPower and SZIT, by not accepting returns of purported faulty products. The plaintiff has claimed a full credit for $1.66 million (RMB 10.56 million) of sales, of which, $1.15 million (RMB 7.34 million) was for products shipped prior to September 30, 2011 and $0.51 million (RMB 3.24 million) was shipped after September 30, 2011. In addition, the plaintiff is seeking damages of $0.31 million (RMB 2.00 million) . for the loss incurred from faulty products.

Accordingly, at September 30, 2011, the Company reversed sales of $1.15 million (RMB 7.34 million) and accrued an expense of $0.31 million (RMB 2.00 million), which is the entire amount claimed by the plaintiff.

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

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the nine months ended September 30, 2011. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year-ended December 31, 2010 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-Looking Statements

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

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

BUSINESS OVERVIEW

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

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

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

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

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

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

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

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone executed a share exchange agreement to acquire all the equity interest of Kim Fai, a Chinese company engaged in the technology development and sale of solar application products and solar energy batteries, with all of the shareholders of Kim Fai. The price for the outstanding stock of Kim Fai was $13,303,236 to be paid in cash, and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy on November 10, 2010. As of September 30, 2011, $13,303,326 was paid and 1,913,265 shares were issued.

In the third quarter of 2011, we determined and recorded $13,564,691impairment to the goodwill of NewPower reporting entity. Goodwill is the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of interests in its subsidiaries. Under “Goodwill and Other Intangible Assets (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. Due to the continues slow-down of the battery industry, increased competition resulting from counterfeit products and decreased selling price from other manufacturers, Newpower incurred net loss for the third quarter of 2011, and the Company expected the continues loss for the foreseeable future; accordingly, the Company determined an impairment to the goodwill to Newpower.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following table presents certain consolidated statement of operations information for the three months ended September 30, 2011 and 2010. The discussion following the table is based on these results. Certain columns may not add up due to rounding.

	2011						2010
				% of Sales					% of Sales
Revenue, net
Battery	$	9,777,572			64	%	$	24,083,496		91	%
Battery shell and cover		502,685			3	%		2,277,037		9	%
Solar panel		4,973,124			33	%		-		-	%
Total revenue		15,253,381			100	%		26,360,533		100	%

Cost of revenue
Battery		10,705,241			109	%		17,496,266		73	%
Battery shell and cover		528,396			105	%		1,652,966		73	%
Solar panel		4,536,292			91	%		-		-	%
Total cost of revenue		15,769,929			103	%		19,149,232		73	%

Gross profit (loss)		(516,548	)		(3	)%		7,211,301		27	%

Operating expenses
Selling		444,818			3	%		123,435		0	%
General and administrative expenses		2,816,714			18	%		1,484,039		6	%
Impairment of goodwill		13,564,691			89	%		-			-%
Total operating expenses		16,826,223			110	%		1,607,474		6	%

Income (loss) from operations		(17,342,771	)		(113	)%		5,603,827		21	%

Other income (expenses)		19,015			0	%		18,150		0	%

Income (loss) before income taxes		(17,323,756)			(113	)%		5,621,977		21	%

Provision (credit) for income tax expense (benefit)		(470,549	)		3	%		1,350,075		5	%

Net income (loss)	$	(16,853,207	)		(110	)%	$	4,271,902		16	%

Net Revenue

Net revenue for the three months ended September 30, 2011 was $15,25 million compared to $26,36 million for the comparable period of 2010, a decrease of $11.11 million, or 42%. The decrease was primarily due to (1) the entire battery industry being depressed; (2) we integrated the business section in each subsidiary, and as a result, reduced the production and sales of batteries and battery shells and covers due to decreased demand, (3) we lowered certain products’ selling prices to keep competitive as a result of pirated products in the market, which Management is rigorously combating. Sales of our batteries decreased by $14.31 million to $9.78 million, compared to $24.08 million in the third quarter of 2010. We have been able to integrate the industry chain, optimize the internal and external resources to improve our productivity and increase our market share. Accordingly, from the beginning of 2011, we switched the battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency and cost saving. The acquisition of Kim Fai in November 2010 brought us $4.97 million in solar panel sales during the third quarter of 2011.

For our major business, the sales of Anytone’s branded products for the three months ended September 30, 2011 was $6.65 million compared to $10.98 million for the 2010 period, a decrease of $4.33 million, or 39%. The decrease was due to (1) the entire battery industry being depressed; and (2) the impact of piracy products in the market, including our products, which Management is vigorously combating.

Cost of Revenue

Cost of revenue ("COR") for the three months ended September 30, 2011 was $15.77 million, or 103% of net sales, compared to $19.15 million, or 73% of net sales, for the comparable period of 2010, a decrease of $3.38 million, or 18%.

COR for the battery assembly and distribution business segment was $10.71 million, or 109% of battery revenue for the three months ended September 30, 2011, compared with $17.50 million, or 73% for the comparable period of 2010, a decrease of $6.79 million, or 39%. The percentage increase in COR was mainly due to the decrease of sales, production volume and switching of our battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency.

COR for our existing battery shell and cover business during the three months ended September 30, 2011 was $0.53 million, or 105% of sales compared to $1.65 million for the comparable period of 2010, or 73% of sales. The increase in our percentage COR for battery shell and cover business resulted from an increase in the cost of materials, especially the price of the steel and aluminum and the decrease on production volume.

COR for our new production line of solar products for the three months ended September 30, 2011 was $4.54 million, or 91% of sales.

Operating Expenses

Operating expenses for the three months ended September 30, 2011 were $16.83 million or 110% of net revenue, compared to $1.61 million, or 6% of net revenue, for the comparable period of 2010, an increase of $15.22 million, or 947%. The increase in operating expenses was primarily due to the impairment of goodwill of $13.56 million and operating expenses of our newly acquired subsidiary, which resulted in an increase of $0.32 million.

Selling expenses for the three months ended September 30, 2011 were $0.44 million, or 3% of net revenue, compared to $0.12 million, or 0.5% of net revenue, for the comparable period of 2010, an increase of $0.32 million, which was mainly due to increased marketing expense which including $0.09 million on advertisement, $0.01 million on exhibition fee and shipping costs, $0.11 million on other marketing expense and $0.09 million on salary of sales personnel as a result of our efforts to expand the market for new customers.

General and administrative expenses for the three months ended September 30, 2011 were $2.82 million, or 18% of net revenue, compared to $1.48 million, or 6% of net revenue, for the comparable period of 2010. The increase in general and administrative expenses of $1.33 million or 90% of net revenue, was mainly due to one newly acquired subsidiary, which increased general and administrative expenses by $0.26 million. In addition, the Company increased product development cost and product design fee of $0.22 million, employees’ salary and welfare of $0.29 million, travel expense and other expenses of $0.20 million.

For the three months ended September 30, 2011 and 2010, the Company recorded $0.20 million and $0.23 million, respectively, as stock-based compensation to consultants. Those consultants who were granted stock as compensation work as branding strategy and financial consultants. The branding strategy consultants help the Company conduct stage analysis in the development of products and the industry; analyze customers’ motive of purchase; analyze market segmentation of similar brands; set strategic models and develop principles of the Company’s self-owned brands; assist the Company in identifying target consumers and designing brand development strategy; advise the Company on implementation of brand strategy including brand recognition, packaging, advertisement, etc. and draft brand strategy planning reports. The financial consultants provide the Company financial advice on matters including: mergers and acquisitions (“M&A”), management buy-outs (“MBO”), restructuring, asset management, investment and financing.

During the quarter ended September 30, 2011, the Company performed the goodwill test and determined a $13,564,691 impairment to the goodwill of its Newpower subsidiary.

Net Income (loss)

Net loss for the three months ended September 30, 2011 was $16.85 million, compared to net income of $4.27 million for the comparable period of 2010, a decrease in net income of $21.13 million or 495% due to the reasons listed above.

In addition, Newpower was served a notice of a lawsuit in November 2011, for breaching a Sales Agreement, dated May 9, 2011 between NewPower and Shenzhen Zhongte Industry and Trade Co., Ltd. (“SZIT”), by not accepting returns of purported faulty products from SZIT. SZIT seeks monetary damages including SZIT’s costs and expenses incurred in connection with the action. Accordingly, we accrued the entire plaintiff’s claim of $1.46 million (RMB 9.34 million) during the third quarter of 2011 for this lawsuit, of which, $1.15 million (RMB 7.34 million) was for return of the products and $0.31 million (RMB 2.00 million) was for the loss incurred from faulty products.

Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

The following table presents certain consolidated statement of operations information for the nine months ended September 30, 2011 and 2010. The discussion following the table is based on these results. Certain columns may not add due to rounding.

	2011						2010
				% of Sales					% of Sales
Revenue, net
Battery	$	45,498,684			70	%	$	64,414,149		89	%
Battery shell and cover		3,279,948			11	%		7,804,386		11	%
Solar panel		16,649,096			19	%		-		-	%
Total revenue		65,427,728			100	%		72,218,535		100	%

Cost of revenue
Battery		34,371,287			76	%		47,079,061		73	%
Battery shell and cover		2,574,434			78	%		5,353,483		69	%
Solar panel		13,089,801			79	%		-			-%
Total cost of revenue		50,035,522			76	%		52,432,544		73	%

Gross profit		15,392,206			24	%		19,785,991		27	%

Operating expenses
Selling		1,196,044			2	%		369,251		1	%
General and administrative		6,424,474			10	%		4,319,026		6	%
Impairment of goodwill		13,564,691			21	%		-			-
Total operating expenses		21,185,209			33	%		4,688,277		7	%

Income (loss) from operations		(5,793,003	)		(9	)%		15,097,714		21	%

Other income (expenses), net		47,342			0	%		70,855		0	%

Income (loss) before income taxes		(5,745,661	)		(9	)%		15,168,569		21	%

Provision for income taxes		2,500,119			4	%		3,545,827		6	%

Net income (loss)	$	(8,245,780	)		(13	)%	$	11,622,742		15	%

Net Revenue

Net revenue for the nine months ended September 30, 2011 was $65.43 million, compared to $72.22 million for the comparable period of 2010, a decrease of $6.79 million, or 9%. The decrease was primarily due to (1) the entire battery industry being depressed, (2) we integrated the business section in each subsidiary, and as a result, reduced the production and sales of batteries and battery shells and covers; and (3) we decreased certain products’ selling prices to remain competitive and keep the market share; despite the acquisition of Kim Fai in November 2010, which brought us $16.65 million in solar panel sales during the nine months of 2011. We have been able to integrate the industry chain, optimize the internal and external resource to improve our productivity and increase our market share. Therefore, from the beginning of 2011, we switched the battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency and cut cost.

For our major business, the sales of Anytone’s branded products for the nine months ended September 30, 2011 was $28.83 million compared to $33.12 million for the 2010 period, a decrease of $4.29 million or 13%. The decrease was due to (1) the entire battery industry being depressed; and (2) the impact of pirated products in the market, including our products, which Management is vigorously combating.

Our existing battery shell and cover business generated net revenue of $3.28 million during the nine months ended September 30, 2011, compared to $7.80 million for the comparable period of 2010, a decrease of $4.52 million, or 58%. The decrease in our sales in this segment was mainly due to rearrangement of our sales strategy and production plan on certain products and decreased demand from the market.

Cost of Revenue

Cost of revenue ("COR") for the nine months ended September 30, 2011 was $50.04 million, or 76% of net sales, compared to $52.43 million, or 73% of net sales, for the comparable period of 2010, a decrease of $2.40 million, or 5%.

COR for the battery assembly and distribution business segment was $34.37 million, or 76% of total battery revenue, for the nine months ended September 30, 2011, compared to $47.08 million, or 73%, for the comparable period of 2010, a decrease of $12.71 million, or 27%. The percentage increase in COR was mainly due to the decrease of production volume, sales and switching of our battery production of E’Jenie with the battery cell production of Newpower to improve production efficiency and cut cost.

COR for our existing battery shell and cover business during the nine months ended September 30, 2011 was $2.57 million, or 78.4% of sales, compared to $5.35 million for the comparable period of 2010, or 69% of sales. The increase in our percentage COR for battery shell and cover business resulted from the decreased in production volume, sales and the increase in the cost of materials, especially the price of the steel and aluminum.

COR for our new production line of solar products for the nine months ended September 30, 2011 was $13.09, or 79% of sales.

Operating Expenses

Operating expenses for the nine months ended September 30, 2011 were $21.19 million, or 32% of net revenue, compared to $4.69 million, or 6% of net revenue, for the comparable period of 2010, an increase of $16.50 million, or 352%. The increase in operating expenses was primarily due to the impairment of goodwill of $13.56 million and the operating expenses from our newly acquired subsidiary, which resulted in an increase of $0.72 million in operating expenses.

Selling expenses for the nine months ended September 30, 2011 were $1.20 million, or 2% of net revenue, compared to $0.37 million, or 1% of net revenue, for the comparable period of 2010, an increase of $0.83 million, or 224%, which was mainly due to the increased marketing expense including $0.23 million of advertisement, $0.14 million of exhibition fee and shipping cost, $0.17 million of other marketing expense and $0.21 million of salary of sales personnel as a result of our efforts to expand the market for new customers.

General and administrative expenses for the nine months ended September 30, 2011 were $6.42 million, or 10% of net revenue, compared to $4.32 million, or 6% of net revenue, for the comparable period of 2010. The increase in general and administrative expenses of $2.11 million was mainly due to our newly acquired subsidiary, which increased general and administrative expenses by $0.53 million. In addition, the Company increased product development cost and product design fee of $0.35 million, employees’ salary and welfare of $0.57 million, travel of $0.05 million and other expenses of $0.23 million.

For the nine months ended September 30, 2011 and 2010, the Company recorded $0.54 million and $0.57 million as stock-based compensation to consultants. Those consultants who were granted stock as compensation work as branding strategy and financial consultants. The branding strategy consultants help the Company conduct stage analysis in the development of products and the industry; analyze customers’ motive of purchase; analyze market segmentation of similar brands; set strategic models and develop principles of the Company’s self-owned brands; assist the Company in identifying target consumers and designing brand development strategy; advise the Company on implementation of brand strategy including brand recognition, packaging, advertisement, etc. and draft brand strategy planning reports. The financial consultants provide the Company financial advice on matters including: mergers and acquisitions (“M&A”), management buy-outs (“MBO”), restructuring, asset management, investment and financing.

During the nine months ended September 30, 2011, the Company performed goodwill impairment test and determined a $13,564,691 impairment to goodwill of Newpower subisidiary.

Net Income (loss)

Net loss for the nine months ended September 30, 2011 was $8.25 million compared to net income of $11.62 million for the comparable period of 2010, a decrease in net income of $19.87 million, or 171%, due to the reasons listed above.

In addition, Newpower was served notice of a lawsuit in November 2011, for breaching a Sales Agreement, dated May 9, 2011 between NewPower and Shenzhen Zhongte Industry and Trade Co., Ltd. (“SZIT”), by not accepting returns of purported faulty products from SZIT. SZIT seeks monetary damages including SZIT’s costs and expenses incurred in connection with the action. Accordingly, we accrued the entire plaintiff’s claim $1.46 million (RMB 9.34 million) during the third quarter of 2011 for this lawsuit, of which, $1.15 million (RMB 7.34 million) was for return of the products and $0.31 million (RMB 2.00 million) was for the loss incurred from faulty products.

LIQUIDITY AND CAPITAL RESOURCES

Our operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and equivalents were $9,596,616 as of September 30, 2011. Working capital at September 30, 2011 was $19,433,039.

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, 2011 and 2010:

	2011				2010
Cash provided by (used in):
Operating Activities		$	2,873,708			$	11,489,000
Investing Activities			(84,771	)			(9,528	)
Financing Activities			(6,715,116	)			(6,366,281	)

Net cash provided by operating activities was $2.87 million for the nine months ended September 30, 2011, compared to net cash provided by operating activities of $11.49 million for the comparable period of 2010. The decrease in net cash provided by operating activities for the nine months ended September 30, 2011 was mainly due to the decrease in net income and the payment on accounts payable and tax payable, despite our timely collection on accounts receivable . Anytone’s standard payment term is 60 days while our other subsidiaries’ payment terms to their customers are 30 days. We have experienced timely payment from our customers.

Net cash used in investing activities was $84,771 for the nine months ended September 30, 2011 and $9,528 in the comparable period of 2010. The cash used in the nine months of 2011 was for the purchase of fixed assets. While in the nine months ended September 30, 2010, $34,702 was used in the purchase of fixed assets but partially offset by the cash acquired during subsidiary acquisition and fixed assets disposal.

Net cash used in financing activities was $6.72 million for the nine months ended September 30, 2011, compared to net cash used in financing activities of $6.37 million for the comparable period of 2010. During the nine months ended September 30, 2011, the cash outflow was due to repayment of acquisition liability for Kim Fai of $6.80 million partially offset by cash inflow of $87,500 from warrants exercised. During the comparable period of 2010, we paid $5 million of the remaining balance of cash for the acquisition of Anytone, and $1.37 million to related parties.

Related Party Loans

As of September 30, 2011, the Company had a $566,492 unsecured, due on demand, and non-interest bearing loans payable to Dongrong Xu and Zaoxian Fang, the original owners of Shenzhen Anytone, of $481,518 and $84,974, respectively, in connection with the acquisition of Shenzhen Anytone by Anytone International.

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 and availability of financing and raising capital by selling stock.

OFF-BALANCE SHEET ARRANGEMENTS

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

Critical Accounting Policies

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

Basis of Presentation

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

Principles of Consolidation

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

Use of Estimates

Revenue Recognition

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

Recent Accounting Pronouncement

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

N/A.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company's principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2011. Based upon that evaluation, the Company’s CEO and CFO noted a material weakness and concluded that the Company’s disclosure controls and procedures were not effective.

The Company’s material weakness in its internal control over financial reporting is related to a limited U.S. GAAP technical accounting expertise. The Company’s internal accounting department has been primarily engaged in ensuring compliance with PRC accounting and reporting requirements for our operating affiliates. As a result, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies. Although the Company’s accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP matters. As a result of such evaluation, the Company's CEO concluded that, as of the date of evaluation, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

Our management, with the participation of our CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the quarter ended September 30, 2011. Based on that evaluation, our CEO and CFO concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

On November 9, 2011, Shenzhen NewPower Technology Co., Ltd. (“NewPower”), a subsidiary of New Energy Systems Group (“Company”) was served notice of a lawsuit filed in Longgang District People’s Court in Shenzhen, China on October 24, 2011. In the complaint filed in the lawsuit, Shenzhen Zhongte Industry and Trade Co., Ltd. (“SZIT”), alleges, among other things, that NewPower breached a Sales Agreement, dated May 9, 2011 between NewPower and SZIT, by not accepting returns of purported faulty products. The complaint seeks monetary damages, including SZIT’s costs and expenses incurred in connection with the action. The Company disputes the allegations contained in the complaint, and intends to vigorously defend the lawsuit. The Company intends to vigorously oppose the lawsuit.

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.
101.INS		XBRL Instance Document.*
101.SCH		XBRL Taxonomy Extension Schema.*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF		XBRL Taxonomy Extension Definition Linkbase.*
101.LAB		XBRL Taxonomy Extension Label Linkbase.*
101.PRE		XBRL Extension Presentation Linkbase.*

* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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: November 14, 2011	By:	/s/ Weihe Yu
		Name: Weihe Yu
		Title: Chief Executive Officer


Dated: November 14, 2011	By:	/s/ Junfeng Chen
		Name: Junfeng Chen
		Title: Chief Financial Officer

NEW ENERGY SYSTEMS GROUP - FORM 10-Q - November 14, 2011

Attached files

NEW ENERGY SYSTEMS GROUP Reports