UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549




Form 10-Q




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934





For
the Quarterly Period Ended June 30, 2010





OR





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




For
the transition period
from            to




Commission
File No. 001-34262




NIVS
IntelliMedia Technology Group, Inc.


(Exact
name of Registrant as specified in its charter)




Delaware
              
              20-8057809(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)




NIVS
Industry Park, No. 29-31, Shuikou Road, Huizhou, Guangdong, People’s Republic of
China 516006


(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)





86-752-3125862


(COMPANY’S
TELEPHONE NUMBER, INCLUDING AREA CODE)





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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes o    No o




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




Large
      accelerated filer  o
                Accelerated
      filer   ̈Non-accelerated
      filer  x
                Smaller
      reporting company   ̈




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




The
number of shares outstanding of the registrant’s Common Stock, par value $0.0001
per share, was 47,970,179 as of August 9, 2010.










NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.




FORM 10-Q




For
the Quarterly Period Ended June 30, 2010




PagePart I
                    Financial
      InformationItem
      1.
                    
                    Financial
      Statements
                    3a)
                    Consolidated
      Balance Sheets as of June 30, 2010 (Unaudited) and December 31,
      2009
                    3b)
                    Consolidated
      Statements of Operations for the Three and Six Months Ended June 30, 2010
      and 2009 (Unaudited)
                    4c)
                    Consolidated
      Statements of Comprehensive Income for the Six Months Ended June 30, 2010
      and 2009 (Unaudited)
                    5d)
                    Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
      (Unaudited)
                    6e)
                    Notes
      to Consolidated Financial Statements (Unaudited)
                    7Item
      2.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    15Item
      3.
                    
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    22Item
      4.
                    
                    Controls
      and Procedures
                    22Part II
                    Other
      InformationItem
      1.
                    
                    Legal
      Proceedings
                    23Item
      1A.
                    
                    Risk
      Factors
                    23Item
      2.
                    
                    Unregistered
      Sale of Equity Securities and Use of Proceeds
                    23Item
      3.
                    
                    Default
      Upon Senior Securities
                    23Item
      4.
                    
                    Removed
      and Reserved
                    23Item
      5.
                    
                    Other
      Information
                    23Item
      6.
                    
                    Exhibits
                    23Signatures
                    24


2


PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Consolidated
Balance Sheets


(In US
Dollars)





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009(Unaudited)AssetsCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    25,109,270
                    
                    
                    $
                    5,916,224Trade
      receivables, net
                    
                    
                    41,809,772
                    
                    
                    
                    33,228,955Inventories,
      net
                    
                    
                    23,061,799
                    
                    
                    
                    9,626,048Prepaid
      expenses, deposit and other receivables
                    
                    
                    139,148
                    
                    
                    
                    8,641,448VAT
      refundable
                    
                    
                    1,939,157
                    
                    
                    
                    869,202Restricted
      cash
                    
                    
                    2,241,033
                    
                    
                    
                    4,840,137Total
      current assets
                    
                    
                    94,300,179
                    
                    
                    
                    63,122,014Property,
      equipment and construction in progress, net
                    
                    
                    73,902,654
                    
                    
                    
                    58,409,374Advances
      to suppliers
                    
                    
                    15,555,000
                    
                    
                    
                    16,649,904Intangible
      assets, net
                    
                    
                    14,615,809
                    
                    
                    
                    2,295,244Total
      Assets
                    
                    $
                    198,373,642
                    
                    
                    $
                    140,476,536Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable
                    
                    $
                    16,675,196
                    
                    
                    $
                    3,932,115Accrued
      liabilities and other payable
                    
                    
                    1,368,921
                    
                    
                    
                    1,485,577Wages
      payable
                    
                    
                    965,159
                    
                    
                    
                    801,972Corporate
      tax payable
                    
                    
                    743,561
                    
                    
                    
                    1,372,117Various
      taxes payable
                    
                    
                    8,339
                    
                    
                    
                    494,678Customer
      deposits
                    
                    
                    258,448
                    
                    
                    
                    -Short-term
      loans
                    
                    
                    55,960,095
                    
                    
                    
                    43,987,358Bank
      notes payable
                    
                    
                    7,163,441
                    
                    
                    
                    7,712,609Total
      current liabilities
                    
                    
                    83,143,160
                    
                    
                    
                    59,786,426Total
      Liabilities
                    
                    
                    83,143,160
                    
                    
                    
                    59,786,426Shareholders'
      EquityNIVS
      IntelliMedia Technology Group, Inc.'s shareholders' equityPreferred
      stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares
      issued and outstanding at June 30, 2010 and December 31, 2009,
      respectively
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.0001 par value, 100,000,000 shares authorized, 47,970,179
      and 40,675,347 shares issued and outstanding at June 30, 2010 and
      December 31, 2009, respectively
                    
                    
                    4,797
                    
                    
                    
                    4,068Additional
      paid-in capital
                    
                    
                    43,875,642
                    
                    
                    
                    21,717,239Accumulated
      other comprehensive income
                    
                    
                    4,118,206
                    
                    
                    
                    3,979,941Statutory
      reserve fund
                    
                    
                    5,722,107
                    
                    
                    
                    5,722,107Retained
      earnings (unrestricted)
                    
                    
                    59,414,506
                    
                    
                    
                    47,497,211Total
      NIVS IntelliMedia Technology Group, Inc. Shareholders'
    Equity
                    
                    
                    113,135,258
                    
                    
                    
                    78,920,566Noncontrolling
      interest
                    
                    
                    2,095,224
                    
                    
                    
                    1,769,544Total
      Shareholders' Equity
                    
                    
                    115,230,482
                    
                    
                    
                    80,690,110Total
      Liabilities and Shareholders' Equity
                    
                    $
                    198,373,642
                    
                    
                    $
                    140,476,536





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


3





NIVS
      IntelliMedia Technology Group, Inc. and SubsidiariesConsolidated
      Statements of Income(In
      US Dollars)
  For
      The Three Months Ended
                            
                            
                            For
      The Six Months EndedJune
      30,
                            
                            
                            June
      30,
                            
                            
                            June
      30,
                            
                            
                            June
      30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009(Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)Revenues
                            
                            $
                            77,602,309
                            
                            
                            $
                            40,859,722
                            
                            
                            $
                            151,709,981
                            
                            
                            $
                            70,116,450Other
      Revenues
                            
                            
                            61,242
                            
                            
                            
                            61,377
                            
                            
                            
                            122,463
                            
                            
                            
                            152,449Cost
      of Goods Sold
                            
                            
                            (61,512,350
                            )
                            
                            
                            (31,173,544
                            )
                            
                            
                            (122,460,063
                            )
                            
                            
                            (54,270,324
                            )Gross
      Profit
                            
                            
                            16,151,201
                            
                            
                            
                            9,747,555
                            
                            
                            
                            29,372,381
                            
                            
                            
                            15,998,575Selling
      Expenses
                            
                            
                            1,917,136
                            
                            
                            
                            2,126,889
                            
                            
                            
                            3,518,877
                            
                            
                            
                            3,268,112General
      and administrativeAmortization
                            
                            
                            818,107
                            
                            
                            
                            18,348
                            
                            
                            
                            1,629,327
                            
                            
                            
                            35,793Depreciation
                            
                            
                            89,178
                            
                            
                            
                            83,054
                            
                            
                            
                            176,039
                            
                            
                            
                            164,324Other
      general and administrative
                            
                            
                            2,204,155
                            
                            
                            
                            822,075
                            
                            
                            
                            3,423,794
                            
                            
                            
                            1,964,990x Total
      general and administravive
                            
                            
                            3,111,440
                            
                            
                            
                            923,477
                            
                            
                            
                            5,229,160
                            
                            
                            
                            2,165,107Research
      and development
                            
                            
                            2,255,131
                            
                            
                            
                            762,940
                            
                            
                            
                            4,918,365
                            
                            
                            
                            1,335,475Total
      operating expenses
                            
                            
                            7,283,707
                            
                            
                            
                            3,813,306
                            
                            
                            
                            13,666,402
                            
                            
                            
                            6,768,694Income
      from operations
                            
                            
                            8,867,494
                            
                            
                            
                            5,934,249
                            
                            
                            
                            15,705,979
                            
                            
                            
                            9,229,881Other
      income (expenses)Interest
      expense
                            
                            
                            (437,797
                            )
                            
                            
                            (324,162
                            )
                            
                            
                            (830,741
                            )
                            
                            
                            (886,225
                            )Sundry
      in233come (expense), net
                            
                            
                            (194,266
                            )
                            
                            
                            66,928
                            
                            
                            
                            (75,603
                            )
                            
                            
                            76,909Total
      other income (expenses)
                            
                            
                            (632,063
                            )
                            
                            
                            (257,234
                            )
                            
                            
                            (906,344
                            )
                            
                            
                            (809,316
                            )Income
      before noncontrolling interest and income taxes
                            
                            
                            8,235,431
                            
                            
                            
                            5,677,015
                            
                            
                            
                            14,799,635
                            
                            
                            
                            8,420,565Income
      taxes
                            
                            
                            (1,434,178
                            )
                            
                            
                            (961,914
                            )
                            
                            
                            (2,560,523
                            )
                            
                            
                            (1,275,869
                            )Net
      income
                            
                            
                            6,801,253
                            
                            
                            
                            4,715,101
                            
                            
                            
                            12,239,112
                            
                            
                            
                            7,144,696Net
      income attributable to the noncontrolling interest
                            
                            
                            (186,082
                            )
                            
                            
                            (119,616
                            )
                            
                            
                            (321,817
                            )
                            
                            
                            (180,744
                            )Net
      income attributable NIVS IntelliMedia Technology Group,
    Inc.
                            
                            $
                            6,615,171
                            
                            
                            $
                            4,595,485
                            
                            
                            $
                            11,917,295
                            
                            
                            $
                            6,963,952Basic
      earnings per share - net income attributable to NIVS's common
      shareholders
                            
                            $
                            0.14
                            
                            
                            $
                            0.11
                            
                            
                            $
                            0.27
                            
                            
                            $
                            0.18Weighed-average
      shares outstanding, Basic
                            
                            
                            46,186,998
                            
                            
                            
                            40,648,149
                            
                            
                            
                            43,431,172
                            
                            
                            
                            39,028,629Diluted
      earnings per share - net income attributable to NIVS's common
      shareholders
                            
                            $
                            0.14
                            
                            
                            $
                            0.11
                            
                            
                            $
                            0.27
                            
                            
                            $
                            0.18Weighed-average
      shares outstanding, Diluted
                            
                            
                            46,186,998
                            
                            
                            
                            40,648,149
                            
                            
                            
                            43,431,172
                            
                            
                            
                            39,028,629





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


4





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Consolidated
Statements of Comprehensive Income


(In US
Dollars)





For The Three Months Ended June 30,
                  
                  
                  For The Six Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Net
      income
                  
                  $
                  6,801,253
                  
                  
                  $
                  4,715,101
                  
                  
                  $
                  12,239,112
                  
                  
                  $
                  7,144,696Other
      comprehensive income, net of tax:Unrealized
      gain (loss) on foreign currency translation, net of tax
                  
                  
                  129,923
                  
                  
                  
                  4,956
                  
                  
                  
                  142,128
                  
                  
                  
                  (94,551
                  )Comprehensive
      income
                  
                  
                  6,931,176
                  
                  
                  
                  4,720,057
                  
                  
                  
                  12,381,240
                  
                  
                  
                  7,050,145Comprehensive
      income attributable to the noncontrolling interest
                  
                  
                  (184,901
                  )
                  
                  
                  187
                  
                  
                  
                  (325,680
                  )
                  
                  
                  (2,364
                  )Comprehensive
      income attributable to NIVS's common shareholders
                  
                  $
                  6,746,275
                  
                  
                  $
                  4,720,244
                  
                  
                  $
                  12,055,560
                  
                  
                  $
                  7,047,781





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


5





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(In US
Dollars)





For The Six Months Ended June 30,2010
                            
                            
                            2009(Unaudited)
                            
                            
                            (Unaudited)Cash
      Flows From Operating ActivitiesNet
      income
                            
                            $
                            12,239,112
                            
                            
                            $
                            7,144,696Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      expense
                            
                            
                            3,461,705
                            
                            
                            
                            2,896,131Amortization
      expense
                            
                            
                            1,629,327
                            
                            
                            
                            35,793Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            (5,866,406
                            )
                            
                            
                            (2,718,868
                            )Advances
      to suppliers
                            
                            
                            1,252,115
                            
                            
                            
                            2,217,681Prepaid
      expenses and deposits
                            
                            
                            32,294
                            
                            
                            
                            54,435Inventories,
      net
                            
                            
                            (10,584,584
                            )
                            
                            
                            (9,314,448
                            )VAT
      refundable
                            
                            
                            (1,068,857
                            )
                            
                            
                            965,270Accounts
      payable, accrued liabilities and customer deposits
                            
                            
                            2,889,487
                            
                            
                            
                            (477,025
                            )Various
      taxes payable
                            
                            
                            (487,530
                            )
                            
                            
                            1,391,928Wages
      payable
                            
                            
                            18,732
                            
                            
                            
                            (257,633
                            )Corporate
      tax payable
                            
                            
                            (630,289
                            )
                            
                            
                            1,272,528Net
      cash provided by (used in) operating activities
                            
                            
                            2,885,106
                            
                            
                            
                            3,210,488Cash
      Flows From Investing ActivitiesRestricted
      cash
                            
                            
                            2,605,218
                            
                            
                            
                            (2,922,126
                            )Cash
      paid for Dongri Acquisition
                            
                            
                            (4,969,525
                            )
                            
                            
                            -Purchases
      of property, plant and equipment
                            
                            
                            (12,870,501
                            )
                            
                            
                            (3,270,839
                            )Payments
      made for construction in progress
                            
                            
                            (1,785,119
                            )
                            
                            
                            -Purchases
      of intangible assets
                            
                            
                            (82,887
                            )
                            
                            
                            (16,973
                            )Net
      cash used in investing activities
                            
                            
                            (17,102,814
                            )
                            
                            
                            (6,209,938
                            )Cash
      Flows From Financing ActivitiesNet
      borrowing from bank loans payable
                            
                            
                            11,824,500
                            
                            
                            
                            1,967,923Net
      borrowing (repayment) in bank notes payable
                            
                            
                            (558,910
                            )
                            
                            
                            (363,124
                            )Net
      proceeds of share issuances
                            
                            
                            22,159,132
                            
                            
                            
                            1,212,374Net
      cash provided by (used in) financing activities
                            
                            
                            33,424,722
                            
                            
                            
                            2,817,173Effect
      of exchange rate changes on cash
                            
                            
                            (13,968
                            )
                            
                            
                            2,411Net
      increase in cash and cash equivalents
                            
                            
                            19,193,046
                            
                            
                            
                            (179,866
                            )Cash
      and cash equivalents, beginning of period
                            
                            
                            5,916,224
                            
                            
                            
                            461,504Cash
      and cash equivalents, end of period
                            
                            $
                            25,109,270
                            
                            
                            $
                            281,638Supplemental
      disclosure information::Interest
      expense paid
                            
                            $
                            829,708
                            
                            
                            $
                            886,225Income
      taxes paid
                            
                            $
                            3,188,402
                            
                            
                            $
                            1,275,869Non-cash
      investing and financing activities:Conversion
      of Li debt to common stock
                            
                            $
                            -
                            
                            
                            $
                            (7,841,726
                            )Issuance
      of shares for cashless warrants exercise
                            
                            $
                            -
                            
                            
                            $
                            94




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


6


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)





NOTE
1 - DESCRIPTION OF BUSINESS AND ORGANIZATION





NIVS
IntelliMedia Technology Group, Inc. (“NIVS USA”) was incorporated in the State
of Delaware on December 7, 2006. NIVS USA was originally organized as a “blank
check” shell company to investigate and acquire a target company or business
seeking the perceived advantages of being a publicly held corporation. On July
25, 2008, NIVS USA (i) closed a share exchange transaction pursuant to which it
became the 100% parent of Niveous Holding Company Limited (“Niveous”) (ii)
assumed the operations of Niveous and its subsidiaries, and (iii) changed its
name from SRKP 19, Inc. to NIVS IntelliMedia Technology Group, Inc.





Because
the shares issued by the NIVS USA to the shareholders of Niveous and their
designees in the aforementioned transaction represented a controlling interest,
the transaction has been accounted for as a recapitalization or reverse merger
with Niveous being considered the acquirer. The accompanying consolidated
financial statements have been restated on a retroactive basis to present the
capital structure of Niveous as though it was the reporting entity.





Through
its subsidiaries in China, NIVS USA engages in research, development,
production, marketing and sales of audio & video electronic equipment and
mobile phones for the domestic China and international markets. NIVS USA and its
subsidiaries are collectively referred to as the Company.





On
January 22, 2010, the Company, through NIVS BVI, acquired 100% of the equity
interest of Huizhou Dongri Digital Co., Ltd., ("Dongri"), a mobile phone product
manufacturer located in the Huizhou Zhongkai Hi-tech Zone
area.





On
February 4, 2010, the Company, through NIVS BVI, established a new subsidiary of
Hong Kong East Best Industrial Limited (“East Best HK”). As at June 30, 2010,
East Best HK had issued 10,000 capital shares authorized with HKD1.00 par value
and 10,000 shares issued and outstanding.





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





a.
            Basis of
      preparation





The
accounting policies and methods followed in preparing these unaudited condensed
consolidated financial statements are those used by Company as described in Note
2 of the notes to consolidated financial statements included in the Annual
Report on Form 10-K. The unaudited condensed consolidated financial statements
for the three- and six-month periods ended June 30, 2010 and 2009 have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
and do not conform in all respects to the disclosure and information that is
required for annual consolidated financial statements. The year-end condensed
consolidated balance sheet data was derived from audited financial statements,
but does not include all disclosures required by accounting principles generally
accepted in the United States of America. These interim condensed
consolidated financial statements should be read in conjunction with the most
recent annual consolidated financial statements of the Company.





In the
opinion of management, all adjustments, all of which are of a normal recurring
nature, considered necessary for fair statement have been included in these
interim condensed consolidated financial statements. Operating results for the
three-month and six-months periods ended June 30, 2010 are not indicative of the
results that may be expected for the full year ending December 31,
2010.





b.
            Basis of
      consolidation





The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Significant inter-company transactions have been eliminated in
consolidation.


7


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


c.
            Use of
      estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting year. Because of the use
of estimates inherent in the financial reporting process, actual results could
differ from those estimates.




d. Reclassifications




Certain
amounts in the consolidated financial statements for the prior years have been
reclassified to conform to the presentation of the current year for the
comparative purposes.





e.     Foreign currency translation





The
exchange rates used for foreign currency translation were as follows (USD$1 =
RMB):





Period Covered
                  
                  Balance Sheet Date Rates
                  
                  
                  Average RatesYear ended
      December 31, 2009
                  
                  
                  6.81720
                  
                  
                  
                  6.84088Six
      months ended June 30, 2010
                  
                  
                  6.80860
                  
                  
                  
                  6.83474Six
      months ended June 30, 2009
                  
                  
                  6.82476
                  
                  
                  
                  6.82269





The
exchange rates used for foreign currency translation were as follows (USD$1 =
HKD):





Period Covered
                  
                  Balance Sheet Date Rates
                  
                  
                  Average RatesYear
      ended December 31, 2009
                  
                  
                  7.75477
                  
                  
                  
                  7.75218Six
      months ended June 30, 2010
                  
                  
                  7.78470
                  
                  
                  
                  7.77167Six
      months ended June 30, 2009
                  
                  
                  7.74954
                  
                  
                  
                  7.75254





f.
            Recently
      issued accounting pronouncements





In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task Force, that
provides amendments to the criteria for separating consideration in
multiple-deliverable arrangements. As a result of these amendments,
multiple-deliverable revenue arrangements will be separated in more
circumstances than under existing U.S. GAAP. The ASU does this by establishing a
selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific
objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. A
vendor will be required to determine its best estimate of selling price in a
manner that is consistent with that used to determine the price to sell the
deliverable on a standalone basis. This ASU also eliminates the residual method
of allocation and will require that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method, which allocates any discount in the overall arrangement
proportionally to each deliverable based on its relative selling price. Expanded
disclosures of qualitative and quantitative information regarding application of
the multiple-deliverable revenue arrangement guidance are also required under
the ASU. The ASU does not apply to arrangements for which industry specific
allocation and measurement guidance exists, such as long-term construction
contracts and software transactions.  The ASU is effective beginning
January 1, 2011. The Company is currently evaluating the impact of this
standard on the Company’s consolidated results of operations and financial
condition.




In
October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That
Include Software Elements—a consensus of the FASB Emerging Issues Task
Force, that reduces the types of transactions that fall within the
current scope of software revenue recognition guidance. Existing software
revenue recognition guidance requires that its provisions be applied to an
entire arrangement when the sale of any products or services containing or
utilizing software when the software is considered more than incidental to the
product or service. As a result of the amendments included in ASU
No. 2009-14, many tangible products and services that rely on software will
be accounted for under the multiple-element arrangements revenue recognition
guidance rather than under the software revenue recognition guidance. Under the
ASU, the following components would be excluded from the scope of software
revenue recognition guidance:  the tangible element of the product,
software products bundled with tangible products where the software components
and non-software components function together to deliver the product’s essential
functionality, and undelivered components that relate to software that is
essential to the tangible product’s functionality. The ASU also provides
guidance on how to allocate transaction consideration when an arrangement
contains both deliverables within the scope of software revenue guidance
(software deliverables) and deliverables not within the scope of that guidance
(non-software deliverables). The ASU is effective beginning January 1,
2011. The Company is currently evaluating the impact of this standard on the
Company’s consolidated results of operations and financial
condition.


8


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


In
January 2010, the FASB issued ASU No. 2010-6, Improving Disclosures About Fair
Value Measurements, that amends existing disclosure requirements under ASC 820
by adding required disclosures about items transferring into and out of levels 1
and 2 in the fair value hierarchy; adding separate disclosures about purchase,
sales, issuances, and settlements relative to level 3 measurements; and
clarifying, among other things, the existing fair value disclosures about the
level of disaggregation. This ASU is effective for the first quarter of 2010,
except for the requirement to provide level 3 activities of purchases, sales,
issuances, and settlements on a gross basis, which is effective beginning the
first quarter of 2011. Since this standard impacts disclosure requirements only,
its adoption will not have a material impact on the Company’s consolidated
results of operations or financial condition.







NOTE
3 – PURCHASE OF DONGRI





On
January 22, 2010, the Company, through NIVS BVI, acquired 100% of the equity
interest of Huizhou Dongri Digital Co., Ltd., ("Dongri"), a mobile phone product
manufacturer located in the Huizhou Zhongkai Hi-tech Zone area.  The
aggregate purchase price that the Company agreed to pay is up to $23 million,
with $13 million being paid within one month of closing and up to an
additional $10 million that may become payable at future dates if Dongri meets
after-tax income targets.  If Dongri's after-tax income for the first
half of 2010 exceeds approximately $1.91 million, then an additional $3 million
will be paid to the former shareholder of Dongri. If Dongri's after-tax income
is between $955,000 and $1.91 million, then a pro-rata amount will be payable,
and no percentage of the $3 million will be paid if the after-tax income is less
than approximately $955,000.  For the third quarter of 2010, if
Dongri's after-tax income exceeds approximately $1.03 million, then an
additional $3 million will be paid to the former Dongri shareholder. If Dongri's
after-tax income is between approximately $514,000 and $1.03 million, then a
pro-rata amount will be paid, and no amount will be paid if the after-tax
income is less than $514,000.  Similarly, for the fourth quarter of
2010, the Company will pay Dongri an additional $4 million if Dongri’s after-tax
income exceeds $1.18 million, and a pro rata portion if it falls between
approximately $590,000 and $1.18 million.  No amount will be paid for
the fourth quarter if Dongri's after-tax income is less than $590,000. As of
June 30, 2010, the Company has paid a total of $13.6 million. The Company
assessed the contingent consideration based on ASC805 and concluded that the
liability to be $9,350,777. For the first half of 2010, Dongri's after-tax
income exceeded $1.91 million. There was no change to the Company's original
assessment of contingent consideration payable.





In
accordance with ASC805, the Company determined the assets acquired constituted a
business and applied purchase accounting to the assets acquired.





The
following table summarizes the consideration paid for acquisition of the assets
and the amount of the assets acquired at the acquisition date as well as the
fair value at the acquisition date.





Consideration:





Cash
                        
                        $
                        13,649,223A/P
      - Contingent consideration
                        
                        
                        9,350,777Total
                        
                        $
                        23,000,000




9





NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


The
preliminary estimate of fair values as of the acquisition date is as
follows:





Cash
                      
                      $
                      30,475Account
      receivables
                      
                      
                      15,230Deferred
      VAT assets
                      
                      
                      163,161Inventory
                      
                      
                      2,838,472Advances
                      
                      
                      136,154Fixed
      assets
                      
                      
                      4,091,825Other
      assets
                      
                      
                      2,656,705Account
      payables
                      
                      
                      (627,397
                      )S/T
      loan
                      
                      
                      (47,098
                      )Tax
      accrual
                      
                      
                      (566
                      )Wages
      payable
                      
                      
                      (143,515
                      )Import
      and export rights
                      
                      
                      71,135ISO9001:2008
                      
                      
                      497,948Sales
      orders, contracts and customer relations
                      
                      
                      11,041,140Employment
      contracts
                      
                      
                      426,812Income
      tax holiday preferential rights
                      
                      
                      1,849,519Total
                      
                      $
                      23,000,000





The
unaudited pro forma information of the Company set forth below gives effect to
the acquisition of Dongri as if it had been consummated as of the beginning of
the applicable period. The unaudited pro forma information has been derived from
the historical Consolidated Financial Statements of the Company and of Dongri.
The unaudited pro forma information is for illustrative purposes only. You
should not rely on the unaudited pro forma financial information as being
indicative of the historical results that would have been achieved had the
acquisition occurred in the past or the future financial results that the
Company will achieve after the acquisition.





For the
six month ended June 30, 2009:





Pro
      Forma (unaudited):Revenue
                
                $
                79,759,373Net  income
                
                $
                6,570,709Net
      income attributable to NIVS IntelliMedia Technology Group,
      Inc.
                
                $
                6,389,965Basic
      and diluted earnings per share
                
                $
                0.16




NOTE
4 - INTANGIBLE ASSETS, NET





Intangible
assets consist of the following:





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Land
      use rights
                  
                  $
                  2,740,043
                  
                  
                  $
                  2,757,728Computer
      software use rights
                  
                  
                  87,712
                  
                  
                  
                  4,824Trade
      mark
                  
                  
                  62,646
                  
                  
                  
                  61,052Import
      and export rights
                  
                  
                  71,214
                  
                  
                  
                  -ISO9001:
      2008
                  
                  
                  498,497Sales
      orders, contracts and customer relations
                  
                  
                  11,053,334Employment
      contracts and human resources
                  
                  
                  427,284Income
      tax holiday preferential rights
                  
                  
                  1,851,562Accumulated
      amortization
                  
                  
                  (2,176,483
                  )
                  
                  
                  (528,360
                  )Intangible
      assets, net
                  
                  $
                  14,615,809
                  
                  
                  $
                  2,295,244




10


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


The
amortization expenses for six months ended June 30, 2010 and 2009,
respectively, as follows:





June 30,
                  
                  
                  June 30,2010
                  
                  
                  2009General
      and administrative expense
                  
                  $
                  1,629,327
                  
                  
                  $
                  35,793




NOTE
5 - SHORT TERM LOANS





Short
term loans consist of the following:





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Construction
      Bank
                    
                    $
                    19,277,749
                    
                    
                    $
                    18,983,613Defutai
      Bank
                    
                    
                    2,493,501
                    
                    
                    
                    2,503,667Nanyang
      Bank
                    
                    
                    7,441,923
                    
                    
                    
                    5,594,085Minsheng
      Bank
                    
                    
                    13,481,346
                    
                    
                    
                    4,994,944Shenzhen
      Development Bank
                    
                    
                    8,859,384
                    
                    
                    
                    7,510,415Shanghai
      Pufa Bank
                    
                    
                    4,406,192
                    
                    
                    
                    4,400,634$
                    55,960,095
                    
                    
                    $
                    43,987,358




The above
outstanding short term loans are used primarily for general working capital
purposes. Recurring bank loans carry annual interest rates of 3.27%~5.84% with
maturity dates ranging from 30 days to one year.  These loans are
either non-secured or secured by the Company’s accounts receivable, equipment,
building and land-use rights.





The
annual interest rates are shown as follows:





June 30,
                    
                    
                    December 312010
                    
                    
                    2009Construction
      Bank
                    
                    
                    3.58
                    %
                    
                    
                    3.58
                    %Defutai
      Bank
                    
                    
                    4.83
                    %
                    
                    
                    4.83
                    %Nanyang
      Bank
                    
                    
                    3.27
                    %
                    
                    
                    3.27
                    %Minsheng
      Bank
                    
                    
                    3.93
                    %
                    
                    
                    3.93
                    %Shenzhen
      Development Bank
                    
                    
                    5.35
                    %
                    
                    
                    5.35
                    %Shanghai
      Pufa Bank
                    
                    
                    5.84
                    %
                    
                    
                    5.84
                    %




NOTE
6 - RESTRICTED CASH AND BANK NOTES PAYABLE





Bank
notes payable consist of the following:





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Shanghai
      Pufa Bank
                    
                    $
                    123,373
                    
                    
                    $
                    3,162,354Shenzhen
      Development Bank
                    
                    
                    4,462,004
                    
                    
                    
                    733,439Construction
      Bank
                    
                    
                    2,578,064
                    
                    
                    
                    3,816,816$
                    7,163,441
                    
                    
                    $
                    7,712,609




11


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


The bank
notes have no interest bearing. Additionally, the banks charge 0.05 percent fee
on the amounts borrowed by the Company.





The terms
of the bank notes payable and some short term require the Company to maintain a
deposit at the bank to secure the notes as follows:





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Construction
      Bank,
                    
                    $
                    706,363
                    
                    
                    $
                    964,609Nanyang
      Bank
                    
                    
                    201,766
                    
                    
                    
                    203,436Defutai
      Bank
                    
                    
                    501,696
                    
                    
                    
                    501,063China
      Minsheng Bank
                    
                    
                    707,835
                    
                    
                    
                    8,675Shanghai
      Pufa Bank
                    
                    
                    123,373
                    
                    
                    
                    3,162,354$
                    2,241,033
                    
                    
                    $
                    4,840,137





NOTE
7 - INCOME TAX





Niveous
is registered in BVI and pays no taxes.





NIVS HK
is a holding company registered in Hong Kong and has no operating profit for tax
liabilities.





The
Company’s subsidiary, NIVS HZ, as a manufacturing enterprise established in
Huizhou, PRC, was entitled to a preferential Enterprise Income Tax (”EIT”) rate.
Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has
replaced the old laws for Domestic Enterprises (“DES”) and Foreign Invested
Enterprises (“FIEs”). The new standard EIT rate of 25% replaces the 33% rate
applicable to both DES and FIEs, except for High Tech companies that pay a
reduced rate of 15%, subject to government verification for Hi-Tech company
status in every three years. For companies established before March 16, 2007
continue to enjoy tax holiday treatment approved by local government for a grace
period of either for the next 5 years or until the tax holiday term is
completed, whichever is sooner.
 
 The
Company’s subsidiary, Dongri, as a manufacturing enterprise established in
Huizhou, PRC, was entitled to a preferential Enterprise Income Tax (”EIT”) rate.
Dongri had applied for foreign investment enterprise title, and the application
had been approved by the local government.  Dongri had a tax holiday
of 2 years 100% exemption starting from the first profitable year 2008, and
followed by 3 years of 50% tax deduction.


The
provision for taxes on earnings consisted of:





June 30,
                      
                      
                      June 30,2010
                      
                      
                      2009PRC
      Enterprises Income Taxes
                      
                      $
                      2,560,523
                      
                      
                      $
                      1,275,869United
      States Federal Income Taxes
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      2,560,523
                      
                      
                      $
                      1,275,869





A
reconciliation between the income tax computed at the U.S. statutory rate and
the Group’s provision for income tax is as follows:


12


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


June 30,
                            
                            
                            June 30,2010
                            
                            
                            2009U.S.
      statutory rate
                            
                            
                            34.0
                            %
                            
                            
                            34.0
                            %Foreign
      income not recognized in the U.S.
                            
                            
                            -34.0
                            %
                            
                            
                            -34.0
                            %PRC
      preferential enterprise income tax rate
                            
                            
                            25.0
                            %
                            
                            
                            25.0
                            %Tax
      holiday and relief granted to the Subsidiary
                            
                            
                            -11.3
                            %
                            
                            
                            -10.0
                            %Permanent
      differences related to R&D expen and other
                            
                            
                            3.6
                            %
                            
                            
                            0.2
                            %Provision
      for income tax
                            
                            
                            17.3
                            %
                            
                            
                            15.2
                            %





The tax
authority of the PRC Government conducts periodic and ad hoc tax filing reviews
on business enterprises operating in the PRC after those enterprises had
completed their relevant tax filings, hence the Company’s tax filings may not be
finalized.  It is therefore uncertain as to whether the PRC tax
authority may take different views about the Company’s tax filings which may
lead to additional tax liabilities.





Accounting for Uncertainty
in Income Taxes





Based on
the Company’s evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in its financial
statements.





NOTE
8 - REVENUE INFORMATION AND GEOGRAPHIC INFORMATION





The
revenue information and geographic information for revenue is as
follows:





For the Six Months EndedJune 30,
                                                  
                                                  
                                                  June 30,2010
                                                  
                                                  
                                                  2009Standard
      audio and video equipment:
                                                  
                                                  China
                                                  
                                                  $
                                                  12,133,907
                                                  
                                                  
                                                  $
                                                  18,303,590Europe
                                                  
                                                  
                                                  3,241,821
                                                  
                                                  
                                                  
                                                  7,129,815North
      America
                                                  
                                                  
                                                  647,192
                                                  
                                                  
                                                  
                                                  1,052,949Other
      Asian Countries
                                                  
                                                  
                                                  9,453,816
                                                  
                                                  
                                                  
                                                  11,011,889South
      America
                                                  
                                                  
                                                  1,506,305
                                                  
                                                  
                                                  
                                                  1,142,349Other
      Countries
                                                  
                                                  
                                                  555,350
                                                  
                                                  
                                                  
                                                  1,078,487Intelligent
      audio and video equipment
                                                  
                                                  China
                                                  
                                                  
                                                  20,916,227
                                                  
                                                  
                                                  
                                                  10,184,611Europe
                                                  
                                                  
                                                  4,236,487
                                                  
                                                  
                                                  
                                                  4,069,275North
      America
                                                  
                                                  
                                                  2,689,944
                                                  
                                                  
                                                  
                                                  641,052Other
      Asian Countries
                                                  
                                                  
                                                  11,154,470
                                                  
                                                  
                                                  
                                                  8,468,199South
      America
                                                  
                                                  
                                                  2,721,567
                                                  
                                                  
                                                  
                                                  1,242,768Other
      Countries
                                                  
                                                  
                                                  2,096,015
                                                  
                                                  
                                                  
                                                  1,346,332Other
      audio and video equipment
                                                  
                                                  China
                                                  
                                                  
                                                  14,782,023
                                                  
                                                  
                                                  
                                                  3,317,320Europe
                                                  
                                                  
                                                  2,178,135
                                                  
                                                  
                                                  
                                                  333,039North
      America
                                                  
                                                  
                                                  3,240,178
                                                  
                                                  
                                                  
                                                  -Other
      Asian Countries
                                                  
                                                  
                                                  9,523,878
                                                  
                                                  
                                                  
                                                  794,775Other
      Countries
                                                  
                                                  
                                                  1,070,102
                                                  
                                                  
                                                  
                                                  -Mobile
      phones
                                                  
                                                  China
                                                  
                                                  
                                                  20,268,311
                                                  
                                                  
                                                  
                                                  -China
      - Hong Kong
                                                  
                                                  
                                                  29,294,253
                                                  
                                                  
                                                  
                                                  -Total
                                                  
                                                  
                                                  
                                                  $
                                                  151,709,981
                                                  
                                                  
                                                  
                                                  70,116,450




13


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES


Notes to
Consolidated Financial Statements and disclosures


For the
Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)


NOTE
9 - COMMON STOCK WARRANTS





As of
June 30, 2010 and December 31, 2009, there were 273,844 and 55,000 warrants
outstanding with weighted average exercise prices of $4.13 and $4.20 per share,
respectively. 218,844 new warrants were issued with the public offering in
April, 2010  at an exercise price of $4.11 per share. The warrant has
5 year term and is not exercisable until at least one year from the date of
issuance. Fair value of $565,568 was calculated using the Black-Scholes
option-pricing model. Variables used in the Black-Scholes option-pricing model
for warrants issued include (1) discount rate of 2.54%, (2) warrant life is the
contractual term of 5 years, (3) expected volatility of 117% and (4) zero
expected dividends.
 
 No
warrants were cancelled or exercised during the six months ended June 30,
2010.


NOTE
10 - EARNINGS PER SHARE





Basic net
income per share is computed by dividing net income by the weighted-average
number of shares outstanding during the period.





Diluted
net income per share is computed by using the weighted-average number of shares
of common stock outstanding and, when dilutive, potential shares from options
and warrants to purchase common stock, using the treasury stock
method. Diluted
earnings per share for the three and six months ended June 30, 2009 and 2010
excludes the impact of warrants and stock options issued as they were
antidillutive.





NOTE
11 – PUBLIC OFFERING





On April
19, 2010, the Company entered into an underwriting agreement with Rodman &
Renshaw, LLC and WestPark Capital, Inc., as representatives of the several
underwriters (collectively, the “Underwriters”), relating to the Company’s
public offering of 7,294,832 shares (the “Shares”) of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”), at a public offering
price of $3.29 per share.  The public offering closed on April 23,
2010, and the Company issued the Shares and received $22,240,132, net of
offering costs of approximately $1,759,865.  The Company also issue
warrants to the Underwriters as partial compensation for underwriting services
in connection with the public offering. The Underwriters will be able to
purchase up to 218,844 shares of common stock at an exercise price equal to
$4.11.  The warrants are exercisable starting April 19, 2011, which is
one-year after the effective date of the registration statement related to the
public offering, and the warrants will continue to be exercisable for five years
after such effective date. In
connection with the public offering, the Company also granted the Underwriters a
45-day option to purchase up to an additional 1,094,224 shares of Common Stock
solely to cover over-allotments, if any.




NOTE
12 – OMNIBUS INCENTIVE PAN





On April
26, 2010, the Company granted a newly appointed director a 10-year option to
purchase 200,000 shares of the Company’s common stock pursuant to the Company’s
2009 Omnibus Incentive Plan.  According to the stock option agreement,
the options have a per share exercise price equal to $3.30, the fair market
value of the stock on the date of grant.  One-fifth of the options are
immediately exercisable and one-fifth will vest on each anniversary date of the
grant over the next four years.  Additionally, the options will become
immediately exercisable and fully vested in the event of a change of control, as
defined in the 2009 Omnibus Incentive Plan.


The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of its stock options. The fair value of options was estimated on the date of
grant. Valuation assumptions used in the Black-Scholes option-pricing model for
options issued include (1) discount rate of 3.83% based upon United States
Treasury yields in effect at the time of the grant. (2) expected term of 6 years
based upon simplified calculations due to the limited period of time NIVS’
equity shares have been publicly traded (3) expected volatility of 117% and (4)
zero expected dividends. The calculated fair value of the grant was $2.54 per
share. No stock options were exercised during the six months ended June 30,
2010.


14


ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion relates to the financial condition and results of
operations of NIVS IntelliMedia Technology Group, Inc. (the “Company”) and its
subsidiaries, including its wholly-owned subsidiary, NIVS Holding Company
Limited, a British Virgin Islands corporation (“NIVS BVI”), and NIVS (Huizhou)
Audio & Video Tech. Co., Ltd., a company organized under the laws of the PRC
(“NIVS PRC”), which is 97.5% owned by NIVS BVI and 2.5% owned by Tianfu Li, our
Chief Executive Officer and Chairman of the Board. See the notes to the
financial statements of this report for more information on our organization and
ownership structure.





Forward-Looking
Statements





The
following discussion of our financial condition and results of operations should
be read in conjunction with our unaudited consolidated financial statements and
the related notes, and the other financial information included in this
Quarterly Report.





This
Quarterly Report contains forward-looking statements that involve substantial
risks and uncertainties. All statements other than historical facts contained in
this report, including statements regarding our future financial position,
capital expenditures, cash flows, business strategy and plans and objectives of
management for future operations, are forward-looking statements. The words
“anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,”
“project,” “could,” “may,” and similar expressions are intended to identify
forward-looking statements. Such statements reflect our management’s current
views with respect to future events and financial performance and involve risks
and uncertainties, including, without limitation, our reliance on our major
customers for a large portion of our net sales; our ability to develop and
market new products; our ability to continue to borrow and raise additional
capital to fund our operations; our ability to collect aging trade receivables
and the effect of a growing doubtful account allowance; our ability to
accurately forecast amounts of supplies needed to meet customer demand; exposure
to market risk through sales in international markets; the market acceptance of
our products; exposure to product liability and defect claims; fluctuations in
the availability of raw materials and components needed for our products; and
various other matters, many of which are beyond our control. Actual results may
vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated should one or more of these risks or uncertainties occur or
if any of the risks or uncertainties described elsewhere in this report occur.
Consequently, all of the forward-looking statements made in this filing are
qualified by these cautionary statements and there can be no assurance of the
actual results or developments.





Overview





Through
NIVS PRC, we engage in the development, production and sales of consumer
electronic products. Our products primarily consist of audio and video products,
including digital audio systems, televisions, digital video broadcasting (“DVB”)
set-top boxes, DVD players, as well as audio/video peripheral and accessory
products. We have invested substantial resources in the research and development
of our intelligent audio and video consumer products, most of which utilize our
Chinese speech interactive technology to permit users to control our products
through their spoken commands. We recently added mobile phones and other 3G
communication devices to our product portfolio. In January 2010, we acquired
Dongri, a mobile phone product manufacturer, for a purchase price of up to $23
million.





Through
wholesalers and distributors of electronic products, our products are
distributed worldwide, including to markets in Europe, Southeast Asia and North
America.  For export sales and Original Equipment Manufacturer (OEM)
production, we produce based on customer demand and orders. For products with
our own brand names, customers generally do not provide us with any long-term
commitments. As a result it is necessary for us to estimate, based in part on
non-binding estimates by our customers and potential customers, the requirements
for our products. In addition, in some instances, we develop products based on
anticipated customer demand with no assurance that we will receive the
anticipated orders. To the extent that we do not receive the anticipated orders
or that our customers require products in greater quantities than anticipated,
our revenue and margins will be affected.





A small
number of customers account for a very significant percentage of our revenue.
For the six months ended June 30, 2010, we had five customers that each
accounted for at least 5% of the revenues that we generated. These five
customers accounted for a total of approximately 59.8% of our revenue for that
period.  During the six months ended June 30, 2009, we had three
customers that accounted for more than 10% of our sales.  Unless we
replace a customer, the loss of any of these customers could have a
material adverse effect upon our revenue and net income.


15





We have
longstanding business relationships with certain suppliers with stable supply
sources, and we believe this practice helps us reduce our risk on shortage of
raw material supply.  We also enter into one-year agreements with some
of our suppliers that provide our forecast of the quantity that we believe that
we will need for the upcoming year.  These agreements typically result
in obtaining a discount on our purchases from our suppliers during the year as
we submit purchase orders further to the agreements.  Notwithstanding
our practices to reduce the cost of our materials, price fluctuations of
materials will still affect our production cost and gross margin.





Various
factors may impact our company’s performance in different ways. Our ability to
compete effectively in light of the short life cycle of many of our products is
related to the amount of resources we invest in research and development and how
quickly we are able to produce new product models to replace products with older
functionality.  By upgrading our products, adding functionality, and
improving technological specifications, we can increase the value of such
products and the resulting product price, which can help compensate for losses
associated with the short life cycle of many of our products and can help
increase our revenue.  For example, the average selling price for
certain of our existing speaker and CRT TV has been declining.  By
adding functionality and developing new design to our speaker to form new
intelligent audio and video equipment and shift CRT TV to LCDTV production, we
believe we increased the value of such products and the resulting product
price.





In
addition, we have shifted our focus from one product to another product that we
believe will increase our profitability. During the first six months of 2010,
our sales revenue for new intelligent audio and video equipment was
approximately $44.0 million, which represented an increase of approximately
69.9% compared to revenue of $25.9 million from the sale of intelligent audio
and video equipment during the first six months of 2009. The increase in revenue
for new intelligent audio and video equipment resulted from an increase in sales
volume. We believe the increase in sales revenue and volume is a result of
our investment of resources into the research and development of new products
and design, our focus on the promotion of our brand, and expansion of our sales
channels.





Furthermore,
we have recently entered into the mobile phone and communication device market.
In January 2010, we agreed to pay up to $23 million in our acquisition of
Huizhou Dongri Digital Co., Ltd., a mobile phone product manufacturer. We intend
to devote additional management time and resources to penetrating the mobile
phone and communication device market. We expect that Dongri will replace a
significant portion of outsourced manufacturing services as it relates to mobile
phone products that we previously utilized. Because we have our own factory and
capabilities to produce a large number of the important components needed for
our mobile phone products, we believe that the acquisition will ultimately be
the most cost-effective manner to provide mobile phones to the market. We expect
that the margins on our mobile phone products will be lower than our audio and
video equipment; however, with the acquisition of Dongri, we believe that we
will be able to increase the sales volume of our mobile phone products, which
will increase our revenues.





In the
past, we have relied more heavily on sales to original equipment manufacturers
(OEMs) for a significant portion of our revenues; however, we have increased our
focus on and investment of resources in sales of our own brand, which we believe
will permit us to decrease our reliance on OEM sales. OEM sales accounted for
approximately 44.7% of our revenues for the six months ended June 30, 2010, as
compared to 54.2% for the six months ended June 30, 2009, and sales of products
with our own brand accounted for approximately 55.3% of our revenues for the six
months ended June 30, 2010, as compared to  45.8%  for the
six months ended June 30, 2009.





Recent
Events





April
2010 Public Offering





On April
19, 2010, we entered into an underwriting agreement with Rodman & Renshaw,
LLC and WestPark Capital, Inc., as representatives of the several underwriters
(collectively, the “Underwriters”), relating to our public offering of 7,294,832
shares (the “Shares”) of our common stock at a public offering price of $3.29
per share.  The public offering closed on April 23, 2010, and we
issued the Shares and received approximately $22.2 million, net of offering
costs of approximately $1.8 million.  We also issue warrants to the
Underwriters as partial compensation for underwriting services in connection
with the public offering. The Underwriters will be able to purchase up to
218,844 shares of common stock at an exercise price equal to
$4.11.  The warrants are exercisable starting April 19, 2011, which is
one-year after the effective date of the registration statement related to the
public offering, and the warrants will continue to be exercisable for five years
after such effective date. In
connection with the public offering, the Company also granted the Underwriters a
45-day option to purchase up to an additional 1,094,224 shares of Common Stock
solely to cover over-allotments, if any.


14





January
2010 Acquisition of Dongri





In
January 2010, we, through NIVS BVI, acquired 100% of the equity interest of
Huizhou Dongri Digital Co., Ltd., ("Dongri"), a mobile phone product
manufacturer located in the Huizhou Zhongkai Hi-tech Zone area.  The
aggregate purchase price that we agreed to pay is up to $23 million, with $13
million being paid within one month of closing and up to an additional $10
million that may become payable at future dates if Dongri meets after-tax income
targets, as more fully described below.  With the acquisition of
Dongri, we augmented our manufacturing capabilities for mobile
phones.





If
Dongri's after-tax income for the first half of 2010 exceeds approximately $1.91
million, then an additional $3 million will be paid to the former shareholder of
Dongri. If Dongri's after-tax income is between $955,000 and $1.91 million, then
a pro-rata amount will be payable, and no percentage of the $3 million will be
paid if the after-tax income is less than approximately $955,000. For
the first half of 2010, Dongri's after-tax income exceeded $1.91 million.
According to the agreement, we paid $3 million to the former
shareholder.





For the
third quarter of 2010, if Dongri's after-tax income exceeds approximately $1.03
million, then an additional $3 million will be paid to the former Dongri
shareholder. If Dongri's after-tax income is between approximately $514,000 and
$1.03 million, then a pro-rata amount will be paid, and no amount will be paid
if the after-tax income is less than $514,000.  Similarly, for the
fourth quarter of 2010, we will pay Dongri an additional $4 million if its
after-tax income exceeds $1.18 million, and a pro rata portion if it falls
between approximately $590,000 and $1.18 million.  No amount will be
paid for the fourth quarter if Dongri's after-tax income is less than
$590,000.





All
after-tax income amounts will be calculated by us in accordance with U.S. GAAP,
as confirmed by our independent auditors.  We will make additional
payments owed to Dongri, if any, no later than the 30 days after the filing of
our quarterly or annual report, as applicable, with the SEC for the respective
period.





Results
of Operations





The
following table sets forth information from our statements of operations for the
three and six months ended June 30, 2010 and 2009 (unaudited) in dollars and as
a percentage of revenue:


15





For The Three MonthsEnded
                                                  June 30,
                                                
                                                
                                                
                                                
                                                For The Six Months EndedJune 30,2010
                                                
                                                
                                                
                                                
                                                2009
                                                
                                                
                                                
                                                
                                                2010
                                                
                                                
                                                
                                                
                                                2009(indollars)
                                                
                                                (%
      of
                                                  revenue)
                                                
                                                
                                                (indollars)
                                                
                                                (%
      of
                                                  revenue)
                                                
                                                
                                                (indollars)
                                                
                                                (%
      of
                                                  revenue)
                                                
                                                
                                                (indollars)
                                                
                                                (%
      of
                                                  revenue)(all amounts are in thousands except percentages)Revenues
                                                
                                                
                                                77,602
                                                
                                                
                                                99.9
                                                %
                                                
                                                
                                                40,860
                                                
                                                
                                                99.9
                                                %
                                                
                                                
                                                151,710
                                                
                                                
                                                99.9
                                                %
                                                
                                                
                                                70,116
                                                
                                                
                                                99.8
                                                %Other
      Revenues
                                                
                                                
                                                61
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                61
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                122
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                152
                                                
                                                
                                                0.2
                                                %Cost
      of Goods Sold
                                                
                                                
                                                (61,512
                                                )
                                                
                                                -79.2
                                                %
                                                
                                                
                                                (31,174
                                                )
                                                
                                                -76.2
                                                %
                                                
                                                
                                                (122,460
                                                )
                                                
                                                -80.7
                                                %
                                                
                                                
                                                (54,270
                                                )
                                                
                                                -77.2
                                                %Gross
      Profit
                                                
                                                
                                                16,151
                                                
                                                
                                                20.8
                                                %
                                                
                                                
                                                9,747
                                                
                                                
                                                23.8
                                                %
                                                
                                                
                                                29,372
                                                
                                                
                                                19.3
                                                %
                                                
                                                
                                                15,998
                                                
                                                
                                                22.8
                                                %Selling
      Expenses
                                                
                                                
                                                1,918
                                                
                                                
                                                2.5
                                                %
                                                
                                                
                                                2,127
                                                
                                                
                                                5.2
                                                %
                                                
                                                
                                                3,519
                                                
                                                
                                                2.3
                                                %
                                                
                                                
                                                3,268
                                                
                                                
                                                4.7
                                                %General
      and administrativeAmortization
                                                
                                                
                                                818
                                                
                                                
                                                1.1
                                                %
                                                
                                                
                                                18
                                                
                                                
                                                0.0
                                                %
                                                
                                                
                                                1,629
                                                
                                                
                                                1.1
                                                %
                                                
                                                
                                                36
                                                
                                                
                                                0.1
                                                %Depreciation
                                                
                                                
                                                89
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                83
                                                
                                                
                                                0.2
                                                %
                                                
                                                
                                                176
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                164
                                                
                                                
                                                0.2
                                                %Other
      general and administrative
                                                
                                                
                                                2,204
                                                
                                                
                                                2.8
                                                %
                                                
                                                
                                                822
                                                
                                                
                                                2.0
                                                %
                                                
                                                
                                                3,424
                                                
                                                
                                                2.3
                                                %
                                                
                                                
                                                1,965
                                                
                                                
                                                2.8
                                                %Total
      general and administrative
                                                
                                                
                                                3,111
                                                
                                                
                                                4.0
                                                %
                                                
                                                
                                                923
                                                
                                                
                                                2.2
                                                %
                                                
                                                
                                                5,229
                                                
                                                
                                                3.5
                                                %
                                                
                                                
                                                2,165
                                                
                                                
                                                3.1
                                                %Research
      and development
                                                
                                                
                                                2,255
                                                
                                                
                                                2.9
                                                %
                                                
                                                
                                                763
                                                
                                                
                                                1.9
                                                %
                                                
                                                
                                                4,918
                                                
                                                
                                                3.2
                                                %
                                                
                                                
                                                1,335
                                                
                                                
                                                1.9
                                                %Total
      operating expenses
                                                
                                                
                                                7,284
                                                
                                                
                                                9.4
                                                %
                                                
                                                
                                                3,813
                                                
                                                
                                                9.3
                                                %
                                                
                                                
                                                13,666
                                                
                                                
                                                9.0
                                                %
                                                
                                                
                                                6,768
                                                
                                                
                                                9.7
                                                %Income
      from operations
                                                
                                                
                                                8,867
                                                
                                                
                                                11.4
                                                %
                                                
                                                
                                                5,934
                                                
                                                
                                                14.5
                                                %
                                                
                                                
                                                15,706
                                                
                                                
                                                10.3
                                                %
                                                
                                                
                                                9,230
                                                
                                                
                                                13.1
                                                %Other
      income (expenses)Interest
      expense
                                                
                                                
                                                (438
                                                )
                                                
                                                -0.6
                                                %
                                                
                                                
                                                (324
                                                )
                                                
                                                -0.8
                                                %
                                                
                                                
                                                (831
                                                )
                                                
                                                -0.5
                                                %
                                                
                                                
                                                (886
                                                )
                                                
                                                -1.3
                                                %Sundry
      income (expense), net
                                                
                                                
                                                (194
                                                )
                                                
                                                -0.2
                                                %
                                                
                                                
                                                67
                                                
                                                
                                                0.2
                                                %
                                                
                                                
                                                (75
                                                )
                                                
                                                0.0
                                                %
                                                
                                                
                                                77
                                                
                                                
                                                0.1
                                                %Total
      other income (expenses)
                                                
                                                
                                                (632
                                                )
                                                
                                                -0.8
                                                %
                                                
                                                
                                                (257
                                                )
                                                
                                                -0.6
                                                %
                                                
                                                
                                                (906
                                                )
                                                
                                                -0.5
                                                %
                                                
                                                
                                                (809
                                                )
                                                
                                                -1.2
                                                %Income
      before noncontrolling interest and income taxes
                                                
                                                
                                                8,235
                                                
                                                
                                                10.6
                                                %
                                                
                                                
                                                5,677
                                                
                                                
                                                13.9
                                                %
                                                
                                                
                                                14,800
                                                
                                                
                                                9.7
                                                %
                                                
                                                
                                                8,421
                                                
                                                
                                                12.0
                                                %Income
      taxes
                                                
                                                
                                                (1,434
                                                )
                                                
                                                -1.8
                                                %
                                                
                                                
                                                (962
                                                )
                                                
                                                -2.4
                                                %
                                                
                                                
                                                (2,561
                                                )
                                                
                                                -1.7
                                                %
                                                
                                                
                                                (1,276
                                                )
                                                
                                                -1.8
                                                %Noncontrolling
      interest
                                                
                                                
                                                (186
                                                )
                                                
                                                -0.2
                                                %
                                                
                                                
                                                (120
                                                )
                                                
                                                -0.3
                                                %
                                                
                                                
                                                (322
                                                )
                                                
                                                -0.2
                                                %
                                                
                                                
                                                (181
                                                )
                                                
                                                -0.3
                                                %Net
      income
                                                
                                                
                                                6,615
                                                
                                                
                                                8.6
                                                %
                                                
                                                
                                                4,595
                                                
                                                
                                                11.2
                                                %
                                                
                                                
                                                11,917
                                                
                                                
                                                7.8
                                                %
                                                
                                                
                                                6,964
                                                
                                                
                                                9.9
                                                %





Three
months ended June 30, 2010 and 2009





Revenues,
which consist of sales of our products, were $77.6 million for the three months
ended June 30, 2010, an increase of $36.7 million, or 87.7 %, compared to $40.9
million for the same period in 2009. The increase in revenue was attributed
mainly to the launch of our mobile phone business. The increase of revenue was
also due to the increased demand for and sales of intelligent audio and video
products, which we believe is a result of our market expansion
efforts.  For the three months ended June 30, 2010, our sales revenue
for new business, mobile phone, was $28.4 million.  Sales revenue for
our intelligent audio and video equipment increased to $18.8 million, an
increase of $14.2 million or 617.4% compared to $2.3 million for the same period
in 2009.  Our sales revenue for standard audio equipment decreased to
$6.4 million, a decrease of $29.7 million or 82.3% compared to $36.1 million for
the same period in 2009. Sales revenue for the other products including LCD
televisions and electronic consumer products increased to $23.9 million, an
increase of $21.7 million or 943.5% compared to $2.3 million for the same period
in 2009.
 
 For the
three months ended June 30, 2010, our sales volume for mobile phone products was
approximately 2.1 million pieces.  Our sales volume for intelligent
audio and video equipment increased by 70.6% to 168,036 million pieces as
compared to 98,510 pieces for the same period in 2009.  Our sales
volume for standard audio equipment decreased by 67.9% to 1.0 million pieces as
compared to 3.1 million pieces for the same period in 2009. The decrease was due
to product upgrades as we upgraded most of our standard audio equipment to
intelligent audio equipment. For the three months ended June 30, 2010, our sales
volume for the other products including LCD televisions and electronic consumer
products increased by 5.8% to 1.4 million pieces as compared to 1.3 million
pieces for the same period in 2009. We believe the increases in sales revenue
and volume of mobile phone products and intelligent audio and video products are
a result of our investment of resources into the research and development of new
products and design to meet the requirements of the market, our focus on the
promotion of our brand, and expansion of our sales
channels.


16





Cost of
sales, which include raw material, labor and manufacturing overhead, were $61.5
million for the three months ended June 30, 2010, an increase of $30.3 million,
or 97.1%, compared to $31.2 million for the same period in 2009. The increase
was primarily a result of the increase in sales and was consistent with the
increase in our net revenue. As a percentage of total revenue, cost of sales for
the three months ended June 30, 2010 and 2009 was 79.2% and 76.2%,
respectively.





Gross
profit for the three months ended June 30, 2010 was $16.2 million, or 20.8% of
revenues, compared to $9.7 million, or 23.8% of revenues, for the comparable
period in 2009. The decrease in our gross profit margin for the three months
ended June 30, 2010 was primarily due to the increase of mobile phone sales
which had a lower gross margin and were 36.7% of our total sales. Management
believes the gross margin of mobile phone may improve after we work to improve
the efficiency of our new production lines. Management considers gross profit to
be a key performance indicator in managing our business. Gross profit margins
are a factor of cost of sales, product mix and product demand.





Selling
expenses, which mainly include marketing, shipping, insurance, wage and other
expenses, were $1.9  million for the three months ended June 30, 2010
a decrease of $0.2  million, or  9.5%, compared to $2.1
million for the same period in 2009. The decrease in selling expenses was
primarily attributable to the budget reduction for the CCTV
advertisement.





Research
and development expenses were approximately $2.3 million for the three months
ended June 30, 2010, an increase of approximately $1.5 million, or 187.5%,
compared to $0.8 million for the same period in 2009. The increase was caused by
an increase in new product research and development and the upgrading of old
products to meet the market need. We believe that our focus on research and
development contributed to the increase in our total sales. In the future, we
expect to continue to increase our research and development efforts and to
enable us to improve and expand our manufacturing capabilities.





General
and administrative expenses, which include amortization, depreciation,
professional fees, office expenses, salary and wages, utilities, and other
expenses, were $3.1million for the three months ended June 30, 2010, an increase
of $2.2  million, or 244.4%, compared to $0.9 million for the same
period in 2009. A substantial portion of the increase for the three months ended
June 30, 2010 was due to the increase in the financing cost of secondary
offering closed in April, 2010, and  amortization expense caused by
the increase of intangible assets after acquisition of Dongri in January 2010.
We expect our general and administrative expenses to increase as a result of
business expansion and professional fees incurred as a result of being a public
reporting company in the United States.





Interest
expenses were $0.4 million and $0.3 million for the three months ended June 30,
2010 and 2009, respectively. The increase was due to the increase in the bank
loans during the three months ended June 30, 2010.





Income
tax provisions for the three months ended June 30, 2010 were approximately $1.4
million, as compared to approximately $1.0 million for the three months ended
June 30, 2009. The increase is mainly due to an increase in the taxable income
for the three months ended June 30, 2010. As a high-tech enterprise, NIVS PRC’s
effective income tax rates for the three months ended June 30, 2010 and June 30,
2009 were 15%. Dongri, as a manufacturing enterprise established in Huizhou,
PRC, was entitled to a preferential Enterprise Income Tax (”EIT”)
rate. Dongri had applied for foreign investment Enterprise title, and the
application had been approved by the local government.  Dongri had a
tax holiday of 2 years 100% exemption starting from the first profitable year
2009, and followed by 3 years of 50% tax deduction.  Dongri’s
effective income tax rates for the three months ended June 30, 2010 and June 30,
2009 were 12.5% and 0%, respectively. On March 16, 2007, the National People’s
Congress of China enacted a new PRC Enterprise Income Tax Law, under which
foreign invested enterprises and domestic companies will be subject to
enterprise income tax at a uniform rate of 25%. The new law became effective on
January 1, 2008. During the transition period for enterprises established before
March 16, the tax rate will be gradually increased starting in 2008 and be equal
to the new tax rate in 2012. We believe that our profitability will be
negatively affected as a result of the new EIT Law.


Net
income was $6.6 million for the three months ended June 30, 2010, an increase of
$2.0 million, or 43.5%, compared to $4.6 million for the same period in
2009.


17





Six
months ended June 30, 2010 and 2009





Revenues were $151.7million for the six months ended June 30, 2010, an increase of
$81.6million,
or116.4%, comparedto $70.1 million for the same period
in 2009. The increase in revenue was attributed mainly to the increased demand
for our products, which we believe is a result of our market expansion efforts. The increase of
revenue was also due to the new sales of mobile phone.  For the six
months ended June 30, 2010, our sales revenue for standard audio equipment
decreased to $27.5
million,decrease of$12.1 million, or30.5% compared to $39.6 million for the same period in
2009.Sales revenue for
our intelligent audio and video equipment increased to $43.8 million,an increase of $17.9 million, or69.1%compared to $25.9 million for the same
period in 2009. Sales revenue for our other products, including LCD TV and portable
electronic products, increased to $30.8   million, an
increaseof 600.0%
compared to $4.4million
for the same period in 2009.For the six months ended June 30, 2010,
our sales volume for standard audio equipment decreasedby43.1%to2.0millionpieces as compared to 3.5 million
pieces for the same period in 2009. The decrease was due to product
upgrades.Our sales volume for intelligent audio
and video equipment increased by68.2%to2.0 millionpieces as compared to 1.2
million pieces for the
same period in 2009. For the six months ended June 30, 2010, our sales volume
for our other products, including LCD TV and portable electronic
productsdecreasedby6.5% to2.9million pieces as compared to3.1million pieces for thesame period in 2009.We believe the increases in sales
revenue and volume are a result of our investment of resources into the research
and development of new products and design to meet the requirements of the
market, our focus on the promotion of our brand, and expansion of our sales
channels.


Cost of
sales were $122.5 million for the six months ended June 30, 2010, an
increase of $68.2 million, or 125.6%, compared to $54.3 for the same period in
2009. The increase was primarily a result of the increase in sales and was
relatively consistent with the increase in our net revenue. As a percentage of
net revenue, cost of sales for the six months ended June 30, 2010 and 2009
was 80.7% and 77.2%, respectively.





Gross
profit for the six months ended June 30, 2010 was $29.4 million, or 19.3%
of revenues, compared to $16.0 million, or 22.8% of revenues, for the
comparable period in 2009. Gross profit margins are a factor of cost of sales,
product mix and product demand. The decrease in gross margin is primarily
due to the increase of mobile phone sales which had lower gross margin and
were 32.7% of our total sales. Management believes the gross margin of
mobile phone may improve after we work to improve the efficiency of our new
production lines.





Selling
expenses, which mainly include marketing, shipping, insurance, wage and other
expenses, were $3.5 million for the six months ended June 30, 2010, an increase
of $ 0.2 million, or 6.1%, compared to $3.3 million for the same period in 2009.
The increase was primarily due to an increase in television advertising on
CCTV and marketing activities.


Research
and development expenses were approximately $4.9 million for the six months
ended June 30, 20010, an increase of approximately $3.6  million, or
276.9%, compared to $1.3 million for the same period in 2009. We believe that
our focus on research and development contributed to the increase in our total
sales. In the future, we expect to continue to increase our research and
development efforts and to enable us to manufacture wider lines of
products.





General
and administrative expenses were $5.2 million for the six months ended June 30,
2010, an increase of $3.0 million, or 136.4%, compared to $2.2 million for
the same period in 2009. A substantial portion of the increase for the six
months ended June 30, 2010 was due to the increase in financing cost and
amortization expense of intangible assets after recorded as a result of the
acquisition of Dongri in January 2010. We expect our general and
administrative expenses to increase as a result of business expansion and
professional fees incurred as a result of being a publicly reporting company in
the United States.





Interest
expenses were $0.8 million and $0.9 million for the six months ended June 30,
2010 and 2009, respectively.





Income
tax provisions for the six months ended June 30, 2010 were approximately $2.6
million, compared to approximately $1.3 million for the six months ended June
30, 2009. The increase was primarily due to an increase in the taxable
income for the six months ended June 30, 2010.





Net
income was $11.9 million for the six months ended June 30, 2010, an increase of
$4.9 million, or 70.0%, compared to $7.0 million for the same period in
2009.





Liquidity
and Capital Resources





We had an
unrestricted cash balance of approximately $25.1 million as of June 30, 2010, as
compared to $5.9 million as of December 31, 2009. In addition, we also had
approximately $2.2 million in restricted cash as of June 30, 2010, as compared
to $4.8 million as of December 31, 2009. Our restricted cash is held as a
security deposit for our recurring, short-term bank notes and short-term loans.
Our funds are kept in financial institutions located in China, and banks and
other financial institutions in the PRC do not provide insurance for funds
held on deposit, and in the event of a bank failure, we may not have access to
our funds on deposit.  In addition, we are subject to the regulations
of the PRC, which restrict the transfer of cash from China, except under certain
specific circumstances. Accordingly, such funds may not be readily available to
us to satisfy obligations that have been incurred outside the
PRC.


18




We had
working capital of approximately $10.2 million as of June 30, 2010 and working
capital of $3.3 million as of December 31, 2009. The increase of working capital
was largely caused by the increase in cash and trade receivable which was
partially offset by the increase of short-term loan.


Our
accounts receivable has been a decreasingly significant portion of our
current assets, representing $41.8 million, and $33.2 million, or 44.3% and
52.6% of current assets, at June 30, 2010 and December 31, 2009,
respectively.  If customers responsible for a significant amount of
accounts receivable were to become insolvent or otherwise unable to pay for our
products, or to make payments in a timely manner, our liquidity and results
of operations could be materially adversely affected. An economic or industry
downturn could materially adversely affect the servicing of these accounts
receivable, which could result in longer payment cycles, increased collections
costs and defaults in excess of management’s expectations. A significant
deterioration in our ability to collect on accounts receivable could affect our
cash flow and working capital position and could also impact the cost or
availability of financing available to us.





We provide our major customers with payment terms ranging from 30
to 90 days. Additionally, our production lead time is approximately three weeks,
from the inspection of incoming materials, to production, testing and packaging.
We need to keep a large supply of raw materials and finished goods inventory on
hand to ensure timely delivery of our products to our customers. We maintain an
allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Allowance for
doubtful accounts is based on our assessment of the aging of accounts
receivable, the collectability of specific customer accounts, our history of bad
debts, and the general condition of the industry.





Our aging
of accounts receivables could result in our inability to collect receivables
requiring us to increase our doubtful accounts reserve, which would decrease our
net income and working capital.  We did not have bad debt expense in
the first six months or 2010 and for the same period in 2009.





As of
June 30, 2010, inventories amounted to $23.1 million, compared to $9.6 million
at December 31, 2009. We have experienced increased sales volume and we have
also launched promotion campaign in domestic market in the first six months of
2010; as a result, we need to maintain certain amounts of finished goods to meet
the customers’ demand when launching nationwide promotion campaign. We expect to
experience an increase in our inventory levels going forward, including both of
raw material and finished goods. We maintain certain reserve amounts of raw
materials in our inventories and engage in long-term arrangements with suppliers
in an attempt to protect against any rising prices and shortages of raw
materials used to manufacture our products.





NIVS PRC
has entered into various revolving bank loans and bank notes to finance our
operation. Most of the loans are one year renewable. NIVS PRC had bank loans of
approximately $63.1 million and $51.7 million as of June 30, 2010 and December
31, 2009, respectively. These loans carry annual interest rates of approximately
1.6% to 7.2% with maturity dates ranging from 30 days to one year. These loans
are either unsecured or secured by the Company’s buildings, equipment,
receivables and land use rights. In China it is customary practice for banks and
borrowers to negotiate roll-overs or renewals of short-term borrowings on an
on-going basis shortly before they mature. Although we have renewed our
short-term borrowings in the past, we cannot assure you that we will be able to
renew these loans in the future as they mature. In January 2010, the Chinese
government took steps to tighten the availability of credit including ordering
banks to increase the amount of reserves they hold and to reduce or limit their
lending. If we are unable to obtain renewals of these loans or sufficient
alternative funding on reasonable terms from banks or other parties, we will
have to repay these borrowings with the cash on our balance sheet or cash
generated by our future operations, if any.





We are
required to contribute a portion of our employees’ total salaries to the Chinese
government’s social insurance funds, including pension insurance, medical
insurance, unemployment insurance, and job injuries insurance, and maternity
insurance, in accordance with relevant regulations. Total contributions to the
funds are approximately $153,296 and $121,885 for the six months ended June 30,
2010 and 2009, respectively. We expect that the amount of our contribution to
the government’s social insurance funds will increase in the future as we expand
our workforce and operations and commence contributions to an employee housing
fund.


19





According
to the relevant PRC regulations on housing provident funds, PRC enterprises are
required to contribute housing provident funds for their employees. The monthly
contributions for Huizhou City must be at least 5% of each employee’s average
monthly income in the previous year. The Company has not paid such funds for its
employees since its establishment and the accumulated unpaid amount is
approximately $870,000. Under local regulations on collection of housing
provident funds in Huizhou City where the Company’s subsidiary, NIVS PRC, is
located, the local housing authority may require the Company to rectify its
non-compliance by setting up bank accounts and making payment and relevant
filings for the unpaid housing funds for its employees within a specified time
period. If the Company fails to do so within the specified time period, the
local housing authority may impose a monetary fine on it and may also apply to
the local people’s court for enforcement. The Company’s employees may also be
entitled to claim payment of such funds individually. If the Company receives
any notice from the local housing authority or any claim from our current and
former employees regarding the Company’s non-compliance with the regulations,
the Company will be required respond to the notice and pay all amounts due to
the government, including any administrative penalties imposed, which would
require the Company to divert its financial resources and/or impact its cash
reserves, if any, to make such payments. Additionally, any administrative costs
in excess of the payments, if material, may impact the Company's operating
results. As of June 30, 2010, the Company has not received any notice from the
local housing authority or any claim from our current and former
employees.





In
October 2009, we commenced construction on Phase II of our factory in Huizhou
(Phase II), which will include a new manufacturing facility and dormitory. Phase
II's manufacturing facility, adjacent to Phase I, will span approximately 36,000
square meters and will be dedicated to designing and making super thin LEDTVs,
HD LCDTVs and 3G cell phones under the NIVS brand name and intended for
distribution in China's domestic market. The expected production capacity will
be 2 million TV sets and 1.5 million phones per year. Construction is
estimated to be completed during the third quarter of 2010, and the
manufacturing facility is expected to be operational later that same
quarter.  Total budget of the construction is RMB 53,500,000
($7,857,709).





In
January 2010, we acquired Dongri, a mobile phone product manufacturer, for a
purchase price of up to $23 million, with $13 million being paid within one
month of closing and up to an additional $10 million that may become payable at
future dates if Dongri meets after-tax income targets for the first half of
2010, the third quarter of 2010, and the fourth quarter of 2010.  We
are required to make additional payments owed to the seller of Dongri, if the
targets are met, no later than the 30 days after the filing of our quarterly or
annual report, as applicable, with the SEC for the respective period. Dongri met
the target for the first half of 2010. We paid the money agreed in the
acquisition contract.





In
January 2010, we entered into a purchase agreement with Kuanda (Xiamen)
Communications Co., Ltd and China PTAC Communications Services, on behalf of
China Telecom, for the purchase by China Telecom of our two 3G mobile phone
products.  The purchase agreement is contingent on delivery of the 3G
mobile phones representing the aggregate order by June 30, 2010. We delivered
all the products in the first half of 2010.





In April
2010, we completed a public offering of 7,294,832 shares of our common stock at
a public offering price of $3.29 per share.  We received approximately
$22.2 million, net of offering costs of approximately $1.8
million.  In connection with the public offering, we granted the
underwriters a 45-day option to purchase up to an additional 1,094,224 shares of
our common stock solely to cover over-allotments, if any.





The
ability of NIVS PRC to pay dividends may be restricted due to the foreign
exchange control policies and availability of cash balance of the Chinese
operating subsidiaries. A majority of our revenue being earned and currency
received are denominated in RMB, which is subject to the exchange control
regulation in China, and, as a result, we may unable to distribute any dividends
outside of China due to PRC exchange control regulations that restrict our
ability to convert RMB into US Dollars.  Accordingly, NIVS PRC’s funds
may not be readily available to us to satisfy obligations which have been
incurred outside the PRC, which could adversely affect our business and
prospects or our ability to meet our cash obligations.





Net cash
provided by operating activities was $2.9 million for the six months ended June
30, 2010, compared to net cash provided by operating activities of $3.2 million
for the six months ended June 30, 2009.  The decrease in net cash
provided in operating activities was primarily due to an increase in cash used
in inventory and trade receivables, which primarily resulted from an increase in
our sales from $151.7 million for the six months ended June 30, 2010 compared to
$70.1 million for the same period in 2009 in response to demand of our products.
Our decrease in net cash provided by operating activities for the six months
ended June 30, 2010 was partially offset by a decrease in cash used in account
payable and advance to suppliers.


20





Investing
activity during the six months ended June 30, 2010 and 2009 included the
purchasing of property and equipment and intangible assets, which resulted in
net cash used in investing activities of $17.1 million for the six months ended
June 30, 2010, compared to net cash used in investing activities of $6.2 million
for the six months ended June 30, 2009. The increase in net cash used in
investing activities was primarily due to the acquisition of Dongri,
construction on Phase II and purchase of production equipment and partially
offset by decrease in the restricted cash. In June 2008, we entered into an
agreement for the purchase of production equipment and a new plant renovation at
a contracted price of RMB 36,117,340 (USD $5,304,665).  The plant
renovation and the equipment installation were completed in the end of 2009. As
of June 30, 2010, we had paid $13.5 million for the acquisition of
Dongri. For the first half of 2010, we had paid $14.7 million for the
purchase of production equipment and construction on Phase II of the
factory.





Net cash
provided by financing activities amounted to $33.4 million for the six months
ended June 30, 2010, compared to net cash provided by financing activities of
$2.8 million for the six months ended June 30, 2009.  The increase in
cash provided was primarily a result of our secondary offering closed in April,
2010 and an increase in bank loans, partially offset by an increase in payment
of bank notes.





Based
upon our present plans, we believe that cash on hand, cash flow from operations
and funds available to us through the public offering that we conducted in April
2010 will be sufficient to fund our current capital needs. We expect that our
primary sources of funding for our operations for this year will be from
our recently completed public offering, our continued use of bank loans and bank
notes and cash flow from operations. However, our ability to maintain sufficient
liquidity depends partially on our ability to achieve anticipated levels of
revenue, while continuing to control costs. If we did not have sufficient
available cash, we would have to seek additional debt or equity financing
through other external sources, which may not be available on acceptable terms,
or at all. Failure to maintain financing arrangements on acceptable terms would
have a material adverse effect on our business, results of operations and
financial condition.





Seasonality





The first
quarter is traditionally our low season due to the long Chinese New Year
Holiday, with sales gradually increasing in the second quarter. Sales are
usually highest in the fourth quarter as most of the factories in China will
ship out their stock to prepare for the Chinese New Year Holiday.





Off-Balance
Sheet Arrangements





We have
no material off-balance sheet transactions.





Critical
Accounting Policies and Estimates




Management’s
discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make certain
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. The most significant estimates and
assumptions include valuation of inventories, provisions for income taxes,
allowance for doubtful accounts, and purchase price allocation relating to the
business acquired. Actual results could differ from these estimates.
Periodically, we review all significant estimates and assumptions affecting the
financial statements and record the effect of any necessary
adjustments.





We
describe our significant accounting policies in Note 1, Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K as of and for the
year ended December 31, 2009. We discuss our critical accounting policies
and estimates in Management’s Discussion and Analysis of Financial Condition and
Results of Operations in our Annual Report on Form 10-K as of and for the
year ended December 31, 2009. Other than as indicated in this quarterly
report, there have been no material revisions to the critical accounting
policies as filed in our Annual Report on Form 10-K as of and for the year
ended December 31, 2009 with the SEC on March 24, 2010.


21





ITEM
3.                  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




There
have been no material changes in market risk from the information provided in
Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
other than those discussed below.





ITEM
4.                  CONTROLS
AND PROCEDURES





Evaluation
of disclosure controls and procedures





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal executive and financial
officers, as appropriate to allow timely decisions regarding required
disclosure.





As of the
end of the period covered by this Quarterly Report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are not
effective as of June 30, 2010 due to the deficiencies described
below.





These
deficiencies consisted of inadequate staffing and supervision that could lead to
the untimely identification and resolution of accounting and disclosure matters
and failure to perform timely and effective reviews. In addition, there are
deficiencies in the recording and classification of accounting transactions and
a lack of personnel with expertise in US generally accepted accounting
principles and US Securities and Exchange Commission rules and
regulations.





Deficiencies
in our controls and procedures have led to restatements of our financial
statements.  In February 2010, we discovered that our financial
statements for the three months ended September 30, 2009 should not be relied
upon due to an error in the accounting record of selling expenses, resulting in
an overstatement of our selling expenses for the period. We also noted that our
financial statements for the three and nine months ended September 30, 2009,
should not be relied upon due to an error in the accounting treatment of
unrecorded liabilities, resulting in an understatement of our liabilities and
cost and expenses for the periods in the amount of approximately $870,000
related to our non-payment of contributions to PRC housing provident funds for
our employees as required under PRC regulations.  In October and
December 2008, our company also conducted restatements due to accounting
errors.





We have
taken steps to improve our controls and procedures by engaging (i) Protiviti, a
third party consulting firm with experience in implementing preventative
measures and controls and procedures, (ii) two consultants in U.S. to help us
meet the public reporting requirements, and (iii) a financial consultant with
experience in public company reporting and advising China-based companies listed
in the United States. Under the direction of Protiviti, our company has set up
quarterly training seminars to department heads to ensure that they fully
understand our internal controls and procedures and to follow these procedures
at work. In 2010, we renewed our contract with Protiviti to help us further
improve our internal controls and procedures to comply with SEC regulations.
Furthermore, in January 2009, we appointed a new independent director and
Chairman of our Audit, Compensation, and Nominating Committees, Charles Mo. In
January 2009, we also hired a new Interim Chief Financial Officer and Corporate
Secretary, Simon Zhang, who has experience with financial reporting under U.S.
GAAP.  In April 2010, we appointed a new director to our board, Dr.
Arthur B. Laffer, who will serve as a member of the Company’s Audit Committee,
Compensation Committee and Nominating Committee.





In
addition to the foregoing, we are seeking to improve our controls and procedures
in an effort to remediate these deficiencies through improving supervision,
education, and training of our accounting staff. As stated above, we have
engaged third-party financial consultants to review and analyze our financial
statements and assist us in improving our reporting of financial
information.  Management plans to enlist additional qualified in-house
accounting personnel and third-party accounting personnel to ensure that
management will have adequate resources in order to attain complete reporting of
financial information disclosures in a timely matter. We have signed extended
engagement with Protiviti to further help us in 2010 on internal controls
according to SEC regulations. The program with Protiviti will complete in third
quarter of this year. We believe that the remedial steps that we have taken and
plan to take will address the conditions identified by our CEO and CFO in our
disclosure controls and procedures. We will continue to monitor the
effectiveness of these improvements. We also plan to work with the outside
consultants we have engaged in assessing and improving our internal controls and
procedures when necessary.


22





Changes
in Internal Control over Financial Reporting





Due to
the implementation of the remedial measures described above, there were changes
in our internal controls over financial reporting during the first half of
fiscal 2010 that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.




PART
II.                 OTHER
INFORMATION





ITEM
1.                  LEGAL
PROCEEDINGS




None.




ITEM
1A.               RISK
FACTORS




Any
investment in our common stock involves a high degree of risk. Investors should
carefully consider the risks described below and all of the information
contained in our public filings before deciding whether to purchase our common
stock. There have been no material revisions to the “Risk Factors” as set forth
in our annual report on Form 10-K as filed with the SEC on March 24,
2010.





ITEM
2.                  UNREGISTERED
SALE OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM
3.                  DEFAULT
UPON SENIOR SECURITIES





None.





ITEM
4.                  REMOVED
AND RESERVED




None.


ITEM
5.                  OTHER
INFORMATION





None.





ITEM
6.                  EXHIBITS





(a)
            Exhibits





Exhibit
                Number
              
              Description of Document31.1
              
              Certification
      of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.*





*
            This
      exhibit shall not be deemed “filed” for purposes of Section 18 of the
      Securities Exchange Act of 1934 or otherwise subject to the liabilities of
      that section, nor shall it be deemed incorporated by reference in any
      filing under the Securities Act of 1933 or the Securities Exchange Act of
      1934, whether made before or after the date hereof and irrespective of any
      general incorporation language in any
filings.




23


SIGNATURES





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




NIVS
      IntelliMedia Technology Group, Inc.Dated:
      August 9, 2010
                        /s/
                        Tianfu LiBy:
                        Tianfu LiIts:
                        Chairman
      of the Board and Chief Executive
Officer




24