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 1934For
      the Quarterly Period Ended March 31, 2010ORo
            
            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 oNon-accelerated
      filer x
                Smaller
      reporting company o




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 May 10, 2010.












NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.





FORM 10-Q




For
the Quarterly Period Ended March 31, 2010




INDEX




PagePart I
                          Financial
      InformationItem
      1.
                          
                          Financial
      Statements
                          1a)
                          Consolidated
      Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
      2009
                          1b)
                          Consolidated
      Statements of Operations for the Three Months Ended March 31, 2010 and
      2009 (Unaudited)
                          2c)
                          Consolidated
      Statements of Comprehensive Income for the Three Months Ended March 31,
      2010 and 2009 (Unaudited)
                          3d)
                          Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2010 and
      2009 (Unaudited)
                          4e)
                          Notes
      to Consolidated Financial Statements (Unaudited)
                          5Item
      2.
                          
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          13Item
      3.
                          
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          21Item
      4.
                          
                          Controls
      and Procedures
                          21Part II
                          Other
      InformationItem
      1.
                          
                          Legal
      Proceedings
                          22Item
      1A.
                          
                          Risk
      Factors
                          22Item
      2.
                          
                          Unregistered
      Sale of Equity Securities and Use of Proceeds
                          22Item
      3.
                          
                          Default
      Upon Senior Securities
                          23Item
      4.
                          
                          Removed
      and Reserved
                          23Item
      5.
                          
                          Other
      Information
                          23Item
      6.
                          
                          Exhibits
                          23Signatures
                          24











PART I.                      FINANCIAL
INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS




NIVS
      IntelliMedia Technology Group, Inc. and SubsidiariesConsolidated
      Balance Sheets (Unaudited)(In
      US Dollars)
  March
      31,
                                
                                
                                December
      31,2010
                                
                                
                                2009AssetsCurrent
      AssetsCash
      and cash equivalents
                                
                                $
                                7,932,105
                                
                                
                                $
                                5,916,224Trade
      receivables, net
                                
                                
                                30,669,043
                                
                                
                                
                                33,228,955Inventories,
      net
                                
                                
                                20,777,015
                                
                                
                                
                                9,626,048Prepaid
      expenses, deposit and other receivables
                                
                                
                                8,250
                                
                                
                                
                                8,641,448VAT
      refundable
                                
                                
                                627,721
                                
                                
                                
                                869,202Deferred
      tax assets
                                
                                
                                459,520
                                
                                
                                
                                -Restricted
      cash
                                
                                
                                3,120,309
                                
                                
                                
                                4,840,137Total
      current assets
                                
                                
                                63,593,963
                                
                                
                                
                                63,122,014Property,
      equipment and construction in progress, net
                                
                                
                                66,923,901
                                
                                
                                
                                58,409,374Advances
      to suppliers
                                
                                
                                16,148,531
                                
                                
                                
                                16,649,904Intangible
      assets, net
                                
                                
                                15,370,183
                                
                                
                                
                                2,295,244Total
      Assets
                                
                                $
                                162,036,578
                                
                                
                                $
                                140,476,536Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable
                                
                                $
                                16,946,415
                                
                                
                                $
                                3,932,115Accrued
      liabilities and other payable
                                
                                
                                1,434,662
                                
                                
                                
                                1,485,577Wages
      payable
                                
                                
                                928,219
                                
                                
                                
                                801,972Corporate
      tax payable
                                
                                
                                1,014,520
                                
                                
                                
                                1,372,117Various
      taxes payable
                                
                                
                                48,164
                                
                                
                                
                                494,678Customer
      deposits
                                
                                
                                1,067,379
                                
                                
                                
                                -Short-term
      loans
                                
                                
                                47,645,340
                                
                                
                                
                                43,987,358Bank
      notes payable
                                
                                
                                6,811,705
                                
                                
                                
                                7,712,609Total
      current liabilities
                                
                                
                                75,896,404
                                
                                
                                
                                59,786,426Shareholders'
      EquityNIVS
      IntelliMedia Technology Group, Inc.'s shareholders' equityPreferred
      stock, $0.0001 par value, 10,000,000 sharesauthorized,
      0 shares issued and outstanding at March 31, 2010
                                
                                
                                -
                                
                                
                                
                                -and
      December 31, 2009, respectivelyCommon
      stock, $0.0001 par value, 100,000,000 sharesauthorized,
      40,675,347 and 40,675,347 shares issued and outstanding
                                
                                
                                4,068
                                
                                
                                
                                4,068at
      March 31, 2010 and December 31, 2009, respectivelyAdditional
      paid-in capital
                                
                                
                                21,717,239
                                
                                
                                
                                21,717,239Accumulated
      other comprehensive income
                                
                                
                                3,987,102
                                
                                
                                
                                3,979,941Statutory
      reserve fund
                                
                                
                                5,722,107
                                
                                
                                
                                5,722,107Retained
      earnings (unrestricted)
                                
                                
                                52,799,335
                                
                                
                                
                                47,497,211Total
      NIVS IntelliMedia Technology Group, Inc. Shareholders'
    Equity
                                
                                
                                84,229,851
                                
                                
                                
                                78,920,566Noncontrolling
      interest
                                
                                
                                1,910,323
                                
                                
                                
                                1,769,544Total
      Shareholders' Equity
                                
                                
                                86,140,174
                                
                                
                                
                                80,690,110Total
      Liabilities and Shareholders' Equity
                                
                                $
                                162,036,578
                                
                                
                                $
                                140,476,536








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




1




NIVS
      IntelliMedia Technology Group, Inc. and SubsidiariesConsolidated
      Statements of Operations (Unaudited)(In
      US Dollars)
  For
      The Three Months Ended March
      31,2010
                                                                                                  
                                                                                                  
                                                                                                  2009Revenues
                                                                                                  
                                                                                                  $
                                                                                                  74,107,672
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  29,256,728Other
      Revenues
                                                                                                  
                                                                                                  
                                                                                                  61,221
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  91,072Cost
      of Goods Sold
                                                                                                  
                                                                                                  
                                                                                                  (60,947,713
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (23,096,780
                                                                                                  )Gross
      Profit
                                                                                                  
                                                                                                  
                                                                                                  13,221,180
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,251,020Selling
      Expenses
                                                                                                  
                                                                                                  
                                                                                                  1,601,741
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,141,223General
      and administrativeAmortization
                                                                                                  
                                                                                                  
                                                                                                  811,220
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  17,445Depreciation
                                                                                                  
                                                                                                  
                                                                                                  86,861
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  81,270Other
      general and administrative
                                                                                                  
                                                                                                  
                                                                                                  1,219,639
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,142,915Total
      general and administrative
                                                                                                  
                                                                                                  
                                                                                                  2,117,720
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,241,630Research
      and development
                                                                                                  
                                                                                                  
                                                                                                  2,663,234
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  572,535Total
      operating expenses
                                                                                                  
                                                                                                  
                                                                                                  6,382,695
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,955,388Income
      from operations
                                                                                                  
                                                                                                  
                                                                                                  6,838,485
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,295,632Other
      income (expenses)Interest
      expense
                                                                                                  
                                                                                                  
                                                                                                  (392,944
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (562,063
                                                                                                  )Sundry
      income, net
                                                                                                  
                                                                                                  
                                                                                                  118,663
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,981Total
      other income (expenses)
                                                                                                  
                                                                                                  
                                                                                                  (274,281
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (552,082
                                                                                                  )Income
      before noncontrolling interest and income taxes
                                                                                                  
                                                                                                  
                                                                                                  6,564,204
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,743,550Income
      taxes
                                                                                                  
                                                                                                  
                                                                                                  (1,126,345
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (313,955
                                                                                                  )Net
      income
                                                                                                  
                                                                                                  
                                                                                                  5,437,859
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,429,595Net
      income attributable to the noncontrolling interest
                                                                                                  
                                                                                                  
                                                                                                  (135,735
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (61,128
                                                                                                  )Net
      income attributable NIVS IntelliMedia Technology Group,
    Inc.
                                                                                                  
                                                                                                  $
                                                                                                  5,302,124
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  2,368,467Earnings
      per share - net income attributable to NIVS's common shareholders - Basic
      and Diluted
                                                                                                  
                                                                                                  $
                                                                                                  0.13
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  0.06Weighted-average
      shares outstanding, Basic and Diluted
                                                                                                  
                                                                                                  
                                                                                                  40,675,347
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  37,391,115





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




2






NIVS
      IntelliMedia Technology Group, Inc. and SubsidiariesConsolidated
      Statements of Comprehensive Income (Unaudited)(In
      US Dollars)  For
      The Three Months Ended March 31,2010
                                  
                                  
                                  2009Net
      income
                                  
                                  $
                                  5,437,859
                                  
                                  
                                  $
                                  2,429,595Other
      comprehensive income, net of tax:Unrealized
      gain (loss) on foreign currency translation, net of tax
                                  
                                  
                                  12,205
                                  
                                  
                                  
                                  (99,507
                                  )Comprehensive
      income
                                  
                                  
                                  5,450,064
                                  
                                  
                                  
                                  2,330,088Comprehensive
      income attributable to the noncontrolling interest
                                  
                                  
                                  (140,779
                                  )
                                  
                                  
                                  (2,551
                                  )Comprehensive
      income attributable to NIVS's common shareholders
                                  
                                  $
                                  5,309,285
                                  
                                  
                                  $
                                  2,327,537































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




3







NIVS
      IntelliMedia Technology Group, Inc. and SubsidiariesConsolidated
      Statements of Cash Flows (Unaudited)(In
      US Dollars)  For
      The Three Months Ended March 31,2010
                                  
                                  
                                  2009Cash
      Flows From Operating ActivitiesNet
      income
                                  
                                  $
                                  5,437,859
                                  
                                  
                                  $
                                  2,429,595Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      expense
                                  
                                  
                                  1,632,168
                                  
                                  
                                  
                                  1,420,781Amortization
      expense
                                  
                                  
                                  811,220
                                  
                                  
                                  
                                  17,445Changes
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  5,237,112
                                  
                                  
                                  
                                  1,756,464Advances
      to suppliers
                                  
                                  
                                  640,165
                                  
                                  
                                  
                                  3,328,933Prepaid
      expenses and deposits
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (274,772
                                  )Inventories,
      net
                                  
                                  
                                  (8,310,970
                                  )
                                  
                                  
                                  (5,477,028
                                  )VAT
      refundable
                                  
                                  
                                  241,619
                                  
                                  
                                  
                                  939,552Deferred
      tax assets
                                  
                                  
                                  (296,359
                                  )
                                  
                                  
                                  -Accounts
      payable, accrued liabilities and customer deposits
                                  
                                  
                                  4,042,034
                                  
                                  
                                  
                                  (1,230,289
                                  )Various
      taxes payable
                                  
                                  
                                  (447,158
                                  )
                                  
                                  
                                  1,398,917Wages
      payable
                                  
                                  
                                  (17,395
                                  )
                                  
                                  
                                  (351,015
                                  )Corporate
      tax payable
                                  
                                  
                                  (357,814
                                  )
                                  
                                  
                                  310,587Net
      cash provided by operating activities
                                  
                                  
                                  8,612,481
                                  
                                  
                                  
                                  4,269,170Cash
      Flows From Investing ActivitiesRestricted
      cash
                                  
                                  
                                  1,720,595
                                  
                                  
                                  
                                  (1,049,975
                                  )Cash
      paid for Dongri Acquisition
                                  
                                  
                                  (4,969,525
                                  )
                                  
                                  
                                  -Purchases
      of property, plant and equipment
                                  
                                  
                                  (5,389,958
                                  )
                                  
                                  
                                  (2,919,384
                                  )Payments
      made for construction in progress
                                  
                                  
                                  (642,803
                                  )
                                  
                                  
                                  -Purchases
      of intangible assets
                                  
                                  
                                  (33,207
                                  )
                                  
                                  
                                  (8,937
                                  )Short-term
      investment, marketable securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (11,021
                                  )Net
      cash used in investing activities
                                  
                                  
                                  (9,314,898
                                  )
                                  
                                  
                                  (3,989,317
                                  )Cash
      Flows From Financing ActivitiesNet
      borrowing from bank loans payable
                                  
                                  
                                  3,603,923
                                  
                                  
                                  
                                  (888,858
                                  )Net
      borrowing (repayment) in bank notes payable
                                  
                                  
                                  (902,126
                                  )
                                  
                                  
                                  1,317,496Net
      proceeds of share issuances
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,008,436Net
      cash provided by financing activities
                                  
                                  
                                  2,701,797
                                  
                                  
                                  
                                  1,437,074Effect
      of exchange rate changes on cash
                                  
                                  
                                  16,501
                                  
                                  
                                  
                                  2,784Net
      increase in cash and cash equivalents
                                  
                                  
                                  2,015,881
                                  
                                  
                                  
                                  1,719,711Cash
      and cash equivalents, beginning of period
                                  
                                  
                                  5,916,224
                                  
                                  
                                  
                                  461,504Cash
      and cash equivalents, end of period
                                  
                                  $
                                  7,932,105
                                  
                                  
                                  $
                                  2,181,215Supplemental
      disclosure information:Interest
      expense paid
                                  
                                  $
                                  390,771
                                  
                                  
                                  $
                                  562,063Income
      taxes paid
                                  
                                  $
                                  1,480,228
                                  
                                  
                                  $
                                  313,955Non-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.




4


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 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 March 31, 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-month period ended March 31, 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 period ended March 31, 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.





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.




5


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 2010 and 2009 (Unaudited)


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
                
                6.84088Three
      months ended March 31, 2010
                
                6.81612
                
                6.83603Three
      months ended March 31, 2009
                
                6.82547
                
                6.82547





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
              
              7.75218Three
      months ended March 31, 2010
              
              7.76406
              
              7.76390Three
      months ended March 31, 2009
              
              7.75014
              
              7.75374





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.




6


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 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
March 31, 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.





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




7


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 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
quarter ended March 31, 2009:
 
 Pro
      Forma (unaudited):Revenue
              
              $
              34,066,472Net  income
              
              $
              2,941,998Net
      income attributable to NIVS IntelliMedia Technology Group,
      Inc.
              
              $
              2,880,870Basic
      and diluted earnings per share
              
              $
              0.08


8


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 2010 and 2009 (Unaudited)


NOTE
4 - INTANGIBLE ASSETS, NET





Intangible
assets consist of the following:





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Land
      use rights
                  
                  $
                  2,740,043
                  
                  
                  $
                  2,757,728Computer
      software use rights
                  
                  
                  4,825
                  
                  
                  
                  4,824Trade
      mark
                  
                  
                  62,646
                  
                  
                  
                  61,052Import
      and export rights
                  
                  
                  71,135
                  
                  
                  
                  -ISO9001:2008
                  
                  
                  497,948
                  
                  
                  
                  -Sales
      orders, contracts and customer relations
                  
                  
                  11,041,140
                  
                  
                  
                  -Employment
      contracts and human resources
                  
                  
                  426,812
                  
                  
                  
                  -Income
      tax holiday preferential rights
                  
                  
                  1,849,519
                  
                  
                  
                  -Accumulated
      amortization
                  
                  
                  (1,323,885
                  )
                  
                  
                  (528,360
                  )Intangible
      assets, net
                  
                  $
                  15,370,183
                  
                  
                  $
                  2,295,244





The
amortization expenses for three months ended March 31, 2010 and 2009,
respectively, as follows:





March
      31,
                    
                    
                    March
      31,2010
                    
                    
                    2009General
      and administrative expense
                    
                    $
                    811,220
                    
                    
                    $
                    17,445





NOTE
5 - SHORT TERM LOANS





Short
term loans consist of the following:





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Construction
      Bank
                  
                  $
                  19,273,100
                  
                  
                  $
                  18,983,613Defutai
      Bank
                  
                  
                  2,504,064
                  
                  
                  
                  2,503,667Nanyian
      Bank
                  
                  
                  6,573,987
                  
                  
                  
                  5,594,085Minsheng
      Bank
                  
                  
                  7,369,232
                  
                  
                  
                  4,994,944Shenzhen
      Development Bank
                  
                  
                  7,511,605
                  
                  
                  
                  7,510,415Pufa
      Bank
                  
                  
                  4,401,331
                  
                  
                  
                  4,400,634DBS
                  
                  
                  12,021
                  
                  
                  
                  -$
                  47,645,340
                  
                  
                  $
                  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, building and
land-use rights.





The
annual interest rates are shown as follows:





March
      31
                  
                  
                  December
      312010
                  
                  
                  2009Construction
      Bank
                  
                  
                  3.58
                  %
                  
                  
                  3.58
                  %Defutai
      Bank
                  
                  
                  4.83
                  %
                  
                  
                  4.83
                  %Nanyian
      Bank
                  
                  
                  3.27
                  %
                  
                  
                  3.27
                  %Minsheng
      Bank
                  
                  
                  3.93
                  %
                  
                  
                  3.93
                  %Shenzhen
      Development Bank
                  
                  
                  5.35
                  %
                  
                  
                  5.35
                  %Dongya
      Bank
                  
                  
                  -
                  
                  
                  
                  -Pufa
      Bank
                  
                  
                  5.84
                  %
                  
                  
                  5.84
                  %DBS
                  
                  
                  6
                  %
                  
                  
                  -




9


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 2010 and 2009 (Unaudited)


NOTE
6 - RESTRICTED CASH AND BANK NOTES PAYABLE





Bank
notes payable consist of the following:





March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009Shanghai
      Pufa Bank
                    
                    $
                    1,138,243
                    
                    
                    $
                    3,162,354Shenzhen
      Development Bank
                    
                    
                    1,760,532
                    
                    
                    
                    733,439Construction
      Bank
                    
                    
                    3,912,930
                    
                    
                    
                    3,816,816$
                    6,811,705
                    
                    
                    $
                    7,712,609





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 require the Company to maintain a deposit at the bank
to secure the notes as follows:





March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009Construction
      Bank,
                    
                    $
                    973,125
                    
                    
                    $
                    964,609Nanyang
      Bank
                    
                    
                    224,101
                    
                    
                    
                    203,436Defutai
      Bank
                    
                    
                    501,143
                    
                    
                    
                    501,063China
      Minsheng Bank
                    
                    
                    283,697
                    
                    
                    
                    8,675Shanghai
      Pufa Bank
                    
                    
                    1,138,243
                    
                    
                    
                    3,162,354$
                    3,120,309
                    
                    
                    $
                    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.





NIVS
Shenzhen serves as a branch company of NIVS PRC. The assessment of its tax
liabilities is combined with that of NIVS PRC.  NIVS PRC is qualified
as Hi-Tech Company in 2009.





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:





March
      31,
                    
                    
                    March
      31,2010
                    
                    
                    2009PRC
      Enterprises Income Taxes
                    
                    $
                    1,126,345
                    
                    
                    $
                    313,955United
      States Federal Income Taxes
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    1,126,345
                    
                    
                    $
                    313,955





10


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 2010 and 2009 (Unaudited)








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





March
      31,
                  
                  
                  March
      31,2010
                  
                  
                  2009U.S.
      statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      income not recognized in the U.S.
                  
                  
                  -34
                  %
                  
                  
                  -34
                  %PRC
      preferential enterprise income tax rate
                  
                  
                  25
                  %
                  
                  
                  25
                  %Tax
      holiday and relief granted to the Subsidiary
                  
                  
                  -11.25
                  %
                  
                  
                  -10
                  %Permanent
      differences related to R&D expense and other
                  
                  
                  3.4
                  %
                  
                  
                  -3.6
                  %Provision
      for income tax
                  
                  
                  17.2
                  %
                  
                  
                  11.4
                  %





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
segment information and geographic information for revenue is as
follows:





March
      31,
                        
                        
                        March
      31,2010
                        
                        
                        2009Standard
      audio and video equipment:
                        China
                        
                        $
                        11,956,776
                        
                        
                        $
                        12,126,717Europe
                        
                        
                        1,834,179
                        
                        
                        
                        4,582,037North
      America
                        
                        
                        609,016
                        
                        
                        
                        541,811Other
      Asian Countries
                        
                        
                        4,933,183
                        
                        
                        
                        5,191,075South
      America
                        
                        
                        1,423,600
                        
                        
                        
                        92,656Other
      Countries
                        
                        
                        376,762
                        
                        
                        
                        1,078,046Intelligent
      audio and video equipment:
                        China
                        
                        
                        14,289,806
                        
                        
                        
                        1,568,875Europe
                        
                        
                        1,715,215
                        
                        
                        
                        812,853North
      America
                        
                        
                        286,746
                        
                        
                        
                        -Other
      Asian Countries
                        
                        
                        6,263,447
                        
                        
                        
                        1,205,101South
      America
                        
                        
                        1,536,767
                        
                        
                        
                        -Other
      Countries
                        
                        
                        901,002
                        
                        
                        
                        -Mobile
      phones:
                        China
      Hong Kong
                        
                        
                        21,045,449
                        
                        
                        
                        -China
                        
                        
                        78,825
                        
                        
                        
                        -Other
      audio and video equipment:
                        China
                        
                        
                        2,916,287
                        
                        
                        
                        1,651,616Europe
                        
                        
                        303,924
                        
                        
                        
                        187,193North
      America
                        
                        
                        794,629
                        
                        
                        
                        -Other
      Asian Countries
                        
                        
                        1,896,019
                        
                        
                        
                        218,748South
      America
                        
                        
                        -
                        
                        
                        
                        -Other
      Countries
                        
                        
                        946,040
                        
                        
                        
                        -Total
                        
                        
                        $
                        74,107,672
                        
                        
                        $
                        29,256,728








11


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 for
the Three Months Ended March 31, 2010 and 2009 (Unaudited)


NOTE
9 - COMMON STOCK WARRANTS





As of
March 31, 2010 and December 31, 2009, there were 55,000 warrants with an
exercise price of $4.20 per share outstanding. No warrants were issued or
cancelled during the three months ended March 31, 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.




NOTE
11 - SUBSEQUENT EVENTS





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.





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.











12





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 three months ended March 31, 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 60.4% of our revenue for
that period.  During the three months ended March 31, 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.





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.




13





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 three months of 2010,
our sales revenue for new intelligent audio and video equipment was
approximately $25.1 million, which represented an increase of approximately
597.8% compared to revenue of $3.6 million from the sale of intelligent audio
and video equipment during the first three months of 2009. The increase in
revenue for new intelligent audio and video equipment resulted from an increase
in sales volume. In the first three months of 2010, our sales volume for home
theater increased approximately 400% as compared to sales volume
in  the first three months of 2009. 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 46.1% of our revenues for the three months ended March 31, 2010,
as compared to 65.3% for the three months ended March 31, 2009, and sales of
products with our own brand accounted for approximately 53.9% of our revenues
for the three months ended March 31, 2010, as compared to 34.7%  for
the three months ended March 31, 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, we also 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.





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.




14




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, 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 months ended March 31, 2010 and 2009 (unaudited) in dollars and as a
percentage of revenue:





For
      Three Months EndedMarch
      31,2010
                      
                      
                      2009(in
      dollars)
                      
                      
                      (as
      percent
                          of
      revenue)
                      
                      
                      (in
      dollars)
                      
                      
                      (as
      percent
                          of
      revenue)(all
      amounts are in thousands except percentages)Revenue
                      
                      $
                      74,108
                      
                      
                      
                      99.9
                      %
                      
                      $
                      29,257
                      
                      
                      
                      99.7
                      %Other
      Sales
                      
                      
                      61
                      
                      
                      
                      0.1
                      %
                      
                      
                      91
                      
                      
                      
                      0.3
                      %Cost
      of Goods Sold
                      
                      
                      (60,948
                      )
                      
                      
                      -82.2
                      %
                      
                      
                      (23,097
                      )
                      
                      
                      -78.7
                      %Gross
      Profit
                      
                      
                      13,221
                      
                      
                      
                      17.8
                      %
                      
                      
                      6,251
                      
                      
                      
                      21.3
                      %Selling
      Expenses
                      
                      
                      1,602
                      
                      
                      
                      2.2
                      %
                      
                      
                      1,141
                      
                      
                      
                      3.9
                      %General
      and administrativeAmortization
                      
                      
                      811
                      
                      
                      
                      1.1
                      %
                      
                      
                      18
                      
                      
                      
                      0.1
                      %Depreciation
                      
                      
                      87
                      
                      
                      
                      0.1
                      %
                      
                      
                      81
                      
                      
                      
                      0.3
                      %Other
      general and administrative
                      
                      
                      1,220
                      
                      
                      
                      1.6
                      %
                      
                      
                      1,143
                      
                      
                      
                      3.9
                      %Total
      General and administrative
                      
                      
                      2,118
                      
                      
                      
                      2.9
                      %
                      
                      
                      1,242
                      
                      
                      
                      4.2
                      %Research
      and development
                      
                      
                      2,663
                      
                      
                      
                      3.6
                      %
                      
                      
                      573
                      
                      
                      
                      2.0
                      %Total
      operating expenses
                      
                      
                      6,383
                      
                      
                      
                      8.6
                      %
                      
                      
                      2,956
                      
                      
                      
                      10.1
                      %Income
      from operations
                      
                      
                      6,838
                      
                      
                      
                      9.2
                      %
                      
                      
                      3,295
                      
                      
                      
                      11.2
                      %Other
      income (expenses)Interest
      expense
                      
                      
                      (393
                      )
                      
                      
                      -0.5
                      %
                      
                      
                      (562
                      )
                      
                      
                      -1.9
                      %Sundry
      income (expense), net
                      
                      
                      119
                      
                      
                      
                      0.2
                      %
                      
                      
                      10
                      
                      
                      
                      0.0
                      %Total
      other income (expenses)
                      
                      
                      274
                      
                      
                      
                      0.4
                      %
                      
                      
                      (552
                      )
                      
                      
                      -1.9
                      %Income
      before Noncontrolling interest and income taxes
                      
                      
                      6,564
                      
                      
                      
                      8.9
                      %
                      
                      
                      2,743
                      
                      
                      
                      9.3
                      %Income
      taxes
                      
                      
                      (1,126
                      )
                      
                      
                      -1.5
                      %
                      
                      
                      (314
                      )
                      
                      
                      -1.1
                      %Noncontrolling
      interest
                      
                      
                      (136
                      )
                      
                      
                      -0.2
                      %
                      
                      
                      (61
                      )
                      
                      
                      -0.2
                      %Net
      Income
                      
                      $
                      5,302
                      
                      
                      
                      7.1
                      %
                      
                      $
                      2,368
                      
                      
                      
                      8.1
                      %




15




Three
months ended March 31, 2010 and 2009





Revenues,
which consist of sales of our products, were $74.1 million for the three months
ended March 31, 2010, an increase of $44.8 million, or 152.9%, compared to $29.3
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 March 31, 2010, our sales revenue
for new business, mobile phone, was $21.0 million.  Sales revenue for
our intelligent audio and video equipment increased to $25.1 million, an
increase of 597.2% compared to $3.6 million for the same period in
2009.  Our sales revenue for standard audio equipment decreased to
$21.1 million, a decrease of 10.6% compared to $23.6 million for the same period
in 2009. Sales revenue for the other products including LCD televisions and
electronic consumer products increased to $4.8 million, an increase of 128.6%
compared to $2.1 million for the same period in 2009.


For the
three months ended March 31, 2010, our sales volume for mobile phone products
was approximately 1.5 million pieces.  Our sales volume for
intelligent audio and video equipment increased by 350.0% to 1.8 million pieces
as compared to 0.4 million pieces for the same period in 2009.  Our
sales volume for standard audio equipment decreased by 9.1% to 1.0 million
pieces as compared to 1.1 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 March 31,
2010, our sales volume for the other products including LCD televisions and
electronic consumer products decreased by 11.8% to 1.5 million pieces as
compared to 1.7 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.
 
 Cost of
sales, which include raw material, labor and manufacturing overhead, were $60.9
million for the three months ended March 31, 2010, an increase of $37.8 million,
or 163.6%, compared to $23.1 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 March 31, 2010 and 2009 was 82.2% and 78.7%,
respectively.
 
 Gross
profit for the three months ended March 31, 2010 was $13.2 million, or 17.8% of
revenues, compared to $6.3 million, or 21.3% of revenues, for the comparable
period in 2009. The decrease in our gross profit margin for the three months
ended March 31, 2010 was primarily due to the increase of mobile phone sales
which is lower gross margin and 28.5% 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 $1.6 million for the three months ended March 31, 2010, an
increase of $0.5 million, or 45.5%, compared to $1.1 million for the same period
in 2009. The increase in selling expenses was primarily attributable to the
increase in internet advertising, marketing activities, and television
advertising.
 
 Research
and development expenses were approximately $2.7 million for the three months
ended March 31, 2010, an increase of approximately $2.1 million, or 350%,
compared to $0.6 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 $2.1 million for the three months ended March 31, 2010, an
increase of $0.9 million, or 75%, compared to $1.2 million for the same period
in 2009. A substantial portion of the increase for the three months ended March
31, 2010 was due to the increase 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 professional fees
incurred as a result of being a public reporting company in the United
States.
 
 Interest
expenses were $0.4 million and $0.6 million for the three months ended March 31,
2010 and 2009, respectively. The decrease was due to the decrease in the high
interest rate loans during the three months ended March 31,
2010.




16





Income
tax provisions for the three months ended March 31, 2010 were approximately $1.1
million, as compared to approximately $0.3 million for the three months ended
March 31, 2009. The increase is mainly due to an increase in the taxable income
for the three months ended March 31, 2010. NIVS PRC is registered in PRC and has
had tax advantages granted by local government for corporate income taxes and
sales taxes commencing April 6, 2004. NIVS PRC has been entitled to have a full
tax exemption for the first two profitable years, followed by a 50% reduction on
a normal tax rate of 24% for the following three consecutive years. NIVS PRC’s
effective income tax rates for the three months ended March 31, 2010 and March
31, 2009 were 15% and 15%, respectively. 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.  Dongri’s effective income tax rates for the three months
ended March 31, 2010 and March 31, 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 $5.3 million for the three months ended March 31, 2010, an increase
of $2.9 million, or 120.8%, compared to $2.4 million for the same period in
2009.





Liquidity
and Capital Resources





We had an
unrestricted cash balance of approximately $7.9 million as of March 31, 2010, as
compared to $5.9 million as of December 31, 2009. In addition, we also had
approximately $3.1 million in restricted cash as of March 31, 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.




We had
negative working capital of approximately $12.3 million as of March 31, 2010 and
working capital of $3.3 million as of December 31, 2009. The increase of
negative working capital was largely caused by increase in account payment and
payment of the purchase price for the acquisition of Dongri.





Our
accounts receivable has been a decreasingly significant portion of our current
assets, representing $30.7 million, and $33.2 million, or 48.2% and 52.6% of
current assets, as at March 31, 2010 and as of 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 quarter of 2010 and for the same period in 2009.  As of March 31,
2010, we believed it was appropriate not to recognize bad debt expense primarily
due to the subsequent collections made on our receivable balance and our
historical ability to collect our accounts receivable.





As of
March 31, 2010, inventories amounted to $20.8 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 quarter 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.




17




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 $54.5 million and $51.7 million as of March 31, 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.





From June
2005 to November 2008, our subsidiaries entered into hundreds of loan
transactions with NIVS PRC’s founder and our principal shareholder and current
Chief Executive Officer and Chairman of the Board, Tianfu Li. In these loan
transactions, we would borrow funds from Mr. Li. As of September 30, 2008, our
subsidiaries had an aggregate outstanding loan balance due to Mr. Li of $9.1
million and $568,063 owed to NIVS Investment (SZ) Co., Ltd. In addition,
our subsidiaries, primarily through NIVS PRC and NIVS International (H.K.)
Limited (“NIVS HK”), would lend funds to the entities that were owned and
controlled by Mr. Li. These entities controlled by Mr. Li are NIVS Investment
(SZ) Co., Ltd.; Zhongkena Technology Development; Xentsan Technology (SZ) Co.,
Ltd.; Korea Hyundai Light & Electric (Int'l) Holding; NIVS Information &
Technology (HZ) Co., Ltd.; and Hyundai Light & Electric (HZ) Co., Ltd.
(collectively, the “Related Companies”). Our loans to related parties also
include a loan to a supplier of Hyundai Light and Electric (HZ) Co. Ltd. in the
amount of 38,474,900 RMB, which is equal to approximately U.S. $5.5 million. The
note carried an interest rate of 1.5% per month and was guaranteed by Hyundai
Light and Electric (HZ) Co Ltd. This loan has been paid in full as of November
28, 2008. The amount of the loans made by our subsidiaries to the Related
Companies ranged in amount. There are no loans from our subsidiaries to the
Related Companies for the three months ended March 31, 2010 and 2009,
respectively.





On
November 28, 2008, we and our subsidiaries entered into a Debt Repayment and
Set-Off Agreement (the “Agreement”) with Mr. Li and the Related
Companies.  Pursuant to the Agreement, as it was amended on December
22, 2008, each of the Related Companies agreed to completely and immediately
repay all outstanding loan amounts that it owed to us and our subsidiaries and
we and our subsidiaries agreed to repay approximately $1.0 million of the debt
that we and our subsidiaries owed to Mr. Li.  As inducement for the
Related Companies for entering into the Agreement, we and our subsidiaries
agreed to, among other things, permit the amounts owed to us by the Related
Companies to be off-set by amounts that we owed to Mr. Li and acknowledge that
the Related Companies no longer owed any loan amounts to us or our
subsidiaries.





Immediately
prior to the repayments under the Agreement, our subsidiaries had an aggregate
outstanding loan amount of approximately $8.8 million owed to Mr. Li (the “Li
Debt”).  On the same date, Mr. Li, through the Related Companies, had
an aggregate outstanding loan amount of approximately $1.0 million owed to our
subsidiaries (the “Related Companies’ Debt”), which consisted of approximately
$1.0 million owed by Korea Hyundai Light & Electric (Int'l) Holding.
Pursuant to the Agreement, the Related Companies’ Debt of approximately $1.0
million was repaid by set off against the Li Debt of approximately $8.8
million.  As a result of the transactions contemplated by the
Agreement, the Related Companies’ Debt is no longer outstanding and neither
Mr. Li nor any of the Related Companies owed us or our subsidiaries any
loan amount.  Moreover, after the repayments under the Agreement, our
subsidiaries’ remaining debt owed to Mr. Li was approximately $7.8
million.  The parties to the Repayment Agreement also acknowledged
that there were no remaining debt obligations owed to the us or our
subsidiaries, either directly or indirectly, by Mr. Li, any other executive
officer or director, or any related family member, of our company or
subsidiaries, or any entity owned or controlled by such persons, including the
Related Companies, and that no loans or similar arrangements will be made by us
or our subsidiaries to such persons or entities in the future.





On July
25, 2008, concurrently with the close of the Share Exchange, we conducted an
initial closing of a private placement transaction pursuant to which we sold an
aggregate of 5,239,460 shares of common stock at $1.80 per share, for gross
proceeds of approximately $9.4 million. On August 12, 2008, we conducted a
second and final closing of the private placement pursuant to which we sold an
additional 1,304,587 shares of common stock at $1.80 per share for gross
proceeds of approximately $2.3 million. Accordingly, we sold a total of
6,544,047 shares of common stock in the private placement for aggregate gross
proceeds of approximately $11.8 million (the “Private Placement”). WestPark
Capital, the placement agent for the Private Placement, was paid a commission
equal to 6.5% of the gross proceeds from the financing, in addition to a
$130,000 success fee for the Share Exchange, for an aggregate fee of
approximately $896,000.  We used the proceeds from the Private
Placement to provide working capital for speech-controlled TV and product
promotion, speech-controlled audio acoustics, DVD, and DVB production capacity
expansion, technology and product research and development, basic research and
application product development, brand building and publicity and strengthening
channel building and brand promotion in China and to increase reserve funds as
well as new production lines for LCD TV for the expansion of
business.




18





On
December 24, 2008, we and three of our subsidiaries (NIVS BVI, NIVS HK, and NIVS
PRC) entered into an agreement with Mr. Li pursuant to which the outstanding
debt of $7.8 million that we owed to Mr. Li would be converted into shares of
our common stock based on the closing price of our public offering that we
conducted in March 2009.  According to the agreement, we issued
2,240,493 shares of our common stock to Mr. Li in March 2009 upon the closing
of our public offering.  As a result of the conversion, the debt
amount of $7.8 million was converted into shares of common stock at $3.50 per
share, and the debt is no longer outstanding.





In March
2009, we completed a public offering consisting of 550,000 shares of our common
stock. WestPark Capital acted as underwriter in the public
offering.  Our shares of common stock were sold to the public at a
price of $3.50 per share, for gross proceeds of approximately $1.9
million.  Compensation for WestPark Capital’s services included
discounts and commissions of $192,500, a $57,750 non-accountable expense
allowance, roadshow expenses of approximately of $10,000, and legal counsel fees
(excluding blue sky fees) of $40,000.  WestPark Capital also received
a warrant to purchase 55,000 shares of our common stock at an exercise price of
$4.20 per share.  The warrant, which has a term of five years, is
currently exercisable.  The warrant also carries registration
rights.





In April
2009, WestPark Capital exercised its over-allotment option to purchase an
additional of 82,500 shares of common stock. The shares were sold a price of
$3.50 per share for a gross proceed of $288,750. Compensation incurred in
connection with the exercise of the over-allotment included discounts and
commissions of $28,875, an $8,663 non-accountable expense allowance, other
expenses of $4,821, and legal counsel fees of $42,500.





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 $64,257 and $55,243 for the three months ended March 31,
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.





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 March 31, 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
scheduled to be completed during the second quarter of 2010, and the
manufacturing facility is expected to be operational later that same
quarter.  The estimate completion date is June 30, 2010. Total budget of
the construction is RMB 53,500,000 ($7,847,380).





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 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.




19




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 March 31, 2010. Final delivery
under the agreement has been delayed as a result of China Telecom's improvement
of their 3G mobile phone application platform and is currently anticipated to be
completed in May 2010. The value of the order is approximately $28.8 million,
and the dollar value of any additional orders further to this relationship
depends on the final number of delivered products.





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 $8.6 million for the three months ended
March 31, 2010, compared to net cash provided by operating activities of $4.3
million for the three months ended March 31, 2009.  The increase in
net cash provided in operating activities was primarily due to an increase in
collection of trade receivables and an increase in accounts payable. Our
increase in net cash provided by operating activities for the three months ended
March 31, 2010 was partially offset by an increase in cash used in inventory
,which primarily resulted from an increase in our sales from $29.3 million for
the three months ended March 31, 2009 to $74.1 million for the same period in
2010 in response to demand of our products.





Investing
activity during the three months ended March 31, 2010 and 2009 included the
purchasing of property and equipment and intangible assets, which resulted in
net cash used in investing activities of $9.3 million for the three months ended
March 31, 2010, compared to net cash used in investing activities of $4.0
million for the three months ended March 31, 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 $5,283,997).  The plant
renovation and the equipment installation were completed in the end of 2008. The
remainder balance of RMB 24,210 (USD$3,542) was paid in January 2009. As of
March 31, 2010, we had paid $13.1 million for acquisition of Dongri and $6.0
million for the purchase of production equipment and construction on Phase II of
the factory.





Net cash
provided by financing activities amounted to $2.7 million for the three months
ended March 31, 2010, compared to net cash provided by financing activities of
$1.4 million for the three months ended March 31, 2009.  The increase
in cash provided was primarily a result of 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 result from our
recently completed public offering, our continued use of bank loans and bank
notes and cash flow from operations to fund our operations during this year.
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.




20




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.


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 March 31, 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, as follows:





●
            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.




21




●
            In
      December 2008, Kempisty informed us that our financial statements for the
      years ended 2007, 2006 and 2005, the six months ended June 30, 2008 and
      2007, and the nine months ended September 30, 2008 and 2007, contained an
      error in the accounting treatment for “Due from related parties,” whereby
      a misclassification of “Due from related parties” resulted in an
      overstatement of our assets and shareholders’ equity for those periods. We
      misclassified “Due from related parties” by recording related party
      receivables as an asset instead of as a deduction from stockholders’
      equity for the periods referenced
above.





●
            In
      October 2008, our independent registered public accounting firm Kempisty
      & Company Certified Public Accountants, P.C. (“Kempisty”), informed us
      that our financial statements for the years ended 2007, 2006 and 2005 and
      the quarter ended June 30, 2008 and 2007 contained an error in the
      accounting treatment of imputed interest on due to shareholders loan,
      resulting in an understatement of our expenses for those
      periods.  We did not account for the addition of imputed
      interest in our financial statements at the time of
      issuance.





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.





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 quarter 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.




22





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 Document21.1
            
            List
      of Subsidiaries.31.1
            
            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:
      May 10, 2010
                      /s/
                      Tianfu LiBy:
                      Tianfu LiIts:
                      Chairman
      of the Board and Chief Executive Officer







24