UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)


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





For
the fiscal year ended December 31, 2009





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





For the
transition period from ___________ to ___________





Commission
File No. 000-49715




NEW ENERGY SYSTEMS
      GROUP(Name
      of small business issuer in its charter)





Nevada
            
            91-2132336(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer Identification No.)116
      West 23rd St., 5th FL
              New
      York, NY
            
            10011(Address
      of principal executive offices)
            
            (Zip
      Code)





(917)
573-0302


(Registrant’s
telephone number, including area code)


Securities
registered under Section 12(b) of the Exchange Act:




Title
      of each class registered:
              
              Name
      of each exchange on which registered:None
              
              None
  Securities
registered under Section 12(g) of the Exchange Act:
 Common
Stock, par value $0.0001
 (Title of
class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.   Yes o    No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o  No x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
twelve months (or for such shorter time that the registrant was required to
submit and post such files).    Yes x    No  o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference Part III of this Form 10-K or
any amendment to this Form 10-K. o





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





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





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





The
aggregate market value of the registrant’s voting and non voting common equity
held by non-affiliates as of June 30, 2009 based upon the closing price reported
for such date on the OTC Bulletin Board was $7,624,486 as adjusted for Company's
10:1 reverse split of its common stock.





As of
April 13, 2010, the registrant had 11,863,390 shares of its common stock
outstanding.





Documents Incorporated by
Reference: None.










TABLE
OF CONTENTS





PART
      IITEM
      1.
            Business
            
            
            3ITEM1A.
            Risk
      Factors
            
            
            8ITEM
      1B.
            Unresolved
      Staff Comments.ITEM
      2.
            Properties
            
            
            9ITEM
      3.
            Legal
      Proceedings
            
            
            9ITEM
      4.
            (Removed
      and Reserved)
            
            
            9PART
      IIITEM
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            
            9ITEM
      6.
            Selected
      Financial Data
            
            
            10ITEM
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            
            
            10ITEM7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            
            15ITEM
      8.
            Financial
      Statements and Supplementary Data
            
            
            15ITEM
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            
            
            16ITEM
      9A(T)
            Controls
      and Procedures
            
            
            16ITEM
      9B.
            Other
      InformationPART
      IIIITEM
      10.
            Directors,
      Executive Officers and Corporate Governance
            
            
            16ITEM
      11.
            Executive
      Compensation
            
            
            18ITEM
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            
            18ITEM
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            
            
            18ITEM
      14.
            Principal
      Accounting Fees and Services
            
            
            19PART
      IVITEM
      15.
            Exhibits,
      Financial Statement Schedules
            
            
            19SIGNATURES
            
            
            21











PART
I





ITEM
1.  BUSINESS





Business
Development





Overview





We were incorporated in Nevada on March
27, 2001 under the name Jasmine's Garden. We operate our business through our
wholly-owned subsidiaries, Billion Electronic Co., Ltd., a company organized
under the laws of the British Virgin Islands on July 27, 2004 (“Billion”),
Galaxy View International Ltd., a company organized under the laws of the
British Virgin Islands on August 22, 2005 (“Galaxy View”), and Anytone
International (H.K.) Co., Ltd. (“Anytone International”), a company organized
under the laws of the People’s Republic of China (“PRC”) in 2000.





On
November 15, 2004, we acquired Billion and its wholly-owned operating
subsidiary, Shenzhen E'Jenie Technology Development Co., Ltd, a company
incorporated under the laws of the Peoples Republic of China on July 8, 2002
(“E’Jenie”). Through E'Jenie, we manufacture and distribute lithium battery
shells and related products primarily in China. Based upon specifications from
its customers E'Jenie develops, customizes and produces steel, aluminum battery
shells and aluminum caps. Currently, E'Jenie produces fourteen steel battery
shell lines, nine aluminum battery shell lines, three aluminum battery cap lines
and three steel battery cap lines.





On June
29, 2006, we acquired Galaxy View and its wholly-owned operating subsidiary Sono
Digital Electronic Technologies Co., Ltd., a company incorporated under the laws
of the Peoples Republic of China on May 29, 2001 (“Sono”).





On
December 7, 2009 we acquired Anytone International (H.K.) Co., Ltd. (“Anytone
International”) and its wholly owned operating subsidiary Shenzhen Anytone
Technology Co., Ltd. (“Shenzhen Anytone”), a company incorporated under the laws
of the Peoples Republic of China in 2005.  Shenzhen Anytone is the
Chinese operating subsidiary of Anytone International, collectively referred to
as “Anytone”. Anytone engages in research, manufacture and sell of mobile backup
power systems for mobile phones, laptops, solar, MP4, PMPs, PDAs, DC and digital
applications.





History





Until
December 2, 2003, we operated a nationwide wholesale and retail business selling
greeting cards, note cards and gift tags made from a design process involving
photography and computer graphics. On December 2, 2003, Cheering Limited, an
investment holding company organized under the laws of the British Virgin
Islands ("Cheering"), acquired 5,700,000 shares of our common stock, par value
$0.001, which constituted approximately 95% of the then issued and outstanding
shares of our common stock from Jack and Jasmine Gregory, our former officers
and directors, for cash consideration of $221,221 (the "Cheering
Transaction").





In
connection with the Cheering Transaction, our Board of Directors appointed Zu
Zhuan Xu to serve as our President, elected four designees of Cheering to serve
as directors, and Jack and Jasmine Gregory resigned from their positions as
officers and directors of the Company. On February 18, 2004, Zu Zhuan Xu
resigned as President and Yi Bo Sun was appointed as President and Chief
Executive Officer and Xu Bao Dong was appointed to serve on our Board of
Directors. On February 19, 2004, another director resigned from our Board of
Directors and Mr. Sun was appointed to replace him. On January 19, 2006, Mr. Sun
resigned as our President and Chief Executive Office and from our Board of
Directors. Changchun Zheng was elected as Chairman of the Board and Chief
Executive Officer. On February 23, 2006, Yu Xi Sun was appointed as President
and as a Director. On April 4, 2006 Chang Chun Zheng resigned as Chairman and
Chief Executive Officer and Yu Xi Sun, the Company’s current President, was
appointed to serve as interim Chairman and Chief Executive Officer. On May 30,
2006 Ran Liang was appointed as Chief Executive Officer. On July 10, 2006, Hong
Liang resigned as Chief Operating Officer and as a Director of the Company and
Yao Miao resigned as Chief Financial Officer. Su Yi Zheng was appointed as Chief
Operating Officer and as a Director and Sarah Shao was appointed as Chief
Financial Officer, both effective as of July 10, 2006. Zu Zhuang Xu, Dr. Yong
Yang, Alfred L. Simon were removed from CHID’s Board of Directors on September
12, 2006. On January 4, 2007, Ran Liang resigned as Chief Executive Officer and
as a member of the Board of Directors, and Xu Zhongnan was appointed as Chief
Executive Officer and Chairman of the Board of Directors. On January 5, 2007,
Sara Shao resigned as Chief Financial Officer, and Wu Jiangcheng was appointed
as Chief Financial Officer. Su Yi Zheng resigned as Chief Operating Officer and
member of the Board of Directors.





3




On March
17, 2004, we sold 30,000,000 shares of common stock at a per share purchase
price of $0.05 to seven unaffiliated individuals in a private placement, which
yielded aggregate gross proceeds of $1,500,000 (the "Private Placement"). As a
condition to the closing of the Private Placement, each of the investors
executed an irrevocable proxy granting Mr. Sun, our former President and Chief
Executive Officer, the right to vote all shares of the common stock purchased in
the Private Placement. The irrevocable proxies expired on May 1, 2004, however,
the investors and Mr. Sun extended the irrevocable proxies to May 2006. Mr. Sun
as the Chairman and Chief Executive Officer of Cheering is the beneficial owner
of the 5,700,000 shares of common stock, which represents approximately 7.8%, of
the issued and outstanding shares of our common stock and prior to the
expiration of the irrevocable proxies, Mr. Sun will have the power to vote or
direct the voting of 30,000,000 shares issued in the Private Placement. As a
result, until the irrevocable proxies expire on May 1, 2006, Mr. Sun will
control approximately 48.9% of our issued and outstanding common
stock.





On April
28, 2004, we filed a certificate of amendment to our articles of incorporation
with the Nevada Secretary of State to increase our authorized common stock to
140,000,000 shares and to authorize 60,000,0000 shares, par value $0.001, of
blank check preferred stock.





On
September 3, 2004, we filed a certificate of amendment to our articles of
incorporation with the Nevada Secretary of State to change our name from
"Jasmine's Garden" to "China Digital Communication Group."





Effective May 5, 2009, Mr. Zhongnan Xu
resigned as our Chief Executive Officer and Chairman of the Board of Directors,
and on the same day Mr. Fushun Li was appointed as our Chief Executive Officer
and a Director.





Effective August 3, 2009, Jiangcheng Wu
resigned as our Chief Financial Officer and Principal Accounting Officer and on
the same day Junfeng Chen was named our Chief Financial Officer.





On July 13, 2009, we effected a 10-to-1
reverse split of our common stock.





Effective November 18, 2009 we changed
our name from China Digital Communication Group to New Energy Systems
Group.





On December 9, 2009 Weihe Yu was
appointed to serve as Chairman of the Board of Directors of the
Company.




4




Acquisition
of Billion





On
November 15, 2004, pursuant to a Share Exchange Agreement (the "Billion Exchange
Agreement") dated as of September 17, 2004, by and among the Company, Billion,
the shareholders of Billion (the "Billion Shareholders") and E'Jenie, we
acquired from the Billion Shareholders (the "Billion Acquisition") all of the
issued and outstanding equity interests of Billion (the "Billion Shares").
Billion is a holding company and the sole shareholder of E'Jenie. Billion has no
other assets other than the shares of E'Jenie. As consideration for the Billion
Shares, we paid to the Billion Shareholders an aggregate of $1,500,000 in cash
and issued to them 4,566,210 shares of our common stock. The consideration for
the Billion Acquisition was determined through arms length negotiations between
us and Billion. As a result of the Billion Acquisition we are the sole
shareholder of Billion through which we own all of the issued and outstanding
equity interests of E'Jenie.





In
connection with the Billion Acquisition we entered into a Guarantee Agreement,
dated October 9, 2004, as amended October 11, 2004 (the "Guarantee"), with Shiji
Ruichen Guaranty and Investment Co. Ltd., a company incorporated under the laws
of the Peoples Republic of China ("Shiji"). Pursuant to the terms of the
Guarantee, Shiji agreed to guarantee our performance and the performance of the
Billion Shareholders under the Billion Exchange Agreement. As consideration for
Shiji's guaranty, we issued to Shiji 1,919,016 shares of our common stock. As
security for our obligations under the Guarantee, one of our principal
shareholders deposited 5,000,000 of their shares of our common stock into
escrow.





Acquisition
of Galaxy View





On June
29, 2006, pursuant to the terms of a Share Exchange Agreement (the "Galaxy View
Exchange Agreement") dated as of March 22, 2006, by and among the Company,
Galaxy View, the shareholders of Galaxy View (the " Galaxy View Shareholders")
and Sono, we acquired from the Galaxy View Shareholders (the "Galaxy View
Acquisition") all of the issued and outstanding equity interests of Galaxy View
(the "Galaxy View Shares"). As consideration for the Galaxy View Shares, we paid
to the Galaxy View Shareholders an aggregate of $3,000,000 in cash and issued to
them 7,575,757 shares of our preferred stock. The consideration for the
Acquisition was determined through arms length negotiations between us and
Galaxy View.





During
the first quarter of 2007, Sono lost two of their largest customers and users of
their products, the fact that the telecom industry in China was a monopoly;
there was no longer a market for our products.





On April
24, 2007, the Company entered into an Agreement on Transfer of Shares of Galaxy
View with Liu Changqing and Wang Feng (collectively, the Purchasers”) for the
sale of our wholly-owned subsidiary Galaxy View (the “Agreement”). Changqing
purchased a 60% interest and Feng will purchase a 40% interest in Galaxy View.
In exchange for all of the outstanding shares of Galaxy View, the Purchasers
agreed to pay $3,000,000 USD as consideration for the acquisition. We entered
into promissory notes with the Purchasers for payment of their share of the
$3,000,000 which is due within 90 days of April 24, 2007. If payment is not made
within 90 days, the promissory notes will accrue interest at 18% per annum from
the closing date. As of December 31, 2007, the amount has been paid in
full.





Acquisition
of Anytone





On December 7, 2007, we closed the
transactions contemplated by the share exchange agreement (the “Share Exchange
Agreement”) dated November 19, 2009 with Anytone International and
Anytone.  Pursuant to the Share Exchange Agreement, we acquired
Anytone International and thereby indirectly acquired Anytone International’s
Chinese operating subsidiary Anytone.  Pursuant to the Share Exchange
Agreement, we issued to the shareholders of Anytone International,
proportionally among the Anytone International Shareholders in accordance with
their respective ownership interests in Anytone International immediately before
the closing of the Share Exchange, an aggregate of 3,593,939 shares of our
Common Stock with standard restrictive legend, and cash consideration of US
$10,000,000. As of December 31, 2009, $5,000,000 has been paid. The parties have
agreed that the remaining $5,000,000 will be paid on or before June 30, 2010
with no interest.




5




NewPower
Transaction





On
December 11, 2009, we entered into a share exchange agreement (the “Share
Exchange Agreement”) with Shenzhen NewPower Technology Co., Ltd. (“NewPower”),
whereby Newpower would merge with and into E’Jenie.  Pursuant to the
Share Exchange Agreement, in exchange for all of the capital stock of Newpower,
we agreed to issue to the shareholders of Newpower an aggregate of 1,823,346
shares of our Common Stock with standard restrictive legend, and pay cash
consideration of US $3,000,000.  This transaction was not closed until
January 12, 2010.





Our
Business





LITHIUM
BATTERIES





Industry





The
lithium battery was created in the 1990s, with its first mass production in 1993
in Japan. Lithium batteries were first used in notebook computers and now are
used in cellular phones, video machines, laptops, digital cameras, MP3 players,
global positioning satellite systems, 3G communication devices, hybrid cars and
an array of other electronic products.





Batteries
are becoming smaller, lighter, more efficient, longer lasting and free of
pollution. The lithium battery's energy/weight ratio exceeds that of its
counterparts and with an excellent safety standard we believe that it is the
future of the battery industry. China has become one of the largest producer and
consumer of lithium ion batteries. According to China Chemistry and Physics
Electronic Industry Association, there were over $4.0 billion of lithium ion
batteries sold in China in 2005. We anticipate that there will be even greater
demand for lithium batteries in China and worldwide in the next few years. We
believe that the current trend towards smaller, lighter portable consumer
products will continue to grow and because of its size, the demand for the
lithium battery will increase. By way of example, a mobile-phone battery has a
typical usage life of 300 to 500 recharges, which translates to a ratio of 1.8
batteries in service life of each phone, according to official Chinese
statistics. However, our internal data reveals that battery replacement demand
is faster than this when consumers turn in their phones for new models before
the normal life of the battery is over. A short product life, combined with a
short product innovation cycle, result in rapid product turnover – and plenty of
business for battery suppliers.




Currently,
China has more than 600 million mobile phone subscribers, making it the country
with the largest mobile market in the world. The mobile phone market in China is
expected to maintain its growth and current estimates project that handset
shipments will grow to 259.4 million units and 278.2 million units in 2010 and
2011, respectively.




China's mobile phone market is likely
to grow 7.7% in 2009 despite the downward trend in the global market, with
mobile handset shipments rising to 239.1 million units, according to a recent
report by market research firm iSuppli. Partly boosted by the Chinese
government's initiative to provide subsidies to rural residents for home
electronics purchases, the world's largest mobile phone market is expected to
see its new subscribers exceed 90 million by the end of 2009, and Chinese mobile
phone makers are expected to ship over 360 million units to both domestic and
overseas markets, representing a year-over-year increase of
20%.





Business
Strategy





We seek
to maintain and strengthen our position as a provider of battery shells and caps
and battery applications while increasing the breadth of our product line,
improving the quality of our products, integrating industrial chain and reducing
production cost. In order to achieve our objective, we plan to pursue the key
strategies described below.




6





            Successfully integrate recent
      acquisitions.
            Improve
      sales and profitability of all
companies.






            Increasing
      our international presence and expend international
  focus.






            Achieving
      deeper penetration of our existing customer base through continued
      innovation and high quality production and maximize cross-selling
      opportunities and synergies of recent acquisitions.
            Expending
      our product offerings and in particular, focusing on the end-user consumer
      market.
            Targeting
      higher margin OEM customers and retail partners, through private label
      offerings.





Products





E’Jenie





Our
wholly-owned subsidiary, E'Jenie, is an assembler and distributor of finished
lithium ion batteries and a producer of the following lithium ion battery shells
and caps.





Low-Carbon Steel
Stretch Series. This square shape shell series stretches the low-carbon
steel plate section by section. We use superficial galvanization to custom make
sizes for different customers. The characteristics of this series are that it is
clean and artistic; it has smooth cuttings, and is explosion proof, wear
resistant and anti-corrosive. This series is suitable for square shaped nickel
hydrogen batteries, lithium ion batteries and power batteries.





F6, F8 Nickel
Hydrogen and Lithium Ion Duel Functions Series. This series stretches the
low-carbon steel plate section by section and uses oil pressure to make the
final form. The characteristic of this series is a smooth surface. This series
is suitable for nickel Hydrogen and Lithium Ion Duel Functions Rechargeable
Battery Cells.





Square Share
Stainless Steel Series. This series uses a unique processing craft to
stretch stainless steel to make the square steel. The characteristics of this
series are that it is anticorrosive and it does not rust. This series is
suitable for the square shaped Nickel Hydrogen and Lithium Ion Battery and
related components.





Aluminum Square
Shell Series.This series is developed
by us by continuously extruding to form the final shell shapes. The
characteristic of this series is that it is explosion proof.





Japanese
Explosion-Proof Cap Series. Included in this series is the Japanese Steel
Plate Patent Product Series and the Stainless Steel Explosion-Proof Cap Series.
The characteristics of the Japanese Steel Plate Patent
Series are as follows:






            Low Pressure. It can be
      used under low pressure condition. The pressure is affected by the
      thickness of the aluminum sheet and the diameter of holes within the
      caps.






            Strong Resistance. The
      aluminum material will not become stiff or rigid and therefore the product
      will not crack if it is hit.






            Expanding the Gas Releasing
      Volume. When the safety value is on the gas will be
      released.





The
Japanese Steel Plate Patent Product Series is suitable for all of lithium ion
batteries.





7




The
Stainless Steel Explosion-Proof Cap Series was developed by us and for which we
own a patent. This series is suitable for lithium ion batteries used in mobile
phones, calculators, MP3 players, digital camera, recorders and other electronic
devices.





Distribution
Methods of the Products and Services





E’Jenie
has maintained long-term relationships with its principal customers which are
large lithium battery manufacturers. We believe that we continually receive
orders from our loyal customers because of E’Jenie’s reputation and quality of
the products. Our professional marketing team maintains relationships with our
current customers and at the same time searches for other potential new
customers.





Anytone


Anytone is a high-new technology
company that combines the function of R&D, manufacturing and distribution,
specializing is an entity that specializes in the innovation and application in
the profound level of lithium ion battery. Anytone Technology is the initial
technology company that commits itself to the R&D, manufacturing and
distribution of portable power products. The company has introduced its own
innovated portable power products for laptops, digital cameras, digital video
recorders, MP4 player, PMP, PDA, PSP and smart cell phones, which resolves the
problem of low capability and un-changeability of the batteries for portable
products such as IT, digital products.





Anytone's products combine the best of
good appearance and the perfect technology and acquired 28 patents and patent
application rights in total, of which five patents for the appearance of
products, two patents for the innovative utility model, 16 patent application
rights for the appearance of products, and five patent application rights for
the innovative utility model from the "State Intellectual Property Office of
PRC".





Competition





The
worldwide market for lithium battery shells and caps is highly competitive. We
face competition from manufacturers not only within China but also from other
parts of the world, particularly Japan, Taiwan, Malaysia, Indonesia, and Korea.
We compete with these companies by striving to provide a higher quality product
at a lower cost. Our primary competitors are Shenzhen Luhua Co., Ltd., Shenzhen
TongLi Electronic Co. and Ningbo Pulaite Electronics Co., Ltd. We believe that
by doing business in China we enjoy competitive advantages over similar
companies based elsewhere, such as abundant labor resources and low cost raw
materials.





Manufacturing
and Raw Materials





We
purchase various components and raw materials for use in our manufacturing
processes. The principal raw materials we purchase are aluminum and steel. The
price of steel has increased significantly in the past year, and we believe that
it will continue to increase. The increases have had an adverse impact on gross
margins, since some of the increases cannot be passed on to our
customers.





Our three
largest suppliers are Shenzhen Da Ke Battery Co., Ltd., Shenzhen Tian Lu Battery
Co., Ltd., and Shenzhen Di Kai Te Battery Electronic Tech. Co., Ltd. which in
the aggregate account approximately 76% of all components and raw materials
purchased. Normally, the annual purchase plan for raw material, such as aluminum
and steel, is determined at the beginning of the calendar year according to past
customer's orders and our own sales forecast. Such purchase plans with key
suppliers can be revised quarterly. Our actual requirements are based on weekly
production plans. We believe that this arrangement protects us from inventory
surplus when the orders from customers change. Compared to 2008, our five
largest venders remained the same. Our five largest venders are listed as
following:





8




Vendors
      names
            
            Percentage
      of
              Total
              purchased
              amount
      in
              2009Shenzhen
      Da Ke Battery Co., Ltd.
            
            
            27.7
            %Shenzhen
      Tian Lu Battery Co., Ltd.
            
            
            26.6
            %Shenzhen
      Di Kai Te Battery Electronic Tech. Co., Ltd.
            
            
            21.8
            %Shenzhen
      Yibao Tech. Co., Ltd.
            
            
            9.6
            %Shenzhen
      Huayi Aluminum Co., Ltd.
            
            
            7.8
            %





For raw
materials other than steel and aluminum, we normally maintain from one week up
to one month of inventory at our warehouse. All components and raw materials are
available from numerous sources. We have not experienced any significant
shortages of manufactured components or raw materials and normally do not carry
inventories of these items in excess of what is reasonably required to meet our
production and shipping schedules.





Dependence
on One or a Few Customers





In 2008,
our five largest customers represented approximately 74.8% of our total sales.
The following table sets forth information regarding our five largest customers.
In 2009, due to higher sales price of our new developed battery business and we
also just have one customer, one of our major customer concluded 81.8% of our
sales.




MAJOR
CUSTOMERS




Customer
      Name
            
            Percentage
      of Total Revenue for 2008Shenzhen
      Hua Yin Tong Battery Electronic Tech. Co., Ltd.
            
            
            74.8
            %Shenzhen
      Huanyuda battery Electronic Tech. Co., Ltd.
            
            
            3.7
            %Shenzhen
      Bak Battery Co., Ltd
            
            
            3.5
            %Shenzhen
      Hui Yang Da Electronic Co., Ltd.
            
            
            2.7
            %Shenzhen
      Yin Si Qi Electronic Co., Ltd.
            
            
            1.9
            %Shenzhen
      Ping Bu Tech. Co., Ltd.
            
            
            1.9
            %





Customer
      Name
            
            Percentage
      of Total Revenue for 2009Shenzhen
      Hua Yin Tong Battery Electronic Tech. Co., Ltd.
            
            
            55.9
            %China
      Electronics Shenzhen Company
            
            
            15.4
            %Shenzhen
      Huanyuda battery Electronic Tech. Co., Ltd.
            
            
            3.9
            %Shenzhen
      Hui Yang Da Electronic Co., Ltd.
            
            
            3.5
            %Shenzhen
      Bak Battery Co., Ltd.
            
            
            3.1
            %




9




Although
we do not have formal contracts with our customers, we have established
long-term relationships. Our customers place orders on a monthly basis and sales
are processed with purchase orders. Compared to the sales in 2008, the total
sales to Shenzhen Hua Yin Tong Battery Electronic Tech. Co., Ltd. decreased in
2009.  The decrease in sales percentage to Shenzhen Hua Yin Tong’s in
2009 was due to decreased sales by Shenzhen Hua Yin Tong Battery Electronic
Tech. Co., Ltd., as well as sales to a new customer in 2009 (China Electronic
Shenzhen Company’s) which increased our total sales and also made Shenzhen Hua
Yin Tong’s sales percentage lower in 2009 than 2008. However, we believe that
our relationship with Shenzhen Hua Yin Tong is good and do not anticipate a
material change in their current volume of business.





Sales
and Marketing





We focus
our sales and marketing initiatives on becoming the leading manufacturer of caps
and shells for lithium ion batteries. We promote our brand in order to build
revenues, gain worldwide market share and promote consumer awareness and
acceptance. Our in-house sales and marketing team contact local battery
manufacturers to solicit interest in our products. If the manufacturer expresses
an interest in our product offering, we ship them samples and if our products
suit their needs orders are placed and filled. As of December 31, 2009, we had
42 sales and marketing personnel in total who all were located in China, of
which seven people are from E’Jenie and 35 people are from Anytone.





Intellectual
Property





We
protect our proprietary technology through various methods such as patents and
patent applications, trademarks, non-disclosure agreements and trade secrets. We
have filed and obtained a number of patents in China. As of December 31, 2009 we
have been issued three patents by the China National Intelligent Assets Bureau.
The expiration of these patents range from May 8, 2005 to May 8, 2015. Anytone
has seven patents, of which five patents are for the appearance of the products
and two patents are for the innovative utility model; and 21 patent application
rights, of which 16 patent application rights are for the appearance of products
and five patent application rights are for the innovative utility model. Each of
these patent’s lifetime is 10 years.





We intend
to continue to pursue the legal protection of our technology through
intellectual property laws. However, we cannot be certain that the steps we have
taken to protect our intellectual property rights will be adequate or that third
parties will not infringe or misappropriate our propriety rights.





Governmental
Approval and Regulations; Environmental Consideration





All
factories in China must adhere to standards set forth by the Environmental
Department and each factory must receive special permission from the
Environmental Department to operate. We have officially received permission from
the Environmental Department. Except as noted above, we are neither subject to
any governmental regulations nor do we need governmental approvals to conduct
our business.





Doing Business in
China





The
Chinese Legal System





The
practical effect of the People's Republic of China legal system on our business
operations in China can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws provide significant protection from government interference. In
addition, these laws guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants. These laws,
however, do impose standards concerning corporate formation and governance,
which are not qualitatively different from the general corporation laws of the
several states. Similarly, the People's Republic of China accounting laws
mandate accounting practices, which are not consistent with U.S. Generally
Accepted Accounting Principles. China's accounting laws require that an annual
"statutory audit" be performed in accordance with People's Republic of China
accounting standards and that the books of account of Foreign Invested
Enterprises are maintained in accordance with Chinese accounting laws. Article
14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law
requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
reports and statements to designate financial and tax authorities, at the risk
of business license revocation.





10




Second,
while the enforcement of substantive rights may appear less clear than United
States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned
Enterprises are Chinese registered companies, which enjoy the same status as
other Chinese registered companies in business-to-business dispute resolution.
Generally, the Articles of Association provide that all business disputes
pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration
Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying
Chinese substantive law. Any award rendered by this arbitration tribunal is, by
the express terms of the respective Articles of Association, enforceable in
accordance with the "United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical
matter, although no assurances can be given, the Chinese legal infrastructure,
while different in operation from its United States counterpart, should not
present any significant impediment to the operation of Foreign Invested
Enterprises such as E'Jenie and Anytone.





Although
the Chinese government owns the majority of productive assets in China, in the
past several years the government has implemented economic reform measures that
emphasize decentralization and encourage private economic activity. Because
these economic reform measures may be inconsistent or ineffectual, there are no
assurances that:






            We
      will be able to capitalize on economic
reforms.






            The
      Chinese government will continue its pursuit of economic reform
      policies.






            The
      economic policies, even if pursued, will be
  successful.






            Economic
      policies will not be significantly altered from time to
    time.






            Business
      operations in China will not become subject to the risk of
      nationalization.





Since
1979, the Chinese government has reformed its economic systems. Because many
reforms are unprecedented or experimental, they are expected to be refined and
improved. Other political, economic and social factors, such as political
changes, changes in the rates of economic growth, unemployment or inflation, or
in the disparities in per capita wealth between regions within China, could lead
to further readjustment of the reform measures. This refining and readjustment
process may negatively affect our operations.





Over the
last few years, China's economy has registered a high growth rate. Recently,
there have been indications that rates of inflation have increased. In response,
the Chinese government recently has taken measures to curb this excessively
expansive economy. These measures have included devaluations of the Chinese
currency, the renminbi, restrictions on the availability of domestic credit,
reducing the purchasing capability of certain of its customers, and limited
re-centralization of the approval process for purchases of some foreign
products. These austerity measures alone may not succeed in slowing down the
economy's excessive expansion or control inflation, and may result in severe
dislocations in the Chinese economy. The Chinese government may adopt additional
measures to further combat inflation, including the establishment of freezes or
restraints on certain projects or markets.




11




To date
reforms to China's economic system have not adversely impacted our operations
and are not expected to adversely impact operations in the foreseeable future;
however, there can be no assurance that the reforms to China's economic system
will continue or that we will not be adversely affected by changes in China's
political, economic, and social conditions and by changes in policies of the
Chinese government, such as changes in laws and regulations, measures which may
be introduced to control inflation, changes in the rate or method of taxation,
imposition of additional restrictions on currency conversion and remittance
abroad, and reduction in tariff protection and other import
restrictions.





Employees





As of
December 31, 2009, we had four employees, three of which are executive
officers and one administrative personnel. E'Jenie had seven divisions
with 346 employees in total, 36 of which are supervisors; 243 of which are on
the batter shell and covers’ production lines; 60 of which are on the battery’s
production lines and seven of which are in sales department. Anytone
had four divisions with 100 employees in total, five of which are
supervisors; 60 of which are on the production lines and 35 of which are in
sales department. We consider our relationships with our employees to be good.
Chinese labor laws require us to provide to all of our employees certain
benefits and insurance.





ITEM 1A.  RISK FACTORS





Not
applicable because we are a smaller reporting company.





ITEM
1B.  UNRESOLVED STAFF COMMENTS





Not
applicable because we are a smaller reporting company.





ITEM 2.    
PROPERTIES





Our
manufacturing headquarters and office is located at A-3 Xinglian Industrial
Zone, He Hua Ling Pingxin Road, Xin Nan, Ping Hua Town, Longgang, Shenzhen,
China 518111. This facility is 6,708 square meters of which 15% or 1,000 square
meters is used for offices, 4,500 square meters are used for the manufacturing
line and storage and the remaining 1,208 square meters are used for employee
dormitories. Anytone’s facility is leased and located at 5F, 51 Building, No.5,
Qiongyu Rd., High-tech industrial park, Nanshan District, Shenzhen, China. The
lease terms are five years which started from January 1, 2009 to December 30,
2013. The facility is 2,600 square meters, of which 1,300 square meters are used
for R&D and producing samples and the rest are used for offices. Our U.S.
office located at 116 West 23rd
Street, 5th FL,
New York, NY 10011.





We
believe the facilities we occupy are adequate for the purposes for which they
are currently used and are well maintained.





ITEM 3.     LEGAL
PROCEEDINGS





There are
no pending legal proceedings to which the Company is a party or in which any
director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company. The Company’s property is not the subject of any pending
legal proceedings.





ITEM 4.     (REMOVED AND
RESERVED)





12





PART
II





ITEM
5.   MARKET FOR REGISTRANTS
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES





Market
Information





Effective November 18, 2009 we obtained
approval from FINRA to change our name to New Energy Systems Group and as of
this date our new trading symbol for our Common Stock on the OTC Bulletin Board
(“OTCBB”) was “NEWN.” Prior to that date, our Common Stock was quoted on the
OTCBB under the symbol “CMTP”. The following table sets forth the range of high
and low bid quotations for each quarter within the last fiscal year. These
quotations as reported by the OTCBB reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not necessarily represent actual
transactions. On July 13, 2009, we effected a 10-to-1 reverse split of our
common stock, which is reflected in the table below.





2008
            
            
            High
            
            
            
            LowFirst
      Quarter
            
            $
            0.12
            
            
            $
            0.05Second
      Quarter
            
            $
            0.06
            
            
            $
            0.04Third
      Quarter
            
            $
            0.11
            
            
            $
            0.02Fourth
      Quarter
            
            $
            0.09
            
            
            $
            0.03





2009
            
            
            High
            
            
            
            LowFirst
      Quarter
            
            $
            0.05
            
            
            $
            0.02Second
      Quarter
            
            $
            0.24
            
            
            $
            0.03Third
      Quarter
            
            $
            7.50
            
            
            $
            0.13Fourth
      Quarter
            
            $
            10.00
            
            
            $
            5.40




The source of these high and low prices
was the OTC Bulletin Board. These quotations reflect inter-dealer prices,
without retail mark-up, markdown or commissions and may not represent actual
transactions. The high and low prices listed have been rounded up to the next
highest two decimal places.





The market price of our common stock is
subject to significant fluctuations in response to variations in our quarterly
operating results, general trends in the market, and other factors, over many of
which we have little or no control. In addition, broad market fluctuations, as
well as general economic, business and political conditions, may adversely
affect the market for our common stock, regardless of our actual or projected
performance.





Holders





As of
April 12,
2010, in accordance with our transfer agent records, we had 123 record holders
of our 11,863,390 shares of Common Stock.





Dividends





Holders
of our common stock are entitled to receive dividends if, as and when declared
by the Board of Directors out of funds legally available therefore. We have
never declared or paid any dividends on our common stock. We intend to retain
any future earnings for use in the operation and expansion of our business.
Consequently, we do not anticipate paying any cash dividends on our common stock
to our stockholders for the foreseeable future.





Recent Sales of Unregistered
Securities





Except as
previously disclosed in our quarterly reports on Form 10-Q and current reports
on Form 8-K, and as set forth herein, we did not sell or issue any shares of
stock.




13




Equity Compensation Plan
Information





On
November 4, 2005, the Company issued a nonqualified stock option for 10,000
shares (post-reverse stock split) to the member of the board with an exercise
price of $0.53 that will expire on November 3, 2010. The option vested and
became exercisable immediately. The Company’s Stock Option Incentive Plan
provides for the grant of 10,000 options rights (post-reverse stock split) to a
non-employee director. The Plan is administered by the Company’s Compensation
Committee, who has authority to select plan participants and determine the terms
and conditions of such awards.
 
 On
October 22, 2009 our Board of Directors authorized the creation of the China
Digital Communication Group 2009 Equity Incentive Plan (the
“Plan”).  Under the Plan we issued 1,000,000 shares of our Common
Stock to several individuals for services rendered.  Such shares were
registered by us under a Form S-8.
 
 Options
outstanding (post-reverse stock split) at December 31, 2009 and related weighted
average price and intrinsic value are as follows:


Plan
      category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                
                (a)
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
              (b)
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)
              (c)Equity
      compensation plans approved by security holders
            
            1,000,000
            
            $8.81
            
            0Equity
      compensation plans not approved by security holders
            
            10,000
            
            $0.53
            
            0Total
            
            1,010,000
            
            $8.73
            
            0




ITEM 6.     SELECTED
FINANCIAL DATA





Not
applicable because we are a smaller reporting company.





ITEM 7.     MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





Note
Regarding Forward-Looking Statements





This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.  We have based
these forward-looking statements on our current expectations and projections
about future events.  These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements.  In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “could,” “would,”
“expect,” “plan,” anticipate,” believe,” estimate,” continue,” or the negative
of such terms or other similar expressions.  Factors that might cause
or contribute to such a discrepancy include, but are not limited to, those
listed under the heading “Risk Factors” and those listed in our other
Securities and Exchange Commission filings.  The following discussion
should be read in conjunction with our Financial Statements and related
Notes thereto included elsewhere in this report. Throughout this Annual
Report we will refer to New Energy Systems Group as "New Energy," the
"Company," "we," "us," and "our."





14




BUSINESS
OVERVIEW





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





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





The
lithium battery was created in the 1990s, with its first mass production in 1993
in Japan. Lithium batteries were first used in notebook computers and now are
used in cellular phones, video machines, laptops, digital cameras, MP3 players,
global positioning satellite systems, 3G communication devices, hybrid cars and
an array of other electronic products. Batteries are becoming smaller, lighter,
more efficient, longer lasting and free of pollution. The lithium battery
energy/weight ratio exceeds that of its counterparts and with an excellent
safety standard we believe that it is the future of the battery industry. China
has become one of the largest producers and consumers of lithium ion batteries.
According to the China Chemistry and Physics Electronic Industry Association,
there were over $4.0 billion of lithium ion batteries sold in China in 2005. We
anticipate that there will be even greater demand for lithium batteries in China
and worldwide in the next few years. We believe that the current trend towards
smaller, lighter portable consumer products will continue to grow and because of
its size, the demand for the lithium battery will increase.





Under the
current depressed economic environment, management of the Company has made some
strategic adjustments to keep the Company running and growing. On the basis of
keeping the existing battery pack accessories segment, the Company has gotten
into a related business field  since August 2008- battery assembly and
finished battery distribution, to diversify the line of products; consequently,
the Company has opportunity to  compete in the whole battery
industry.





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





On
December 7, 2009, we closed the transactions contemplated by the share exchange
agreement dated November 19, 2009 with Anytone International (H.K.) Co., Ltd.
(“Anytone International”) and Shenzhen Anytone Technology Co., Ltd. (“Shenzhen
Anytone”).  Shenzhen Anytone is a subsidiary of Anytone International,
collectively referred to as “Anytone”.  Pursuant to the Share Exchange
Agreement, we issued to the shareholders of Anytone International 3,593,939
shares of the Company's Common Stock with a restrictive legend, and agreed to
pay US $10,000,000. As of today, $5,000,000 has been paid; the remaining
$5,000,000 will be paid on or before June 30, 2010 with no interest. Anytone is
also engaged in production of battery and battery related products.





15




RESULTS
OF OPERATIONS





Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008





The
following table presents our consolidated statement of operations for the years
ended December 31, 2009 and 2008. The discussion following the table is based on
these results. Certain columns may not add due to rounding.





2009
            
            
            
            
            
            2008%
      of Sales
            
            
            
            
            
            %
      of SalesRevenue,
      netBattery
            
            $
            19,918,846
            
            
            
            76
            %
            
            $
            14,748,595
            
            
            
            75
            %Battery
      shell and cover
            
            
            6,457,044
            
            
            
            24
            %
            
            
            4,967,813
            
            
            
            25
            %Total
      revenue
            
            
            26,375,890
            
            
            
            100
            %
            
            
            19,716,408
            
            
            
            100
            %Cost
      of salesBattery
            
            
            13,735,160
            
            
            
            69
            %
            
            
            9,851,127
            
            
            
            67
            %Battery
      shell and cover
            
            
            4,596,379
            
            
            
            71
            %
            
            
            4,158,868
            
            
            
            84
            %Total
      cost of revenue
            
            
            18,331,539
            
            
            
            70
            %
            
            
            14,009,995
            
            
            
            71
            %Gross
      profit
            
            
            8,044,351
            
            
            
            30
            %
            
            
            5,706,413
            
            
            
            29
            %Operating
      expensesSelling
      expense
            
            
            124,845
            
            
            
            0
            %
            
            
            135,456
            
            
            
            1
            %General
      and administrative expenses
            
            
            1,213,783
            
            
            
            5
            %
            
            
            586,433
            
            
            
            3
            %Total
      operating expenses
            
            
            1,338,628
            
            
            
            5
            %
            
            
            721,889
            
            
            
            4
            %Income
      from operations
            
            
            6,705,723
            
            
            
            25
            %
            
            
            4,984,524
            
            
            
            25
            %Other
      expenses, net
            
            
            55,230
            
            
            
            0
            %
            
            
            78,782
            
            
            
            0
            .4%Income
      before income taxes
            
            
            6,650,493
            
            
            
            25
            %
            
            
            4,905,742
            
            
            
            25
            %Provision
      for income taxes
            
            
            813,098
            
            
            
            3
            %
            
            
            454,670
            
            
            
            2
            %Net
      income
            
            $
            5,837,395
            
            
            
            22
            %
            
            $
            4,451,072
            
            
            
            23
            %




Net
Revenue





Net
revenue for the year ended December 31, 2009 was $26,375,890 compared to
$19,716,408 for 2008, an increase of $6,659,482, or 34%. The sales of batteries
of 2009 was $19,918,846 or 76% of the total revenue compared to net revenue of
$14,748,595 or 75% of the total sales for 2008, an increased $5,170,251 or 35%.
The increase was primarily due to the Company’s sales growth and successful
development on new customers which bring continuous increase on battery
business. In addition, we acquired Anytone in December of 2009, which brought us
$3,424,291sales of battery.





The
Company’s existing battery shell and cover business generated net revenue of
$6,457,044 during the year ended December 31, 2009, compared with $4,967,813 for
2008, an increase of $1,489,231 or 30%.  The increase in our sales in
this segment was mainly related to a general increase in sales to existing
customers as a result of the gradual recovery of the economy in
China.





16




Cost
of Sales





Cost of
sales for the year ended December 31, 2009 totaled $18,331,539 or 70% of net
sales, compared to $14,009,995 or 71% of net sales for the year ended December
31, 2008, an increase of $4,321,544, this increase was mainly due to increased
sales and production volume.





Cost of
sales of the battery assembly and distribution was $13,735,160, or 69 % of total
battery revenue for 2009, compared with $9,851,127 or 67% for 2008. The Company
developed purchasing techniques that enable us to remain competitive in
marketing our batteries; we have limited the number of suppliers and have
negotiated preferable arrangements with them.





Cost of
sales related to our existing battery shell and cover business during the year
ended December 31, 2009 was $4,596,379, or 71 % of sales of battery shell and
cover, compared to $4,158,868 for 2008, or 84% of sales. The reduction in
our cost of sales as a percentage of sales was due to our cost control efforts
as well as the economies of scale on our increased production.





Operating
Expense





Operating
expenses for the year ended December 31, 2009 totaled $1,338,628 or 5% of net
revenue compared to $721,889 or 4% of net revenue for 2008, an increase of
$616,739, or 85%. The increase in our operating expenses was in connection with
the increase in our sales and production.





Selling
expense for the year ended December 31, 2009 totaled $124,845 compared to
$135,456 for 2008.


General
and administrative expenses for the year ended December 31, 2009 totaled
$1,213,783 compared to $586,433 for 2008.  The increase in general and
administrative expenses of $627,350 was mainly due to the expenses from Anytone,
a subsidiary we acquired in December 31 ,2009 as well as the noncash stock
compensation expense of $251,507 that was paid to the consultants for promoting
the Company’s image.





Net
Income





Net
income for the year ended December 31, 2009 totaled $5,837,395 compared to
$4,451,072 for 2008, an increase of $1,386,323 or 31%, which was due to the
reasons enumerated above.





LIQUIDITY
AND CAPITAL RESOURCES





Cash has
historically been generated from operations. Operations and liquidity needs are
funded primarily through cash flows from operations and short-term borrowings.
Cash and cash equivalents were $3,651,990 as of December 31, 2009. Working
capital at December 31, 2009 was $7,278,737.





The
following is a summary of cash provided by or used in each of the indicated
types of activities during the year ended December 31, 2009 and
2008:





2009
            
            2008Cash
      provided by (used in):Operating
      Activities
            
            $
            1,392,100
            
            
            $
            1,184,532Investment
      Activities
            
            
            (2,599,528)
            
            
            
            (6,025
            )Financing
      Activities
            
            
            (2,096,129
            )
            
            
            2,162,150





Net cash
flow provided by operating activities was $1,392,100 for the year ended December
31, 2009, compared to net cash flow provided by operating activities of
$1,184,532 for 2008. The increase in net cash flow provided by operating
activities for 2009 was mainly due to an increase in sales, quick payment
collection on accounts receivable and our effort on keeping lower inventory
level.




17




Net cash
flow used in investment activities was $2,599,528 for the year ended December
31, 2009, compared to net cash used in investment activities of $6,025 in
2008.  In 2009, we paid $5,000,000 (50% of cash portion of the
purchase price of Anytone) for the acquisition of Anytone and received
$2,401,140 cash from Anytone through the acquisition, while we purchased fixed
assets for $6,025 in 2008.





Net cash
flow used in financing activities was $2,096,129 for the year ended December 31,
2009 compared to net cash provided by financing activities of $2,162,150 for
2008. The increase of net cash outflow from financing activities for 2009 was
mainly due to the repayment of bank loan in the amount of $2,195,872 that was
borrowed in August of 2008.




We do not
believe that inflation had a significant negative impact on our results of
operations during the year ended December 31, 2009.





Working
Capital Requirements





Historically
cash from operations, short term financing and the sale of our Company stock
have been sufficient to meet our cash needs. We believe we will be able to
generate sufficient cash from operations to meet our working capital needs.
However, our actual working capital needs for the long and short term will
depend upon numerous factors, including operating results, competition, and the
availability of credit facilities, none of which can be predicted with
certainty. Future expansion will be limited by economic environment for the
industry and opportunities, availability of financing and raising
capital by selling stock.  We do not have any plans to sell our
securities and there is no guarantee that if we do seek to sell securities in
the future that we will be successful.





OFF-BALANCE
SHEET ARRANGEMENTS





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





CRITICAL
ACCOUNTING POLICIES





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





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





18




Recent
accounting pronouncements





In
October 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding
accounting for own-share lending arrangements in contemplation of convertible
debt issuance or other financing.  This ASU requires that at the date
of issuance of the shares in a share-lending arrangement entered into in
contemplation of a convertible debt offering or other financing, the shares
issued shall be measured at fair value and be recognized as an issuance cost,
with an offset to additional paid-in capital. Further, loaned shares are
excluded from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation.  This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years.
The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.





In August
2009, the FASB issued an ASU regarding measuring liabilities at fair value. This
ASU provides additional guidance clarifying the measurement of liabilities at
fair value in circumstances in which a quoted price in an active market for the
identical liability is not available; under those circumstances, a reporting
entity is required to measure fair value using one or more of valuation
techniques, as defined. This ASU is effective for the first reporting period,
including interim periods, beginning after the issuance of this ASU. The
adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.





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





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.





In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.





19





In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009. The Company does
not believe the adoption of FSP No. SFAS 107-1 and APB 28-1 will have an impact
on its financial condition, results of operations or cash flows.





In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.





In April
2009, the FASB issued FSP No. SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
No. SFAS 157-4”).  FSP No. SFAS 157-4, which is
codified in FASB ASC Topics 820-10-35-51 and 820-10-50-2, provides additional
guidance for estimating fair value and emphasizes that even if there has been a
significant decrease in the volume and level of activity for the asset or
liability and regardless of the valuation technique(s) used, the objective of a
fair value measurement remains the same. The Company adopted FSP
No. SFAS 157-4 beginning April 1, 2009. This FSP had no material
impact on the Company’s financial position, results of operations or cash
flows.





ITEM 7A.  QUANTITIATIVE AND
QUALITATIVE DISCLOUSURES ABOUT MARKET RISK





Not applicable because we are a smaller
reporting company.





ITEM 8.      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.





Financial Statements are provided after
the signature page of this Report.





ITEM 9.     CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE





None.





20


ITEM
9A(T).  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
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 CEO, who serves as 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 Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) 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 the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CFO concluded that the Company’s disclosure controls and
procedures are 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, and 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.





Management's
Annual Report on Internal Control Over Financial Reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act and for assessing the effectiveness of internal
control over financial reporting. As defined by the Securities and Exchange
Commission (Rule 13a-15(f) under the Exchange Act of 1934, as amended),
internal control over financial reporting is a process designed by, or under the
supervision of the Company’s principal executive and principal financial
officers and effected by its Board of Directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the consolidated financial statements in accordance with
U.S. generally accepted accounting principles.





Our
internal control system was designed to, in general, provide reasonable
assurance to the Company’s management and board regarding the preparation and
fair presentation of published financial statements, but because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009.  The framework used by
management in making that assessment was the criteria set forth in the document
entitled “ Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that assessment,
our management has determined that as of December 31, 2009, the Company’s
internal control over financial reporting was effective for the purposes for
which it is intended.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.





21




Changes
in Internal Control over Financial Reporting





The
Company hired a SOX consulting firm in 2009 to evaluate our SOX 404 internal
control and procedures. Their primary objective was to streamline our internal
control structure. The consulting firm had studied and examined our lines of
responsibility and delegation of authority for our functional financial
reporting areas so that they can evaluate whether responsibility lines are
clearly be drawn. They documented and tested our key controls over financial
reporting in 2009 and introduced key auditable internal controls and procedures
integrated with our financial reporting processes. Through their studies and
examinations, management realized that our internal control over financial
reporting was subjected to the following weaknesses, which management will need
to take actions in accordance with their suggestion in 2010.
  ·
              Lack
      of expertise in U.S. accounting principle among the personnel in the
      Company;
  ·
              Dependency
      on U.S. external accountant and auditors for adjustments and footnote
      disclosures;
  ·
              Lack
      of Internal Audit system;
  ·
              Lack
      of adequate staffing and supervision with enough basic knowledge and
      requirement of SOX 404 within the accounting operations of the
      Company;
  ·
              Lack
      of periodic meeting of Audit
Committee;
 
 In 2010,
the Company will with our internal staff continue to conduct periodic internal
control risk assessments and control testing so that we will be improving our
internal control system’s integrity and to assess areas of material risk. Our
internal audit staffs in 2010 will develop additional control activities to
ensure the effective function of our controls. The anticipated changes in
internal control over financial reporting will enhance our control environment
while also improving internal information flow and communication network. We
will identify new risks through a constant risk assessment process and make our
control activities an effective tool of monitoring our internal controls. The
sole responsibility for establishing and maintaining our internal controls over
financial reporting and all internal control systems improvement is that our
management and company personnel including our internal audit department, which
will all ensure proper and reliable financial reporting. Other than as described
above, there have not been any changes in the Company’s internal control over
financial reporting during the quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.


PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE





Directors and Executive
Officers





Set forth
below is certain information relating to our directors and executive officers,
including their names, ages, and positions.





Name
            
            Age
            
            Position
            
            Date
      of AppointmentFushun
      Li
            
            47
            
            Chief
      Executive Officer and Director
            
            May
      5, 2009Weihe
      Yu
            
            34
            
            Chairman
      of the Board of Directors
            
            December
      10, 2009Junfeng
      Chen
            
            31
            
            Chief
      Financial Officer and Secretary
            
            August
      3, 2009





Set forth
below is a brief description of the background and business experience of our
executive officers and directors for the past five years (and, in some
instances, for prior years).





Fushun
Li





Mr.
Fushun Li was the founder of Shenzhen Kai Bi Te Tech. Co., Ltd. and served as
its President from January 2004 to April 2009. The company was engaged in
electronic components and 3C electronic products trade with revenue exceeding 1
billion RMB. From January 2001 to December 2003, Mr. Li was the president of
Shenzhen Guanxu Electronics Co., Ltd. He conducted a numbers of reforms and
greatly improved company management. From November 1995 to December 2000, Mr. Li
was the vice president of Guanzhou Xunxing Communication Equipment, a subsidiary
of China Telecommunications Corporation. During these years, he improved the
company’s product line from single to diversity and increased the company’s
sales from 50 million RMB to 300 million RMB, as well as the net profits. From
January 1992 to October 1995, Mr. Li worked as assistant president in Shenzhen
Jingkong Chaoying Electronic Industry Co., Ltd. Mr. Li graduated from Huangshi
Institute of Technology with business management major in September
1985.




22




Weihe
Yu





Mr. Weihe
Yu has spent his career in the industrial sector where he has demonstrated his
ability to maximize performance, streamline costs and increase sales. Most
recently, he was one of the founders and the general manager of Shenzhen Anytone
Technology Co., Ltd. After only three years the company became a leader in the
mobile power industry with many patents and core technologies. Under his
management, Anytone has become a highly recognized brand and the company’s
revenue has grown more than 100% annually over the past four years. Prior to
Anytone, Mr. Yu was general manager of Shenzhen Four Images Industrial Co., Ltd.
whose business is to create protection circuits for lithium ion batteries.
During his tenure there, the company’s proprietary products were at the
forefront of the industry and widely used by the largest customers of lithium
ion batteries. From 1998 to 2000, Mr. Yu served in key management positions at
the Yangxin Aluminum Alloy Wheel Co., Ltd, an automobile alloy wheel
manufacturer. In his role there, he created a comprehensive marketing management
and performance appraisal system that greatly enhanced the performance of the
company. Mr. Yu graduated from the Huangshi Institute of Technology in Hubei
Province in 1998.





Junfeng
Chen





Junfeng
Chen, has worked in the Company since 2005. Prior to this appointment, Mr. Chen
was the Chief Financial Officer of our wholly-owned subsidiary Shenzhen E’Jenie
Science and Technology Co., Ltd. (“Shenzhen E’Jenie) since February 2006. From
March 2005 to January 2006, Mr. Chen served as the assistant of financial
manager in Shenzhen E’Jenie.  Junfeng Chen worked as an accountant in
Henan Labor Department Officer in Dongguan City, Guangdong Province, P.R.C and
focused on processing the daily financial works for the office from February
2004 to December 2004. He also worked as an accountant in the Dongguan Shatian
Yumao Textile Mill from October 2001 to December 2003.  Junfeng Chen
majored in Accounting and graduated from Wuhan University in China in
2001.





Director
Compensation





None of
our directors receive any compensation for their services as a member of the
board of directors, except as set forth in Item 11 below.





Family
Relationships





There are
no family relationships among any of our officers or directors.





Involvement
in Certain Legal Proceedings





To the
best of our knowledge, none of our directors or executive officers have been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.





Compliance with Section
16(A) of the Exchange Act





Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the Company
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and are required to furnish copies to the
Company. To the best of the Company’s knowledge, any reports required to be
filed were timely filed in the year ended December 31, 2009, except reports from
Fushun Li, Weihe Yu, Junfeng Chen and Guofu Xiong.





23




Code of
Ethics





We have
adopted a Code of Ethics that applies to our principal executive officer and
senior financial officers. Please see Item 15, Exhibit 14.1.





ITEM 11.   EXECUTIVE
COMPENSATION





The
following table sets forth information with respect to compensation paid by us
to our officers and directors during the three most recent fiscal years. This
information includes the dollar value of base salaries, bonus awards and number
of stock options granted, and certain other compensation, if any.





Non-
            
            
            NonqualifiedName
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Equity
            
            
            Deferred
            
            
            Alland
            
            
            
            
            
            
            
            
            
            Stock
            
            
            Option
            
            
            Incentive
            
            
            Compensation
            
            
            OtherPrincipal
            
            
            
            Salary
            
            
            Bonus
            
            
            Awards
            
            
            Awards
            
            
            Plan
            
            
            Earnings
            
            
            Compensation
            
            
            TotalPosition
            
            Year
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)(a)
            
            (b)
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)Zhongnan
      Xu
            
            2009
            
            $
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            0Former
      CEO and Chairman
            
            2008
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            02007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Jiangcheng
      Wu
            
            2009
            
            $
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            0Former
      CFO
            
            2008
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            02007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Weihe
      Yu
            
            2009
            
            $
            1,523
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            1,523ChairmanFushun
      Li
            
            2009
            
            $
            5882
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            5,882CEO
      and DirectorJunfeng
      Chen
              CFO
            
            2009
            
            $
            10,294
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            10,294





Employment
Agreements





We have
employment agreement with our directors and officers. The basic information is
as following:





Name
            Position
            Term
            Annual
      SalaryWeihe
      Yu
            Chairman
            Dec.
      2009~ Dec. 2012
            $26,470Fushun
      Li
            CEO
            Jul.,
      2009~Jul., 2012
            $17,647Junfeng
      Chen
            Interim
      CFO
            Sep.,
      2009~Sep., 2010
            $17,647





24





Compensation of
Directors





Except as
set forth above, we have no arrangements for the remuneration of officers and
directors, except that they will be entitled to receive reimbursement for
actual, demonstrable out-of-pocket expenses, including travel expenses, if any,
made on our behalf in the investigation of business opportunities. Other than as
reflected in the table above, no remuneration has been paid to our officers or
directors. Except as set forth above, there are no agreements or understandings
with respect to the amount or remuneration those officers and directors are
expected to receive in the future. As of the date of this Annual Report, no
stock options have been issued to our officers or directors.





ITEM 12.   SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





The
following table sets forth, as of the date of this report, the total number of
shares owned beneficially by our sole director and officer and the present
owners of 5% or more of our total outstanding shares. The table also reflects
what their ownership will be assuming completion of the sale of all shares in
this offering. The stockholders listed below have direct ownership of his/her
shares and possess voting and dispositive power with respect to the
shares.





Title
      of Class
            
            Name
      and Address of Beneficial Owner
            
            Amount
      and Nature of Beneficial Ownership
            
            
            Percent
      of
              Class
      (1)Common
      Stock
            
            Fushun
      Li (2)
            
            
            0
            
            
            
            —Common
      Stock
            
            Weihe
      Yu(3)
            
            
            1,078,182
            
            
            
            9.1
            %Common
      Stock
            
            Junfeng
      Chen(4)
            
            
            0
            
            
            
            —Common
      Stock
            
            Xiaohong
      Peng (5)
            
            
            646,909
            
            
            
            5.5
            %Common
      Stock
            
            Guofu
      Xiong (6)
            
            
            1,276,342
            
            
            
            10.8
            %Common
      Stock
            
            Ruizheng
      Cheng (7)
            
            
            682,848
            
            
            
            5.7
            %Common
      Stock
            
            All
      officers and directors as a group (3 persons)
            
            
            1,078,182
            
            
            
            9.1
            %











(4)  Mr.
Chen is the Chief Financial Officer of the Company.  Mr. Chen’s
mailing address is: A-3 Industrial Zone, He Hua Ling, Pingxin Road, Xin Nan,
Ping Hu Town, Longgang, Shenzhen, China 518111.


(5)  The
mailing address for Ms. Peng is: 501, Building A, Lixin Village, Xuefu Road,
Nanshan District, Shenzhen City, Guangdong Province, China.


(6)  The
mailing address for Mr. Xiong is: 602B ChiWan HaiYun Building, Left Fort Road,
NanShan District, Shenzhen City, China.


(7)  The
mailing address for Mr. Cheng is: 2C-502, Yude Juayuan, Nanshan District,
Shenzhen City, Guangdong Province, China





25





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE





As of
December 31, 2008, the Company had an unsecured, due on demand, and non
interest-bearing loan from a shareholder of $174,600 which was repaid by the end
of 2009. As of December 31, 2009, the Company had $527,225 unsecured, due on
demand and non interest-bearing loan payable to the original owner of Shenzhen
Anytone for the acquisition of Shenzhen Anytone by Anytone
International.





ITEM 14.   PRINCIPAL ACCOUNTING
FEES AND SERVICES




On June
10, 2009, we dismissed Kabani & Company, Inc. (“Kabani”) as its
independent registered public accounting firm. The Company’s Board of Directors
participated in and approved the decision to change our independent registered
public accounting firm. Kabani’s reports on our financial statements for the
years ended December 31, 2007 and 2008 and during the subsequent interim period
through June 10, 2009 did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. During the years ended December 31, 2007 and 2008 and
during the subsequent interim period through June 10, 2009, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with Kabani’s opinion to the subject matter of the disagreement.
During the years ended December 31, 2007 and 2008 and during the subsequent
interim period through June 10, 2009, there have been no reportable events with
the Company as set forth in Item 304(a)(i)(v) of Regulation
S-K.


On June
10, 2009, we appointed Goldman Parks Kurland Mohidin LLP (“GPKM”) as the
Company’s new independent registered public accounting firm. The decision to
engage GPKM was approved by the Company’s Board of Directors on June 10, 2009.
During the years ended December 31, 2007 and 2008 and during the subsequent
interim period through June 10, 2009, the Company did not consult with GPKM
regarding (1) the application of accounting principles to a specified
transactions, (2) the type of audit opinion that might be rendered on the
Company’s financial statements, (3) written or oral advice was provided that
would be an important factor considered by the Company in reaching a decision as
to an accounting, auditing or financial reporting issues, or (4) any matter that
was the subject of a disagreement between the Company and its predecessor
auditor as described in Item 304(a)(1)(iv) or a reportable event as described in
Item 304(a)(1)(v) of Regulation S-K.




26




(1)
Audit Fees





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for our audit of annual financial
statements and review of financial statements included in our Form 10-K or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years
was:





2009
            
            $
            60,000
            
            Goldman
      Parks Kurland Mohidin LLP2008
            
            $
            50,000
            
            Kabani
      & Company, Inc.





Audit Related
Fees





There is
an one-time charge of $7,500 for our prior auditor, Kabani & Company, Inc.,
to review our annual report for the years ended December 31, 2009 and
2008.





Tax Fees





For the
Company’s fiscal years ended December 31, 2009 and 2008, we were not billed for
professional services rendered for tax compliance, tax advice, and tax
planning.





All Other
Fees





The
Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal years ended December 31, 2009 and
2008.





Pursuant
to the requirements of Section 13 or 15(d) 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.





Effective
May 6, 2003, the Securities and Exchange Commission adopted rules that require
that before our auditor is engaged by us to render any auditing or permitted
non-audit related service, the engagement be:





-
            approved
      by our audit committee; or





-
            entered
      into pursuant to pre-approval policies and procedures established by the
      audit committee, provided the policies and procedures are detailed as to
      the particular  service,  the  audit
      committee is informed of each service, and such policies and procedures do
      not include delegation of the audit committee's responsibilities to
      management.





We do not
have an audit committee.  Our entire board of directors pre-approves
all services provided by our independent auditors. The pre-approval process has
just been implemented in response to the new rules. Therefore, our board of
directors does not have records of what percentage of the above
fees were pre-approved.  However, all of the above services and fees
were reviewed and approved by the entire board of directors either before or
after the respective services were rendered.





PART
IV





ITEM 15.   EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.





a)
Documents filed as part of this Annual Report





1.
Financial Statements





2.
Financial Statement Schedules





3.
Exhibits





Exhibit No.
            
            Title
      of Document
            
            Location2.1
            
            Share
      Exchange Agreement, dated February 14, 2006, between us, UPE Limited (Far
      East), Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., and the
      shareholders of UPE Limited
            
            Incorporated
      by reference as Exhibit 2.1 to Form 8-K filed February 21,
      20062.2
            
            Amended
      and Restated Share Exchange Agreement, dated March 22, 2006, between us,
      Galaxy View International Ltd., Shenzhen Sono, and the shareholders of
      Galaxy View International Ltd.
            
            Incorporated
      by reference as Exhibit 2.1 to Form 8-K filed March 24,
    20062.3
            
            Share
      Exchange Agreement and Plan or Reorganization
            
            Incorporated
      by reference as Exhibit 10.1 to Form 8-K filed September 29,
      2004





27




3.1.1
            
            Articles
      of Incorporation
            
            Incorporated
      by reference as Exhibit 3(i)(1) to Form 8-K filed September 16,
      20043.1.2
            
            Amendment
      to Articles of Incorporation
            
            Incorporated
      by reference as Exhibit 3(i)(2) to Form 8-K filed September 16,
      20043.1.3
            
            Amendment
      to Articles of Incorporation
            
            Incorporated
      by reference as Exhibit 3(i)(3) to Form 8-K filed September 16,
      20043.1.4
            
            Certificate
      of Designation of Series A Convertible Preferred Stock
            
            Incorporated
      by reference as Exhibit 3(i) to Form 8-K filed July 28,
    20063.2
            
            Bylaws
            
            Incorporated
      by reference as Exhibit 3.4 to Form SB-2/A filed March 22,
      20024.1
            
            Form
      of Stock Certificate
            
            Incorporated
      by reference as Exhibit 4.1 to Form SB-2/A filed March 22,
      20024.2
            
            2004
      Equity Incentive Plan
            
            Incorporated
      by reference as Exhibit 4.1 to Form S-8 filed March 2,
  20044.3
            
            Form
      of Class A, B and C Warrants
            
            Incorporated
      by reference as Exhibit 4.3 to Form 10-KSB filed March 30,
      20064.4
            
            Form
      of Subscription Agreement dated March 17, 2004 by and among Jasmine's
      Garden and the Investors
            
            Incorporated
      by reference as Exhibit 4.1 to Form 8-K filed March 22,
    2004





28




10.1
            
            Sales
      Contract dated April 21, 2005 between Shenzhan E'Jenine Science &
      Technology Co., LTD. and Shenzhen Gao Yi Electonics Co.
    LTD.
            
            Incorporated
      by reference as Exhibit 10.1 to Form 8-K filed April 22,
    200510.2
            
            Sales
      Contract dated July 12, 2005 between Shenzhan E'Jenine Science &
      Technology Co., LTD. and Wuhan Jie Xin Communication Development Co.,
      LTD.
            
            Incorporated
      by reference as Exhibit 2.1 to Form 8-K filed July 14,
  200510.3
            
            Sales
      Contract dated December 31, 2005 between Shenzhan E'Jenine Science &
      Technology Co., LTD. and Yin Si Qi Electronics Co.
            
            Incorporated
      by reference as Exhibit 2.1 to Form 8-K filed January 6,
    200610.4
            
            Loan
      Agreement dated March 10, 2006, between New Energy Systems
      Group and United Private Equity (The Pacific) Limited
            
            Incorporated
      by reference as Exhibit 2.1 to Form 8-K filed March 15,
    200610.5
            
            Employment
      Agreement dated December 10, 2009 between New Energy Systems Group
      and Weihe Yu
            
            Filed
      herewith10.6
            
            Employment
      Agreement dated July 1, 2009 between New Energy Systems Group and Fushun
      Li
            
            Filed
      herewith10.7
            
            EmploymentAgreementdated
      September 1, 2009 between New Energy Systems Group and Junfeng
      Chen
            
            Filed
      herewith14.1
            
            Code
      of Ethics
            
            Incorporated
      by reference as Exhibit 14.1 to Form 10-KSB filed March 30,
      200621.1
            
            Subsidiaries
            
            Filed
      herewith31.1
            
            Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            Filed
      herewith31.2
            
            Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            Filed
      herewith32.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
      herewith32.2
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
      herewith





29




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





NEW
      ENERGY SYSTEMS GROUPDate:
      April 15, 2010
            By:
            /s/ Fushun
      LiFushun
      LiChief
      Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name
            
            Title
            
            Date/s/Fushun
      Li
            
            Chief
      Executive Officer and Director
            
            April  15,
      2010Fushun
      Li/s/Junfeng
      Chen
            
            Chief
      Financial Officer
            
            April  15,
      2010Junfeng
      Chen/s/
      WeiheYu
            
            Chairman
      – Board of Directors
            
            April
      15, 2010Weihe
      Yu








30





NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES


(FORMERLY, CHINA DIGITAL COMMUNICATION
GROUP AND SUBSIDIARIES)


CONSOLIDATED
FINANCIAL STATEMENTS





DECEMBER
31, 2009











TABLE
OF CONTENTS





Report
      of Independent Registered Public Accounting Firm
            F-1-2Consolidated
      Balance Sheets
            F-3Consolidated
      Statements of Income and Comprehensive Income
            F-4Consolidated
      Statements of Cash Flow
            F-5Consolidated
      Statements of Changes in Stockholders’ Equity
            F-6Notes
      to Consolidated Financial Statements
            F-7-23





31







Report of Independent
Registered Public Accounting Firm
  
  Board of
Directors and Stockholders of
 New
Energy Systems Group
 
 We have
audited the accompanying balance sheet of
New Energy Systems Group and subsidiaries (formerly China Digital Communication
Group and Subsidiares) as of December 31, 2009 and the related statements
of income and comprehensive income, stockholders' equity, and cash flows for the
year ended December 31, 2009. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
  We
conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
 
 In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Energy Systems Group and
subsidiaries (formerly China Digital Communication Group and
Subsidiares) as of December 31, 2009, and the results of their operations
and their cash flows for the year ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles.
 
 Goldman
Parks Kurland Mohidin LLP
 Encino,
California
 April 9,
2010
  F-1
  Report
of Independent Registered Public Accounting Firm
 
 
 
 Board of
Directors and Stockholders of
 China
Digital Communication Group and Subsidiaries, Inc.
  We have
audited the accompanying consolidated balance sheet of China Digital
Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
31, 2008, and the related consolidated statements of operation, stockholders'
equity, and cash flows for the year ended December 31, 2008. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of China Digital
Communication Group and Subsidiaries, Inc. as of December 31, 2008, and the
consolidated results of their operations and their consolidated cash flows for
the year ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
  As
explained in Note 13 to the accompanying financial statements, one customer
accounted for 100% of the companies revenue from the sales of batteries, which
accounted for 75% of the companies total revenue for the year ended December 31,
2008.  Three vendors provided 100% of batteries to the company in the
year ended December 31, 2008.
    /s/
Kabani & Company, Inc.
 Certified
Public Accountants
  Los
Angeles, California
 March 6,
2009
 F-2
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 December
      31,
                    2009
                  
                  
                  December
      31,
                    2008ASSETSCurrent
      assetsCash
      and equivalents
                  
                  $
                  3,651,990
                  
                  
                  $
                  6,969,454Accounts
      receivable
                  
                  
                  9,776,041
                  
                  
                  
                  7,407,371Inventory
                  
                  
                  502,702
                  
                  
                  
                  759,477Prepaid
      expenses
                  
                  
                  262,379
                  
                  
                  
                  -Other
      receivables
                  
                  
                  433,804
                  
                  
                  
                  -Total
      current assets
                  
                  
                  14,626,916
                  
                  
                  
                  15,136,302Plant,
      property & equipment, net
                  
                  
                  699,790
                  
                  
                  
                  859,232Other
      assetsPrepayment
      for Newpower acquisition
                  
                  
                  2,999,473
                  
                  
                  
                  -Deposits
                  
                  
                  37,626
                  
                  
                  
                  -Goodwill
                  
                  
                  19,244,036
                  
                  
                  
                  -Intangible
      assets, net
                  
                  
                  15,772,344
                  
                  
                  
                  880,920Total
      other assets
                  
                  
                  38,053,479
                  
                  
                  
                  880,920Total
      assets
                  
                  $
                  53,380,185
                  
                  
                  $
                  16,876,454LIABILITIES AND
      STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                  
                  $
                  9,095,623
                  
                  
                  $
                  3,467,324Taxes
      payable
                  
                  
                  762,430
                  
                  
                  
                  399,519Loan
      payable
                  
                  
                  -
                  
                  
                  
                  2,200,500Loan
      payable to related party
                  
                  
                  527,225
                  
                  
                  
                  174,600Total
      current liabilities
                  
                  
                  10,385,278
                  
                  
                  
                  6,241,943Deferred
      tax liability
                  
                  
                  3,001,584
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  13,386,862
                  
                  
                  
                  6,241,943Stockholders'
      equityPreferred
      stock, $.001 par value, 7,575,757shares
      authorized, 7,575,757 shares issuedand
      outstanding
                  
                  
                  7,576
                  
                  
                  
                  7,576Common
      stock, $.001 par value, 140,000,000shares
      authorized, 11,863,390 and 5,446,105shares
      issued and outstanding at December 31,2009
      and 2008, respectively
                  
                  
                  11,863
                  
                  
                  
                  5,446Additional
      paid in capital
                  
                  
                  42,165,281
                  
                  
                  
                  16,999,362Statutory
      reserve
                  
                  
                  2,070,081
                  
                  
                  
                  593,445Other
      comprehensive income
                  
                  
                  1,225,986
                  
                  
                  
                  1,144,170Accumulated
      deficit
                  
                  
                  (3,038,971
                  )
                  
                  
                  (8,115,488
                  )Less:
      deferred compensation
                  
                  
                  (2,448,493
                  )
                  
                  
                  -Total
      stockholders' equity
                  
                  
                  39,993,323
                  
                  
                  
                  10,634,511Total
      liabilities and stockholders' equity
                  
                  $
                  53,380,185
                  
                  
                  $
                  16,876,454
 
 The
accompanying notes are an integral part of these consolidated financial
statements
 F-3
  NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Year
      Ended
                    
                    
                    Year
      EndedDecember
      31, 2009
                    
                    
                    December
      31, 2008Revenue,
      netBattery
                    
                    
                    $
                    19,918,846
                    
                    
                    $
                    14,748,595Battery
      shell and cover
                    
                    
                    6,457,044
                    
                    
                    
                    4,967,813Total
      revenue
                    
                    
                    26,375,890
                    
                    
                    
                    19,716,408Cost
      of salesBattery
                    
                    
                    
                    13,735,160
                    
                    
                    
                    9,851,127Battery
      shell and cover
                    
                    
                    4,596,379
                    
                    
                    
                    4,158,868Total
      cost of revenue
                    
                    
                    18,331,539
                    
                    
                    
                    14,009,995Gross
      profit
                    
                    
                    8,044,351
                    
                    
                    
                    5,706,413Operating
      expensesSelling
      expenses
                    
                    
                    124,845
                    
                    
                    
                    135,456General
      and administrative expenses
                    
                    
                    1,213,783
                    
                    
                    
                    586,433Total
      operating expenses
                    
                    
                    1,338,628
                    
                    
                    
                    721,889Income
      from operations
                    
                    
                    6,705,723
                    
                    
                    
                    4,984,524Other
      expensesMiscellaneous
      expense
                    
                    
                    (5,794
                    )
                    
                    
                    (40,257
                    )Interest
      expense
                    
                    
                    (49,436
                    )
                    
                    
                    (38,525
                    )Total
      other expenses
                    
                    
                    (55,230
                    )
                    
                    
                    (78,782
                    )Income
      before income taxes
                    
                    
                    6,650,493
                    
                    
                    
                    4,905,742Provision
      for income taxes
                    
                    
                    (813,098
                    )
                    
                    
                    (454,670
                    )Net
      income
                    
                    
                    
                    5,837,395
                    
                    
                    
                    4,451,072Other
      comprehensive incomeForeign
      currency translation
                    
                    
                    81,816
                    
                    
                    
                    289,772Comprehensive
      income
                    
                    $
                    5,919,211
                    
                    
                    $
                    4,740,844Net
      income per shareBasic
                    
                    
                    $
                    0.91
                    
                    
                    $
                    0.82Diluted
                    
                    
                    $
                    0.82
                    
                    
                    $
                    0.72Weighted
      average number of shares outstanding:Basic
                    
                    
                    
                    6,393,067
                    
                    
                    
                    5,446,105Diluted
                    
                    
                    
                    7,150,642
                    
                    
                    
                    6,203,638
  The
accompanying notes are an integral part of these consolidated financial
statements
 F-4
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Year
      ended December 31,
                  
                  
                  Year
      ended December 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                  
                  $
                  5,837,395
                  
                  
                  $
                  4,451,072Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                  
                  
                  468,514
                  
                  
                  
                  308,786Deferred
      tax liability
                  
                  
                  (31,916
                  )
                  
                  
                  -Non-cash, stock compensation
                  
                  
                  251,507
                  
                  
                  
                  -Loss
      on disposal of subsidiary
                  
                  
                  7,794
                  
                  
                  
                  -(Increase)
      / decrease in current assets:Accounts
      receivable
                  
                  
                  (1,730,909
                  )
                  
                  
                  (7,011,157
                  )Inventory
                  
                  
                  2,572,107
                  
                  
                  
                  186,132Other
      receivable
                  
                  
                  1,670
                  
                  
                  
                  -Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  1,726Deposits
                  
                  
                  -
                  
                  
                  
                  8,530Increase/(Decrease)
      in current liabilities:Accounts
      payable and accrued expenses
                  
                  
                  (3,326,375
                  )
                  
                  
                  2,654,437Taxes
      payable
                  
                  
                  515,157
                  
                  
                  
                  585,006Net
      cash provided by operating activities
                  
                  
                  4,564,944
                  
                  
                  
                  1,184,532CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of Anytone
                  
                  
                  (5,000,000
                  )
                  
                  
                  -Cash
      acquired in acquisition
                  
                  
                  2,401,140
                  
                  
                  
                  -Prepayment
      for Newpower acquisition
                  
                  
                  (2,998,244
                  )
                  
                  
                  -Acquisition
      of property & equipment
                  
                  
                  (1,068
                  )
                  
                  
                  (6,025
                  )Net
      cash used in investing activities
                  
                  
                  (5,598,172
                  )
                  
                  
                  (6,025
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESPayment
      on loan payable
                  
                  
                  (2,195,872
                  )
                  
                  
                  -Receivables
      from related party
                  
                  
                  (74,857
                  )
                  
                  
                  -Proceed
      from loan payable
                  
                  
                  -
                  
                  
                  
                  2,162,250Net
      cash provided by (used in) financing activities
                  
                  
                  (2,270,729
                  )
                  
                  
                  2,162,250Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  (13,507
                  )
                  
                  
                  (165,429
                  )Net
      (decrease) increase in cash and equivalents
                  
                  
                  (3,317,464
                  )
                  
                  
                  3,175,328Cash
      and equivalents, beginning balance
                  
                  
                  6,969,454
                  
                  
                  
                  3,794,126Cash
      and equivalents, ending balance
                  
                  $
                  3,651,990
                  
                  
                  $
                  6,969,454SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Income
      tax payments
                  
                  $
                  748,306
                  
                  
                  $
                  454,670Interest
      payments
                  
                  $
                  91,260
                  
                  
                  $
                  38,525
  The
accompanying notes are an integral part of these consolidated financial
statements
 F-5
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA DIGITAL COMMUNICATION
GROUP AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 YEARS
ENDED DECEMBER 31, 2009 AND 2008
 Common
      Stock
                    
                    
                    Preferred
      Stock
                    
                    
                    Additional
      Paid
                    
                    
                    OtherComprehensive
                    
                    
                    Statutory
                    
                    
                    (Accumulated
                    
                    
                    Deferred
                    
                    
                    TotalStockholders'Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    in
      Capital
                    
                    
                    Income
                    
                    
                    Reserve
                    
                    
                    Deficit)
                    
                    
                    Compensation
                    
                    
                    EquityBalance
      at January 1, 2008
                    
                    
                    5,446,105
                    
                    
                    $
                    5,446
                    
                    
                    $
                    7,575,757
                    
                    
                    
                    7,576
                    
                    
                    $
                    16,999,362
                    
                    
                    $
                    854,398
                    
                    
                    $
                    105,849
                    
                    
                    $
                    (12,078,964
                    )
                    
                    $
                    -
                    
                    
                    $
                    5,893,667Foreign
      currency translation gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    289,772
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    289,772Transfer
      to statutory  reserves
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    487,596
                    
                    
                    
                    (487,596
                    )
                    
                    
                    -
                    
                    
                    
                    -Net
      income for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,451,072
                    
                    
                    
                    -
                    
                    
                    
                    4,451,072Balance
      at December 31, 2008
                    
                    
                    5,446,105
                    
                    
                    
                    5,446
                    
                    
                    
                    7,575,757
                    
                    
                    
                    7,576
                    
                    
                    
                    16,999,362
                    
                    
                    
                    1,144,170
                    
                    
                    
                    593,445
                    
                    
                    
                    (8,115,488
                    )
                    
                    
                    -
                    
                    
                    
                    10,634,511Net
      income for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,837,395
                    
                    
                    
                    -
                    
                    
                    
                    5,837,395Stock
      issued for service
                    
                    
                    1,000,000
                    
                    
                    
                    1,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,699,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,700,000
                    )
                    
                    
                    -Common
      stock issued for acquisitions
                    
                    
                    5,417,285
                    
                    
                    
                    5,417
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    22,466,919
                    
                    
                    
                    -
                    
                    
                    
                    715,758
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    23,188,094Amortization
      of deferred compensation
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    251,507
                    
                    
                    
                    251,507Transfer
      to statutory reserve
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    760,878
                    
                    
                    
                    (760,878
                    )
                    
                    
                    -
                    
                    
                    
                    -Foreign
      currency translation gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    81,816
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    81,816Balance
      at December 31, 2009
                    
                    
                    11,863,390
                    
                    
                    $
                    11,863
                    
                    
                    $
                    7,575,757
                    
                    
                    
                    7,576
                    
                    
                    $
                    42,165,281
                    
                    
                    $
                    1,225,986
                    
                    
                    $
                    2,070,081
                    
                    
                    $
                    (3,038,971
                    )
                    
                    $
                    (2,448,493
                    )
                    
                    $
                    39,993,323
  The
accompanying notes are an integral part of these consolidated financial
statements
 F-6
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 
 Note
1 – ORGANIZATION
 
 New
Energy Systems Group (“New Energy” or the “Company”, FKA: China Digital
Communication Group) was incorporated under the laws of the State of Nevada on
March 27, 2001, operating its business through its wholly owned subsidiary
E'Jenie Technology Development Co., Ltd (“E’Jenie”), a company incorporated
under the laws of the Peoples Republic of China (“PRC”). Through E'Jenie, the
Company manufactures and distributes lithium battery shells and related products
primarily in China. When used in these notes, the terms “Company,” “we,” “our,”
or “us” mean New Energy Systems Group and its Subsidiaries.
 
 On
September 30, 2004, the Company entered into an Exchange Agreement with Billion
Electronics Co., Ltd (“Billion”) .  Billion owns all of the issued and
outstanding shares of E’Jenie. Billion was incorporated under the laws of the
British Virgin Islands (“BVI”) on July 27, 2004. Pursuant to the Exchange
Agreement, the Company purchased all of the issued and outstanding shares of
Billion for approximately $1,500,000 in cash and 4,566,210 shares of the
Company’s common stock, or approximately 8.7% of then issued and outstanding
shares.
 
 On June
28, 2006, the Company finalized an Exchange Agreement with Galaxy View
International  Ltd (“Galaxy View”), and the shareholders of Galaxy
View. Galaxy View owned all of the issued and outstanding shares of
Sono. Pursuant to the Exchange Agreement, the Company acquired 100% of Galaxy
View in a cash and stock transaction valued at $6,787,879. Under the terms of
the Agreement, the Company paid the Shareholders $3,000,000 in cash and
delivered 7,575,757 unregistered shares of the Company’s preferred stock valued
at $3,787,879.
 
 On April
24, 2007, the Company entered into an Agreement to transfer of shares of Sono
Digital Electronics Technologies Co., Ltd (“Sono”)  with Liu Changqing
and Wang Feng (collectively, the “Purchasers”) for the sale of its wholly-owned
subsidiary Sono. Changqing purchased 60% and Feng purchased 40% in Sono. In
exchange for all of the outstanding shares of Sono, the Purchasers paid
$3,000,000 for the acquisition.  The Company disposed Galaxy View and
its wholly-owned subsidiary Sono, on April 24, 2007.
 
 In
connection with the acquisition of Galaxy View, the Company issued Series A
Preferred Stock to the selling shareholders.  On June 29, 2006, the
Company filed with the Secretary of State of the State of Nevada a Certificate
of Designation of Series A Convertible Preferred Stock designating 7,575,757 of
the Company’s previously authorized preferred stock. Each share of Series A
Preferred Stock entitles the holder to seven votes per share on all matters to
be voted on by the shareholders of the Company and is mandatorily convertible
into one tenth of one share of the Company’s common stock on June 29, 2011
(after providing for the July 13, 2009, 10-to-1 reverse stock split of the
Company’s common stock). Each share of Series A Preferred Stock shall, with
respect to rights on liquidation, dissolution or winding up, ranks (i) on a
parity with the Company’s common stock, and (ii) junior to any other class of
the Company’s preferred stock.  Series A Preferred Stockis not
entitled to any preferred dividend. However, the preferred shareholders will
share the dividend on common stock proportionately if and when the dividend on
Common Stock is declared.
 
 On July
13, 2009, the Company effected a 10-to-1 reverse stock split. The principal
effect of the Reverse Split was (i) that the number of shares of Common Stock
issued and outstanding was reduced from 54,460,626 to approximately 5,446,062
(depending on the number of fractional shares that are issued or cancelled), and
(ii) that each share of Series A Preferred Stock is convertible into one tenth
of one share of the Company’s common stock. The number of authorized shares of
Common Stock was not affected.   All per share data was
retroactively restated.
 
 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 US $10,000,000. As of December 31, 2009 $5,000,000.00
has been paid; the remaining $5,000,000 will be paid on or before June 30, 2010
with no interest. The acquisition was completed on December 7,
2009.
 
 F-7
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 The
accompanying consolidated financial statements were prepared in conformity with
United States Generally Accepted Accounting Principles (US GAAP).  The
Company’s functional currency is the Chinese Yuan Renminbi (CNY); however the
accompanying consolidated financial statements were translated and presented in
United States Dollars ($).
 
 Exchange Gain
(Loss)
 
 During
the years ended December 31, 2009 and 2008, the transactions of E’Jenie and
Anytone were denominated in foreign currency and were recorded in CNY at the
rates of exchange in effect when the transactions occured. 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 years ended December 31, 2009 and 2008, the accounts of E’Jenie and Anytone
were maintained, and its financial statements were expressed, in CNY. Such
financial statements were translated into $ in accordance with Statement of
Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,”
(codified in Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 830) with the CNY as the functional currency.
According to the Statement, all assets and liabilities were translated at the
current exchange rate, stockholder’s equity is translated at the historical
rates and income statement items are translated at the average exchange rate for
the period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive
Income” as a component of shareholders’ equity (codified in FASB ASC Topic 220).
There were no significant fluctuations in the exchange rate for the conversion
of CNY to USD after the balance sheet date.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with US GAAP requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.  Significant estimates include
collectability of accounts receivable, accounts payable, sales returns and
recoverability of long-term assets.
 
 Principles of
Consolidation
 
 The
consolidated financial statements include the accounts of New Energy Systems
Group and its wholly owned subsidiaries Billion, E’Jenie, and Anytone, are
collectively referred to the Company.  All material intercompany
accounts, transactions and profits were eliminated in
consolidation.
 
 Revenue
Recognition
 
 The
Company manufactures and distributes battery shells and covers for cellular
phones. The Company established a new division in 2008, through which the
Company began selling batteries in PRC. The Company's revenue recognition
policies are in compliance with Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480). Sales revenue is
recognized when the significant risks and rewards of the ownership of goods have
been transferred to the buyers. No revenue is recognized if there are
significant uncertainties regarding the recovery of the consideration due, the
possible return of goods, or when the amount of revenue and the costs incurred
or to be incurred in respect of the transaction cannot be measured
reliably.
 
 F-8
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 Sales
revenue represents the invoiced value of goods, net of value-added tax (“VAT”).
All of the Company’s products sold in the PRC are subject to Chinese value-added
tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the
Company on raw materials and other materials included in the cost of producing
the finished product. The Company records VAT payable and VAT receivable net of
payments in the financial statements. The VAT tax return is filed offsetting the
payables against the receivables. Sales and purchases are recorded net of
VAT collected and paid as the Company acts as an agent for the
government.
 
 Stock-Based
Compensation
 
 The
Company accounts for its stock-based compensation in accordance with SFAS No.
123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in
FASB ASC Topic 718). The Company recognizes in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees and non-employees.
 
 Income
Taxes
 
 The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” (codified in FASB
ASC Topic 740), which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that were
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.  Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
 
 The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, (codified in FASB ASC Topic 740) on January 1,
2007. As a result of the implementation of FIN 48, the Company made a
comprehensive review of its portfolio of tax positions in accordance with
recognition standards established by FIN 48. As a result of the implementation
of Interpretation 48, the Company recognized no material adjustments to
liabilities or stockholders’ equity. When tax returns are filed, it is likely
that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the
position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is
more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being
realized upon settlement with the applicable taxing authority. The portion of
the benefits associated with tax positions taken that exceeds the amount
measured as described above is reflected as a liability for unrecognized tax
benefits in the accompanying balance sheets along with any associated interest
and penalties that would be payable to the taxing authorities upon examination.
Interest associated with unrecognized tax benefits are classified as interest
expense and penalties are classified in selling, general and administrative
expenses in the statements of income. The adoption of FIN 48 did not have a
material impact on the Company’s financial statements.
 
 At
December 31, 2009 and 2008, the Company had not taken any significant uncertain
tax position on its tax return for 2008 and prior years or in computing its tax
provision for 2009.
 
 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
    
 F-9
 
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Concentration of Credit Risk
 
 Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions. The Company has a diversified customer
base, most of which are in China. The Company controls credit risk related to
accounts receivable through credit approvals, credit limits and monitoring
procedures. The Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk, establishes an
allowance, if required, for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such allowance
is limited.
 
 Risks and
Uncertainties
 
 The
Company is subject to substantial risks from, among other things, intense
competition associated with the industry in general, other risks associated with
financing, liquidity requirements, rapidly changing customer requirements,
limited operating history, foreign currency exchange rates and the volatility of
public markets.
 
 Contingencies
 
 Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to the Company but which will only be resolved when one or
more future events occur or fail to occur.  The Company’s management
and legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment.  In assessing loss
contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company’s legal
counsel evaluates the perceived merits of any legal proceedings or unasserted
claims as well as the perceived merits of the amount of relief sought or
expected to be sought.
 
 If the
assessment of a contingency indicates it is probable that a material loss has
been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial
statements.  If the assessment indicates that a potential material
loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable and material would be
disclosed.
 
 Loss
contingencies considered to be remote by management are generally not disclosed
unless they involve guarantees, in which case the guarantee would be
disclosed.
 
 Cash and Cash
Equivalents
 
 Cash and
cash equivalents include cash in hand and cash in demand deposits, certificates
of deposit and all highly liquid debt instruments with original maturities of
three months or less.  At December 31, 2009 and 2008, the Company had
approximately $3,644,000 and $6,969,000 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 December 31, 2009 and 2008.
 
 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 December 31, 2009 and 2008, inventory consisted of raw
materials, work in progress and finished goods as follows:
 
 F-10
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 2009
                
                
                2008Raw
      Materials
                
                $
                133,358
                
                
                $
                81,444Work-in-process
                
                
                44,250
                
                
                
                21,017Finished
      goods
                
                
                334,095
                
                
                
                657,016511,703
                
                
                
                759,477Less:
      reserve for impairment of inventory
                
                
                (9,001)
                
                
                
                -$
                502,702
                
                
                $
                759,477
 
 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
      yearsEquipment
                5
      yearsComputer
      Hardware and Software
                5
      yearsBuilding
                30
      years
 
 As of
December 31, 2009 and 2008, Property, Plant & Equipment consisted of the
following:
 
 2009
                
                
                2008Machinery
                
                $
                936,049
                
                
                $
                969,103Automobile
                
                
                25,189
                
                
                
                36,508Office
      equipment
                
                
                81,674
                
                
                
                7,736Building
                
                
                589,436
                
                
                
                590,4361,632,348
                
                
                
                1,603,783Accumulated
      depreciation
                
                
                (932,558
                )
                
                
                (744,551
                )$
                699,790
                
                
                $
                859,232
 
 Depreciation
was approximately $193,000 and $225,349 for the years ended December 31, 2009
and 2008, respectively.
 
 Fair Value of Financial
Instruments
 
 For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate their fair
values due to their short maturities.  ASC Topic 820, “Fair Value Measurements
and Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value,
and establishes a three-level valuation hierarchy for disclosures of fair value
measurement that enhances disclosure requirements for fair value measures. 
The carrying amounts reported in the consolidated balance sheets for receivables
and current liabilities each qualify as financial instruments and are a
reasonable estimate of their fair values because of the short period of time
between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation hierarchy
are defined as follows:
 
 F-11
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 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
December 31, 2009 and 2008, the Company did not identify any assets and
liabilities that are required to be presented on the balance sheet at fair
value.
  Basic and Diluted Earnings
per Share (EPS)
 
 Basic EPS
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similar to basic net income per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if all the potential common shares, warrants and stock options had
been issued and if the additional common shares were dilutive. Diluted net
earnings per share are based on the assumption that all dilutive convertible
shares and stock options were converted or exercised. Dilution is computed by
applying the treasury stock method. Under this method, options and warrants are
assumed to be exercised at the beginning of the period (or at the time of
issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period.
 
 Goodwill
 
 Goodwill
represents the excess of the purchase price over the fair value of the
identifiable assets and liabilities acquired as a result of the Company’s
acquisitions of interests in its subsidiaries. Under SFAS No. 142,
“Goodwill and Other Intangible Assets (“SFAS 142”) (codified in FASB ASC Topic
350), goodwill is no longer amortized, but tested for impairment upon first
adoption and annually, thereafter, or more frequently if events or changes in
circumstances indicate that it might be impaired.
 
 Intangible
Assets
 
 The
Company applies criteria specified in SFAS No. 141(R), “Business
Combinations” (codified in FASB ASC Topic 805) to determine whether an
intangible asset should be recognized separately from goodwill. Intangible
assets acquired through business acquisitions are recognized as assets separate
from goodwill if they satisfy either the “contractual-legal” or “separability”
criterion. Per SFAS 142, (codified in FASB ASC Topic 350), intangible assets
with definite lives are amortized over their estimated useful life and reviewed
for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-lived Assets” (codified in FASB ASC Topic 360).
Intangible assets, such as purchased technology, trademark, customer list, user
base and non-compete agreements, arising from the acquisitions of subsidiaries
and variable interest entities are recognized and measured at fair value upon
acquisition. Intangible assets are amortized over their estimated useful lives
from one to ten years. The Company reviews the amortization methods and
estimated useful lives of intangible assets at least annually or when events or
changes in circumstances indicate that assets may be impaired. The
recoverability of an intangible asset to be held and used is evaluated by
comparing the carrying amount of the intangible to its future net undiscounted
cash flows. If the intangible is considered impaired, the impairment loss is
measured as the amount by which the carrying amount of the intangible exceeds
the fair value of the intangible, calculated using a discounted future cash flow
analysis. The Company uses estimates and judgments in its impairment tests, and
if different estimates or judgments had been utilized, the timing or the amount
of the impairment charges could be different.
 
 F-12
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 Effective
January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, (codified in FASB ASC Topic 360)
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business (codified in
FASB ASC Topic 225).” The Company periodically evaluates the carrying value of
long-lived assets to be held and used in accordance with SFAS 144 (codified in
FASB ASC Topic 360). SFAS 144 (codified in FASB ASC Topic 360) requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market
 values
are reduced for the cost of disposal.
 
 Recent accounting
pronouncements
 
 In
October 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding
accounting for own-share lending arrangements in contemplation of convertible
debt issuance or other financing.  This ASU requires that at the date
of issuance of the shares in a share-lending arrangement entered into in
contemplation of a convertible debt offering or other financing, the shares
issued shall be measured at fair value and be recognized as an issuance cost,
with an offset to additional paid-in capital. Further, loaned shares are
excluded from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation.  This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years.
The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.
 
 In August
2009, the FASB issued an ASU regarding measuring liabilities at fair value. This
ASU provides additional guidance clarifying the measurement of liabilities at
fair value in circumstances in which a quoted price in an active market for the
identical liability is not available; under those circumstances, a reporting
entity is required to measure fair value using one or more of valuation
techniques, as defined. This ASU is effective for the first reporting period,
including interim periods, beginning after the issuance of this ASU. The
adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
 
 On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards CodificationTM (“Codification”) and, for SEC
registrants, guidance issued by the SEC.  The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC.  The
Codification is amended to effect non-SEC changes to authoritative
GAAP.  Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
 
 F-13
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
 
 In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009.  This
FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
 
 In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 April 1, 2009. This FSP
had no material impact on the Company’s financial position, results of
operations or cash flows.
 
 F-14
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 
 Note
3 – INTANGIBLE ASSETS
 
 As of
December 31, 2009 and 2008 intangible assets consisted of the
following:
 
 2009
                
                
                2008Customer
      relationship
                
                $
                2,691,445
                
                
                $
                2,691,445Design
                
                
                366,850
                
                
                
                366,850Proprietary
      technology
                
                
                270,850
                
                
                
                270,850Land
      rights
                
                
                589,436
                
                
                
                590,436Patent
      right
                
                
                15,167,497
                
                
                
                -Intangible
      assets
                
                
                19,086,078
                
                
                
                3,919,581Impairment
      in 2007
                
                
                (1,972,598
                )
                
                
                (1,972,598
                )Accumulated
      amortization
                
                
                (1,341,136
                )
                
                
                (1,066,063
                )Intangible
      assets, net
                
                $
                15,772,344
                
                
                $
                880,920
 
 During
the year ended December 31, 2006, E’Jenie purchased the two facilities it
previously leased.  The cost of the acquisition was
$1,103,596.  Of that amount $551,798 was recorded as an intangible
asset as land rights.  Because the laws of the PRC do not allow
ownership of land, the Company received a Certificate of Real Estate from the
Ministry of Land and Resources to use the land. E’Jenie incurred losses and also
its revenue reduced significantly during the year ended December 31, 2007. The
Company performed 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
approximately $275,000 and $83,437 for the years ended December 31, 2009 and
2008, respectively.
 
 Amortization
expenses for the Company’s intangible assets over the next five fiscal years
from December 31, 2009 are estimated to be:
 
 December
      31, 2010
                
                $
                2,027,000December
      31, 2011
                
                
                2,027,000December
      31, 2012
                
                
                2,027,000December
      31, 2013
                
                
                2,027,000December
      31, 2014
                
                
                2,027,000After
                
                
                5,642,000Total
                
                $
                15,777,000
 
 Note
4 – TAXES PAYABLE
 
 As of
December 31, 2009 and 2008, tax payable comprised the following:
 
 2009
                
                
                2008Income
      tax payable
                
                $
                526,043
                
                
                $
                256,170VAT
      tax  payable
                
                
                224,137
                
                
                
                143,349Other
      tax payable
                
                
                12,250
                
                
                
                -Total
                
                $
                762,430
                
                
                $
                399,519
 
 F-15
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 Note
5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 As of
December 31, 2009 and 2008, accounts payable and accrued expenses comprised of
the following:
 
 2009
                
                
                2008Accounts
      payable
                
                $
                3,579,714
                
                
                $
                3,009,376Payable
      of purchase consideration of Anytone
                
                
                5,000,000
                
                
                
                -Payable
      for expense reimbursement
                
                
                297,318
                
                
                
                -Professional
      fees payable
                
                
                -
                
                
                
                210,300Accrued
      payroll
                
                
                137,316
                
                
                
                62,161Other
                
                
                81,275
                
                
                
                185,487Total
                
                $
                9,095,623
                
                
                $
                3,467,324
 
 Note
6 - LOAN PAYABLE
 
 On August
25, 2008, the Company entered a bank loan agreement of RMB 15,000,000 or
$2,200,500. The loan was unsecured, with floating rate interest-bearing ranging
from 6.66% to 7.47%, and was due August 24, 2009.  The Company repaid
the loan on the due date.
 
 Note
7 – RELATED PARTY TRANSACTIONS
 
 As of
December 31, 2008, the Company had an unsecured, due on demand, and non
interest-bearing loan from a shareholder of $174,600 which was repaid by the end
of 2009. As of December 31, 2009, the Company had $527,225 unsecured, due on
demand and non interest-bearing loan payable to the original owner of Shenzhen
Anytone for the acquisition of Shenzhen Anytone by Anytone
International.
 
 Note
8 – DEFFERD TAX LIABILITY
 
 Deferred
tax represented differences between the tax bases and book bases of intangible
assets. At December 31, 2009, deferred tax liability represents the difference
between the fair value and the tax basis of patents acquired in the acquisition
of Anytone (See Note 16).
 
 Note
9 – STOCK OPTIONS
 
 On
November 4, 2005, the Company issued a nonqualified stock option for 10,000
shares (post-reverse stock split) to a member of the board with an exercise
price of $0.53 that will expire on November 3, 2010.  The option
vested and became exercisable immediately.
 
 The
Company's 2005 Stock Option Incentive Plan provides for the grant of 10,000
option rights (post-reverse stock split) to a non-employee director. The Plan is
administered by the Company's Compensation Committee, who has the authority to
select plan participants and determine the terms and conditions of such
awards.
 
 The
Company adopted SFAS 123(R) (codified in FASB ASC Topic 718) on November 1, 2005
using the modified prospective method. Prior to the adoption of SFAS 123(R) the
Company did not have any stock options.
 
 Risk-free
      interest rate
                
                
                4.00
                %Expected
      life of the options
                
                5
      yearsExpected
      volatility
                
                
                58.0
                %Expected
      dividend yield
                
                
                0
                %
 
 F-16
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 On March
20, 2006, the Company issued a non-incentive stock option for 150,000 shares
(pre-reverse stock split) to a consultant with an exercise price of $0.702 that
expired on March 19, 2009.  The options vested and became
exercisable on May 1, 2006.
 
 Risk-free
      interest rate
                
                
                4.77
                %Expected
      life of the options
                
                3 yearsExpected
      volatility
                
                
                126.76
                %Expected
      dividend yield
                
                
                0
                %
 
 The
outstanding options (post-reverse stock split) as of December 31, 2009 and
2008 listed as follow:
 
 Number of SharesOutstanding
      at January  01, 2008
                
                
                25,000Granted
                
                
                -Exercised
                
                
                -Canceled
                
                
                -Outstanding
      at December 31, 2008
                
                
                25,000Granted
                
                
                -Exercised
                
                
                -Expired
                
                
                15,000Outstanding
      at December 31, 2009
                
                
                10,000Exercisable
      at December 31, 2009
                
                
                10,000
 
 Options
outstanding (post-reverse stock split) at December 31, 2009 and related weighted
average price and intrinsic value are as follows:
 
 Exercise
                  Prices
                
                Total
                  Options
                  Outstanding
                
                
                Weighted
                  Average
                  Remaining
                  Life
                  (Years)
                
                
                Total
                  Weighted
                  Average
                  Exercise
                  Price
                
                
                Options
                  Exercisable
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Aggregate
                  Intrinsic
                  Value$
                
                
                
                0.530
                
                
                10,000
                
                
                
                0.84
                
                
                $
                0.530
                
                
                
                10,000
                
                
                $
                0.530
                
                
                
                -
 
 F-17
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Note
10 – COMMON STOCK AND NON-CASH, STOCK COMPENSATION
 
 On August
18, 2009, the Company entered into a four year consulting agreement for
promoting the Company's image. In connection with this agreement, the Company
was required to issue 1,930,000 shares of Common Stock valued at $2.70 (stock
price at grant date) to these eight consultants.  During the year
ended December 31, 2009, the Company issued 1,000,000 shares of the Company’s
stock and recorded $2,700,000 as deferred compensation. The Company amortized
$251,507 as stock-based compensation.
 
 On
December 3, 2009, the Company issued 3,593,939 shares of common stock, valued at
$6.452 per share which was the average stock price two days before and two days
after the agreement date, to pay the stock portion of the  purchase
consideration for the acquisition of Anytone (see note 16).
  On
December 30, 2009, the Company issued 1,823,346 shares of common stock valued at
$6 per share which was the average stock price two days before and two days
after the agreement date, for paying the stock portion of the total purchase
consideration for the acquisition of Shenzhen NewPower Technology Co., Ltd.
("NewPower”) (see note 17).
 
 Note
11 – INCOME TAXES
 
 As of
December 31, 2009, the Company in the US had approximately $1,138,000 in net
operating loss carry forwards available to offset future taxable income. Federal
net operating losses can generally be carried forward 20 years. The deferred tax
assets for the US entities at December 31, 2009 consists mainly of net operating
loss 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 December 31, 2009.
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 10% for 2009 and 9% for
2008, respectively. The new acquired subsidiary Anytone’s effective EIT for 2009
was 20%.
 
 Foreign
pretax earnings approximated $7,400,000 and $5,300,000 for the years ended
December 31, 2009 and 2008 respectively. Pretax earnings of a foreign subsidiary
are subject to U.S. taxation when effectively repatriated. The Company provides
income taxes on the undistributed earnings of non-U.S. subsidiaries except to
the extent those earnings are indefinitely invested outside the United States.
At December 31, 2009, $16,900,000 of accumulated undistributed earnings of
non-U.S. subsidiaries was indefinitely invested. At the existing U.S. federal
income tax rate, additional taxes of $4,607,000 would have to be provided if
such earnings were remitted currently.
 
 F-18
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 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 years ended December 31, 2009 and 2008,
respectively:
 
 2009
                
                
                2008US
      statutory rates
                
                
                34
                %
                
                
                34
                %State
      tax expense net of federal tax
                
                
                -
                %
                
                
                6
                %Tax
      rate difference
                
                
                (10
                )%
                
                
                -
                %Effect
      of tax holiday
                
                
                (15
                )
      %
                
                
                -
                %Valuation
      allowance on deferred tax on US NOL
                
                
                3
                %
                
                
                (40
                )%Foreign
      income tax - PRC
                
                
                -
                %
                
                
                18
                %Exempt
      from income tax
                
                
                -
                %
                
                
                (9
                )%Tax
      expense at actual rate
                
                
                12
                %
                
                
                9
                %
 
 The
provisions for income tax expenses for the years ended December 31, 2009 and
2008 consisted of the following:
 
 2009
                
                
                2008Income
      tax expenses – current
                
                $
                845,014
                
                
                $
                454,670Income
      tax benefit – deferred
                
                
                (31,916
                )
                
                
                -Total
      income tax expenses
                
                $
                813,098
                
                
                $
                454,670
 
 Note
12 – STATUTORY RESERVE
 
 As
stipulated by the Company Law of the PRC, net income after taxation can only be
distributed as dividends after appropriation has been made for the
following:
 
 i)
                Making
      up cumulative prior years' losses, if
any;
 
 ii)
                Allocations
      to the "Statutory surplus reserve" of at least 10% of income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company's registered
  capital;
 
 iii)
                Allocations
      of 5-10% of income after tax, as determined under PRC accounting rules and
      regulations, to the Company's "Statutory common welfare fund", which is
      established for the purpose of providing employee facilities and other
      collective benefits to the Company's employees; and statutory common
      welfare fund is no longer required per the new cooperation law executed in
      2006.
 
 iv)
                Allocations
      to the discretionary surplus reserve, if approved in the shareholders'
      general meeting.
 
 The
Company reserved $760,878 for the year ended December 31, 2009 and $487,596 for
the year ended December 31, 2008.
  F-19
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 NOTE
13 - MAJOR CUSTOMERS AND VENDORS
 
 The
Company purchased its products from three vendors during the year ended December
31, 2009 with each vendor individually accounting for 24%, 23% and 19% of total
purchases. Accounts payable to these vendors were $648,017, $340,848 and
$217,116 as of December 31, 2009. The Company purchased its battery
products from three vendors during the year ended December 31, 2008 with each
vendor individually accounting for about 36%, 34% and 30% of purchases. Accounts
payable to the venders amounted to RMB 7,497,200 ($1,009,839), RMB 6,081,550
($892,163) and RMB 5,637,270 ($826,988) as of December 31, 2008.
    Two
customers accounted for 49% and 15% of the total sales during the year ended
December 31, 2009. Accounts receivable from these customers were $4,229,689 and
$866,060 as of December 31, 2009. One major customer accounted 100% of the
battery sales during the year ended December 31, 2008. Accounts receivable from
the customer amounted to RMB 48,124,656 ($7,059,887) as of December 31,
2008.
   
 Note
14 – SEGMENT REPORTING
 
 The
Company had two principal operating segments which were: battery components
manufacture and battery assembly and distribution.  These operating
segments were determined based on the nature of the products
offered.  Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance.  The Company's chief
executive officer and chief financial officer have been identified as the chief
operating decision makers.  The Company’s chief operating decision
makers direct the allocation of resources to operating segments based on the
profitability, cash flows, and other measurement factors of each respective
segment.
 
 The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment income before taxes.  The
segments’ accounting policies are the same as those described in the summary of
significant accounting policies.  The following table shows the
operations of the Company's reportable segments:
  2009
                
                
                2008Revenues
      from unaffiliated customers:Battery
                
                $
                19,918,846
                
                
                $
                14,748,595Battery
      shell and cover
                
                
                6,457,044
                
                
                
                4,967,813Consolidated
                
                $
                26,375,890
                
                
                $
                19,716,408Operating
      income (loss):Battery
                
                $
                5,955,072
                
                
                $
                4,889,879Battery
      shell and cover
                
                
                1,529,223
                
                
                
                545,889Corporate
                
                
                (778,572
                )
                
                
                (451,244
                )Consolidated
                
                $
                6,705,723
                
                
                $
                4,984,524Net
      income (loss) before taxes:Battery
                
                $
                5,955,072
                
                
                $
                4,889,879Battery
      shell and cover
                
                
                1,474,273
                
                
                
                467,047Corporate
                
                
                (778,852
                )
                
                
                (451,184
                )Consolidated
                
                $
                6,650,493
                
                
                $
                4,905,742Net
      income (loss) :Battery
                
                $
                5,357,261
                
                
                $
                4,549,514Battery
      shell and cover
                
                
                1,258,986
                
                
                
                353,592Corporate
                
                
                (778,852
                )
                
                
                (452,034
                )Consolidated
                
                $
                5,837,395
                
                
                $
                4,451,072Identifiable
      assets:Battery
                
                $
                41,841,017
                
                
                $
                594,510Battery
      shell and cover
                
                
                11,264,428
                
                
                
                15,948,228Corporate
                
                
                274,742
                
                
                
                333,716Consolidated
                
                $
                53,380,187
                
                
                $
                16,876,454Depreciation
      and amortization:Battery
                
                $
                160,578
                
                
                $
                -Battery
      shell and cover
                
                
                215,175
                
                
                
                239,216Corporate
                
                
                92,760
                
                
                
                69,570Consolidated
                
                $
                468,513
                
                
                $
                308,786
 
 F-20
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Note
15- ACQUISITION OF ANYTONE AND UNAUDITED PRO FORMA INFORMATION
 
 On
November 19, 2009, the Company entered into a share exchange agreement with
Anytone International and Shenzhen Anytone. Shenzhen Anytone is a subsidiary of
Anytone International, collectively referred as Anytone. Pursuant to the Share
Exchange Agreement, the Company issued the shareholders of Anytone International
3,593,939 shares of the Company's Common Stock with a restrictive legend, and
agreed to pay $10,000,000.  As of December 31, 2009, $5,000,000  has
been paid; the remaining $5,000,000 will be paid on or before June 30, 2010
with no interest. The acquisition was completed December 7, 2009.
 
 The
purchase price for Anytone was $10,000,000 cash and 3,593,939 shares of common
stock equivalent to approximately $23,188,094, which was determined by
multiplying the 3,593,939 shares by the average stock price of New Energy two
days before and two days after the agreement date. The following table
summarizes the fair values of the assets acquired and liabilities assumed
at the date of acquisition.   The fair values of the assets acquired
and liabilities assumed at agreement date are used for the purpose of purchase
price allocation.  The excess of the purchase price over the fair
value of the net assets acquired of $19,244,036 is recorded as
goodwill.
 
 The
Company expects synergy from combining the operations. Revenue and net income of
Anytone included in the consolidated income statement for the year ended
December 31, 2009 was $3,424,291 and $561,309.
 
 Cash
                
                $
                2,401,140Accounts
      receivable
                
                
                651,062Other
      receivables
                
                
                842,463Due
      from shareholder
                
                
                262,396Inventory
                
                
                2,316,835Property
      and equipment
                
                
                42,209Intangible
      assets
                
                
                15,167,497Goodwill
                
                
                19,244,036Accounts
      payable
                
                
                (4,178,789)Deferred
      tax liability
                
                
                (3,033,499
                )Loan
      payable
                
                
                (527,256
                )Purchase
      price
                
                $
                33,188,094
 
 The
following unaudited pro forma consolidated results of operations for New Energy
and Anytone for the years ended December 31, 2009 and 2008 presents the
operations of New Energy and Anytone as if the acquisitions occurred on January
1, 2009 and 2008, respectively.  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.
 
 F-21
  NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
   2009
                
                
                2008Net
      revenue
                
                $
                47,108,598
                
                
                $
                29,798,250Cost
      of revenue
                
                
                33,527,190
                
                
                
                21,336,984Gross
      profit
                
                
                13,581,408
                
                
                
                8,461,266Total
      operating expenses
                
                
                3,886,199
                
                
                
                3,251,697Income
      from operations
                
                
                9,695,210
                
                
                
                5,209,569Total
      non-operating expense
                
                
                (42,191
                )
                
                
                (74,105
                )Income
      before income tax
                
                
                9,653,019
                
                
                
                5,135,464Income
      tax
                
                
                1,413,603
                
                
                
                459,379Net
      income
                
                $
                8,239,416
                
                
                $
                4,676,085Weighted
      average shares outstanding
                
                
                9,987,006
                
                
                
                9,040,044Earnings
      per share
                
                $
                0.83
                
                
                $
                0.52
  Note
16- SUBSEQUENT EVENT
  On
January 12, 2010 the Company closed the share exchange agreement entered on
December 11, 2009 with Shenzhen NewPower Technology Co., Ltd. ("NewPower"),
whereby NewPower would merge with and into the Company's wholly owned subsidiary
Shenzhen E'Jenie. Pursuant to the Share Exchange Agreement, in exchange for all
of the capital stock of NewPower, the Company issued to the shareholders of
NewPower 1,823,346 shares of the Company's Common Stock with a restrictive
legend, and agreed to pay cash of US $3,000,000. The acquisition was completed
January 12, 2010.  The following unaudited pro forma consolidated
results of operations for the Company and NewPower for the years ended December
31, 2009 and 2008 presents the Company and NewPower’s operations as if the
acquisitions occurred on January 1, 2009 and 2008, respectively.  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.
  F-22
 NEW
ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 FORMERLY, CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 For
      the years endedDecember
      31, 2009
                
                
                December
      31, 2008(Unaudited)(In
      thousands)Total
      Revenue
                
                $
                43,051
                
                
                $
                31,946Net
      Income
                
                $
                6,351
                
                
                $
                3,589
  The
condensed unaudited balance sheet discloses the amount assigned to each major
asset and liability caption of the acquired entity (NewPower) at acquisition
date was as follows (in thousands):
  ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                25Other
      current assets
                
                
                3,225Total
      Current Assets
                
                
                3,250PROPERTY
      AND EQUIPMENT, NET
                
                
                327INTANGIBLE
      ASSETS
                
                
                7,009GOODWILL
                
                
                8,976TOTAL
      ASSETS
                
                $
                19,562LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                2,410Other
      payables
                
                
                67Tax
      payable
                
                
                (381
                )Due
      to a stockholder
                
                
                1,362Total
      Current Liabilities
                
                
                3,458DEFERRED
      TAX LIABILITY
                
                
                1,402NET
      ASSETS ACQUIRED
                
                $
                14,702
  The
following unaudited pro forma consolidated results of operations for the
Company, Anytone and NewPower for the years ended December 31, 2009 and 2008
presents the Company, Anytone and NewPower’s operations as if the acquisitions
for both Anytone and NewPower occurred on January 1, 2009 and 2008,
respectively.  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.
 
 For
      the years endedDecember
      31, 2009
                
                
                December
      31, 2008(Unaudited)(In
      thousands)Total
      Revenue
                
                $
                67,208
                
                
                $
                42,028Net
      Income
                
                $
                9,314
                
                
                $
                3,814