UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Amendment
No. 2 on


Form 10-Q/A




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





For
the Quarterly Period Ended June 30, 2008





OR





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




For
the transition period
from            to




Commission
File No. 000-52933




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, 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 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   ̈
            
            Accelerated
      filer   ̈Non-accelerated
      filer  x
            
            Smaller
      reporting company  ̈




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




The
number of shares outstanding of the registrant’s Common Stock, par value $0.0001
per share, was 36,855,714 as of August 18, 2008.












EXPLANATORY
NOTE




Please
note that NIVS IntelliMedia Technology Group, Inc. (the “Company,” “we” or “us”)
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 (the “Effective Date”), the Company
closed a share exchange transaction (the “Share Exchange”) pursuant to which it
(i) became the 100% parent of NIVS Holding Company Limited, a British Virgin
Islands corporation (“NIVS BVI”), and its subsidiaries, including 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, the
Company’s Chief Executive Officer and Chairman of the Board, (ii) assumed the
operations of NIVS BVI and its subsidiaries, and (iii) changed its name from
SRKP 19, Inc. to NIVS IntelliMedia Technology Group, Inc.  See Note 2
to the financial statements of this report for more information on the Company’s
organization and ownership structure.  The Company reported the
closing of the Share Exchange in the Current Report on Form 8-K filed with the
Securities and Exchange Commission (the “SEC”) on July 30, 2008. This Amendment
No. 2 (this “Amendment”) on Form 10-Q/A contains information regarding the
Company and NIVS BVI, as indicated herein.


Since the
Share Exchange closed subsequent to the reporting period covered by this report,
this report includes both discussion of our business as it existed as of June
30, 2008 and of the Company’s business post-Share Exchange, as the 100% parent
of NIVS BVI, to ensure that the disclosure included herein is complete and not
misleading. The sections entitled “SRKP 19, INC.” describe the Company prior to
July 25, 2008 and the sections entitled “NIVS IntelliMedia Technology Group,
Inc.” describe the Company on and after July 25, 2008.
 
 This
Amendment, which amends and restates items identified below with respect to the
Form 10-Q, filed by the Company with the SEC on August 19, 2008 (the “Original
Filing”), as amended by Amendment No. 1 on Form 10-Q/A filed by the Company with
the SEC on February 11, 2009 (“Amendment No. 1”), is being filed to reflect
revisions to Financial Statements, Management’s Discussion and Analysis of
Financial Condition and Results of Operation, and Other Information. The Company
has revised its disclosures to clarify the classification of cash payments to
and from related parties as investing activity in the statements of cash flows
and cash payment from and to its principal shareholder as financing
activity.
 
 This Form
10-Q/A only amends information in Item 1 (Financial Statements), Item 2
(Management’s Discussion and Analysis of Financial Condition and Results of
Operation), and Item 5 (Other Information) and the other Items as presented in
the Original Filing and Amendment No. 1 are not being amended but are restated
without change in this Amendment for ease of reference. As a result of this
Amendment No. 2, the certifications pursuant to Section 302 and Section 906 of
the Sarbanes-Oxley Act of 2002, filed as exhibits to our Original Filing have
been revised, re-executed and re-filed as of the date of this Amendment No. 2.
Except for the foregoing amended and restated information, this Amendment No. 2
continues to describe conditions as of the date of the Original Filing, and the
disclosures contained herein have not been updated to reflect events, results or
developments that have occurred after the Original Filing, or to modify or
update those disclosures affected by subsequent events unless otherwise
indicated in this report.  Among other things, forward-looking
statements made in the Original Filing have not been revised to reflect events,
results or developments that have occurred or facts that have become known to us
after the date of the Original Filing, and such forward-looking statements
should be read in their historical context. This Amendment No. 2 should be read
in conjunction with the Company’s filings made with the SEC subsequent to the
Original Filing, including any amendments to those filings.


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.





FORM 10-Q/A




For
the Quarterly Period Ended June 30, 2008




INDEX





PagePart I
                      
                      Financial
      InformationItem
      1.
                      
                      Financial
      Statements
                      1NIVS
      INTELLIMEDIA TECHNOLOGY GROUP, INC. (FORMERLY SRKP 19,
    INC.)a)
                      Balance
      Sheet as of June 30, 2008 (Unaudited) and December 31,
2007
                      1b)
                      Statements
      of Operations for the Three and Six Months Ended June 30, 2008 and 2007
      (Unaudited)
                      2c)
                      Statements
      of Cash Flows for the Six Months Ended June 30, 2008 and 2007
      (Unaudited)
                      3d)
                      Notes
      to Financial Statements (Unaudited)
                      4NIVS
      HOLDING COMPANY LIMITEDa)
                      Condensed
      Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December
      31, 2007
                      7b)
                      Condensed
      Consolidated Statements of Operations for the Three and Six Months Ended
      June 30, 2008 and 2007 (Unaudited)
                      8c)
                      Consolidated
      Statements of Changes in Stockholders’ Equity for the Years Ended
      December 31, 2007, 2006, and 2005 and the Six Months Ended
      June 30, 2008 (Unaudited)
                      9d)
                      Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2008 and 2007 (Unaudited)
                      10e)
                      Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                      11Item
      2.
                      
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      33Item
      3.
                      
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      43Item
      4.
                      
                      Controls
      and Procedures
                      43Part II
                      
                      Other
      InformationItem
      1.
                      
                      Legal
      Proceedings
                      45Item
      1A.
                      
                      Risk
      Factors
                      45Item
      2.
                      
                      Unregistered
      Sale of Equity Securities and Use of Proceeds
                      61Item
      3.
                      
                      Default
      Upon Senior Securities
                      61Item
      4.
                      
                      Submission
      of Matters to a Vote of Security Holders
                      61Item
      5.
                      
                      Other
      Information
                      61Item
      6.
                      
                      Exhibits
                      63Signatures
                      64





Part I.
Financial Information




Item
1. Financial Statements




NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





BALANCE
SHEET


(Stated
in US Dollars)





June 30, 2008
                              (Unaudited)
                            
                            
                            December 31,
                              2007ASSETSCURRENT
      ASSETSCash
                            
                            $
                            2,555
                            
                            
                            $
                            857LIABILITIES AND STOCKHOLDERS’ EQUITY
      (DEFICIT)CURRENT
      LIABILITIESDue
      to Stockholders
                            
                            $
                            47,500
                            
                            
                            $
                            32,500COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY (DEFICIT):Preferred
      stock, $.0001 par value, 10,000,000 sharesauthorized, none
      issued
                            
                            
                            —
                            
                            
                            
                            —Common
      stock, $.0001 par value, 100,000,000 sharesauthorized, 7,096,390
      shares issued and  outstanding
                            
                            
                            710
                            
                            
                            
                            710Additional
      Paid in Capital
                            
                            
                            6,790
                            
                            
                            
                            6,790(Deficit)
      accumulated during development stage
                            
                            
                            (52,445
                            )
                            
                            
                            (39,143
                            )Total
      Stockholders’ Equity (Deficit)
                            
                            
                            (44,945
                            )
                            
                            
                            (31,643
                            )$
                            2,555
                            
                            
                            $
                            857





See
accompanying notes to financial statements.


1


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





STATEMENTS
OF OPERATIONS


(Stated
in US Dollars)


(Unaudited)





Period From
                
                
                Cumulative
                  fromThreeMonths
                
                
                ThreeMonths
                
                
                Six Months
                
                
                January 3,2007
                
                
                January 3,2007Ended
                
                
                Ended
                
                
                Ended
                
                
                (Inception) to
                
                
                (Inception)toJune 30, 2008
                
                
                June 30, 2007
                
                
                June 30,2008
                
                
                June 30, 2007
                
                
                June 30,2008REVENUE
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —EXPENSES
                
                
                1,921
                
                
                
                15,441
                
                
                
                13,302
                
                
                
                15,441
                
                
                
                52,445NET
      (LOSS)
                
                $
                (1,921
                )
                
                $
                (15,441
                )
                
                $
                (13,302
                )
                
                $
                (15,441
                )
                
                $
                (52,445
                )NET
      (LOSS) PER COMMON SHARE-BASIC
                
                $
                
                *
                
                $
                
                *
                
                $
                
                *
                
                $
                
                *WEIGHTED
      AVERAGE NUMBER OF COMMON
                  SHARES
      OUTSTANDING
                
                
                7,096,390
                
                
                
                7,096,390
                
                
                
                7,096,390
                
                
                
                7,096,390





*Less than $.01





See
accompanying notes to financial statements.


2


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





STATEMENTS
OF CASH FLOWS


(Stated
in US Dollars)


(Unaudited)




Period From
                
                
                Cumulative fromSix Months
                
                
                January 3, 2007
                
                
                January 3, 2007Ended
                
                
                to
                
                
                (Inception) toJune 30, 2008
                
                
                June 30, 2007
                
                
                June 30, 2008CASH
      FLOWS FROM (TO) OPERATING ACTIVITIES:Net
      (loss)
                
                $
                (13,302
                )
                
                $
                (15,441
                )
                
                $
                (52,445
                )Net
      Cash (Used In) Operating Activities
                
                
                (13,302
                )
                
                $
                (15,441
                )
                
                
                (52,445
                )CASH
      FLOWS FROM (TO) FINANCING ACTIVITIES:Advances
      from stockholders
                
                
                15,000
                
                
                
                22,500
                
                
                
                47,500Warrants
      issued for cash
                
                
                —
                
                
                
                2,500
                
                
                
                2,500Common
      stock issued for cash
                
                
                —
                
                
                
                7,500
                
                
                
                5,000Net
      Cash Provided by Financing Activities
                
                
                15,000
                
                
                
                30,000
                
                
                
                55,000NET
      INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS:
                
                
                1,698
                
                
                
                14,559
                
                
                
                2,555CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                857
                
                
                
                -
                
                
                
                -CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                2,555
                
                
                $
                14,559
                
                
                $
                2,555




See
accompanying notes to financial statements.


3


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





NOTES
TO FINANCIAL STATEMENTS


(Stated
in US Dollars)





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





History





SRKP 19,
Inc. (the Company), a development stage company, was incorporated under the laws
of the State of Delaware on December 7, 2006.  There was no activity
during 2006 and no equity was issued. The common stock of the Company was sold
and issued on January 3, 2007 and, as such, has been used as the date of
inception for the Company. The Company is in the development stage as defined in
Financial Accounting Standards Board Statement No. 7.  The fiscal year
end is December 31.





The
Company filed a Form 10-SB registration statement with the Securities and
Exchange Commission (SEC) pursuant to Section 12(g) of the Securities Exchange
Act of 1934. The registration statement has been declared effective as of
January 25, 2008.





Going Concern and Plan of
Operation





The
Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  The Company is in
the development stage and has negative working capital, negative stockholders’
equity and has not earned any revenues from operations to date. These conditions
raise substantial doubt about its ability to continue as a going
concern.





The
Company is currently devoting its efforts to locating merger
candidates.  The Company's ability to continue as a going concern is
dependent upon its ability to develop additional sources of capital, locate and
complete a merger with another company, and ultimately, achieve profitable
operations. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.





Income
Taxes





The
Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109.  Under this
method, deferred income taxes are recorded to reflect the tax consequences in
future years of temporary differences between the tax basis of the assets and
liabilities and their financial amounts at year-end.





For
federal income tax purposes, substantially all startup and organizational
expenses must be deferred until the Company commences business.  The
Company may elect a limited deduction of up to $5,000 in the taxable year in
which the trade or business begins.  The $5,000 must be reduced by the
amount of startup costs in excess of $50,000.  The remainder of the
expenses not deductible must be amortized over a 180-month period beginning with
the month in which the active trade or business begins.  These
expenses will not be deducted for tax purposes and will represent a deferred tax
asset.  The Company will provide a valuation allowance in the full
amount of the deferred tax asset since there is no assurance of future taxable
income.  Tax deductible losses can be carried forward for 20 years
until utilized.


4


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





NOTES
TO FINANCIAL STATEMENTS


(Stated
in US Dollars)





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Deferred Offering
Costs





Deferred
offering costs, consisting of legal, accounting and filing fees relating to an
offering will be capitalized. The deferred offering costs will be offset against
offering proceeds in the event the offering is successful. In the event the
offering is unsuccessful or is abandoned, the deferred offering costs will be
expensed.





Cash and Cash
Equivalents





Cash and
cash equivalents consist primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.





Concentrations of
Credit Risk





The
Company maintains all cash in deposit accounts, which at times may exceed
federally insured limits.  The Company has not experienced a loss in
such accounts.





Earnings Per Common
Share





Basic
earnings per common share are computed based upon the weighted average number of
common shares outstanding during the period.  Diluted earnings per
share consists of the weighted average number of common shares outstanding plus
the dilutive effects of options and warrants calculated using the treasury stock
method.  In loss periods, dilutive common equivalent shares are
excluded as the effect would be anti-dilutive.





At June
30, 2008 and 2007, the only potential dilutive securities were 7,096,390 common
stock warrants. Due to the net loss, none of the potentially dilutive securities
were included in the calculation of diluted earnings per share since their
effect would be anti-dilutive.





Use of Estimates in the
Preparation of Financial Statements





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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates and assumptions.





Recently Issued Accounting
Pronouncements





The
Company has adopted all recently issued accounting
pronouncements.  The adoption of the accounting pronouncements,
including those not yet effective, is not anticipated to have a material effect
on the financial position or results of operations of the
Company.


5


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.


(Formerly
SRKP 19, Inc.)





NOTES
TO FINANCIAL STATEMENTS


(Stated
in US Dollars)





NOTE
2 - STOCKHOLDERS' EQUITY





During
January 2007, the Company sold for $5,000 for a subscription receivable, which
was paid in April 2007, 7,096,390 shares of its $0.0001 par value common stock
to various investors. In addition, the Company also sold to these investors for
$2,500 cash warrants to purchase 7,096,390 shares of common stock at an exercise
price of $.0001.





These
warrants expire at the earlier date of 10 years from date of purchase or 5 years
from the date the Company consummates a merger or other business combination
with an operating business or any other event to which the Company ceases to be
a “shell company.”





NOTE
3 - RELATED PARTY TRANSACTIONS





The
Company neither owns nor leases any real or personal property. Most office
services are provided without charge by WestPark Capital.  The
Company’s President is also the Chief Executive Officer of WestPark Capital.
Such costs are immaterial to the financial statements. The officers and
directors of the Company are involved in other business activities and may, in
the future, become involved in other business opportunities that become
available.  Such persons may face a conflict in selecting between the
Company and their other business interests. The Company has not formulated a
policy for the resolution of such conflicts.





NOTE
4 - DUE TO STOCKHOLDERS





Since
inception certain stockholders have advanced the Company $47,500 to pay for
operating expenses. These funds have been advanced interest free, are unsecured,
and are due on demand.





NOTE
5 – SUBSEQUENT EVENT





Share
Exchange





On July
25, 2008, the Company consummated a share exchange transaction (the “Share
Exchange”) pursuant to a share exchange agreement (the “Exchange Agreement”)
dated as of June 27, 2008, and amended as of July 25, 2008, by an among the
Company, NIVS Holding Company Limited, a British Virgin Islands
corporation  (“NIVS BVI”) and the shareholders of NIVS BVI (the
“Shareholders”), whereby the Company, in exchange for
27,546,667  shares of its common stock, acquired 100% of the issued
and outstanding securities of NIVS BVI.





In
addition, the Company agreed to cancel 4,756,390 shares of its common stock and
an aggregate of 6,149,723 warrants such that there were 2,340,000 shares of
common stock and 946,667 warrants outstanding immediately prior to the Share
Exchange.





Private
Placement





Pursuant
to subscription agreements entered into with certain investors, the Company sold
an aggregate of 5,239,460 shares of common stock in an initial closing of a
private placement at $1.80 per share for aggregate gross proceeds of
approximately $9.4 million on July 25, 2008.  On August 12, 2008, the
Company conducted a second and final closing of the private placement pursuant
to which the Company 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.


6




Niveous
Holding Company Limited and Subsidiaries


Consolidated
Balance Sheets


(In
US Dollars)





June
      30,
                                    
                                    
                                    December 31,2008
                                    
                                    
                                    2007(Unaudited)
                                    
                                    
                                    (As restated)(As
      restated)AssetsCurrent
      AssetsCash
      and cash equivalents
                                    
                                    $
                                    984,981
                                    
                                    
                                    $
                                    1,438,651Short-term
      investment, marketable securities
                                    
                                    
                                    10,711
                                    
                                    
                                    
                                    10,061Trade
      receivables, net (Note 4)
                                    
                                    
                                    5,416,746
                                    
                                    
                                    
                                    4,510,833Inventories,
      net (Note 7)
                                    
                                    
                                    18,830,860
                                    
                                    
                                    
                                    17,347,370Restricted
      cash (Note 14)
                                    
                                    
                                    3,838,685
                                    
                                    
                                    
                                    1,983,247Prepaid
      expenses and deposits
                                    
                                    
                                    82,754
                                    
                                    
                                    
                                    18,585Total
      current assets
                                    
                                    
                                    29,164,737
                                    
                                    
                                    
                                    25,308,747Property
      and equipments, net (Note 9)
                                    
                                    
                                    50,197,852
                                    
                                    
                                    
                                    46,624,502Advances
      to suppliers (Note 5)
                                    
                                    
                                    28,180,770
                                    
                                    
                                    
                                    14,391,650Intangible
      assets, net (Note 10)
                                    
                                    
                                    2,338,369
                                    
                                    
                                    
                                    2,228,974Total
      Assets
                                    
                                    $
                                    109,881,728
                                    
                                    
                                    $
                                    88,553,873Liabilities
      & Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable – trade
                                    
                                    $
                                    5,756,748
                                    
                                    
                                    $
                                    14,560,824Customer
      deposit
                                    
                                    
                                    20,987,293
                                    
                                    
                                    
                                    2,454,761Accrued
      liabilities and other payable
                                    
                                    
                                    1,309,809
                                    
                                    
                                    
                                    490,142Various
      taxes payable
                                    
                                    
                                    234,675
                                    
                                    
                                    
                                    187,711Short-term
      loans (Note 12)
                                    
                                    
                                    31,597,195
                                    
                                    
                                    
                                    28,645,571Current
      portion of long-term bank loan payable (Note 13)
                                    
                                    
                                    2,554,125
                                    
                                    
                                    
                                    4,455,656Wages
      payable
                                    
                                    
                                    407,032
                                    
                                    
                                    
                                    608,222Bank
      notes payable (Note 14)
                                    
                                    
                                    13,182,685
                                    
                                    
                                    
                                    6,399,693Corporate
      tax payable
                                    
                                    
                                    2,840,543
                                    
                                    
                                    
                                    1,725,765Total
      current liabilities
                                    
                                    
                                    78,870,105
                                    
                                    
                                    
                                    59,528,345Due
      to shareholder (Note 15)
                                    
                                    
                                    9,843,657
                                    
                                    
                                    
                                    11,008,770Total
      liabilities
                                    
                                    
                                    88,713,762
                                    
                                    
                                    
                                    70,537,115Minority
      interest
                                    
                                    
                                    829,894
                                    
                                    
                                    
                                    620,131Shareholders'
      EquityCapital
      shares ($1.00 par value, 50,000 shares authorized, 10,000
      shares issued and outstanding) (Note 2)
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    10,000Additional
      paid-in capital
                                    
                                    
                                    1,047,891
                                    
                                    
                                    
                                    748,558Accumulated
      other comprehensive income
                                    
                                    
                                    3,872,843
                                    
                                    
                                    
                                    2,122,612Statutory
      surplus reserve fund (Note 17)
                                    
                                    
                                    1,278,764
                                    
                                    
                                    
                                    1,278,764Retained
      earnings (unrestricted)
                                    
                                    
                                    21,795,490
                                    
                                    
                                    
                                    15,450,063Due
      from related parties (Note 8)
                                    
                                    
                                    (7,666,916
                                    )
                                    
                                    
                                    (2,213,370
                                    )Total
      Shareholders' Equity
                                    
                                    
                                    20,338,072
                                    
                                    
                                    
                                    17,396,627Total
      Liabilities & Shareholders' Equity
                                    
                                    $
                                    109,881,728
                                    
                                    
                                    $
                                    88,553,873





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


7


Niveous
Holding Company Limited and Subsidiaries


Consolidated
Statements of Operations


(In
US Dollars)





For Three Months Ended
                                                
                                                
                                                For Six Months EndedJune 30,
                                                
                                                
                                                June 30,2008
                                                
                                                
                                                2007
                                                
                                                
                                                2008
                                                
                                                
                                                2007(Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)(As restated)
                                                
                                                
                                                (As restated)
                                                
                                                
                                                (As restated)
                                                
                                                
                                                (As restated)Revenue
                                                
                                                $
                                                24,860,574
                                                
                                                
                                                $
                                                17,561,852
                                                
                                                
                                                $
                                                51,636,895
                                                
                                                
                                                $
                                                33,929,853Other
      Sales
                                                
                                                
                                                93,182
                                                
                                                
                                                
                                                178,006
                                                
                                                
                                                
                                                156,053
                                                
                                                
                                                
                                                285,381Cost
      of Goods Sold
                                                
                                                
                                                (19,207,711
                                                )
                                                
                                                
                                                (13,735,656
                                                )
                                                
                                                
                                                (39,590,833
                                                )
                                                
                                                
                                                (25,998,678
                                                )Gross
      Profit
                                                
                                                
                                                5,746,045
                                                
                                                
                                                
                                                4,004,202
                                                
                                                
                                                
                                                12,202,115
                                                
                                                
                                                
                                                8,216,556Selling
      Expenses
                                                
                                                
                                                742,892
                                                
                                                
                                                
                                                795,160
                                                
                                                
                                                
                                                1,363,104
                                                
                                                
                                                
                                                1,716,987General
      and administrativeAmortization
                                                
                                                
                                                16,988
                                                
                                                
                                                
                                                15,434
                                                
                                                
                                                
                                                33,488
                                                
                                                
                                                
                                                30,624Depreciation
                                                
                                                
                                                65,729
                                                
                                                
                                                
                                                64,112
                                                
                                                
                                                
                                                161,209
                                                
                                                
                                                
                                                133,882Bad
      debts expense (recovery)
                                                
                                                
                                                (68,199
                                                )
                                                
                                                
                                                629,430
                                                
                                                
                                                
                                                384,102
                                                
                                                
                                                
                                                783,623Others
      General and administrative (Note 16)
                                                
                                                
                                                272,310
                                                
                                                
                                                
                                                570,557
                                                
                                                
                                                
                                                1,033,707
                                                
                                                
                                                
                                                1,101,328Total
      General and administrative
                                                
                                                
                                                286,828
                                                
                                                
                                                
                                                1,279,533
                                                
                                                
                                                
                                                1,612,506
                                                
                                                
                                                
                                                2,049,457Research
      and development
                                                
                                                
                                                252,410
                                                
                                                
                                                
                                                78,875
                                                
                                                
                                                
                                                407,182
                                                
                                                
                                                
                                                142,272Total
      operating expenses
                                                
                                                
                                                1,282,130
                                                
                                                
                                                
                                                2,153,568
                                                
                                                
                                                
                                                3,382,792
                                                
                                                
                                                
                                                3,908,716Income
      from operations
                                                
                                                
                                                4,463,915
                                                
                                                
                                                
                                                1,850,634
                                                
                                                
                                                
                                                8,819,323
                                                
                                                
                                                
                                                4,307,840Other
      income (expenses)Write-down
      of inventory
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (3,107
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (390,406
                                                )Gain
      on disposal of assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Interest
      income
                                                
                                                
                                                139
                                                
                                                
                                                
                                                1,007
                                                
                                                
                                                
                                                139
                                                
                                                
                                                
                                                11,308Interest
      expense
                                                
                                                
                                                (513,735
                                                )
                                                
                                                
                                                (353,946
                                                )
                                                
                                                
                                                (1,045,237
                                                )
                                                
                                                
                                                (640,095
                                                )Imputed
      interest
                                                
                                                
                                                (109,194
                                                )
                                                
                                                
                                                (140,817
                                                )
                                                
                                                
                                                (299,333
                                                )
                                                
                                                
                                                (249,239
                                                )Sundry
      income (expense), net
                                                
                                                
                                                (6,559
                                                )
                                                
                                                
                                                (32,428
                                                )
                                                
                                                
                                                9,174
                                                
                                                
                                                
                                                (32,428
                                                )Total
      other income (expenses)
                                                
                                                
                                                (629,349
                                                )
                                                
                                                
                                                (529,291
                                                )
                                                
                                                
                                                (1,335,257
                                                )
                                                
                                                
                                                (1,300,860
                                                )Income
      before minority interest and income taxes
                                                
                                                
                                                3,834,566
                                                
                                                
                                                
                                                1,321,343
                                                
                                                
                                                
                                                7,484,066
                                                
                                                
                                                
                                                3,006,980Income
      taxes
                                                
                                                
                                                (469,571
                                                )
                                                
                                                
                                                (217,510
                                                )
                                                
                                                
                                                (975,084
                                                )
                                                
                                                
                                                (434,122
                                                )Minority
      interest
                                                
                                                
                                                (79,482
                                                )
                                                
                                                
                                                (24,991
                                                )
                                                
                                                
                                                (163,555
                                                )
                                                
                                                
                                                (64,660
                                                )Net
      Income
                                                
                                                $
                                                3,285,513
                                                
                                                
                                                $
                                                1,078,842
                                                
                                                
                                                $
                                                6,345,427
                                                
                                                
                                                $
                                                2,508,198





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


8


Niveous
Holding Company Limited and Subsidiaries


Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive
Income


For
the years ended December 31, 2007, 2006 and 2005 and the six months ended June
30, 2008 (unaudited) (As restated)


(In
US Dollars)





AccumulatedAdditional
                          
                          
                          Statutory
                          
                          
                          Other
                          
                          
                          Retained
                          
                          
                          Due From
                          
                          
                          TotalCapital Shares
                          
                          
                          Paid-in
                          
                          
                          Reserve
                          
                          
                          Comprehensive
                          
                          
                          Earnings
                          
                          
                          Related
                          
                          
                          Stockholders’
                          
                          
                          ComprehensiveShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Fund
                          
                          
                          Income
                          
                          
                          (Unrestricted)
                          
                          
                          Party
                          
                          
                          Equity
                          
                          
                          IncomeBalance
      at December 31, 2004
                          
                          
                          10,000
                          
                          
                          $
                          10,000
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (22,367
                          )
                          
                          $
                          1,022,410
                          
                          
                          $
                          -
                          
                          
                          $
                          1,010,043Imputed
      interest allocated
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          97,106
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          97,106Due
      from related parties
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (855,684
                          )
                          
                          
                          (855,684
                          )Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          92,536
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          92,536
                          
                          
                          $
                          92,536Net
      income for the year
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,037,612
                          
                          
                          
                          -
                          
                          
                          
                          2,037,612
                          
                          
                          
                          2,037,612Comprehensive
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          2,130,148Balance
      at December 31, 2005 (As restated)
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          97,106
                          
                          
                          
                          -
                          
                          
                          
                          70,169
                          
                          
                          
                          3,060,022
                          
                          
                          
                          (855,684
                          )
                          
                          
                          2,381,613Allocation
      of retained earnings to statutory reserve fund
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          522,058
                          
                          
                          
                          -
                          
                          
                          
                          (522,058
                          )
                          
                          
                          -
                          
                          
                          
                          -Imputed
      interest allocated
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          125,024
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          125,024Due
      from related parties
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (6,159,334
                          )
                          
                          
                          (6,159,334
                          )Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          369,519
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          369,519
                          
                          
                          $
                          369,519Net
      income for the year
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,202,285
                          
                          
                          
                          -
                          
                          
                          
                          5,202,285
                          
                          
                          
                          5,202,285Comprehensive
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          5,571,804Balance
      at December 31, 2006 (As restated)
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          222,130
                          
                          
                          
                          522,058
                          
                          
                          
                          439,688
                          
                          
                          
                          7,740,249
                          
                          
                          
                          (7,015,018
                          )
                          
                          
                          1,919,107Allocation
      of retained earnings to statutory reserve fund
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          756,706
                          
                          
                          
                          -
                          
                          
                          
                          (756,706
                          )
                          
                          
                          -
                          
                          
                          
                          -Imputed
      interest allocated
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          526,428
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          526,428Due
      from related parties
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,801,648
                          
                          
                          
                          4,801,648Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,682,924
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,682,924
                          
                          
                          $
                          1,682,924Net
      income for the year
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,466,520
                          
                          
                          
                          -
                          
                          
                          
                          8,466,520
                          
                          
                          
                          8,466,520Comprehensive
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          10,149,444Balance
      at December 31, 2007 (As restated)
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          748,558
                          
                          
                          
                          1,278,764
                          
                          
                          
                          2,122,612
                          
                          
                          
                          15,450,063
                          
                          
                          
                          (2,213,370
                          )
                          
                          
                          17,396,627Imputed
      interest allocated
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          299,333
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          299,333Due
      from related parties
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,453,546
                          )
                          
                          
                          (5,453,546
                          )Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,750,231
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,750,231
                          
                          
                          $
                          1,750,231Net
      income for six months ended June 30, 2008
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          6,345,427
                          
                          
                          
                          -
                          
                          
                          
                          6,345,427
                          
                          
                          
                          6,345,427Comprehensive
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          8,095,658Balance
      at June 30, 2008 (Unaudited) (As restated)
                          
                          
                          10,000
                          
                          
                          $
                          10,000
                          
                          
                          $
                          1,047,891
                          
                          
                          
                          1,278,764
                          
                          
                          $
                          3,872,843
                          
                          
                          $
                          21,795,490
                          
                          
                          $
                          (7,666,916
                          )
                          
                          $
                          20,338,072





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


9


Niveous
Holding Company Limited and Subsidiaries


Consolidated
Statements of Cash Flows


(In
US Dollars)





For Six Months EndedJune 30,2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)(As restated)
                
                
                (As restated)Cash
      Flows From Operating ActivitiesNet
      Income
                
                $
                6,345,427
                
                
                $
                2,508,198Adjustments
      to reconcile net income to net cash provided by operating
      activities:Minority
      Interest
                
                
                163,555
                
                
                
                64,660Bad
      debt
                
                
                384,102
                
                
                
                783,623Depreciation
                
                
                2,347,467
                
                
                
                482,603Amortization
                
                
                33,488
                
                
                
                30,624Imputed
      interest
                
                
                299,333
                
                
                
                249,239Write-down
      of inventory
                
                
                -
                
                
                
                390,406Changes
      in operating assets and liabilities:Account
      receivable-trade, net
                
                
                (1,290,015
                )
      )
                
                
                (5,840,037
                )Advance
      to suppliers for purchases
                
                
                (13,789,120
                )
                
                
                (4,594,346
                )Prepaid
      expenses and deposits
                
                
                (64,169
                )
                
                
                56,618Inventories,
      net
                
                
                (1,483,490
                )
                
                
                183,641Restricted
      cash
                
                
                (1,617,120
                )
                
                
                (267,974
                )Accounts
      payable and accrued liabilities
                
                
                10,548,123
                
                
                
                1,573,274Various
      taxes payable
                
                
                46,964
                
                
                
                (700,402
                )Wages
      payable
                
                
                (201,190
                )
                
                
                (49,719
                )Corporate
      tax payable
                
                
                1,114,778
                
                
                
                456,168Net
      cash provided by (used in) operating activities
                
                
                2,838,133
                
                
                
                (4,673,424
                )Cash
      Flows From Investing ActivitiesDue
      from related parties
                
                
                (5,453,546
                )
                
                
                (3,674,872
                )Purchases
      of property and equipment
                
                
                (2,899,305
                )
                
                
                (978,698
                )Net
      cash provided by (used in) investing activities
                
                
                (8,352,851
                )
                
                
                (4,653,570
                )Cash
      Flows From Financing ActivitiesProceeds
      of loans
                
                
                46,903,423
                
                
                
                33,302,808Repayments
      of loans
                
                
                (48,352,615
                )
                
                
                (24,111,541
                )Proceeds
      of bank notes
                
                
                19,740,993
                
                
                
                6,283,611Repayments
      of bank notes
                
                
                (12,832,265
                )
                
                
                (6,198,643
                )Capital
      lease payable
                
                
                -
                
                
                
                (61,669
                )Due
      to shareholder
                
                
                (1,165,113
                )
                
                
                1,387,950Net
      cash provided by (used in) financing activities
                
                
                4,294,423
                )
                
                
                10,602,516Effect
      of exchange rate changes on cash
                
                
                766,625
                
                
                
                389,036Net
      increase in cash and cash equivalents
                
                
                (453,670
                )
                
                
                1,664,558Cash
      and cash equivalents, beginning of period
                
                
                1,438,651
                
                
                
                559,390Cash
      and cash equivalents, end of period
                
                $
                984,981
                
                
                $
                2,223,948Supplemental
      disclosure information:Interest
      expense paid
                
                $
                1,045,237
                
                
                $
                640,095Income
      taxes paid
                
                $
                975,084
                
                
                $
                434,122





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


10




Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
  1.
                RESTATEMENT
      OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
 
 On
October 7, 2008, independent registered public accounting firm Kempisty &
Company Certified Public Accountants, P.C. (“Kempisty & Company”), informed
NIVS IntelliMedia Technology Group, Inc. (the “Company”) that its financial
statements for the year ended December 31, 2007, 2006, 2005, and the six months
ended June 30, 2008, should not be relied upon due to an error in the accounting
treatment of imputed interest on due to shareholders loan, resulting in an
understatement of the registrant’s expenses for those periods. Authorized
officers of the Company’s Board of Directors concluded on October 7, 2008, that
the Company should restate the financial statements described above and file an
amendment to its registration statement on Form S-1 filed with the Securities
and Exchange Commission (the “SEC”) on August 13, 2008 and Form 10-Q filed with
the SEC on August 19, 2008.
 
 Subsequently,
Kempisty & Company informed the Company that its financial statements for
the year ended December 31, 2007, 2006, and 2005 and for the quarter
ended June 30, 2008 and 2007 should not be relied upon due to a
misclassification for “Due from related parties,” resulting in an overstatement
of the registrant’s assets and shareholders’ equity for those periods.
Authorized officers of the Company’s Board of Directors concluded that the
Company should restate the financial statements described above and file an
amendment to its registration statement on Form S-1 filed with the SEC on
December 24, 2008 and Form 10-Q filed with the SEC on August 19,
2008.
 
 Effects
of Restatements
 
 To
correct the above noted errors, the Company has restated the accompanying
consolidated balance sheets as of June 30, 2008 and December 31, 2007, and its
consolidated statements of operations for the
three and six months ended June 30, 2008 and 2007,consolidated
statements of cash flows for the
six months ended June 30, 2008 and 2007,and consolidated statements of
stockholders’ equity and comprehensive income for the six months ended June 30,
2008 and the years ended December 31, 2007, 2006, and 2005, and the notes to the
consolidated financial statements for such periods as appropriate.
 
 The
following is a summary of the corrections described above:
 
 Consolidated
Balance sheets
  As
                        previously
                        reported
                        at
                        December
                        31, 2007
                      
                      
                      As restated
                        at December
                        31, 2007
                      
                      
                      As
                        previously
                        reported
                        at June 30,
                        2008
                      
                      
                      As restated
                        at June
                        30, 2008AssetsDue
      from related parties
                      
                      
                      2,213,370
                      
                      
                      
                      -
                      
                      
                      
                      7,666,916
                      
                      
                      
                      -Minority
      interest
                      
                      
                      638.844
                      
                      
                      
                      620,131
                      
                      
                      
                      856,090
                      
                      
                      
                      829,894Shareholders’
      EquityAdditional
      paid-in capital
                      
                      
                      -
                      
                      
                      
                      748,558
                      
                      
                      
                      -
                      
                      
                      
                      1,047,891Retained
      earnings
                      
                      
                      16,179,908
                      
                      
                      
                      15,450,063
                      
                      
                      
                      22,817,185
                      
                      
                      
                      21,795,490Due
      from related parties
                      
                      
                      -
                      
                      
                      
                      (2,213,370
                      )
                      
                      
                      -
                      
                      
                      
                      (7,666,916
                      )
 
 Consolidated
Statements of Operations
 
 For the three months ended
                    June 30, 2008
                
                
                For the three months ended
                    June 30, 2007
                
                
                For the six months ended
                    June 30,2008
                
                
                For the six months ended
                    June 30,2007As previously
                    reported
                
                
                As restated
                
                
                As previously
                    reported
                
                
                As restated
                
                
                As previously
                    reported
                
                
                As restated
                
                
                As previously
                    reported
                
                
                As restatedImputed
      interest
                
                $
                -
                
                
                
                109,194
                
                
                $
                -
                
                
                
                140,817
                
                
                $
                -
                
                
                $
                299,333
                
                
                $
                -
                
                
                $
                249,239Minority
      interest
                
                
                86,965
                
                
                
                79,482
                
                
                
                31,222
                
                
                
                24,991
                
                
                
                171,038
                
                
                
                163,555
                
                
                $
                70,891
                
                
                $
                64,660
  11
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 Consolidated
Statements of changes in Stockholders’ Equity and Comprehensive
Income
 
 For the year ended
                    December 31, 2007
                
                
                For the year ended
                    December 31, 2006
                
                
                For the year ended
                    December 31, 2005
                
                
                For the quarter ended
                    June 30,
      2008As
                    previously
                    reported
                
                
                As
                    restated
                
                
                As
                    previously
                    reported
                
                
                As restated
                
                
                As
                    previously
                    reported
                
                
                As
                    restated
                
                
                As
                    previously
                    reported
                
                
                As restatedAdditional
      Paid-in Capital
                
                $
                -
                
                
                $
                748,558
                
                
                $
                -
                
                
                $
                222,130
                
                
                $
                -
                
                
                $
                97,106
                
                
                $
                -
                
                
                $
                1,047,891Retained
      Earnings(unrestricted)
                
                
                16,179,908
                
                
                
                15,450,063
                
                
                
                7,956,825
                
                
                
                7,740,249
                
                
                
                3,154,701
                
                
                
                3,060,022
                
                
                
                26,817,185
                
                
                
                21,795,490Due
      from related parties
                
                
                -
                
                
                
                (2,213,370
                )
                
                
                -
                
                
                
                (7,015,018
                )
                
                
                -
                
                
                
                (855,684
                )
                
                
                -
                
                
                
                (7,666,916
                )
 
 Consolidated
Statements of Cash Flows
 
 For the quarter ended
                      June 30,
      2008
                  
                  
                  For the quarter ended
                      June 30,
      2007As previously
                      reported
                  
                  
                  As reported
                  
                  
                  As previously
                      reported
                  
                  
                  As restatedCash
      flow from operating activitiesNet
      income
                  
                  $
                  6,637,277
                  
                  
                  $
                  6,345,427
                  
                  
                  $
                  2,751,206
                  
                  
                  $
                  2,508,198Minority
      interest
                  
                  
                  171,038
                  
                  
                  
                  163,555
                  
                  
                  
                  70,891
                  
                  
                  
                  64,660Bad
      debt
                  
                  
                  -
                  
                  
                  
                  384,102
                  
                  
                  
                  -
                  
                  
                  
                  783,623Imputed
      interest
                  
                  
                  -
                  
                  
                  
                  299,333
                  
                  
                  
                  -
                  
                  
                  
                  249,239Account
      receivable-trade
                  
                  
                  (905,913
                  )
                  
                  
                  (1,290,015
                  ))
                  
                  
                  (5,056,414
                  )
                  
                  
                  (5,840,037
                  )Cash
      flow from investing activitiesDue
      from related parties
                  
                  
                  -
                  
                  
                  
                  (5,453,546
                  )
                  
                  
                  -
                  
                  
                  
                  (3,674,872
                  )Cash
      flow from financing activitiesDue
      from related parties
                  
                  
                  (5,453,546
                  )
                  
                  
                  -
                  
                  
                  
                  (3,674,872
                  )
                  
                  
                  -
 
 2.
              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 were the reporting
entity.
 
 Niveous
was incorporated in the British Virgin Islands (BVI) on October 31, 2003. As at
December 31, 2007, Niveous had 50,000 capital shares authorized with $1.00 par
value and 10,000 shares issued and outstanding.
  12
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 In April,
2004, Niveous, the BVI company, acquired 97.5% of ownership of NIVS (HZ) Audio
& Video Tech Company Limited (“NIVS PRC”) from its original shareholders.
NIVS PRC is the main operating company located in Huizhou, PRC. It engages in
research, development, production, marketing and sales of audio & video
electronic equipments for domestic and international market. As at December 31,
2004, Niveous and Mr. Li Tianfu hold 97.5% and 2.5% of total interests of NIVS
PRC, respectively.
 
 In April,
2005, Niveous acquired 100% of ownership of NIVS International (H.K.) Limited
(“NIVS HK”) under an ownership transfer agreement. NIVS HK is a holding company
incorporated in November 2004 in Hong Kong, PRC with the original sole
shareholder Mr. Li Tianfu. Pursuant to the transfer agreement, Niveous agreed to
pay Mr. Li Tianfu 1M HKD for the ownership transfer.
 
 In
February 2006, NIVS PRC established a branch company NIVS (HZ) Audio & Video
Tech Company Limited Shenzhen Branch (“NIVS Shenzhen”) located in Shenzhen, PRC.
The establishment of NIVS Shenzhen is for the purpose of corporate restructuring
and planning.
 
 In
November 2007, Niveous entered an ownership transfer agreement to transfer its
whole ownership of NIVS PRC to NIVS HK. After the restructuring, NIVS PRC became
a subsidiary of NIVS HK. As at December 31, 2007, NIVS HK and Mr. Li Tianfu hold
97.5% and 2.5% of total interests of NIVS PRC, respectively.
 
 In June
2008, NIVS HK entered an ownership transfer agreement to transfer its whole
ownership of NIVS PRC to Niveous. Pursuant to the agreement, Niveous agreed to
pay NIVS HK 50M HKD within three months. After the restructuring, NIVS PRC
became a subsidiary of Niveous. As a result, Niveous and Mr. Li Tianfu hold
97.5% and 2.5% of total interests of NIVS PRC, respectively.
 
 In June
2008, Niveous entered into entered into a share exchange agreement with SRKP 19,
Inc., a Delaware corporation, and all of the shareholders of Niveous. Pursuant
to the exchange agreement, as it was amended (the “Exchange Agreement”), SRKP 19
agreed to issue an aggregate of 27,546,667 shares of its common stock in
exchange for all of the issued and outstanding securities of Niveous (the “Share
Exchange”). The Share Exchange closed in July 2008. Upon the closing of the
Share Exchange on July 25, 2008, SRKP 19 issued an aggregate of 27,546,667
shares of its common stock to the shareholders of Niveous and their designees in
exchange for all of the issued and outstanding securities of Niveous.
Immediately after the closing of the Share Exchange, SRKP 19 changed its
corporate name from “SRKP 19, Inc.” to “NIVS IntelliMedia Technology Group,
Inc.” For accounting purposes, the Share Exchange will be treated as a reverse
acquisition.
 
 Prior to
the closing of the Share Exchange, the NIVS USA’s shareholders canceled an
aggregate of 4,756,390 shares held by them such that there were 2,340,000 shares
of common stock outstanding immediately prior to the Share Exchange. The
shareholders also canceled an aggregate of 6,149,723 warrants such that the
shareholders held an aggregate of 946,667 warrants immediately after the Share
Exchange.
 
 Concurrently
with the close of the Share Exchange, NIVS IntelliMedia Technology Group, Inc.
conducted an initial closing of a private placement transaction pursuant to
which NIVS IntelliMedia Technology Group, Inc. 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, NIVS IntelliMedia Technology Group, Inc.
conducted a second and final closing of the private placement pursuant to which
NIVS IntelliMedia Technology Group, Inc. sold an aggregate of 1,304,587 shares
of common stock at $1.80 per share, for gross proceeds of approximately $2.3
million. Accordingly, NIVS IntelliMedia Technology Group, Inc. sold a total of
6,544,047 shares of common stock in the private placement for aggregate gross
proceeds of $11.8 million. WestPark Capital, Inc., 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. NIVS IntelliMedia
Technology Group, Inc. agreed to file a registration statement covering the
common stock sold in the Private Placement within 30 days of the closing of the
Share Exchange.
 
 NIVS USA
and its subsidiaries – Niveous, NIVS HK, NIVS PRC and NIVS Shenzhen shall be
collectively referred to throughout as the “Company”. To summarize the
paragraphs above, the organization and ownership structure of the Company is
currently as follows:
  13
 
 Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 
 
 3.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 a.
              Basis
      of preparation
 
 The
accompanying consolidated financial statements have been prepared by the Company
in accordance with accounting principles generally accepted in the United States
of America.
 
 b.
              Basis
      of consolidation
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries.  All 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.
 
 d.
              Fair
      values of financial instruments
 
 The
Company values its financial instruments as required by Statement of Financial
Accounting Standard (SFAS) No. 107, “Disclosures about Fair Value of Financial
Instruments”. The estimated fair value amounts have been determined by the
Company, using available market information and appropriate valuation
methodologies. The estimates presented herein are not necessarily indicative of
amounts that the Company could realize in a current market
exchange.
 
 The
Company’s financial instruments primarily consist of cash and cash equivalents,
trade receivables, short-term loans receivable, inventories, due from related
parties, prepaid expenses and other receivables, accounts payable-trade, accrued
liabilities and other payables, value-added taxes (VAT) payable, short term
loans, current portion of bank loans payable, registration rights penalty
payable, other taxes payable, wages payable, corporate income taxes payable, due
to related parties.
 
 As of the
balance sheet date, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented due to the
short maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective year ends.
  14
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 e.
              Cash
      and cash equivalents
 
 Cash and
cash equivalents include cash on hand, demand deposits with banks and liquid
investments with an original maturity of three months or less.
 
 f.
              Accounts
      Receivable
 
 Accounts
receivables are recognized and carried at original invoiced amount less an
allowance for uncollectible accounts, as needed.
 
 The
Company uses the aging method to estimate the valuation allowance for
anticipated uncollectible receivable balances. Under the aging method, bad debts
percentages determined by management based on historical experience as well as
current economic climate are applied to customers’ balances categorized by the
number of months the underlying invoices have remained outstanding. The
valuation allowance balance is adjusted to the amount computed as a result of
the aging method. When facts subsequently become available to indicate that the
amount provided as the allowance was incorrect, an adjustment which classified
as a change in estimate is made.
 
 g.
              Inventories
 
 Inventories
are stated at the lower of cost, as determined on a weighted average basis, or
market. Costs of inventories include purchase and related costs incurred in
bringing the products to their present location and condition. Market value is
determined by reference to selling prices after the balance sheet date or to
management’s estimates based on prevailing market conditions. The management
writes down the inventories to market value if it is below cost. The management
also regularly evaluates the composition of its inventories to identify
slow-moving and obsolete inventories to determine if valuation allowance is
required.
 
 h.
              Property
      and Equipment
 
 Property
and equipment are initially recognized and recorded at cost. Gains or losses on
disposals are reflected as gain or loss in the period of disposal. The cost of
improvements that extend the life of plant and equipment are capitalized. These
capitalized costs may include structural improvements, equipment and fixtures.
All ordinary repairs and maintenance costs are expensed as
incurred.
 
 Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the assets:
 
 Building
                    Molds
                    Machinery
      and Equipment
                    Electronic
      Equipment
                  38
      years
                    8
      years
                    10
      years
                    5
      yearsLeasehold
      Improvements
                  5
      yearsOffice
      and Other Equipment
                  5
      yearsAutomobiles
                  5
      years
 
 i.
              Intangible
      Assets
 
 The
Company’s intangible assets are stated at cost less accumulated amortization and
are comprised of land-use rights and computer software use
rights.  Land-use rights are related to land the Company occupies in
Guangdong Province, PRC and are being amortized on a straight-line basis over a
period of 40 years. Computer software use rights are being amortized on a
straight-line basis over a period of 10 years.
 
 j.
              Impairment
      of Long-Lived Assets
 
 The
Company accounts for impairment of plant and equipment and amortizable
intangible assets in accordance with SFAS No. 144, “Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the
Company to evaluate a long-lived asset for recoverability when there is event or
circumstance that indicate the carrying value of the asset may not be
recoverable. An impairment loss is recognized when the carrying amount of a
long-lived asset or asset group is not recoverable (when carrying amount exceeds
the gross, undiscounted cash flows from use and disposition) and is measured as
the excess of the carrying amount over the asset’s (or asset group’s) fair
value.
  15
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 k.
              Comprehensive
      income
 
 The
Company has adopted SFAS No. 130,Reporting Comprehensive
Income, which establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances in a full-set of
general-purpose financial statements. Accumulated other comprehensive income
represents the accumulated balance of foreign currency translation
adjustments.
 
 l.
              Revenue
      recognition
 
 The
Company generates revenues from the sales of audio and video products. Sales are
recognized when the following four revenue criteria are met: persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is fixed or
determinable, and collectability is reasonably assured. Sales are presented net
of value added tax (VAT). No return allowance is made as products returns are
insignificant based on historical experience.
  m.
              Government
      grants
 
 Grants
from the PRC government are recognized at their fair value where there is a
reasonable assurance that the grant will be received and the Company will comply
with all attached conditions.
 
 Government
grants are recognized as revenues or gains in the period received and as assets,
decreases of liabilities, or expenses depending on the form of the grants
received.
 
 n.
              Research
      and development costs
 
 Research
and development costs are expensed to operations as incurred.  The
Company spent $407,182, and $142,272 on direct research and development
(“R&D”) efforts for the six months ended June 30, 2008 and 2007,
respectively.
 
 o.
              Income
      taxes
 
 The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future
deductibility is uncertain.
 
 p.
              Foreign
      currency translation
 
 The
functional currency of Niveous and NIVS HK is Hong Kong Dollar (“HKD”). The
Company maintains its financial statements using the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet dates. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income (loss) for the respective
periods.
 
 The
functional currency of NIVS PRC and NIVS Shenzhen is the Renminbi (“RMB”), the
PRC’s currency. These two companies maintain their financial statements using
their own functional currency. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency at rates of exchange prevailing at the balance sheet dates.
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income (loss) for the
respective periods.
  16
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 For
financial reporting purposes, the financial statements of Niveous and NIVS HK,
which are prepared in HKD, are translated into the Company’s reporting currency,
United States Dollars (“USD”); the financial statements of NIVS PRC and NIVS
Shenzhen, which are prepared in RMB, are translated into the Company’s reporting
currency, USD. Balance sheet accounts are translated using the closing exchange
rate in effect at the balance sheet date and income and expense accounts are
translated using the average exchange rate prevailing during the reporting
period. Adjustments resulting from the translation, if any, are included in
accumulated other comprehensive income (loss) in stockholder’s
equity.
 
 The
exchange rates used for foreign currency translation were as follows (USD$1 =
RMB):
 
 Period Covered
                    
                    Balance Sheet Date Rates
                    
                    
                    Average RatesFor
      three months ended June 30, 2008
                    
                    
                    6.85166
                    
                    
                    
                    6.98642For
      three months ended June 30, 2007
                    
                    
                    7.60456
                    
                    
                    
                    7.62241For
      six months ended June 30, 2008
                    
                    
                    6.85166
                    
                    
                    
                    7.05019For
      six months ended June 30, 2007
                    
                    
                    7.60456
                    
                    
                    
                    7.70950
 
 The
exchange rates used for foreign currency translation were as follows (USD$1 =
HKD):
 
 Period Covered
                    
                    Balance Sheet Date Rates
                    
                    
                    Average RatesFor
      three months ended June 30, 2008
                    
                    
                    7.80092
                    
                    
                    
                    7.80012For
      three months ended June 30, 2007
                    
                    
                    7.79605
                    
                    
                    
                    7.76216For
      six months ended June 30, 2008
                    
                    
                    7.80092
                    
                    
                    
                    7.81678For
      six months ended June 30, 2007
                    
                    
                    7.79605
                    
                    
                    
                    7.78210
 
 q.
              Related
      parties
 
 A party
is considered to be related to the Company if the party directly or indirectly
or through one or more intermediaries, controls, is controlled by, or is under
common control with the Company. Related parties also include principal owners
of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the
Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate
interests. A party which can significantly influence the management or operating
policies of the transacting parties or if it has an ownership interest in one of
the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests is also a related party.
 
 r.
                Customer
      deposit
 
 The
customer deposits are recorded as liability when the Company receives it and are
recognized as revenue after the total amount is paid off upon the delivery of
the products.
 
 s.
                Recently
      issued accounting
pronouncements
 
 In
June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP
No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP
EITF 03-6-1 concludes that unvested share-based payment awards that contain
rights to receive non-forfeitable dividends or dividend equivalents are
participating securities, and thus, should be included in the two-class method
of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal
years beginning after December 15, 2008, and interim periods within those
years. Early application of EITF 03-6-1 is prohibited. It also requires that all
prior-period EPS data be adjusted retrospectively. We have not yet determined
the effect, if any, of the adoption of this statement on our financial condition
or results of operations.
 
 In April
2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life
of Intangible Assets (“FSP FAS 142-3”) which amends the factors an entity should
consider in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FAS No. 142, Goodwill and
Other Intangible Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible
assets that are acquired individually or with a group of assets and intangible
assets acquired in both business combinations and asset acquisitions. It removes
a provision under FAS No. 142, requiring an entity to consider whether a
contractual renewal or extension clause can be accomplished without substantial
cost or material modifications of the existing terms and conditions associated
with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own
experience in renewing similar arrangements. An entity would consider market
participant assumptions regarding renewal if no such relevant experience exists.
FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with
early adoption prohibited. We have not yet determined the effect, if any, of the
adoption of this statement on our financial condition or results of
operations.
  17
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently evaluating the impact of adopting SFAS 161
on its consolidated financial statements.
 
 In
February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”. SFAS No. 155, permits fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company’s first fiscal year that begins
after September 15, 2006. The adoption of this statement did not have a material
impact on the Company’s financial position or results of
operations.
 
 In March
2006 FASB issued SFAS 156 “Accounting for Servicing of Financial Assets” this
Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
This Statement:
 
 ·
              Requires
      an entity to recognize a servicing asset or servicing liability each time
      it undertakes an obligation to service a financial asset by entering into
      a servicing contract.·
              Requires
      all separately recognized servicing assets and servicing liabilities to be
      initially measured at fair value, if practicable.·
              Permits
      an entity to choose 'Amortization method' or ‘Fair value measurement
      method’ for each class of separately recognized servicing assets and
      servicing liabilities.·
              At
      its initial adoption, permits a one-time reclassification of
      available-for-sale securities to trading securities by entities with
      recognized servicing rights, without calling into question the treatment
      of other available-for-sale securities under Statement 115, provided that
      the available-for-sale securities are identified in some manner as
      offsetting the entity's exposure to changes in fair value of servicing
      assets or servicing liabilities that a servicer elects to subsequently
      measure at fair value.·
              Requires
      separate presentation of servicing assets and servicing liabilities
      subsequently measured at fair value in the statement of financial position
      and additional disclosures for all separately recognized servicing assets
      and servicing liabilities. An entity should adopt this Statement as of the
      beginning of its first fiscal year that begins after September 15,
      2006.
 
 The
adoption of this statement did not have a material impact on the Company’s
financial position or results of operations.
 
 In June
2006, the Financial Accounting Standards Board (“FASB”) ratified the provisions
of Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation).” EITF Issue No. 06-3
requires that the presentation of taxes within revenue-producing transactions
between a seller and a customer, including but not limited to sales, use, value
added, and some excise taxes, should be on either a gross (included in revenue
and cost) or a net (excluded from revenue) basis. In addition, for any such
taxes that are reported on a gross basis, a company should disclose the amounts
of those taxes in interim and annual financial statements for each period for
which an income statement is presented if those amounts are significant. The
disclosure of those taxes can be done on an aggregate basis. EITF Issue No. 06-3
is effective for fiscal years beginning after December 15, 2006, which will be
the Company’s fiscal 2008. The adoption of EITF Issue No. 06-3 did not have a
material impact on the Company’s consolidated results of operations or financial
position.
  18
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 In July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take
on a tax return (including a decision whether to file or not to file a return in
a particular jurisdiction). The accounting provisions of FIN No. 48 are
effective for fiscal years beginning after December 15, 2006. The adoption of
this Interpretation had no impact on the Company’s financial position or results
of operations.
 
 In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 defines fair value, establishes a framework and gives guidance
regarding the methods used for measuring fair value, and expands disclosures
about fair value measurements. In February 2008, the FASB issued FASB Staff
Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13" ("FSP
157-1") and FASB Staff Position 157-2, "Effective Date of FASB Statement No.
157" ("FSP 157-2"). FSP 157-1 amends SFAS 157 to remove certain leasing
transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until fiscal years beginning after November
15, 2008. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company adopted SFAS 157 effective January 1, 2008 for all financial
assets and liabilities as required. The adoption of SFAS 157 was not material to
the Company's financial statements or results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115,” (“SFAS 159”) which is effective for fiscal years beginning
after November 15, 2007. SFAS 159 is an elective standard which permits an
entity to choose to measure many financial instruments and certain other items
at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be
reported in earnings. The Company has not elected the fair value option for any
assets or liabilities under SFAS 159.
 
 SFAS No.
123R, Share-Based Payment, an
Amendment of SFAS No. 123, was issued in December 2004 and was effective
as of the beginning of the Group’s 2006 fiscal year. SFAS No. 123R requires all
share-based payments to qualified individuals, including grants of employee
stock options, to be recognized as compensation expense in the financial
statements based on their grant date fair values.
 
 On
December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all
entities to report noncontrolling (minority) interests in subsidiaries as equity
in the consolidated financial statements. The statement establishes a single
method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation and expands disclosures in the
consolidated financial statements. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years.
We have not yet determined the impact of the adoption of SFAS No. 160 on our
consolidated financial statements and footnote disclosures.
  On
December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS No.
141R). SFAS No. 141R requires the acquiring entity in a business combination to
recognize all the assets acquired and liabilities assumed, establishes the
acquisition date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires the acquirer to expand disclosures about
the nature and financial effect of the business combination. SFAS No. 141R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We have not yet determined the impact of the adoption of SFAS
No. 141R on our consolidated financial statements and footnote
disclosures.
 
 t.
                Interim
      financial information
 
 The
accompanying interim consolidated financial statements that accompany these
notes are prepared in conformity with U.S. generally accepted accounting
principles, consistent in all material respects with those applied in our Annual
Report on Form 10-K for the year ended December 31, 2007. The results of
operations for the period ended June 30, 2008 are not necessarily indicative of
the operating results for the entire year.
  19
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 The
interim financial information is unaudited, but reflects all normal adjustments
that are, in the opinion of management, necessary to provide a fair statement of
results for the interim periods presented. This interim information should be
read in conjunction with the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2007.
 
 4.
              ACCOUNTS
      RECEIVABLE
 
 Accounts
receivable consists of the following:
 
 June 30,
                          
                          December 31,2008
                          
                          2007Accounts
      receivable-trade
                          
                          $
                          6,904,733
                          
                          
                          $
                          5,239,098Allowance
      for doubtful accounts
                          
                          
                          (1,487,987
                          )
                          
                          
                          (728,265
                          )Accounts
      receivable-trade, net
                          
                          $
                          5,416,746
                          
                          
                          $
                          4,510,833
 
 The
change of the allowance for doubtful debts between the reporting periods, as of
December 31, 2007, and June 30, 2008, is displayed as follows:
 
 June 30,
                          
                          December 31,2008
                          
                          2007Beginning
      balance
                          
                          $
                          (728,265
                          )
                          
                          $
                          (220,334
                          )Provision/Reversal
      during the period
                          
                          
                          (759,722
                          )
                          
                          
                          (507,931
                          )Ending
      balance
                          
                          $
                          (1,487,987
                          )
                          
                          $
                          (728,265
                          )
 
 5.
              ADVANCES
      TO SUPPLIERS
 
 Advances
to suppliers consist of the following:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Dengfeng
      Digital
                          
                          $
                          263,551
                          
                          
                          $
                          261,274Baolongda
                          
                          
                          2,395,301
                          
                          
                          
                          -Liangchuan
      Chemical
                          
                          
                          -
                          
                          
                          
                          280,309Guangdong
      Renxin
                          
                          
                          -
                          
                          
                          
                          200,726Kiayi
      Techonology
                          
                          
                          -
                          
                          
                          
                          116,994Yintian
      Chemical
                          
                          
                          471,139
                          
                          
                          
                          411,120Desheng
      Digital
                          
                          
                          13,912,476
                          
                          
                          
                          6,466,384Baoyitong
      Trading
                          
                          
                          2,510,254
                          
                          
                          
                          2,696,980Huaneng
      Ltd
                          
                          
                          243,665
                          
                          
                          
                          1,077,299Shenghang
                          
                          
                          3,026,210
                          
                          
                          
                          949,118Yide
                          
                          
                          3,871,647
                          
                          
                          
                          364,880Ningxia
      Yuanfeng
                          
                          
                          -
                          
                          
                          
                          788,994Others
                          
                          
                          1,486,527
                          
                          
                          
                          777,572$
                          28,180,770
                          
                          
                          $
                          14,391,650
 
 In
accordance with the contracts with the Company’s suppliers, cash is advanced for
material and equipment purchase. The delivery term is usually 30 days. In the
event of a breach of contract, the Company has the following rights and penalty
protection:
 
 The
Company has the right to get back the deposit and charge double interest on the
deposit according to the interest rate during the same period in which the
contract was breached. The Company owns the raw material and equipment acquired
from the suppliers under the arrangements. The Company has the legal right to
take possession of it. The Company did not have any contract breaches for the
years ended December 31, 2007 and the six months ended June 30,
2008.
  20
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 6.
              IPTV
      PROJECT INVESTMENT
 
 In 2005,
NIVS Investment (SZ) Co., Ltd., an affiliated company, signed an investing
agreement with Wanlizhou Electronics Limited(“Wanlizhou”). Pursuant to the
agreement, NIVS Investment (SZ) Co., Ltd and Wanlizhou will jointly develop a
project named “IPTV for Residential Areas”. In the same year, the NIVS
Investment (SZ) Co., Ltd injected RMB 100,000,000 to fund this
project.
 
 In the
year 2006, the Company signed an agreement with NIVS Investment (SZ) Co., Ltd.,
pursuant to the agreement, NIVS Investment (SZ) Co., Ltd. will transfer all its
investment in the IPTV project to the Company for a reduction of RMB 100,000,000
(converted to US$12,824,623 as at 2006 year-end rate 7.79750:1) balance from the
balance of the “Due from related parties- NIVS Investment (SZ) Co., Ltd.”
account.
 
 In
November 2007, the Company signed an assets exchange agreement with Guanghua
Enterprises (Dongguan) Limited (“Guanghua”). Pursuant to the agreement, the
Company will transfer all of its invested funds in the project to Guanghua in
exchange for machinery and equipment with value at RMB 100,000,000. The exchange
transaction was completed and all machinery and equipments listed in the
exchange agreement was received by the Company within the year 2007. The Company
did not recognize any gain or loss from the original investment in the IPTV
Project which it carried on an equity basis. The Company sent its professional
purchasers and engineers to test and evaluate these machinery and equipment
before it signed the agreement with Guanghua. The machinery and equipment were
valued with a deduction of depreciation (net book value). Their method of
depreciation is straight-line method. This method and the depreciation years
meet the accounting standard of China. It is the same method as the Company's
method of depreciation for goods or equipment. Also Guanghua issued RMB
100,000,000 VAT invoices to the Company for this transaction. The management of
the Company agreed that the fair value of the machinery and equipment received
from Guanghua was equivalent to the fair value of the Company’s investment in
IPTV for Residential Areas. We reviewed 65% of third party invoices provided by
Guanghua for all the equipment and machinery acquired.
 
 The
balances of the project investment account for the year ended December 31, 2007
and 2006 and for the six months ended June 30, 2008 and 2007 are listed
below:
 
 June 30,
                        
                        
                        December 31,2008
                        
                        
                        2007
                        
                        
                        2007
                        
                        
                        2006IPTV
      investment
                        
                        $
                        -
                        
                        
                        $
                        13,150,000
                        
                        
                        $
                        -
                        
                        
                        $
                        12,824,623
 
 7.
              INVENTORY
 
 Inventory
includes raw material and finished goods. Finished goods contain direct
material, direct labor and manufacturing overhead and do not contain general and
administrative costs. Inventory consists of the following:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Raw
      material
                          
                          $
                          10,836,274
                          
                          
                          $
                          15,965,784Finished
      goods
                          
                          
                          8,100,786
                          
                          
                          
                          1,486,977Reserve
      for obsolete inventory
                          
                          
                          (106,200
                          )
                          
                          
                          (105,391
                          )Inventory,
      net
                          
                          $
                          18,830,860
                          
                          
                          $
                          17,347,370
 
 The
change of the reserve for obsolete inventory between the reporting periods, as
of June 30, 2008 and December 31, 2007, is displayed as follows:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Beginning
      balance
                          
                          $
                          (105,391
                          )
                          
                          $
                          (5,130
                          )Provision/Reversal
      during the period
                          
                          
                          -
                          
                          
                          
                          (100,261
                          )Foreign
      exchange adjustment
                          
                          
                          (809
                          )
                          
                          
                          -Ending
      balance
                          
                          $
                          (106,200
                          )
                          
                          $
                          (105,391
                          )
  21
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 8.
              DUE
      FROM RELATED PARTIES
 
 Due from
(due to) related parties consist of the following:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007NIVS
      Investment (SZ) Co., Ltd.
                          
                          $
                          (231,335
                          )
                          
                          $
                          773,234Zhongkena
      Technology Development
                          
                          
                          -
                          
                          
                          
                          380,470Xentsan
      Technology (SZ) Co., Ltd.
                          
                          
                          -
                          
                          
                          
                          356,452Hyundai
      Lighting & Electronic (Int'l) Holding
                          
                          
                          4,195
                          
                          
                          
                          703,214NIVS
      Information & Technology (HZ) Co., Ltd
                          
                          
                          7,298
                          
                          
                          
                          -Hyundai
      Light & Electric (HZ) Co., Ltd.
                          
                          
                          7,886,758
                          
                          
                          
                          -Total
                          
                          $
                          7,666,916
                          
                          
                          $
                          2,213,370
 
 Amounts
owing to the Company from Zhongkena Technology Development, Korea Hyundai Light
& Electric (Int’l) Holding and NIVS Information & Technology (HZ) Co.,
Ltd. represent unsecured working capital loans due on demand.  The
rest of the above advances to related parties are for the purpose of temporary
funding in business operation. These funding are unsecured and without fixed
payment date. It is borrowed and repaid very frequently. Normally, it is agreed
to be paid back within 3-6 months. All the balances were settled by cash
payments.
  As
presented in the statements of cash flows, the loan transactions with the
related parties are classified as investing activity in accordance with
paragraphs 16a and 17a of SFAS 95 as the related parties are not “owners” of the
Company as described in paragraph 18 of SFAS 95 since the entities do not own
equity in the Company.  In addition, Mr. Li, from July 2008, has not
owned any part of Hyundai Light & Electric (Int’l) Holding Limited, and Mr.
Li has never had any ownership interest of the supplier of Hyundai Light &
Electric (Int’l) Holding Limited that was the holder of the note.
  On March
12, 2008, the Company entered into a note agreement to lend Hyundai Light and
Electric (HZ) Co Ltd.’s supplier 38,474,900RMB. The note bears an interest rate
of 1.5% per month and matures in four months. The note is guaranteed by Hyundai
Light and Electric (HZ) Co Ltd. If the note is not repaid on time, a penalty of
0.5% will be assessed on the total note amount. On June 16, 2008, a supplemental
agreement was signed by the parties to amend the note’s maturity date to
December 31, 2008. The rest of the above loans to related parties as specified
above were for the purpose of temporary funding in business operation. These
funding transactions were unsecured and without fixed maturity dates. Such
transactions were borrowed and repaid frequently. Normally, it was agreed that
the loan amounts were to be paid back to the Company within three to six months
from the date of the loan transaction.
 
 The share
holding relationships of the related parties are as follows:
 
 Shareholder
                          
                          Title
                          
                          Holding %NIVS
      Investment (SZ) Co., Ltd.
                          
                          Mr.
      Li Tianfu
                          
                          Director
                          
                          90
                          %Zhongkena
      Technology Development
                          
                          NIVS
      Investment (SZ) Co., Ltd.
                          
                          Holding
      company controlled by Mr. Li Tianfu
                          
                          60
                          %Mr.
      Liu Jishen
                          
                          Director
                          
                          40
                          %Xentsan
      Technology (SZ) Co., Ltd.
                          
                          NIVS
      Investment (SZ) Co., Ltd.
                          
                          Holding
      company controlled by Mr. Li Tianfu
                          
                          51
                          %Mr.
      Li Tianfu
                          
                          Director
                          
                          49
                          %Hyundai
      Light & Electric (Int'l) Holding
                          
                          Mr.
      Li Tianfu
                          
                          Director
                          
                          100
                          %
 
 NIVS
Information & Technology (HZ) Co., Ltd. is owned by Zhongkena Technology
Development (SZ) Co., Ltd. (5%) and NIVS Investment (SZ) Co., Ltd.
(95%).
 
 Prior to
July 18, Korea Hyundai Light & Electric (Int’l) Holding Limited owned 100%
of Hyundai Light & Electric (HZ) Co., Ltd., and Mr. Li owned 100% Korea
Hyundai Light & Electric (Int’l) Holding Limited. On July 18, Mr. Li sold
his 100% ownership in Korea Hyundai Light & Electric (Int’l) Holding Limited
to China Intelligent Electronic Holding Company Limited., which is now 100%
owned by Ms. Jin Xiang Ying. Ms Jin Xiang Ying is an individual who is not
related to Mr. Li or the NIVS Groups. After the transfer, Mr. Li is no longer a
director of Korea Hyundai Light & Electric (Int’l) Holding Limited and
Hyundai Light & Electric (HZ) Co., Ltd. Mr. Li's sister, Ms. Li Xue Mei, is
an executive director and general manager of Hyundai Light & Electric (HZ)
Co., Ltd.
  22
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 9.
              PROPERTY
      AND EQUIPMENT
 
 Property
and equipments consist of the following:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Building
                          
                          $
                          16,572,751
                          
                          
                          $
                          15,567,497Molds
                          
                          
                          28,567,757
                          
                          
                          
                          26,834,921Machinery
      and Equipments
                          
                          
                          9,107,938
                          
                          
                          
                          5,762,197Electronic,
      office and other equipments
                          
                          
                          637,888
                          
                          
                          
                          590,063Automobiles
                          
                          
                          899,112
                          
                          
                          
                          844,218Accumulated
      Depreciation
                          
                          
                          (5,587,595
                          )
                          
                          
                          (2,974,394
                          )Property
      and equipments, net
                          
                          $
                          50,197,852
                          
                          
                          $
                          46,624,502
 
 The
depreciation expenses are $2,347,467 and $482,603 for the six months ended June
30, 2008 and 2007, respectively.
 
 June 30,
                              
                              
                              June 30,2008
                              
                              
                              2007Cost
      of sales
                              
                              $
                              2,175,519
                              
                              
                              $
                              343,521Selling
      expense
                              
                              
                              10,740
                              
                              
                              
                              5,200G&A
      expense
                              
                              
                              161,208
                              
                              
                              
                              133,882Total
                              
                              $
                              2,347,467
                              
                              
                              $
                              482,603
 
 10.
              INTANGIBLE
      ASSETS
 
 Intangible
assets consist of the following:
 
 June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Land
      use rights
                          
                          $
                          2,743,857
                          
                          
                          $
                          2,577,423Computer
      software use rights
                          
                          
                          4,800
                          
                          
                          
                          4,509Accumulated
      amortization
                          
                          
                          (410,288
                          )
                          
                          
                          (352,958
                          )Intangible
      assets, net
                          
                          $
                          2,338,369
                          
                          
                          $
                          2,228,974
 
 The
amortization expenses are $33,488 and $30,624 for the six months ended June 30,
2008 and 2007, respectively.
 
 11.
              CUSTOMER
      DEPOSIT
 
 The
Company requires its customers to pay 30% deposit of the total amount for each
order. The customer deposits are recorded as liability when the Company receives
it and are recognized as revenue after the total amount is paid off upon the
delivery of the products. In their agreement, the Company specifies the delivery
date (usually 30 days after the order is placed) and the liability for breach of
the contract. If the Company cannot fulfill its supply to its customers
according to the contract, the customers have the right to get back their
deposit. If the products do not meet the quality standard or need to rework, the
Company is responsible for the rework and certain expenses. The Company may
compensate its customers for their loss if the customers rework or repack by
themselves. If the customers do not pay the balance according to the contract,
the Company will charge them 0.5% of the balance amount each day at the second
week after the due date. But the total breach amount should not be over 20% of
the total amount of the contract. For the years ended December 31, 2007 and 2006
and the six months ended June 30, 2008 and 2007 the Company has had no costs
related to a contract breach or product quality issue.
  23
  Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)
 
 Customer
deposit consists of the following:
 
 JUNE
      30,
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    December
      31,2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2006Name
      of customer
                                                                                                    
                                                                                                    
                                                                                                    Nature
      and termsSHENZHENZHANHUI
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July and Aug.2008
                                                                                                    
                                                                                                    $
                                                                                                    1,984,589
                                                                                                    
                                                                                                    
                                                                                                    9
                                                                                                    %RADIO
      SHACK GLOBAL SOURC
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,814,113
                                                                                                    
                                                                                                    
                                                                                                    9
                                                                                                    %MICO
      ELECTRIC (HONGKONG)
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,772,990
                                                                                                    
                                                                                                    
                                                                                                    8
                                                                                                    %SWEET
      CRED LTD
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,524,807
                                                                                                    
                                                                                                    
                                                                                                    7
                                                                                                    %WEDO
      FAR EAST LTD
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,417,603
                                                                                                    
                                                                                                    
                                                                                                    7
                                                                                                    %HUA
      DONG TRADING GROUP L
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,346,062
                                                                                                    
                                                                                                    
                                                                                                    6
                                                                                                    %ZCX
      INTERNATIONAL LTD
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,057,175
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %AVCI
      GENERAL TRADING L L
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    1,052,151
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %ASIANA
      ENTERPRISES LIMIT
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    966,655
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %THOMSON
      HK HOLDINGS LTD
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    902,862
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %印度JUPITER
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan,May,July and Aug.2008
                                                                                                    
                                                                                                    
                                                                                                    747,121
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    237,902
                                                                                                    
                                                                                                    
                                                                                                    10
                                                                                                    %HUIZHOU
      TAIMING
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    622,052
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %MOSCOW
      TOR
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July and Aug.2008
                                                                                                    
                                                                                                    
                                                                                                    528,125
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    44,193
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %LISEN
      EAST
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July and Aug.2008
                                                                                                    
                                                                                                    
                                                                                                    502,150
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %SINGAPORE
      GEORGE
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    439,223
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %HUIZHOU
      DONGTIAN
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    307,049
                                                                                                    
                                                                                                    
                                                                                                    12
                                                                                                    %HUIZHOU
      ZHIYUAN
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    241,490
                                                                                                    
                                                                                                    
                                                                                                    10
                                                                                                    %SPAIN
      ADL
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July and Aug.2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    113,787
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    81,187
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %DONGGUAN
      ZHONGREN
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Dec.2007 and April 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    74,613
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    74,072
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %FUZHOU
      XINHONGSHENG
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan,March,May,Aug. 2007, Jan and July
      2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    68,807
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    59,444
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    81,545
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %INDAI
      MIRC
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivery in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    67,529
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    68,520
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %SAMSUNG
      K-TECH
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivery in Feb.2007 and in 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    65,908
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    67,302
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    91,014
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %BEIJING
      JINDACHENG
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    55,549
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    128,871
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %SHIJIAZHUANG
      YITE
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Dec. and 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    36,171
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    %CHANGCHUN
      LONGRUIDA
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Oct.,Dec 2007 and July
    2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    35,990
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    66,985
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %DUBAI
      QUALITY
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Nov. 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    32,985
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    %HAIWEI'ER
      TRADING
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan. and April 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    252,052
                                                                                                    
                                                                                                    
                                                                                                    10
                                                                                                    %SHENGKE
      NET
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    223,192
                                                                                                    
                                                                                                    
                                                                                                    9
                                                                                                    %BEIJING
      WIRELESS
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    153,576
                                                                                                    
                                                                                                    
                                                                                                    6
                                                                                                    %RUSSIA
      ERIMEX
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    151,472
                                                                                                    
                                                                                                    
                                                                                                    6
                                                                                                    %LITHUANIA
      ACME
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2007 and Jan 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,929
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %HANGZHOU
      WANHAI
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    68,541
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %RUSSIA
      AVE
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    61,368
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %TAIWAN
      ZHIHE
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in July 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    55,581
                                                                                                    
                                                                                                    
                                                                                                    2
                                                                                                    %DONGGUAN
      SHISHANG
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan and Feb. 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    125,085
                                                                                                    
                                                                                                    
                                                                                                    7
                                                                                                    %HUIZHOU
      DESAI
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan. and Dec.2006
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    95,577
                                                                                                    
                                                                                                    
                                                                                                    6
                                                                                                    %DONGGUAN
      JIANFENG
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered from 2006 to Jan 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    83,026
                                                                                                    
                                                                                                    
                                                                                                    5
                                                                                                    %DONGGUAN
      FANGZHENG
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered from 2006 to Jan 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    73,414
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %SHENZHEN
      WANLIZHOU
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan.,March,April and Oct.
      2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    59,275
                                                                                                    
                                                                                                    
                                                                                                    4
                                                                                                    %HUIZHOU
      SHENGDE
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered in Jan and Feb. 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    52,029
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    %Others
                                                                                                    
                                                                                                    
                                                                                                    Purchase
      of company products,delivered from 2006 to 2008
                                                                                                    
                                                                                                    
                                                                                                    4,309,615
                                                                                                    
                                                                                                    
                                                                                                    21
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    1,427,553
                                                                                                    
                                                                                                    
                                                                                                    56
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    633,646
                                                                                                    
                                                                                                    
                                                                                                    26
                                                                                                    %
                                                                                                    
                                                                                                    
                                                                                                    942,038
                                                                                                    
                                                                                                    
                                                                                                    56
                                                                                                    %Total:
      (USD)
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    20,987,293
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    2,527,431
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    2,454,761
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,677,075
  24





Niveous
Holding Company Limited and Subsidiaries


Notes
to Consolidated Financial Statements


(Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)




12.
            SHORT
      TERM LOANS





Short
term loans consist of the following:





June 30,
                            
                            
                            December 31,2008
                            
                            
                            2007Construction
      Bank
                            
                            $
                            13,940,170
                            
                            
                            $
                            12,326,110Defutai
      Bank
                            
                            
                            2,154,456
                            
                            
                            
                            2,023,773Agricultural
      Bank
                            
                            
                            2,667,966
                            
                            
                            
                            4,590,011Nanyian
      Bank
                            
                            
                            7,967,776
                            
                            
                            
                            7,421,508Henshen
      Bank
                            
                            
                            212,368
                            
                            
                            
                            541,665Development
      Bank
                            
                            
                            2,918,651
                            
                            
                            
                            1,742,504Dongya
      Bank
                            
                            
                            1,735,808
                            
                            
                            
                            -$
                            31,597,195
                            
                            
                            $
                            28,645,571





The above
outstanding short term loans are used primarily for general working capital
purposes. The others are recurring bank loans which carry annual interest rates
of 4.87%~8.76% 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:




June 30,
                    
                    
                    December 31,2008
                    
                    
                    2007Construction
      Bank
                    
                    
                    6.84
                    %
                    
                    
                    6.84
                    %Defutai
      Bank
                    
                    
                    4.92
                    %
                    
                    
                    4.92
                    %Agricultural
      Bank
                    
                    
                    7.20
                    %
                    
                    
                    7.20
                    %Nanyian
      Bank
                    
                    
                    6.84
                    %
                    
                    
                    6.84
                    %Henshen
      Bank
                    
                    
                    8.76
                    %
                    
                    
                    8.76
                    %Dongya
      Bank
                    
                    
                    5.08
                    %
                    
                    
                    -
                    %Development
      Bank
                    
                    
                    6.48
                    %
                    
                    
                    6.48
                    %





13.
            LONG
      TERM BANK LOAN





Long term
bank loans consist of the following:





June 30,
                              
                              
                              December 31,2008
                              
                              
                              2007Shenzhen
      Pinan Bank, starting 12/08/2004 for 30 months, 1 year renewable at
      maturity, 7.85% per annum, secured by land-use rights, plant and
      buildings
                              
                              $
                              1,459,500
                              
                              
                              $
                              3,084,685Agricultural
      Bank of China, starting 09/26/2005 for 2 years, 1 year renewable at
      maturity, 5.76% per annum, secured by buildings.
                              
                              
                              1,094,625
                              
                              
                              
                              1,370,971$
                              2,554,125
                              
                              
                              $
                              4,455,656




25


Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)


14.
            BANK
      NOTES PAYABLE AND RESTRICTED CASH





Bank
notes payable consist of the following:




June 30,
                          
                          
                          December 31,2008
                          
                          
                          2007Shenzhen
      Pingan Bank
                          
                          $
                          3,956,909
                          
                          
                          $
                          4,112,913Shenzhen
      Development Bank
                          
                          
                          9,225,777
                          
                          
                          
                          2,286,780$
                          13,182,685
                          
                          
                          $
                          6,399,693





The bank
notes have no interest bearing.  Additionally, the bank charges a 1⁄2 of
1 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:





June 31,
                        
                        
                        December 31,2008
                        
                        
                        2007Construction
      Bank
                        
                        $
                        51,538.04
                        
                        
                        $
                        -Henshen
      Bank
                        
                        
                        217,107.92
                        
                        
                        
                        749,373Shenzhen
      Development Bank
                        
                        
                        1,854,788.06
                        
                        
                        
                        1,233,874Shenzhen
      Pingan Bank
                        
                        
                        1,715,251.31
                        
                        
                        
                        -$
                        3,838,685
                        
                        
                        $
                        1,983,247





15.
            DUE
      TO SHAREHOLDER





Due to
shareholder consists of the following:





June 30,
                      
                      
                      December 31,2008
                      
                      
                      2007Due
      to Mr. Li Tianfu
                      
                      $
                      9,843,657
                      
                      
                      $
                      11,008,770





The above
amounts are due to Mr. Li Tianfu. These amounts are non-secured and no fixed
repayment date. The imputed interests are assessed as an expense to the business
operation and an addition to the paid-in capital. The calculation is performed
quarterly by annual rate in the range of 5.22 ~ 6.57% with the reference to the
average nine months loan rate. The imputed interests are as
follows:





Three months ended June 30,
                  
                  
                  Six months ended June 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Imputed
      interests
                  
                  $
                  109,194
                  
                  
                  $
                  140,817
                  
                  
                  $
                  299,333
                  
                  
                  $
                  249,239




As
presented in the statements of cash flows, the cash payments directly to and
from Mr. Li, as the Company’s largest shareholder, are classified as financing
activities pursuant to paragraph 18 of SFAS 95, which provides that “financing
activities include obtaining resources from owners and providing them with a
return on, and a return of, their investment; borrowing money and repaying
amounts borrowed.”


16.
            OTHER
      GENERAL AND ADMINISTRATIVE





For the
six months ended June 30, 2008 and 2007 the amount of other general and
administrative expenses mainly composed of the following events:





June 30,
                        
                        
                        June 30,2008
                        
                        
                        2007Audit
      and accounting
                        
                        $
                        7,783
                        
                        
                        $
                        33,488Legal
      fee
                        
                        
                        18,543
                        
                        
                        
                        -Office
      expenses
                        
                        
                        593,622
                        
                        
                        
                        362,502Salary
      and wages
                        
                        
                        275,733
                        
                        
                        
                        443,306Consulting
                        
                        
                        56,580
                        
                        
                        
                        86,330Rent
      & Utilities
                        
                        
                        81,065
                        
                        
                        
                        48,024Others
                        
                        
                        381
                        
                        
                        
                        127,678$
                        1,033,707
                        
                        
                        $
                        1,101,328




26


Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)


17.
            STATUTORY
      RESERVES





As
stipulated by the relevant laws and regulations for enterprises operating in
PRC, the subsidiaries of the Company are required to make annual appropriations
to a statutory surplus reserve fund. Specifically, the subsidiaries of the
Company are required to allocate 10% of their profits after taxes, as determined
in accordance with the PRC accounting standards applicable to the subsidiaries
of the Company, to a statutory surplus reserve until such reserve reaches 50% of
the registered capital of the subsidiaries of the Company.





18.
            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 PRC
is registered in PRC and has tax advantages granted by local government for
corporate income taxes and sales taxes commencing April 6,
2004.   NIVS PRC is entitled to have a full tax exemption for the
first two profitable years, followed by a 50% reduction on normal tax rate of
24% for the following three consecutive years.





NIVS
Shenzhen serves as a branch company of NIVS PRC.  The assessment of
its tax liabilities is combined with that of NIVS PRC.





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.





The
provision for taxes on earnings consisted of:





December 31,2007
                  
                  
                  2006
                  
                  
                  2005Current
      income taxes expenses:PRC
      Enterprises Income Tax
                  
                  $
                  1,268,963
                  
                  
                  $
                  752,552
                  
                  
                  $
                  -United
      States Federal Income Tax
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  1,268,963
                  
                  
                  $
                  752,552
                  
                  
                  $
                  -





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





December 31,2007
                  
                  
                  2006
                  
                  
                  2005U.S.
      statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      income not recognized in the U.S.
                  
                  
                  -34
                  %
                  
                  
                  -34
                  %
                  
                  
                  -34
                  %PRC
      preferential enterprise income tax rate
                  
                  
                  24
                  %
                  
                  
                  24
                  %
                  
                  
                  24
                  %Tax
      holiday and relief granted to the Subsidiary
                  
                  
                  -12
                  %
                  
                  
                  -12
                  %
                  
                  
                  -24
                  %Provision
      for income tax
                  
                  
                  12
                  %
                  
                  
                  12
                  %
                  
                  
                  -





19.
            COMMITMENTS
      AND CONTINGENCIES





(1)
            The
      Company and its subsidiaries have entered into several tenancy agreements
      for the lease of factory premises and staff quarters. The Company’s
      commitment for minimum lease payments under these non-cancelable operating
      leases for the next five years and thereafter is as
    follows:




27


Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)


Year
      Ended December 31, 2007For
      the year 2008
                        
                        $
                        179,093For
      the year 2009
                        
                        
                        179,093For
      the year 2010
                        
                        
                        179,093For
      the year 2011
                        
                        
                        132,205For
      the year 2012
                        
                        
                        41,483Total
                        
                        $
                        710,967





(2)
            In
      2007, NIVS PRC was involved in litigation with KONINKLIJKE PHILIPS
      ELECTRONICS N.V. (“KONINKLIJKE”). KONINKLIJKE brought suit in the
      Provincial Court in PRC alleging that NIVS PRC violated its trade-mark use
      right. With the Court intermediation, KONINKLIJKE withdrew the accusation
      and an extracurial settlement was reached in April 2008. NIVS PRC agreed
      to pay KONINKLIJKE RMB300,000 (converted to US$41,129 as at 2007 year-end
      rate 7.29410:1) to settle the
claim.





20.
            OPERATING
      RISK





Country
risk




The
Company has significant investments in the PRC. The operating results of the
Company may be adversely affected by changes in the political and social
conditions in the PRC and by changes in Chinese government policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things. The
Company can give no assurance that those changes in political and other
conditions will not result in have a material adverse effect upon the Company’s
business and financial condition.





21.
            CONCENTRATION
      OF CREDIT RISK





A
significant portion of the Company’s cash at June 30, 2008 and December 31, 2007
is maintained at various financial institutions in the PRC which do not provide
insurance for amounts on deposit.  The Company has not experienced any
losses in such accounts and believes it is not exposed to significant credit
risk in this area.




The
Company operates principally in the PRC and grants credit to its customers in
this geographic region. Although the PRC is economically stable, it is always
possible that unanticipated events in foreign countries could disrupt the
Company’s operations.





22.
            SEGMENT
      INFORMATION





The
segment information for revenue is as follows:





(In US Dollars)
                                                          
                                                          
                                                          June 30,
                                                          
                                                          December 31,2008
                                                          
                                                          2007
                                                          
                                                          2007
                                                          
                                                          2006
                                                          
                                                          2005Standard
      audio & video equipment
                                                          China1
                                                          
                                                          $
                                                          16,743,722
                                                          
                                                          $
                                                          21,505,301
                                                          
                                                          $
                                                          41,603,534
                                                          
                                                          $
                                                          16,598,375
                                                          
                                                          $
                                                          15,309,895Europe
                                                          
                                                          
                                                          2,321,975
                                                          
                                                          
                                                          3,585,162
                                                          
                                                          
                                                          9,250,213
                                                          
                                                          
                                                          4,376,525
                                                          
                                                          
                                                          2,426,588North
      America
                                                          
                                                          
                                                          2,320,156
                                                          
                                                          
                                                          35,063
                                                          
                                                          
                                                          166,671
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Other
      Asian countries
                                                          
                                                          
                                                          9,230,018
                                                          
                                                          
                                                          7,546,628
                                                          
                                                          
                                                          18,632,732
                                                          
                                                          
                                                          14,859,436
                                                          
                                                          
                                                          2,740,015South
      America
                                                          
                                                          
                                                          2,610,873
                                                          
                                                          
                                                          694,179
                                                          
                                                          
                                                          2,015,198
                                                          
                                                          
                                                          1,346,623
                                                          
                                                          
                                                          351,278Other
      countries
                                                          
                                                          
                                                          89,577
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Intelligent
      audio & video equipment
                                                          China
                                                          
                                                          
                                                          2,315,727
                                                          
                                                          
                                                          425,679
                                                          
                                                          
                                                          1,912,726
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -North
      America
                                                          
                                                          
                                                          4,788,582
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Other
      Asian countries
                                                          
                                                          
                                                          7,661,188
                                                          
                                                          
                                                          137,841
                                                          
                                                          
                                                          2,435,253
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Other
      audio & video equipment
                                                          China
                                                          
                                                          
                                                          3,555,076
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          1,610,189
                                                          
                                                          
                                                          554,443
                                                          
                                                          
                                                          1,137,752Total
                                                          
                                                          $
                                                          51,636,895
                                                          
                                                          $
                                                          33,929,853
                                                          
                                                          $
                                                          77,626,516
                                                          
                                                          $
                                                          37,735,401
                                                          
                                                          $
                                                          21,965,528




28


Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)


23.
            JULY 2008 INVESTOR RELATIONS
      AGREEMENT





In July
2008, the Company entered into a two-year consulting agreement with Nascent
Value LLC (“Nascent”). According to the agreement, as amended, Nascent will
provide the Company with business consulting and investor relation services.
Nascent is a third-party investor relations firm that does not have any other
relationship or common ownership with the Company or any of the Company’s
affiliates. As consideration for entering into the agreement and compensation
for Nascent’s services under the agreement, the Company issued to Nascent
425,000 shares (“IR Shares”) of its common stock upon the closing of the Share
Exchange. In connection with the IR Shares, the Company recognized a stock-based
compensation charge during the three months ended September 30, 2008 in the
amount of $765,000, which is derived from valuing each share at $1.80, the price
at which shares of the Company’s common stock were sold in the Private
Placement. The Company also agreed to pay Nascent $6,000 per month for its
services. Nascent also entered into a lock-up agreement with WestPark Capital,
Inc., the placement agent for the Private Placement, pursuant to which 20,000 IR
Shares will be subject to lock-up restrictions until the Company’s securities
are listed on a national securities exchange and the remaining 405,000 IR Shares
will be subject to lock-up restrictions following the date on which the
Company’s securities are listed on a national securities exchange. WestPark
Capital, Inc. reserves the right to release all or a portion of the shares at
its sole discretion.





24.
            SUBSEQUENT
      EVENTS





Share
Exchange Transaction





In June
2008, Niveous entered into entered into a share exchange agreement with SRKP 19,
Inc., a Delaware corporation, and all of the shareholders of Niveous. Pursuant
to the exchange agreement, as it was amended (the “Exchange Agreement”), SRKP 19
agreed to issue an aggregate of 27,546,667 shares of its common stock in
exchange for all of the issued and outstanding securities of Niveous (the “Share
Exchange”). The Share Exchange closed in July 2008. Upon the closing of the
Share Exchange on July 25, 2008, SRKP 19 issued an aggregate of 27,546,667
shares of its common stock to the shareholders of Niveous and their designees in
exchange for all of the issued and outstanding securities of Niveous.
Immediately after the closing of the Share Exchange, SRKP 19 changed its
corporate name from “SRKP 19, Inc.” to “NIVS IntelliMedia Technology Group,
Inc.” For accounting purposes, the Share Exchange will be treated as a reverse
acquisition.





Concurrently
with the close of the Share Exchange, NIVS IntelliMedia Technology Group, Inc.
conducted an initial closing of a private placement transaction pursuant to
which NIVS IntelliMedia Technology Group, Inc. 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, NIVS IntelliMedia Technology Group, Inc.
conducted a second and final closing of the private placement pursuant to which
NIVS IntelliMedia Technology Group, Inc. sold an aggregate of 1,304,587 shares
of common stock at $1.80 per share, for gross proceeds of approximately $2.3
million, of which $1.3 million was represented by subscription receivables.
Accordingly, NIVS IntelliMedia Technology Group, Inc. sold a total of 6,544,047
shares of common stock in the private placement for aggregate gross proceeds of
$11.8. WestPark Capital, Inc., 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. NIVS IntelliMedia Technology Group, Inc. agreed to
file a registration statement covering the common stock sold in the Private
Placement within 30 days of the closing of the Share Exchange.





November
2008 Debt Repayment and Set-Off Agreement





On
November 24, 2008, the note due to the Company was repaid in full by Hyundai
Light and Electric (HZ) Co Ltd. Furthermore, on November 28, 2008, the Company
and its subsidiaries entered into a Debt Repayment and Set-Off Agreement (the
“Repayment Agreement”) with Mr. Li and each of 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”).  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
the Company and the Company agreed to repay $996,433 of the debt that it owed to
Mr. Li.





Pursuant
to the terms of the Repayment Agreement, the Company and its subsidiaries
(collectively, the “NIVS Group”) had outstanding loan amounts of US$8,838,159
owed to Mr. Li (the “Li Debt”), and Mr. Li, through the Related Companies, had
an aggregate outstanding loan amount of US$996,433 owed to the NIVS Group (the
“Related Companies’ Debt”), with US$996,433 owed by Korea Hyundai Light &
Electric (Int'l) Holding.  The loans were unsecured with no fixed
repayment date. Pursuant to the Repayment Agreement, the Related Companies’ Debt
of US$996,433 was repaid in full by set-off against the Li Debt of US$8,838,159
such that, as a result of the transactions contemplated by the Repayment
Agreement, the Related Companies’ Debt was no longer outstanding and neither Mr.
Li nor any of the Related Companies owed the NIVS Group any loan
amount.  Moreover, after the repayments under the Repayment Agreement,
the Company’s remaining debt owed to Mr. Li was $7,841,726.




29


Niveous
Holding Company Limited and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and six months ended June 30, 2008 and 2007
are unaudited)


The
parties to the Repayment Agreement also acknowledged that there were no
remaining debt obligations owed to the Company or its subsidiaries, either
directly or indirectly, by Mr. Li, any other executive officer or director, or
any related family member, of the Company, or any entity owned or controlled by
such persons, including the Related Companies, and that no loans or similar
arrangements will be made by the Company or its subsidiaries to such persons or
entities in the future.   Due to the loans that the Company made
to the entities owned and controlled by its chief executive officer in violation
of Section 402 of the Sarbanes-Oxley Act of 2002, the Company and/or its chief
executive officer could become subject to criminal, civil or administrative
sanctions, penalties, or investigations and may also face potential private
securities litigation.





December
2008 Agreement to Convert Debt to Shares





On
December 24, 2008, pursuant to a debt conversion agreement, Mr. Li, the CEO of
the Company, agreed to convert the outstanding debt owed by the Company to him,
totaling $7,841,726 into approximately 2,160,255 shares of common stock at an
estimated conversion price of $3.63 per share. The actual conversion price will
be equal to the offering price of the Company’s proposed public offering, and
such offering price will be determined upon the closing of the public offering,
which is estimated to be between $3.25 and $4.00 per share.





30





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion relates to a discussion of the financial condition and
results of operations of NIVS IntelliMedia Technology Group, Inc. (the
“Company”) and its wholly-owned subsidiary Niveous Holding Company Limited
(referred to herein as “NIVS BVI”), and its subsidiaries, including 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, the Company’s Chief Executive Officer and Chairman of the
Board.  See Note 2 to the financial statements of this report for more
information on the Company’s organization and ownership
structure.  This management’s discussion and analysis of financial
condition and results of operations should be read in conjunction with its
financial statements and the related notes, and the other financial information
included in this report.





Forward-Looking
Statements





This
report contains 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.  These statements include, among others, information
regarding future operations, future capital expenditures, and future net cash
flow.  Such statements reflect our management’s current views with
respect to future events and financial performance and involve risks and
uncertainties, including, without limitation, general economic and business
conditions, changes in foreign, political, social, and economic conditions,
regulatory initiatives and compliance with governmental regulations, the ability
to achieve further market penetration and additional customers, and various
other matters, many of which are beyond our control.  Should one or
more of these risks or uncertainties occur, or should underlying assumptions
prove to be incorrect, actual results may vary materially and adversely from
those anticipated, believed, estimated or otherwise
indicated.  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.




SRKP
19, INC.





Plan of
Operation.  SRKP 19, Inc. incurred a net loss of $(13,302) for the
six months ended June 30, 2008 and $(15,441) for the corresponding period in
2007.  It is management’s assertion that these circumstances may hinder the
Company’s ability to continue as a going concern.  The Company has not
realized any revenues from operations since inception, and its plan of operation
for the next twelve months shall be to continue its efforts to locate suitable
acquisition candidates.  See below at “Management’s Discussion and
Analysis of Financial Condition and Results of Operations— NIVS INTELLIMEDIA
TECHNOLOGY GROUP, INC.” for information regarding the Share Exchange transaction
closed on July 25, 2008.





Liquidity and Capital
Resources.  As of June 30, 2008, the Company had assets equal to
$2,555 consisting exclusively of cash.  The Company can provide no
assurance that it can continue to satisfy its cash requirements for at least the
next twelve months.




Results of
Operations.  The Company has not conducted any active operations
since inception, except for its efforts to locate suitable acquisition
candidates.  No revenue has been generated by the Company from January 3,
2007 (inception) to June 30, 2008.  It is unlikely the Company will have
any revenues unless it is able to effect an acquisition of, or merger with, an
operating company, of which there can be no assurance.





NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.





Overview





Through
NIVS PRC, we engage in the development, production and sales of audio and video
equipment, and set-top box products. In recent years, we have spent substantial
resources on research and development to establish intelligent video and audio
products (meaning products incorporating Chinese speech interactive technology),
which we believe should help us diversify our revenue streams in addition to
adding a higher margin product line. We combine our Chinese speech interactive
technology with traditional video and audio products to form an intelligent
audio-visual system consisting of the audio system, TV set and DVB. Our audio
products have a solid reputation and established brand name in the PRC, while
abroad our products have been named among the most popular brands on consumer
websites for several years.




31




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





A small
number of customers account for a very significant percentage of our revenue.
For the six months ended June 30, 2008, we had eight customers that each
accounted for at least 5% of the revenues that we generated. These eight
customers accounted for a total of approximately 65% of our revenue for that
period. During the six months ended June 30, 2008, we had three
customers—Huizhou Zhiyuan (10%), Shenzhen Zhanhui (11%), and Huizhou Dongdian
(11%)—that each accounted for more than 10% of our sales. During the year ended
December 31, 2007, we had five customers that generated revenues of at least 5%
of our revenues. These five customers accounted for a total of approximately 38%
of our revenue for the year ended December 31, 2007. For the same period, we had
one customer—HongKong Huian (13%)—that accounted for more than 10% of our sales.
For the year ended December 31, 2006, we had four customers that accounted for
at least 5% of revenue. These four customers accounted for approximately 49% of
our revenue for that period. For the same period, we had two customers—India
Jupiter (17%) and Singapore George (16%)—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 our on purchases from our suppliers during the year as
we submit purchase orders further to the agreement.  Notwithstanding
our practices to reduce the cost of our materials, price fluctuations of
materials will still affect our production cost and gross margin.





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





For
example, in the first half of 2008, our sales revenue and sales volume for DVD
players declined 57% and 85%, respectively, compared to our sales revenue and
volume for the first half of 2007. In 2007, our customers placed a large number
of orders for DVD players, which increased our sales revenue and volume
significantly. However, in the first half of 2008, the price of DVDs began to
decrease and the margin of profit from DVD players likewise decreased. As a
result, we adjusted our sales strategy and focused our sales on televisions such
that we did not produce as many DVD players as in previous years and therefore,
our sales of DVD-related products have decreased. In the first half of 2008, our
sales revenue for televisions was approximately $4.2 million, which represented
an increase of approximately 860% compared to revenue of $0.43 million from the
sale of televisions for first half of 2007. The increase in revenue for
televisions resulted from an increase in sales volume. In the first half of
2008, our sales volume for televisions rose approximately 940% as compared to
the first half of 2007. We believe the increases in sales revenue and volume are
a result of our investment of resources into the research and development of new
products and design, our focus on the promotion of our brand, and expansion of
our sales channels.





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 65% of our revenues for the six months ended June 30, 2008, as
compared to 71% for the first half of 2007, and sales of products with our own
brand accounted for approximately 35% of our revenues for the same period, as
compared to 29% for the first half of 2007. OEM sales accounted for 77% of our
revenues for the year ended December 31, 2007 and sales of products with our own
brand accounted for 23% of our revenues for the same period.





We
anticipate that certain costs of operation will increase in the future,
including costs and expenses associated with contributions to the PRC housing
assistance fund for our employees, which we anticipate to increase approximately
20%. Additionally, changes in Chinese labor laws may require us to raise lower
employee salary standards, which will ultimately increase our operation and
production costs.





32




Recent
Events





On June
27, 2008, we entered into a share exchange agreement, as amended on July 25,
2008 (the “Exchange Agreement”), with NIVS BVI and its shareholders, pursuant to
which these shareholders would transfer all of the issued and outstanding
securities of NIVS BVI to us in exchange for 27,546,667 shares of our common
stock. On July 25, 2008, the Share Exchange closed and NIVS BVI became our
wholly-owned subsidiary and we changed our name to “NIVS IntelliMedia Technology
Group, Inc.” A total of 27,546,667 shares were issued to the former shareholders
of NIVS BVI and their designees.





In
addition, 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, Inc., 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.





In July
2008, we entered into a two-year consulting agreement with Nascent Value LLC
(“Nascent”).  According to the agreement, as amended, Nascent will
provide us with business consulting and investor relations services. Nascent is
a third-party investor relations firm that does not have any other relationship
or common ownership with us or any of our affiliates. As consideration for
entering into the agreement and compensation for Nascent’s services under the
agreement, we issued to Nascent 425,000 shares (“IR Shares”) of our common stock
upon the closing of the Share Exchange.  In connection with the IR
Shares, we recognized a stock-based compensation charge during the three months
ended September 30, 2008 in the amount of $765,000, which is derived from
valuing each share at $1.80, the price at which shares of our common stock were
sold in the Private Placement. We also agreed to pay Nascent $6,000 per month
for its services. Nascent also entered into a lock-up agreement with WestPark
Capital, Inc., the placement agent for the Private Placement, pursuant to which
20,000 IR Shares will be subject to lock-up restrictions until our securities
are listed on a national securities exchange and the remaining 405,000 IR Shares
will be subject to lock-up restrictions following the date on which our
securities are listed on a national securities exchange.  WestPark
Capital, Inc. reserves the right to release all or a portion of the shares at
its sole discretion.





Critical
Accounting Policies and Estimates





The
discussion and analysis of our financial condition and results of operations is
based upon our financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities. On an on-going basis, we
evaluate our estimates including the allowance for doubtful accounts, the
salability and recoverability of inventory, income taxes and contingencies. We
base our estimates on historical experience and on other assumptions that we
believe to be reasonable under the circumstances, the results of which form our
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.





We cannot
predict what future laws and regulations might be passed that could have a
material effect on our results of operations. We assess the impact of
significant changes in laws and regulations on a regular basis and update the
assumptions and estimates used to prepare our financial statements when we deem
it necessary.





Revenue
recognition. We recognize revenue from the sales of products. Sales
are recognized when the following four revenue criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred, the selling price is
fixed or determinable, and collectivity is reasonably assured. Sales revenue is
presented net of value added tax (VAT), sales rebates and returns. No return
allowance is made as product returns are insignificant based on historical
experience.





Allowance for
doubtful accounts.In estimating the collectability of accounts
receivable we analyze historical write-offs, changes in our internal credit
policies and customer concentrations when evaluating the adequacy of our
allowance for doubtful accounts. Differences may result in the amount and timing
of expenses for any period if we make different judgments or uses difference
estimates. Our accounts receivable represent a significant portion of our
current assets and total assets. Our realization on accounts receivable,
expressed in terms of United States dollars may be affected by fluctuations in
currency rates since the customer’s currency is frequently a currency other than
United States dollars.




33





Inventories.Inventories comprise raw materials and finished goods are stated at the
lower of cost or market. Substantially all inventory costs are determined using
the weighted average basis. Costs of finished goods include direct labor, direct
materials, and production overhead before the goods are ready for sale.
Inventory costs do not exceed net realizable value.





Taxation.Under the tax laws of PRC, NIVS PRC 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 normal tax rate of 24% for the
following three consecutive years. 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 in the near future as a result of the new EIT
Law.





Recently
Issued Accounting Pronouncements





On
December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all
entities to report noncontrolling (minority) interests in subsidiaries as equity
in the consolidated financial statements. The statement establishes a single
method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation and expands disclosures in the
consolidated financial statements. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years.
We have not yet determined the impact of the adoption of SFAS No. 160 on our
consolidated financial statements and footnote disclosures.





On
December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS No.
141R). SFAS No. 141R requires the acquiring entity in a business combination to
recognize all the assets acquired and liabilities assumed, establishes the
acquisition date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires the acquirer to expand disclosures about
the nature and financial effect of the business combination. SFAS No. 141R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We have not yet determined the impact of the adoption of SFAS
No. 141R on our consolidated financial statements and footnote
disclosures.





In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for
reporting fair value and expands disclosures about fair value measurements. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
adoption of this standard had no impact on the Company’s financial position or
results of operations.





In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities”.The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company is currently evaluating the impact of
adopting SFAS 161 on its consolidated financial statements.





In April
2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life
of Intangible Assets (“FSP FAS 142-3”) which amends the factors an entity should
consider in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FAS No. 142, Goodwill and
Other Intangible Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible
assets that are acquired individually or with a group of assets and intangible
assets acquired in both business combinations and asset acquisitions. It removes
a provision under FAS No. 142, requiring an entity to consider whether a
contractual renewal or extension clause can be accomplished without substantial
cost or material modifications of the existing terms and conditions associated
with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own
experience in renewing similar arrangements. An entity would consider market
participant assumptions regarding renewal if no such relevant experience exists.
FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with
early adoption prohibited. We have not yet determined the effect, if any, of the
adoption of this statement on our financial condition or results of
operations.





In June
2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. EITF
03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1
concludes that unvested share-based payment awards that contain rights to
receive non-forfeitable dividends or dividend equivalents are participating
securities, and thus, should be included in the two-class method of computing
earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years. Early
application of EITF 03-6-1 is prohibited. It also requires that all prior-period
EPS data be adjusted retrospectively. We have not yet determined the effect, if
any, of the adoption of this statement on our financial condition or results of
operations.




34





Recently
Adopted Accounting Pronouncements





In July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take
on a tax return (including a decision whether to file or not to file a return in
a particular jurisdiction). The accounting provisions of FIN No. 48 are
effective for fiscal years beginning after December 15, 2006. The adoption of
this Interpretation had no impact on the Company’s financial position or results
of operations.





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 defines fair value, establishes a framework and gives guidance
regarding the methods used for measuring fair value, and expands disclosures
about fair value measurements. In February 2008, the FASB issued FASB Staff
Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13" ("FSP
157-1") and FASB Staff Position 157-2, "Effective Date of FASB Statement No.
157" ("FSP 157-2"). FSP 157-1 amends SFAS 157 to remove certain leasing
transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until fiscal years beginning after November
15, 2008. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company adopted SFAS 157 effective January 1, 2008 for all financial
assets and liabilities as required. The adoption of SFAS 157 was not material to
the Company's financial statements or results of operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115,” (“SFAS 159”) which is effective for fiscal years beginning
after November 15, 2007. SFAS 159 is an elective standard which permits an
entity to choose to measure many financial instruments and certain other items
at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be
reported in earnings. The Company has not elected the fair value option for any
assets or liabilities under SFAS 159.





Results
of Operations





Three
months ended June 30, 2008 and 2007




Revenues,
which consist of sales of our products, were $24.9 million for three months
ended June 30, 2008, an increase of $7.3 million, or 41%, compared to $17.6
million for the same period in 2007. The increase in revenue was attributed
mainly to the increased demand for our products, which we believe is a result of
our market expansion efforts. The increase of revenue was also due to the new
sales of digital equipment and LCD products, as well as price increases of some
of our audio system products.  For the three months ended June 30,
2008, our sales revenue for standard audio equipment increased to $12.2 million,
an increase of 19.3% compared to $10.2 million for the same period in 2007.
Sales revenue for televisions increased to $3.0 million, an increase of 593%
compared to $0.4 million for the same period in 2007. Sales revenue for our
intelligent audio and video equipment increased to $6.1 million, an increase of
276% compared to $1.6 million for the same period in 2007. For the three months
ended June 30, 2008, our sales volume for standard audio equipment decreased by
12.9% to 0.9 million pieces as compared to 1.1 million pieces for the same
period in 2007. The decrease was due to product upgrades as we upgraded most of
our standard audio equipment to intelligent audio equipment. For the three
months ended June 30, 2008, our sales volume for televisions increased by 625%
to 0.9 million pieces as compared to 0.1 million pieces for the same period in
2007. Our sales volume for intelligent audio and video equipment increased by
300% to 0.3 million pieces as compared to 0.1 million pieces for the same period
in 2007. We believe the increases in sales revenue and volume are a result of
our investment of resources into the research and development of new products
and design to meet the requirements of the market, our focus on the promotion of
our brand, and expansion of our sales channels.





Cost of
sales, which include raw material, labor and manufacturing overhead, were $19.2
million for three months ended June 30, 2008, an increase of $5.5 million, or
40%, compared to $13.7 million for the same period in 2007. This increase in
cost of sales was caused by an increase in sales and was consistent with the
increase in the net revenue. As a percentage of the net revenue, cost of sales
for the three months ended June 30, 2008 and 2007 were 77% and 78%,
respectively.




35





Gross
profit for the three months ended June 30, 2008 was $5.7 million, or 23% of
revenues, compared to $4.0 million, or 23% of revenues, for the comparable
period in 2007. 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 $0.7 million for three months ended June 30, 2008, a decrease of
$0.1 million, or 13%, compared to $0.8 million for the same period in 2007. The
decrease was primarily due to an implementation of cost control in advertising
and marketing activities.




Research
and development expenses, which were approximately $0.3 million for the three
months ended June 30, 2008, an increase of approximately $0.2 million, or 200%,
compared to $0.1 million for the same period in 2007. We believe that our focus
on research and development contributed to the increase in our total sales. In
the future, we expect to continue to increase our research and development
efforts and to enable us to manufacture wider lines of products.





General
and administrative expenses, which include wage, benefit, bad debts, utility,
consulting, professional fee, various taxes and levies and other expenses, were
$0.3 million for three months ended June 30, 2008, a decrease of $1.0 million,
or 77%, compared to $1.3 million for the same period in 2007. The decrease was
primarily a result of a decrease of bad debt reserves, professional fees and
various tax and levies. We expect our general and administrative expenses to
increase as a result of professional fees incurred as a result of being a
publicly reporting company in the United States.





Interest
expenses were $0.5 million and $0.4 million for the three months ended June 30,
2008 and 2007, respectively. The increase was due to new short-term and
long-term bank loans during the three months ended June 30, 2008.





Income
tax provisions for the three months ended June 30, 2008 were approximately $0.5
million, as compared to approximately $0.2 million for the three months ended
June 30, 2007.  The increase was primarily due to an increase in the
taxable income for the three months ended June 30, 2008.  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 normal tax rate of 24% for the following three
consecutive years. Our effective income tax rates for the three months ended
June 30, 2008 and June 30, 2007 were 12.5% and 12%, 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 in the near future as a
result of the new EIT Law.





We had
net income of $3.3 million for three months ended June 30, 2008, an increase of
$2.2 million, or 204%, compared to $1.1 million for the same period in
2007.





Six
months ended June 30, 2008 and 2007




Revenues
were $51.6 million for six months ended June 30, 2008, an increase of $17.7
million, or 52%, compared to $33.9 million for the same period in 2007. The
increase in revenue was attributed mainly to the increased demand for our
products, which we believe is a result of our market expansion efforts. The
increase of revenue was also due to the new sales of digital equipment and LCD
products, as well as price increases of some of our audio system
products.  For the six months ended June 30, 2008, our sales revenue
for standard audio equipment increased to $26.2 million, an increase of 8.6%
compared to $24.1 million for the same period in 2007. Sales revenue for
televisions increased to $4.2 million, an increase of 860% compared to $0.4
million for the same period in 2007. Sales revenue for our intelligent audio and
video equipment increased to $14.8 million, an increase of 326% compared to $3.5
million for the same period in 2007. For the six months ended June 30, 2008, our
sales volume for standard audio equipment decreased by 12.6% to 2.0 million
pieces as compared to 2.2 million pieces for the same period in 2007. The
decrease was due to product upgrades as we upgraded most of our standard audio
equipment to intelligent audio equipment. For the six months ended June 30,
2008, our sales volume for televisions increased by 940% to 1.1 million pieces
as compared to 0.1 million pieces for the same period in 2007. Our sales volume
for intelligent audio and video equipment increased by 912% to 0.8 million
pieces as compared to 0.1 million pieces for the same period in 2007. We believe
the increases in sales revenue and volume are a result of our investment of
resources into the research and development of new products and design to meet
the requirements of the market, our focus on the promotion of our brand, and
expansion of our sales channels.





Cost of
sales were $39.6 million for six months ended June 30, 2008, an increase of
$13.6 million, or 52%, compared to $26.0 million for the same period in 2007.
This increase in cost of sales was caused by an increase in sales and was
consistent with the increase in the net revenue. As a percentage of the net
revenue, cost of sales for the six months ended June 30, 2008 and 2007 were 77%
and 77%, respectively.




36





Gross
profit for the six months ended June 30, 2008 was $12.2 million, or 24% of
revenues, compared to $8.2 million, or 24% of revenues, for the comparable
period in 2007. 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 were $1.4 million for six months ended June 30, 2008, a decrease of
$0.3 million, or 18%, compared to $1.7 million for the same period in 2007. The
decrease was primarily due to an implementation of cost control in advertising
and marketing activities.




Research
and development expenses, which were approximately $0.4 million for the six
months ended June 30, 2008, an increase of approximately $0.3 million, or 300%,
compared to $0.1 million for the same period in 2007. We believe that our focus
on research and development contributed to the increase in our total sales. In
the future, we expect to continue to increase our research and development
efforts and to enable us to manufacture wider lines of products.





General
and administrative expenses were $1.6 million for six months ended June 30,
2008, a decrease of $0.4 million, or 20%, compared to $2.0 million for the same
period in 2007. The decrease was primarily a result of a decrease of bad debt
reserves, professional fees and varies tax and levies. We expect our general and
administrative expenses to increase as a result of professional fees incurred as
a result of being a publicly reporting company in the United
States.





Interest
expenses were $1.0 million and $0.6 million for the six months ended June 30,
2008 and 2007, respectively. The increase was due to new short-term and
long-term bank loans during the six months ended June 30, 2008.





Income
tax provisions for the six months ended June 30, 2008 were approximately $1.0
million, as compared to approximately $0.4 million for the six months ended June
30, 2007.  The increase was primarily due to an increase in the
taxable income for the six months ended June 30, 2008. 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 normal tax rate of 24% for the following three consecutive years.
Our effective income tax rates for the six months ended June 30, 2008 and June
30, 2007 were 12.5% and 12%, 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 in the near future as a result of the new EIT
Law.





We had
net income of $6.3 million for six months ended June 30, 2008, an increase of
$3.8 million, or 153%, compared to $2.5 million for the same period in
2007.





Liquidity
and Capital Resources





We had an
unrestricted cash balance of approximately $1.0 million as of June 30, 2008, as
compared to $1.4 million as of December 31, 2007.  In addition, we
also had approximately $3.8 million in restricted cash as of June 30, 2008, as
compared to $2.0 million as of December 31, 2007. Our restricted cash is held as
a security deposit for our recurring, short-term bank notes.  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.





We are
subject to the regulations of the PRC which restricts the transfer of cash from
China, except under certain specific circumstances. Accordingly, such funds may
not be readily available to us to satisfy obligations which have been incurred
outside the PRC.





We had
negative working capital of approximately $49.7 million and $12.5 million as at
June 30, 2008 and 2007, respectively. The increase of negative working capital
was largely caused by the substantial increases in financing from bank loans and
notes.





Our
accounts receivable has been an increasingly significant portion of our current
assets, representing $5.4 million and $5.2 million, or 18% and 19% of
current assets, as at June 30, 2008 and 2007, 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.




37





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 work in process and finished goods
inventory on hand to ensure timely delivery of our products to our customers. We
typically offer certain of our customers 30 to 90 days credit terms for payment.
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 collectability of specific
customer accounts, the aging of accounts receivable, our history of bad debts,
and the general condition of the industry. If a major customer’s credit
worthiness deteriorates, or our customers’ actual defaults exceed historical
experience, our estimates could change and impact our reported results. We have
not experienced any significant amount of bad debt since the inception of our
operation.





As of
June 30, 2008, inventories amounted to $18.8 million, compared to $1.3 million
at June 30, 2007.  We have experienced increased sales volume annually
and, as a result, we have increased our inventories accordingly. We keep certain
reserve amounts of raw materials in our inventories and engage in long-term
arrangements with suppliers in an attempt to protect against any rising prices
and shortages of raw materials used to manufacture our products.





NIVS PRC
has entered into various revolving bank loans and bank notes to finance our
operation. Most of the loans are one year renewable. NIVS PRC had bank loans of
approximately $34 million and $26 million as at June 30, 2008 and 2007,
respectively. These loans carry annual interest rates of approximately 4.9% to
8.8% with maturity dates ranging from 30 days to one year. These loans are
either unsecured or secured by Company’s buildings, receivables and land use
rights.





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
38,474,900RMB, 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.
 
 The
amount of the loans made by our subsidiaries to the Related Companies ranged in
amount.  The aggregate amount loaned from our subsidiaries to the
Related Companies was approximately $13 million, $10 million, and $4 million
during the nine months ended September 30, 2008 and the years ended December 31,
2007 and 2006, respectively.  The loan amounts owed to our
subsidiaries by the Related Companies as of September 30, 2008 and December 31,
2007 and 2006 were approximately $7.6 million, $2.2 million, and $7.0 million,
respectively.  Other than the loan to a supplier of Hyundai Light and
Electric (HZ) Co. Ltd., all of the loans to and from our subsidiaries were
unsecured with no fixed repayment date.  The loans were borrowed and
repaid frequently.  Normally, it was agreed that the loan amounts were
to be paid back to our subsidiaries within three to six months from the date of
the loan transaction.  The loans to the Related Companies were for
temporary funding of each of the Related Companies’ business.
 
 As
presented in our statements of cash flows in our financial statements, the cash
payments directly to and from our largest shareholder, Mr. Li, are reflected as
“Due to Shareholder” and are classified as financing activities pursuant to
paragraph 18 of SFAS 95, which provides that “financing activities include
obtaining resources from owners and providing them with a return on, and a
return of, their investment; borrowing money and repaying amounts
borrowed.”  The loan transactions with the related parties are
classified as investing activity in accordance with paragraphs 16a and 17a of
SFAS 95 as the related parties are not “owners” of our company as described in
paragraph 18 of SFAS 95 since the entities do not own equity in our
company.  In addition, Mr. Li, from July 2008, has not owned any part
of Hyundai Light & Electric (Int’l) Holding Limited, and Mr. Li has never
had any ownership interest of the supplier of Hyundai Light & Electric
(Int’l) Holding Limited that was the holder of the note.  The loans to
the related parties were not a borrowing of funds by us, nor a repayment of
funds borrowed by an owner.


Upon the
closing of the Share Exchange, we, a publicly reporting company under U.S.
securities laws, gained ownership of the subsidiaries.  As a result,
our subsidiaries became subject to the Sarbanes-Oxley Act of 2002, including
Section 402’s prohibition against personal loans to directors and executive
officers, either directly or indirectly.  Because the loans did not
have a purpose directly related to the business operations of our company or our
subsidiaries, we believe that the loans made and outstanding after the closing
of the Share Exchange may violate of Section 402 of Sarbanes-Oxley, which would
subject us and our chief executive officer to possible criminal, civil or
administrative sanctions, penalties, or investigations, in addition to potential
private securities litigation.  It was intended that all loans from
our subsidiaries to our officers and directors, whether directly or indirectly,
be repaid in full prior to the closing of the Share Exchange, and no further
loans were to be made to such related parties after the closing of the Share
Exchange, which occurred on July 25, 2008.  In November 2008, it was
discovered that the loans to the entities owned by Mr. Li continued after the
closing of the Share Exchange.  We made a total of 47 loans, with a
total loan amount of $3,221,915, to the Related Companies after the closing of
the Share Exchange.





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 $996,433 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.




38





Immediately
prior to the repayments under the Agreement, our subsidiaries had an aggregate
outstanding loan amount of $8,838,159 owed to Mr. Li (the “Li
Debt”).  On the same date, Mr. Li, through the Related Companies, had
an aggregate outstanding loan amount of $996,433 owed to our subsidiaries (the
“Related Companies’ Debt”), which consisted of $996,433 owed by Korea Hyundai
Light & Electric (Int'l) Holding.





Pursuant
to the Agreement, the Related Companies’ Debt of $996,433 was repaid by set off
against the Li Debt of $8,838,159.  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
$7,841,726.  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
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 $7,841,726 that we owe to Mr. Li will be converted into shares of our
common stock.  According to the agreement, the shares will be issued
upon the closing of our proposed public offering.  No conversion of
the debt will occur unless the public offering is conducted, and there is no
guarantee that we will be able to complete the public offering.  The
number of shares that we will issue to Mr. Li will be equal to the debt amount
of $7,841,726 divided by the offering price of our proposed public
offering.  The estimated offering price range for our offering is
$3.25 to $4.00 per share, and based on the mid-range point of the per share
offering price of $3.63, we estimate that we will be issuing 2,160,255 shares of
common stock to Mr. Li.  After giving effect to the conversion, and
assuming the closing of the proposed public offering, the debt will no longer be
outstanding and we will not have any outstanding debt owed to Mr.
Li.





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, of which $1.3 million was represented by
subscription receivables. 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, Inc.,
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
agreed to file a registration statement covering the common stock sold in the
Private Placement and to pay for all costs related to the registration of the
shares.  We have used and intend to use 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.





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, we may not be able to
access NIVS PRC’s funds may not be readily available to us to satisfy
obligations which have been incurred outside the PRC, which could adversely
affect our business and prospects or our ability to meet our cash
obligations.





Net cash
provided by operating activities was $2.8 million for the six months ended June
30, 2008, compared to net cash used in operations of $4.7 million for the six
months ended June 30, 2007. The increase in net cash provided by operating
activities was primarily due to an increase cash provided from accounts payable
and accrued liabilities from $1.6 million to $10.5 million, for the respective
periods, which primarily resulted from our increase in short-term and long-term
contracts with banks for funds to pay for materials in cash and in advance in
order to secure more beneficial pricing from our suppliers. In addition, the
change in net cash provided by operating activities was due to a decrease of
cash used in account receivables from $5.8 million to $1.3 million, for the
respective periods, which primarily resulted from an increase in our sales
volume for the six months ended June 30, 2008. Our increase in net cash provided
for the six months ended June 30, 2008 was partially offset by an increase in
cash used in advance to suppliers from $4.6 million for the first half of 2007
to $13.8 million for the first half of 2008. We increased our advances to
suppliers in an attempt to secure discounts and locking up material costs in
response to increasing material costs.




39





Net cash
used in investing activities was $8.4 million for the six months ended June 30,
2008, compared to net cash used in investing activities of $4.7 million for the
six months ended June 30, 2007. The increase in net cash used in investing
activities was due to our purchase of production equipment to expand our
production scale in the first quarter of 2008 and an increase in amounts due
from related parties.





Net cash
provided by financing activities amounted to $4.3 million for the six months
ended June 30, 2008, compared to net cash provided by financing activities of
$10.6 million for the six months ended June 30, 2007. The decrease of cash
provided was primarily a result of an increase in repayment of loans and bank
notes that we took out during 2007. During the six months ended June 30, 2008,
lenders extended our credit lines as our operations expanded, and our net
proceeds from loan and bank notes was only $5.5 million for the six months ended
June 30, 2008, which is $3.8 million less than the net proceeds from loans and
banks notes of $9.3 million for the six months ended June 30, 2007.




As
indicated above, cash payments directly to and from our largest shareholder, Mr.
Li, are classified as financing activities pursuant to paragraph 18 of SFAS 95
and the loan transactions with the related parties are classified as investing
activity pursuant to paragraphs 16a and 17a of SFAS 95.


Based
upon our present plans, we believe that cash on hand, cash flow from operations
and funds available to us through financing will be sufficient to fund our
capital needs for at least the next 12 months. We expect that our primary
sources of funding for our operations for the upcoming 12 months and thereafter
will result from our continued use of bank loans and bank notes and cash flow
from operations to fund our operations during the upcoming 12 months and
thereafter, in addition to the possibility of conducting debt and equity
financings. 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.


40


Item
3. Quantitative and Qualitative Discloses About Market Risk




SRKP
19, INC.




As a
“smaller reporting company,” as defined by Item 10 of Regulation S-K, SRKP 19,
Inc. is not required to provide information required by this Item.




NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.





Interest
Rate Risk





We may
face some risk from potential fluctuations in interest rates, although our debt
obligations are primarily short-term in nature, but some bank loans have
variable rates. If interest rates have great fluctuations, our financing cost
may be significantly affected.





Foreign
Currency Risk





Substantially
all of our operations are conducted in the PRC and our primary operational
currency in Chinese Renminbi (“RMB”).  As a
result, currently the effect of the fluctuations of RMB exchange rates only has
minimum impact on our business operations, but will be increasingly material as
we introduce our products widely into new international markets. Substantially
all of our revenues and expenses are denominated in RMB. However, we use the
United States dollar for financial reporting purposes. Conversion of RMB into
foreign currencies is regulated by the People’s Bank of China
through a unified floating exchange rate system. Although the PRC government has
stated its intention to support the value of the RMB, there can be no assurance
that such exchange rate will not again become volatile or that the RMB will not
devalue significantly against the U.S. dollar. Exchange rate fluctuations may
adversely affect the value, in U.S. dollar terms, of our net assets and income
derived from our operations in the PRC.





Country
Risk





The
substantial portion of our assets and operations are located and conducted in
China. While the PRC economy has experienced significant growth in the past
twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of China, but may also have a
negative effect on us. For example, our operating results and financial
condition may be adversely affected by government control over capital
investments or changes in tax regulations applicable to us. If there are any
changes in any policies by the Chinese government and our business is negatively
affected as a result, then our financial results, including our ability to
generate revenues and profits, will also be negatively affected.





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 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 us in the reports that we file 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 report, we conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO), 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 CEO and CFO concluded that the Company’s disclosure
controls and procedures had significant deficiencies that caused our controls
and procedures to be ineffective.


41


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.





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 six months
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 reviewed the accounting for the imputed interest and,
based on the review, we concluded that we misapplied accounting principles
generally accepted in the United States of America and we restated our financial
statements for the periods indicated above.  We concluded that the
imputed interest on loans due to our principal shareholders should have been
accounted for as an expense to business operation and an addition to paid-in
capital.  We accounted for the imputed interest as an expense to
business operations and an addition to paid-in capital.





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. We
reviewed the accounting for “Due from related parties” and, based on the review,
we concluded that we misapplied accounting principles generally accepted in the
United States of America and we restated our financial statements for the
periods indicated above. We concluded that “Due from related parties” should
have been accounted for by recording related party receivables as a deduction
from stockholders’ equity. We accounted for “Due from related parties” by
recording related party receivables as a deduction from stockholders’
equity.





Furthermore,
in November 2008, our management identified a material weakness in our controls
and procedures regarding our failure to timely disclose and prevent loan
transactions made to entities owned and controlled by our CEO in violation of
Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402”).  The
facts of the loan transactions and remediation are as follows:





On July
25, 2008, we consummated a share exchange transaction (the “Share Exchange”)
pursuant to a share exchange agreement (the “Exchange Agreement”) dated as of
June 27, 2008, and amended as of July 25, 2008, with NIVS Holding Company
Limited, a British Virgin Islands corporation (“NIVS BVI”) and the shareholders
of NIVS BVI (the “Shareholders”), whereby we (i) became the 100% parent of NIVS
BVI and its subsidiaries, including its 97.5%-owned subsidiary NIVS (Huizhou)
Audio & Video Tech. Co., Ltd., a company organized under the laws of the PRC
(“NIVS PRC”); (ii) assumed the operations of NIVS BVI and its subsidiaries and
(iii) changed our name from SRKP 19, Inc. to NIVS IntelliMedia Technology Group,
Inc. See Note 2 to the financial statements of this report for more information
on the Company’s organization and ownership structure. Upon the closing of the
Share Exchange, the sole business conducted by our company became the business
conducted by NIVS BVI, and we appointed new officers and directors, which were
officers and directors of NIVS BVI. Prior to the Share Exchange, NIVS PRC
entered into loan transactions with its founder and our principal shareholder
and current Chief Executive Officer and Chairman of the Board, Tianfu Li. In
these transactions, NIVS PRC would borrow funds from Mr. Li and NIVS PRC would
also lend funds to entities that were owned and controlled by Mr. Li. These
entities 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. The loans were unsecured with no fixed repayment
date.





It was
intended that all loans from the Company to officers and directors, whether
directly or indirectly, be repaid prior to the closing of the Share Exchange,
and no further loans would be made to such related parties after the closing of
the Share Exchange. In November 2008, it was discovered that the loans to
entities owned by our CEO and other related parties continued after the closing
of the Share Exchange.  Upon the discovery of the continued loans to
entities owned by our CEO and other related parties, we took remedial steps to
address the violation of Section 402 by requiring immediate and full repayment
of all outstanding loan balances, including all accrued interest, and we have
received full repayment of the amounts owed to us by the entities owned and
controlled by our CEO.  We entered into a repayment agreement with the
entities owned by our CEO and other related parties pursuant to which all
amounts owed by such entities to us was repaid in full.


42


We have
taken steps to improve the process designed to prevent such loans to our
directors, officers or related entities by engaging (i) Protiviti, a third party
consulting firm with experience in implementing Section 402 preventative
measures and controls and procedures, (ii) two consultants in U.S. public
reporting requirements, and (iii) a financial consultant with experience in
public company reporting and advising China-based companies listed in the United
States.   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 addition, we have amended our Audit
Committee charter and Code of Business Conduct and Ethics to specifically
provide that our Audit Committee must discuss and review with management, our
outside legal counsel, our independent auditor and other appropriate parties, as
applicable, before approving any proposed loan, advance of funds, transfer of
funds, creation of debt or other liability, or similar transaction that involves
a related party, including any entity in which a director or executive officer
of the Company has a direct or indirect interest.  No transaction is
permitted to occur until such review and analysis is complete and the Audit
Committee provides prior written approval and authorization.





In
January 2009, in an effort to take additional measures to improve our internal
controls and procedures regarding related party transactions and to adopt a
policy for the identification, approval, processing, recording and disclosure of
related party transactions, we adopted the NIVS IntelliMedia Technology Group,
Inc. Policy and Procedures With Respect To Related Person
Transactions.  Additionally, in January 2009, in an effort to take
additional measures to improve our internal controls and procedures to ensure
that information required to be disclosed by our company in the reports that we
file or submit under U.S. securities laws and the SEC’s rules and regulations is
accumulated and communicated to our management, including our CEO and CFO, to
allow timely decisions regarding required disclosure, we adopted the NIVS
IntelliMedia Technology Group, Inc. Disclosure Controls and
Procedures.





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 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





Based on
the evaluation of our management as required by paragraph (d) of Rule 13a-15 or
15d-15 of the Exchange Act, there were no changes in our internal control over
financial reporting that occurred during the second quarter of the fiscal year
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Please see Item 5 of Part II for
a discussion of our internal control over financial reporting subsequent to the
closing of the Share Exchange.




Part II.
Other Information




Item
1. Legal Proceedings




Not
      applicable




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 this report before deciding whether to purchase our common stock.
Our business, financial condition or results of operations could be materially
adversely affected by these risks if any of them actually occur. Our shares of
common stock are not currently listed or quoted for trading on any national
securities exchange or national quotation system. If and when our common stock
is traded, the trading price could decline due to any of these risks, and an
investor may lose all or part of his or her investment. Some of these factors
have affected our financial condition and operating results in the past or are
currently affecting us. This Report also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks described below and elsewhere in this
report.





SRKP
19, INC.





For a
discussion of the risk factors related to SRKP 19, Inc., please refer to the
Annual Report for the year ended December 31, 2007 filed with the SEC on March
15, 2008, in addition to the risks discussed below.


43





NIVEOUS
HOLDING COMPANY LIMITED





RISKS
RELATED TO OUR OPERATIONS





We
depend on a small number of customers for the vast majority of our sales. A
reduction in business from any of these customers could cause a significant
decline in our sales and profitability.





The vast
majority of our sales are generated from a small number of customers. For three
months ended June 30, 2008, we had eight customers that each accounted for at
least 5% of the revenues that we generated, with one customer accounting for 11%
of our revenue. These eight customers accounted for a total of approximately 65%
of our revenue for that period. During the years ended December 31, 2007 and
2006, we had five and four customers that generated revenues of at least 5% of
our revenues, with one customer accounting for 13% and 17% of our revenue,
respectively. These customers accounted for a total of approximately 38% and 49%
of our revenue for the years ended December 31, 2007 and 2006, respectively. We
expect that we will continue to depend upon a small number of customers for a
significant majority of our sales for the foreseeable future.





Our
lack of long-term purchase orders and commitments could lead to a rapid decline
in our sales and profitability.





All of
our significant customers issue purchase orders solely in their own discretion,
often only two to four weeks before the requested date of shipment. Our
customers are generally able to cancel orders or delay the delivery of products
on relatively short notice. In addition, our customers may decide not to
purchase products from us for any reason. Accordingly, we cannot assure you that
any of our current customers will continue to purchase our products in the
future. As a result, our sales volume and profitability could decline rapidly
with little or no warning whatsoever.





We cannot
rely on long-term purchase orders or commitments to protect us from the negative
financial effects of a decline in demand for our products. The limited certainty
of product orders can make it difficult for us to forecast our sales and
allocate our resources in a manner consistent with our actual sales. Moreover,
our expense levels are based in part on our expectations of future sales and, if
our expectations regarding future sales are inaccurate, we may be unable to
reduce costs in a timely manner to adjust for sales shortfalls. Furthermore,
because we depend on a small number of customers for the vast majority of our
sales, the magnitude of the ramifications of these risks is greater than if our
sales were less concentrated with a small number of customers. As a result of
our lack of long-term purchase orders and purchase commitments we may experience
a rapid decline in our sales and profitability.





Historically,
a substantial portion of our assets has been comprised of accounts receivable
representing amounts owed by a small number of customers. If any of these
customers fails to timely pay us amounts owed, we could suffer a significant
decline in cash flow and liquidity which, in turn, could cause us to be unable
pay our liabilities and purchase an adequate amount of inventory to sustain or
expand our sales volume.





Our
accounts receivable represented approximately 18%, 18% and 1% of our total
current assets as of June 30, 2008 and December 31, 2007 and 2006, respectively.
As of June 30, 2008, 49.6% of our accounts receivable represented amounts owed
by eight customers, each of which represented over 5% of the total amount of our
accounts receivable. As a result of the substantial amount and concentration of
our accounts receivable, if any of our major customers fails to timely pay us
amounts owed, we could suffer a significant decline in cash flow and liquidity
which could adversely affect our ability to borrow funds to pay our liabilities
and to purchase inventory to sustain or expand our current sales
volume.




In
addition, our business is characterized by long periods for collection from our
customers and short periods for payment to our suppliers, the combination of
which may cause us to have liquidity problems. We experience an average accounts
settlement period ranging from one month to as high as four months from the time
we sell our products to the time we receive payment from our customers. In
contrast, we typically need to place certain deposits and advances with our
suppliers on a portion of the purchase price in advance and for some suppliers
we must maintain a deposit for future orders. Because our payment cycle is
considerably shorter than our receivable cycle, we may experience working
capital shortages. Working capital management, including prompt and diligent
billing and collection, is an important factor in our results of operations and
liquidity. We cannot assure you that system problems, industry trends or other
issues will not extend our collection period, adversely impact our working
capital.




44




Our
substantial leverage could adversely affect our ability to raise additional
capital to fund our operations and limit our ability to react to changes in the
economy or our industry.




We had
negative working capital of approximately $49.7 million, $12.5 million, $34
million and $12 million as at June 30, 2008 and 2007 and as of December 31, 2007
and 2006, respectively. The increase of negative working capital was largely
caused by the substantial increases in financing from bank loans and notes. Our
substantial leverage could adversely affect our ability to raise additional
capital to fund our operations, limit our ability to react to changes in the
economy or our industry, expose us to interest rate risk to the extent of our
variable rate debt and prevent us from meeting our obligations under the Notes
and Credit Facility. Our high degree of leverage could have important
consequences for you, including:





·
            increasing our vulnerability to
      adverse economic, industry or competitive
    developments;




·
            requiring a substantial portion
      of cash flow from operations to be dedicated to the payment of principal
      and interest on our indebtedness, therefore reducing our ability to use
      our cash flow to fund our operations, capital expenditures and future
      business opportunities;




·
            exposing us to the risk of
      increased interest rates;




·
            making it more difficult for us
      to satisfy our obligations with respect to our indebtedness and any
      failure to comply with the obligations of any of our debt instruments that
      we may have or obtain, including restrictive covenants and borrowing
      conditions, could result in an event of default the agreements governing
      such other indebtedness;




·
            restricting us from making
      strategic acquisitions or causing us to make non-strategic
      divestitures;




·
            limiting our ability to obtain
      additional financing for working capital, capital expenditures, product
      development, debt service requirements, acquisitions and general corporate
      or other purposes; and




·
            limiting our flexibility in
      planning for, or reacting to, changes in our business or market conditions
      and placing us at a competitive disadvantage compared to our competitors
      who are less highly leveraged and who therefore, may be able to take
      advantage of opportunities that our leverage prevents us from
      exploiting.




Adverse
capital and credit market conditions may significantly affect our ability to
meet liquidity needs, access to capital and cost of capital.





The
capital and credit markets have been experiencing extreme volatility and
disruption for more than twelve months. In recent weeks, the volatility and
disruption have reached unprecedented levels. In some cases, the markets have
exerted downward pressure on availability of liquidity and credit capacity for
certain issuers. We have historically relied on credit to fund our business and
we need liquidity to pay our operating expenses. Without sufficient liquidity,
we will be forced to curtail our operations, and our business will suffer.
Disruptions, uncertainty or volatility in the capital and credit markets may
also limit our access to capital required to operate our business. Such market
conditions may limit our ability to replace, in a timely manner, maturing
liabilities and access the capital necessary to operate and grow our business.
As such, we may be forced to delay raising capital or bear an unattractive cost
of capital which could decrease our profitability and significantly reduce our
financial flexibility. Our results of operations, financial condition, cash
flows and capital position could be materially adversely affected by disruptions
in the financial markets.





Consumer
electronics products are subject to rapid technological changes. If we fail to
accurately anticipate and adapt to these changes, the products we sell will
become obsolete, causing a decline in our sales and profitability.





Consumer
electronics products are subject to rapid technological changes which often
cause product obsolescence. Companies within the consumer electronics industry
are continuously developing new products with heightened performance and
functionality. This puts pricing pressure on existing products and constantly
threatens to make them, or causes them to be, obsolete. Our typical product's
life cycle is extremely short, generating lower average selling prices as the
cycle matures. If we fail to accurately anticipate the introduction of new
technologies, we may possess significant amounts of obsolete inventory that can
only be sold at substantially lower prices and profit margins than we
anticipated. In addition, if we fail to accurately anticipate the introduction
of new technologies, we may be unable to compete effectively due to our failure
to offer products most demanded by the marketplace. If any of these failures
occur, our sales, profit margins and profitability will be adversely
affected.





In
addition, we form alliances or business relationships with, and make strategic
partnerships with, other companies to introduce new technologies. This is
particularly important to the development and enhancement of our Chinese
interactive speech technology. In some cases, such relationships are crucial to
our goal of introducing new products and services, but we may not be able to
successfully collaborate or achieve expected synergies with our partners. We do
not, however, control these partners, who may make decisions regarding their
business undertakings with us that may be contrary to our interests. In
addition, if these partners change their business strategies, we may fail to
maintain these relationships.


45




We
do not carry any business interruption insurance, products liability insurance
or any other insurance policy except for a limited property insurance policy. As
a result, we may incur uninsured losses, increasing the possibility that you
would lose your entire investment in our company.




We could
be exposed to liabilities or other claims for which we would have no insurance
protection. We do not currently maintain any business interruption insurance,
products liability insurance, or any other comprehensive insurance policy except
for property insurance policies with limited coverage. As a result, we may incur
uninsured liabilities and losses as a result of the conduct of our business.
There can be no guarantee that we will be able to obtain additional insurance
coverage in the future, and even if we are able to obtain additional coverage,
we may not carry sufficient insurance coverage to satisfy potential claims.
Should uninsured losses occur, any purchasers of our common stock could lose
their entire investment.





Because
we do not carry products liability insurance, a failure of any of the products
marketed by us may subject us to the risk of product liability claims and
litigation arising from injuries allegedly caused by the improper functioning or
design of our products. We cannot assure that we will have enough funds to
defend or pay for liabilities arising out of a products liability claim. To the
extent we incur any product liability or other litigation losses, our expenses
could materially increase substantially. There can be no assurance that we will
have sufficient funds to pay for such expenses, which could end our operations
and you would lose your entire investment.





We
expect to incur additional expenses due to contributions to a PRC housing
assistance fund for our employees.





We have
employees based in Huizhou, China, and under applicable regulations we intend to
commence contributions to a housing assistance fund for these employees. We
expect to commence contributions to the fund after the proposed listing of our
securities on a national securities exchange, which could occur as early as the
fourth quarter of 2008. We expect to incur increased operation costs and
expenses in connection with these planned contributions, which could have a
negative effect on our results of operations.





We
may incur design and development expenses and purchase inventory in anticipation
of orders which are not placed.





In order
to transact business, we assess the integrity and creditworthiness of our
customers and suppliers and we may, based on this assessment, incur design and
development costs that we expect to recoup over a number of orders produced for
the customer. Such assessments are not always accurate and expose us to
potential costs, including the write off of costs incurred and inventory
obsolescence if the orders anticipated do not materialize. We may also
occasionally place orders with suppliers based on a customer’s forecast or in
anticipation of an order that is not realized. Additionally, from time to time,
we may purchase quantities of supplies and materials greater than required by
customer orders to secure more favorable pricing, delivery or credit terms.
These purchases can expose us to losses from cancellation costs, inventory
carrying costs or inventory obsolescence, and hence adversely affect our
business and operating results.





We
are subject to market risk through our sales to international
markets.





A growing
percentage of our sales are being derived from international markets. These
international sales are primarily focused in Europe, Southeast Asia, and North
America. These operations are subject to risks that are inherent in operating in
foreign countries, including the following:





·
            foreign
      countries could change regulations or impose currency restrictions and
      other restraints;




·
            changes
      in foreign currency exchange rates and hyperinflation or deflation in the
      foreign countries in which we
operate;




·
            exchange
      controls;




·
            some
      countries impose burdensome tariffs and
quotas;




·
            political
      changes and economic crises may lead to changes in the business
      environment in which we operate;




·
            international
      conflict, including terrorist acts, could significantly impact our
      financial condition and results of operations;
  and




46




·
            Economic
      downturns, political instability and war or civil disturbances may disrupt
      distribution logistics or limit sales in individual
    markets.




In
addition, we utilize third-party distributors to act as our representative for
the geographic region that they have been assigned. Sales through distributors
represent approximately 70% of total revenue. Significant terms and conditions
of distributor agreements include FOB source, net 30 days payment terms, with no
return or exchange rights, and no price protection. Since the product transfers
title to the distributor at the time of shipment by us, the products are not
considered inventory on consignment. Our success is dependent on these
distributors finding new customers and receiving new orders from existing
customers.





If
our third party sales representatives and distributors fail to adequately
promote, market and sell our products, our revenues could significantly
decrease.





A
significant portion of our product sales are made through third party sales
representative organizations, whose members are not our employees. Our level of
sales depends on the effectiveness of these organizations, as well as the
effectiveness of our own employees. Some of these third party representatives
may sell (and do sell), with our permission, competitive products of third
parties as well as our products. During our fiscal years ended December 31, 2007
and 2006, these organizations were responsible for approximately 18% and 26%,
respectively, of our net revenues during such periods. If any of the third party
sales representative organizations engaged by us fails to adequately promote,
market and sell our products, our revenues could be significantly decreased
until a replacement organization or distributor can be retained by us. Finding
replacement organizations and distributors can be a time consuming process
during which our revenues could be negatively impacted.





Our
speech-controlled products may not achieve widespread acceptance or may have
bugs, which could result in delayed or lost revenue, expensive correction,
liability to our customers or claims against us.




We have
invested and expect to continue to invest heavily in the research, development
and marketing of our Chinese-speech technology consumer products. The market for
these products are is relatively new and rapidly evolving. Our ability to
increase revenue in the future depends largely on acceptance of
speech-controlled consumer electronic products in general and our products in
particular. The continued development of the market for our current and future
speech solutions will also depend on:





·
            consumer
      and business demand for speech-enabled products and
      applications;




·
            continuous
      improvement in speech interactive technology;
  and




·
            development
      by third-party vendors and manufacturers of applications using speech
      technologies.




Sales of
our speech-controlled products would be harmed if the market for such products
does not continue to develop or develops more slowly than we expect, and,
consequently, our business would be harmed and we may not recover the costs
associated with our investment in our speech interactive
technologies.





In
addition, complex software applications, such as our Chinese speech interactive
technology, often contain errors, defects or bugs. Defects in the solutions or
products that we develop and sell to our customers could require expensive
corrections and result in delayed or lost revenue, adverse customer reaction and
negative publicity about us or our products and services. Customers who are not
satisfied with any of our products may also bring claims against us for damages,
which, even if unsuccessful, would likely be time-consuming to defend, and could
result in costly litigation and payment of damages. Such claims could harm our
reputation, financial results and competitive position.





We
have significant outstanding short-term borrowings, and we may not be able to
obtain extensions when they mature.




Our notes
payable to banks for short-term borrowings as of June 30, 2008 and December 31,
2007 and 2006 were approximately $14.8 million, $34.9 million and $13.0
million, respectively. Generally, these short-term bank loans mature in one year
or less and contain no specific renewal terms. However, 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. If we are
unable to obtain renewals of these loans or sufficient alternative funding on
reasonable terms from banks or other parties, we will have to repay these
borrowings with the cash on our balance sheet or cash generated by our future
operations, if any. We cannot assure you that our business will generate
sufficient cash flow from operations to repay these borrowings.


47





We
may need additional capital to implement our current business strategy, which
may not be available to us, and if we raise additional capital, it may dilute
your ownership in us.





We
currently depend on bank loans and net revenues to meet our short-term cash
requirements. In order to grow revenues and sustain profitability, we will need
additional capital. We are conducting a public offering of shares of common
stock registered in a registration statement, and we may conduct additional
financing transactions in the future. Obtaining additional financing will be
subject to a number of factors, including market conditions, our operating
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional financing unattractive to us. We cannot
assure you that we will be able to obtain any additional financing. If we are
unable to obtain the financing needed to implement our business strategy, our
ability to increase revenues will be impaired and we may not be able to sustain
profitability.





We
are subject to intense competition in the industry in which we operate, which
could cause material reductions in the selling price of our products or losses
of our market share.





The
consumer electronics industry is highly competitive, especially with respect to
pricing and the introduction of new products and features. Our products compete
in the medium- to high- priced sector of the consumer electronics market and
compete primarily on the basis of:





·
            reliability;




·
            brand
      recognition;




·
            quality;




·
            price;




·
            design;




·
            consumer
      acceptance of our trademark; and




·
            quality
      service and support to retailers and our
  customers.




In recent
years, we and many of our competitors, have regularly lowered prices, and we
expect these pricing pressures to continue. If these pricing pressures are not
mitigated by increases in volume, cost reductions from our supplier or changes
in product mix, our revenues and profits could be substantially reduced. As
compared to us, many of our competitors have:


·
              significantly
      longer operating histories;
  ·
              significantly
      greater managerial, financial, marketing, technical and other competitive
      resources; and
  ·
              greater
      brand recognition.




As a
result, our competitors may be able to:





·
            adapt
      more quickly to new or emerging technologies and changes in customer
      requirements;




·
            devote
      greater resources to the promotion and sale of their products and
      services; and




·
            respond
      more effectively to pricing
pressures.




These
factors could materially adversely affect our operations and financial
condition. In addition, competition could increase if:





·
            new
      companies enter the market;




·
            existing
      competitors expand their product mix;
or




·
            we
      expand into new markets.




An
increase in competition could result in material price reductions or loss of our
market share.


48





The
consumer electronics industry is subject to significant fluctuations in the
availability of raw materials and components. If we do not properly anticipate
the need for critical raw materials and components, we may be unable to meet the
demands of our customers and end-users, which could reduce our competitiveness,
cause a decline in our market share and have a material adverse effect on our
results of operations.





As the
availability of raw materials and components decreases, the cost of acquiring
those raw materials and components ordinarily increases. If we fail to procure
adequate supplies of raw materials and components in anticipation of our
customers' orders or end-users’ demand, our gross margins may be negatively
impacted due to higher prices that we are required to pay for raw materials and
components in short supply. High growth product categories have experienced
chronic shortages of raw materials and components during periods of
exceptionally high demand. If we do not properly anticipate the need for
critical raw materials and components, we may pay higher prices for the raw
materials and components, we may not be unable to meet the demands of our
customers and end-users, which could reduce our competitiveness, cause a decline
in our market share and have a material adverse effect on our results of
operations.





Unanticipated
disruptions in our operations or slowdowns by our suppliers and shipping
companies could adversely affect our ability to deliver our products and service
our customers which could materially and adversely affect our revenues and our
relationships with our customers.





Our
ability to provide high quality customer service, process and fulfill orders and
manage inventory depends on:





·
            the efficient and uninterrupted
      operation of our distribution centers;
  and




·
            the timely and uninterrupted
      performance of third party suppliers, shipping companies, and dock
      workers.




Any
material disruption or slowdown in the operation of our distribution centers,
manufacturing facilities or management information systems, or comparable
disruptions or slowdowns suffered by our principal manufacturers, suppliers and
shippers could cause delays in our ability to receive, process and fulfill
customer orders and may cause orders to be canceled, lost or delivered late,
goods to be returned or receipt of goods to be refused. As a result, our
revenues and operating results could be materially and adversely
affected.





We
rely heavily on the founder of NIVS PRC and our current Chief Executive Officer,
Tianfu Li. The loss of his services could adversely affect our ability to source
products from our key suppliers and our ability to sell our products to our
customers.





Our
success depends, to a significant extent, upon the continued services of Tianfu
Li, who is the founder of NIVS PRC and our current Chairman of the Board and
Chief Executive Officer. Mr. Li has, among other things, developed key personal
relationships with our suppliers and customers. We greatly rely on these
relationships in the conduct of our operations and the execution of our business
strategies. The loss of Mr. Li could, therefore, result in the loss of favorable
relationships with one or more of our suppliers and/or customers. We do not
maintain "key person" life insurance covering Mr. Li or any other executive
officer. The loss of Mr. Li could significantly delay or prevent the achievement
of our business objectives and adversely affect our business, financial
condition and results of operations.





We
may not be able to effectively recruit and retain skilled employees,
particularly scientific, technical and management professionals.




Our
ability to compete effectively depends largely on our ability to attract and
retain certain key personnel, including scientific, technical and management
professionals. We anticipate that we will need to hire additional skilled
personnel in all areas of our business. Industry demand for such employees,
however, exceeds the number of personnel available, and the competition for
attracting and retaining these employees is intense. Because of this intense
competition for skilled employees, we may be unable to retain our existing
personnel or attract additional qualified employees to keep up with future
business needs. If this should happen, our business, operating results and
financial condition could be adversely affected.





Our
labor costs are likely to increase as a result of changes in Chinese labor
laws.




We expect
to experience an increase in our cost of labor. Recent changes in Chinese labor
laws that are effective January 1, 2008 are likely to increase costs further and
impose restrictions on our relationship with our employees. There can be no
assurance that the labor laws will not change further or that their
interpretation and implementation will vary, which may have a negative effect
upon our business and results of operations.


49





Our
business could be materially adversely affected if we cannot protect our
intellectual property rights or if we infringe on the intellectual property
rights of others.





Our
ability to compete effectively will depend on our ability to maintain and
protect our proprietary rights. We own a trademark related to the sale of our
products, which is materially important to our business, as well as our
licenses, other trademarks and proprietary rights that are used for certain of
our home entertainment and consumer electronics products. Our trademarks are
registered in China. However, third parties may seek to challenge, invalidate,
circumvent or render unenforceable any proprietary rights owned by or licensed
to us. In addition, in the event third party licensees fail to protect the
integrity of our trademarks, the value of these marks could be materially
adversely affected.





Our
inability to protect our proprietary rights could materially adversely affect
the license of our trade names and trademarks to third parties as well as our
ability to sell our products. Litigation may be necessary to:





·
            enforce
      our intellectual property rights;




·
            protect
      our trade secrets; and




·
            determine
      the scope and validity of such intellectual property
    rights.




Any such
litigation, whether or not successful, could result in substantial costs and
diversion of resources and management’s attention from the operation of our
business.





We may
receive notice of claims of infringement of other parties’ proprietary rights.
Such actions could result in litigation and we could incur significant costs and
diversion of resources in defending such claims. The party making such claims
could secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief. Such relief could effectively block our ability to make,
use, sell, distribute or market our products and services in such jurisdiction.
We may also be required to seek licenses to such intellectual property. We
cannot predict, however, whether such licenses would be available or, if
available, that such licenses could be obtained on terms that are commercially
reasonable and acceptable to us. The failure to obtain the necessary licenses or
other rights could delay or preclude the sale, manufacture or distribution of
our products and could result in increased costs to us.





Our
failure to effectively manage growth could harm our business.




We have
rapidly and significantly expanded the number and types of products we sell, and
we will endeavor to further expand our product portfolio. We must continually
introduce new products and technologies, enhance existing products in order to
remain competitive, and effectively stimulate customer demand for new products
and upgraded versions of our existing products.




This
expansion of our products places a significant strain on our management,
operations and engineering resources. Specifically, the areas that are strained
most by our growth include the following:




·
            New Product Launch:
      With the growth of our product portfolio, we experience increased
      complexity in coordinating product development, manufacturing, and
      shipping. As this complexity increases, it places a strain on our ability
      to accurately coordinate the commercial launch of our products with
      adequate supply to meet anticipated customer demand and effective
      marketing to stimulate demand and market acceptance. If we are unable to
      scale and improve our product launch coordination, we could frustrate our
      customers and lose retail shelf space and product
  sales;




·
            Forecasting,
      Planning and Supply Chain Logistics: With the growth of our product
      portfolio, we also experience increased complexity in forecasting customer
      demand and in planning for production, and transportation and logistics
      management. If we are unable to scale and improve our forecasting,
      planning and logistics management, we could frustrate our customers, lose
      product sales or accumulate excess inventory;
  and




·
            Support
      Processes: To manage the growth of our operations, we will need to
      continue to improve our transaction processing, operational and financial
      systems, and procedures and controls to effectively manage the increased
      complexity. If we are unable to scale and improve these areas, the
      consequences could include: delays in shipment of product, degradation in
      levels of customer support, lost sales, decreased cash flows, and
      increased inventory. These difficulties could harm or limit our ability to
      expand.




50




Our
facilities and information systems could be damaged as a result of disasters or
unpredictable events, which could have an adverse effect on our business
operations.




Our
headquarters and major facilities including manufacturing plants, sales offices
and research and development centers are located in China. We also operate
procurement, logistics, sales and marketing facilities in other parts of the
world. If major disasters such as earthquakes, fires, floods, wars, terrorist
attacks, computer viruses, transportation disasters or other events occur, or
our information system or communications network breaks down or operates
improperly as a result of such events, our facilities may be seriously damaged,
and we may have to stop or delay production and shipment. We may incur expenses
relating to such damages.





RISKS
RELATED TO DOING BUSINESS IN CHINA





Substantially
all of our assets are located in the PRC and substantially all of our revenues
are derived from our operations in China, and changes in the political and
economic policies of the PRC government could have a significant impact upon the
business we may be able to conduct in the PRC and accordingly on the results of
our operations and financial condition.





Our
business operations may be adversely affected by the current and future
political environment in the PRC. The Chinese government exerts substantial
influence and control over the manner in which we must conduct our business
activities. Our ability to operate in China may be adversely affected by changes
in Chinese laws and regulations, including those relating to taxation, import
and export tariffs, raw materials, environmental regulations, land use rights,
property and other matters. Under the current government leadership, the
government of the PRC has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no
assurance, however, that the government of the PRC will continue to pursue these
policies, or that it will not significantly alter these policies from time to
time without notice.





Our
operations are subject to PRC laws and regulations that are sometimes vague and
uncertain. Any changes in such PRC laws and regulations, or the interpretations
thereof, may have a material and adverse effect on our business.





The PRC’s
legal system is a civil law system based on written statutes. Unlike the common
law system prevalent in the United States, decided legal cases have little value
as precedent in China. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including but not
limited to, governmental approvals required for conducting business and
investments, laws and regulations governing the consumer electronics business
and electric product safety, national security-related laws and regulations and
export/import laws and regulations, as well as commercial, antitrust, patent,
product liability, environmental laws and regulations, consumer protection, and
financial and business taxation laws and regulations.





The
Chinese government has been developing a comprehensive system of commercial
laws, and considerable progress has been made in introducing laws and
regulations dealing with economic matters. However, because these laws and
regulations are relatively new, and because of the limited volume of published
cases and judicial interpretation and their lack of force as precedents,
interpretation and enforcement of these laws and regulations involve significant
uncertainties. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively.





Our
principal operating subsidiary, Huizhou NIVS Audio & Video Technology
Company Limited, (“NIVS PRC”), is considered a foreign invested enterprise under
PRC laws, and as a result is required to comply with PRC laws and regulations,
including laws and regulations specifically governing the activities and conduct
of foreign invested enterprises. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our
businesses. If the relevant authorities find us in violation of PRC laws or
regulations, they would have broad discretion in dealing with such a violation,
including, without limitation:





·
            levying
      fines;




·
            revoking
      our business license, other licenses or
  authorities;




·
            requiring
      that we restructure our ownership or operations;
  and




·
            requiring
      that we discontinue any portion or all of our
  business.




51




Investors
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. laws,
including the federal securities laws or other foreign laws against us or our
management.




Most of
our current operations, including the manufacturing and distribution of our
products, are conducted in China. Moreover, all of our directors and officers
are nationals and residents of China or Hong Kong. All or substantially all of
the assets of these persons are located outside the United States and in the
PRC. As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon these persons. In addition,
uncertainty exists as to whether the courts of China would recognize or enforce
judgments of U.S. courts obtained against us or such officers and/or directors
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof, or be competent to hear original actions
brought in China against us or such persons predicated upon the securities laws
of the United States or any state thereof.





The
scope of our business license in China is limited, and we may not expand or
continue our business without government approval and renewal,
respectively.





Our
principal operating subsidiary, NIVS PRC, is a Sino-foreign Equity Joint
Venture, which can only conduct business within its approved business scope,
which ultimately appears on its business license. Any amendment to the scope of
our business requires further application and government approval. In order for
us to expand our business beyond the scope of our license, it will be required
to enter into a negotiation with the authorities for the approval to expand the
scope of our business. We cannot assure investors that NIVS PRC will be able to
obtain the necessary government approval for any change or expansion of its
business.





We
are subject to a variety of environmental laws and regulations related to our
manufacturing operations. Our failure to comply with environmental laws and
regulations may have a material adverse effect on our business and results of
operations.





We are
subject to various environmental laws and regulations that require us to obtain
environmental permits for our electronics manufacturing operations. Our
environmental permit from the Huizhou Environmental Protection Bureau covering
our manufacturing operations will expire in December 2010. The permit only
covers of the existing premises at our manufacturing facility, and if we expand
our operations, we will have to obtain further certification from the Bureau. In
addition, we are required to renew some of our environmental certificates each
year. If we do not receive the renewed permit or we fail to comply with the
provisions of the renewed permit, we could be subject to fines, criminal charges
or other sanctions by regulators, including the suspension or termination of our
manufacturing operations.




We cannot
assure you that at all times we will be in compliance with environmental laws
and regulations or our environmental permits or that we will not be required to
expend significant funds to comply with, or discharge liabilities arising under,
environmental laws, regulations and permits.





Recent
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability to
operate. Our failure to obtain the prior approval of the China Securities
Regulatory Commission, or the CSRC, for our proposed public offering and the
listing and trading of our common stock could have a material adverse effect on
our business, operating results, reputation and trading price of our common
stock.





The PRC
State Administration of Foreign Exchange, or “SAFE,” issued a public notice in
November 2005, known as Circular 75, concerning the use of offshore holding
companies in mergers and acquisitions in China. The public notice provides that
if an offshore company controlled by PRC residents intends to acquire a PRC
company, such acquisition will be subject to registration with the relevant
foreign exchange authorities. The public notice also suggests that registration
with the relevant foreign exchange authorities is required for any sale or
transfer by the PRC residents of shares in an offshore holding company that owns
an onshore company. The PRC residents must each submit a registration form to
the local SAFE branch with respect to their ownership interests in the offshore
company, and must also file an amendment to such registration if the offshore
company experiences material events, such as changes in the share capital, share
transfer, mergers and acquisitions, spin-off transactions or use of assets in
China to guarantee offshore obligations. If any PRC resident stockholder of an
offshore holding company fails to make the required SAFE registration and
amended registration, the onshore PRC subsidiaries of that offshore company may
be prohibited from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the offshore entity.
Failure to comply with the SAFE registration and amendment requirements
described above could result in liability under PRC laws for evasion of
applicable foreign exchange restrictions. Most of our PRC resident stockholders,
as defined in the SAFE notice, have not registered with the relevant branch of
SAFE, as currently required, in connection with their equity interests in NIVS
BVI. Because of uncertainty in how the SAFE notice will be interpreted and
enforced, we cannot be sure how it will affect our business operations or future
plans. For example, NIVS PRC’s ability to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency-denominated borrowings,
may be subject to compliance with the SAFE notice by our PRC resident beneficial
holders. Failure by our PRC resident beneficial holders could subject these PRC
resident beneficial holders to fines or legal sanctions, restrict our overseas
or cross-border investment activities, limit NIVS PRC’s ability to make
distributions or pay dividends or affect our ownership structure, which could
adversely affect our business and prospects.


52





On August
8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned
Assets Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission and SAFE, released a substantially
amended version of the Provisions for Foreign Investors to Merge with or Acquire
Domestic Enterprises (the “Revised M&A Regulations”), which took effect
September 8, 2006. These new rules significantly revised China’s regulatory
framework governing onshore-to-offshore restructurings and foreign acquisitions
of domestic enterprises. These new rules signify greater PRC government
attention to cross-border merger, acquisition and other investment activities,
by confirming MOFCOM as a key regulator for issues related to mergers and
acquisitions in China and requiring MOFCOM approval of a broad range of merger,
acquisition and investment transactions. Further, the new rules establish
reporting requirements for acquisition of control by foreigners of companies in
key industries, and reinforce the ability of the Chinese government to monitor
and prohibit foreign control transactions in key industries.





Among
other things, the revised M&A Regulations include new provisions that
purport to require that an offshore special purpose vehicle, or SPV, formed for
listing purposes and controlled directly or indirectly by PRC companies or
individuals must obtain the approval of the CSRC prior to the listing and
trading of such SPV’s securities on an overseas stock exchange. On September 21,
2006, the CSRC published on its official website procedures specifying documents
and materials required to be submitted to it by SPVs seeking CSRC approval of
their overseas listings. However, the application of this PRC regulation remains
unclear with no consensus currently existing among the leading PRC law firms
regarding the scope and applicability of the CSRC approval requirement. NIVS’
PRC counsel, Guangdong Laowei Law Firm, has advised us that because we completed
our onshore-to-offshore restructuring before September 8, 2006, the effective
date of the new regulation, it is not necessary for us to submit the application
to the CSRC for its approval, and the listing and trading of our Common Stock
does not require CSRC approval.




If the
CSRC or another PRC regulatory agency subsequently determines that CSRC approval
was required, we may face regulatory actions or other sanctions from the CSRC or
other PRC regulatory agencies. These regulatory agencies may impose fines and
penalties on our operations in the PRC, limit our operating privileges in the
PRC, delay or restrict the repatriation of the proceeds from our proposed public
offering into the PRC, or take other actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation
and prospects, as well as the trading price of our common stock. The CSRC or
other PRC regulatory agencies also may take actions requiring us, or making it
advisable for us, to halt our proposed public offering before settlement and
delivery of the common stock offered thereby. Consequently, if investors engage
in market trading or other activities in anticipation of and prior to settlement
and delivery, they do so at the risk that settlement and delivery may not
occur.





Also, if
later the CSRC requires that we obtain its approval, we may be unable to obtain
a waiver of the CSRC approval requirements, if and when procedures are
established to obtain such a waiver. Any uncertainties and/or negative publicity
regarding this CSRC approval requirement could have a material adverse effect on
the trading price of our common stock. Furthermore, published news reports in
China recently indicated that the CSRC may have curtailed or suspended overseas
listings for Chinese private companies. These news reports have created further
uncertainty regarding the approach that the CSRC and other PRC regulators may
take with respect to us.





It is
uncertain how our business operations or future strategy will be affected by the
interpretations and implementation of Circular 75 and the Revised M&A
Regulations. It is anticipated that application of the new rules will be subject
to significant administrative interpretation, and we will need to closely
monitor how MOFCOM and other ministries apply the rules to ensure that our
domestic and offshore activities continue to comply with PRC law. Given the
uncertainties regarding interpretation and application of the new rules, we may
need to expend significant time and resources to maintain
compliance.





The
ability of our Chinese operating subsidiaries to pay dividends may be restricted
due to foreign exchange control regulations of China.





The
ability of our Chinese operating subsidiaries to pay dividends may be restricted
due to the foreign exchange control policies and availability of cash balance of
the Chinese operating subsidiaries. Because substantially all of our operations
are conducted in China and a substantial majority of our revenues are generated
in China, a majority of our revenue being earned and currency received are
denominated in Renminbi (RMB). RMB is subject to the exchange control regulation
in China, and, as a result, we may be 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, we may not be able to access NIVS
PRC’s funds which 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.


53





The
foreign currency exchange rate between U.S. Dollars and Renminbi could adversely
affect our financial condition.





To the
extent that we need to convert U.S. Dollars into Renminbi for our operational
needs, our financial position and the price of our common stock may be adversely
affected should the Renminbi appreciate against the U.S. Dollar at that time.
Conversely, if we decide to convert our Renminbi into U.S. Dollars for the
operational needs or paying dividends on our common stock, the dollar equivalent
of our earnings from our subsidiaries in China would be reduced should the
dollar appreciate against the Renminbi. We currently do not hedge our exposure
to fluctuations in currency exchange rates.





Until
1994, the Renminbi experienced a gradual but significant devaluation against
most major currencies, including dollars, and there was a significant
devaluation of the Renminbi on January 1, 1994 in connection with the
replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system. Since 1994, the value of the Renminbi relative to
the U.S. Dollar has remained stable and has appreciated slightly against the
U.S. Dollar. Countries, including the United States, have argued that the
Renminbi is artificially undervalued due to China’s current monetary policies
and have pressured China to allow the Renminbi to float freely in world markets.
In July 2005, the PRC government changed its policy of pegging the value of the
Renminbi to the dollar. Under the new policy the Renminbi is permitted to
fluctuate within a narrow and managed band against a basket of designated
foreign currencies. While the international reaction to the Renminbi revaluation
has generally been positive, there remains significant international pressure on
the PRC government to adopt an even more flexible currency policy, which could
result in further and more significant appreciation of the Renminbi against the
dollar.





Inflation
in the PRC could negatively affect our profitability and growth.





While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. According to the National Bureau of Statistics of China, the
inflation rate in China reached a high point of 4.8% in 2007 as compared to the
past several years. The inflation rate in China was 1.8% in 2005 and 1.5% in
2006. The inflation rate is expected to continue to increase in 2008. If prices
for our products and services rise at a rate that is insufficient to compensate
for the rise in the costs of supplies such as raw materials, it may have an
adverse effect on our profitability.





Furthermore,
in order to control inflation in the past, the PRC government has imposed
controls on bank credits, limits on loans for fixed assets and restrictions on
state bank lending. The implementation of such policies may impede economic
growth. In October 2004, the People’s Bank of China, the PRC’s central bank,
raised interest rates for the first time in nearly a decade and indicated in a
statement that the measure was prompted by inflationary concerns in the Chinese
economy. In April 2006, the People’s Bank of China raised the interest rate
again. Repeated rises in interest rates by the central bank would likely slow
economic activity in China which could, in turn, materially increase our costs
and also reduce demand for our products and services.




Because
our funds are held in banks which do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue in
business.





Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. A significant portion of our assets are in the form of cash
deposited with banks in the PRC, and in the event of a bank failure, we may not
have access to our funds on deposit. Depending upon the amount of money we
maintain in a bank that fails, our inability to have access to our cash could
impair our operations, and, if we are not able to access funds to pay our
suppliers, employees and other creditors, we may be unable to continue in
business.





Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.





As our
ultimate holding company is a Delaware corporation, we are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. Foreign companies,
including some that may compete with us, are not subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices
may occur from time-to-time in the PRC. We can make no assurance, however, that
our employees or other agents will not engage in such conduct for which we might
be held responsible. If our employees or other agents are found to have engaged
in such practices, we could suffer severe penalties and other consequences that
may have a material adverse effect on our business, financial condition and
results of operations.


54







If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with the State Administration of Foreign Exchange of the
PRC, or SAFE. We may also face regulatory uncertainties that could restrict our
ability to adopt an equity compensation plan for our directors and employees and
other parties under PRC law.





On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also know as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those
which provide for the granting of stock options. For any plans which are so
covered and are adopted by a non-PRC listed company after April 6, 2007,
Circular 78 requires all participants who are PRC citizens to register with and
obtain approvals from SAFE prior to their participation in the plan. In
addition, Circular 78 also requires PRC citizens to register with SAFE and make
the necessary applications and filings if they participated in an overseas
listed company’s covered equity compensation plan prior to April 6, 2007. We
intend to adopt an equity compensation plan in the future and make option grants
to our officers and directors, most of who are PRC citizens. Circular 78 may
require our officers and directors who receive option grants and are PRC
citizens to register with SAFE. We believe that the registration and approval
requirements contemplated in Circular 78 will be burdensome and time consuming.
If it is determined that any of our equity compensation plans are subject to
Circular 78, failure to comply with such provisions may subject us and
participants of our equity incentive plan who are PRC citizens to fines and
legal sanctions and prevent us from being able to grant equity compensation to
our PRC employees. In that case, our ability to compensate our employees and
directors through equity compensation would be hindered and our business
operations may be adversely affected.





NIVS
PRC has enjoyed certain preferential tax concessions and the loss of these
preferential tax concessions may cause our tax liabilities to increase and our
profitability to decline.





Under the
tax laws of the PRC, NIVS PRC 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 normal tax rate of 24% for the following
three consecutive years. 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. The expiration of the preferential tax treatment will increase our tax
liabilities and reduce our profitability.





Any
recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another
widespread public health problem, in the PRC could adversely affect our
operations.





A renewed
outbreak of SARS, Avian Flu or another widespread public health problem in
China, where all of our manufacturing facilities are located and where the
substantial portion of our sales occur, could have a negative effect on our
operations. Our business is dependent upon its ability to continue to
manufacture products. Such an outbreak could have an impact on our operations as
a result of:





·
              quarantines
      or closures of some of our manufacturing facilities, which would severely
      disrupt our operations,




·
              the
      sickness or death of our key officers and employees,
  and




·
              a
      general slowdown in the Chinese
economy.




Any of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.





A
downturn in the economy of the PRC may slow our growth and
profitability.





A
significant portion of our revenues are generated from sales in China. The
growth of the Chinese economy has been uneven across geographic regions and
economic sectors. There can be no assurance that growth of the Chinese economy
will be steady or that any downturn will not have a negative effect on our
business, especially if it results in either a decreased use of our products or
in pressure on us to lower our prices.


55





Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which we are required to do in order
to comply with U.S. securities laws.





PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Most of our middle and top management staff are not educated and
trained in the Western system, and we may have difficulty hiring new employees
in the PRC with such training. In addition, we may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in the PRC. As a
result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Therefore, we may,
in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under Section 404 of the Sarbanes-Oxley Act of
2002. This may result in significant deficiencies or material weaknesses in our
internal controls which could impact the reliability of our financial statements
and prevent us from complying with SEC rules and regulations and the
requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies,
weaknesses or lack of compliance could have a materially adverse effect on our
business.





RISKS
RELATED TO OUR CAPITAL STRUCTURE





There
is no current trading market for our common stock, and there is no assurance of
an established public trading market, which would adversely affect the ability
of our investors to sell their securities in the public market.




Our
common stock is not currently listed or quoted for trading on any national
securities exchange or national quotation system. We have applied for the
listing of our common stock on the NYSE Alternext US (formerly known as the
American Stock Exchange). There is no guarantee that the NYSE Alternext US, or
any other exchange or quotation system, will permit our shares to be listed and
traded. If we fail to obtain a listing on the NYSE Alternext US, we may seek
quotation on the OTC Bulletin Board. The FINRA has enacted changes that limit
quotations on the OTC Bulletin Board to securities of issuers that are current
in their reports filed with the Securities and Exchange Commission. The effect
on the OTC Bulletin Board of these rule changes and other proposed changes
cannot be determined at this time. The OTC Bulletin Board is an inter-dealer,
over-the-counter market that provides significantly less liquidity than the
NASDAQ Global Market and NYSE Alternext US. Quotes for stocks included on the
OTC Bulletin Board are not listed in the financial sections of newspapers as are
those for the NASDAQ Global Market and NYSE Alternext US. Therefore, prices for
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and holders of common stock may be unable to resell their securities at or near
their original offering price or at any price.





Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common stock.




Pursuant
to the terms of the Share Exchange, we agreed to file a registration statement
with the Securities and Exchange Commission to register the  6,544,047
shares of our common stock issued in an equity financing that was conducted in
concurrently with the Share Exchange. The registration statement must be filed
within 30 days of the closing of the Share Exchange. Each investor may sell or
transfer any shares of the common stock after the effective date of the
registration statement except that they entered into a lock-up agreement
pursuant to which they agreed not to conduct any sales until 90 days after our
common stock is first listed or quoted on a national securities exchange, at
which time one-twelfth of the shares purchased may be sold, and thereafter the
shares will be automatically released from the lock-up every thirty (30) days in
eleven equal installments. In addition, the placement agent, in its discretion,
may release some or all the Shares earlier than the schedule set forth in this
section. Any such early release by the placement agent will apply
equally to each of the investors in the Private Placement.





We also
intend to register with the Private Placement shares all of the 425,000 shares
that we expect to issue to an investor relations firm and 2,340,000 shares of
common stock held by our shareholders immediately prior to the Share Exchange
and all of the 946,667 shares of common stock underlying the 946,667 warrants
held by our shareholders immediately prior to the Share Exchange. Of the
2,340,000 shares and 946,667 shares, 477,594 shares and 193,214 shares,
respectively, will be covered by the registration statement filed in connection
with the Private Placement, and 1,862,406 shares and 753,453 shares,
respectively, which are beneficially owned by affiliates of the placement agent,
will be included in a subsequent registration statement filed by us within 10
days after the end of the six-month period that immediately follows the date on
which we file the registration statement to register the shares issued in the
Private Placement. All of the shares included in an effective registration
statement may be freely sold and transferred, subject to a lock-up
agreement.





Additionally,
following the Share Exchange, the former stockholders of NIVS BVI, and their
designees, may be eligible to sell all or some of our shares of common stock by
means of ordinary brokerage transactions in the open market pursuant to Rule
144, promulgated under the Securities Act (“Rule 144”), subject to certain
limitations. Under Rule 144, an affiliate stockholder who has satisfied the
required holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of common stock or the average weekly trading
volume of the class during the four calendar weeks prior to such sale. As of the
closing of the Share Exchange, 1% of our issued and outstanding shares of common
stock was approximately 382,200 shares. Non-affiliate stockholders are not
subject to volume limitations. Any substantial sale of common stock pursuant to
any resale prospectus or Rule 144 may have an adverse effect on the market price
of our common stock by creating an excessive supply.


56





The
interests of the existing minority shareholder in NIVS PRC may diverge from our
own interests and this may adversely affect our ability to manage NIVS
PRC.





NIVS PRC,
our principal operating subsidiary, is an equity joint venture in which we,
through NIVS BVI, directly own a 97.5% interest and the founder of NIVS PRC and
our current Chief Executive Office and Chairman of the Board, Tianfu Li, owns
the remaining 2.5% interest.  See Note 2 to the financial statements
of this report for more information on the Company’s organization and ownership
structure.  Mr. Li’s interest may not be aligned with our interest at
all times. If our interests diverge, Mr. Li may exercise his rights, as dictated
under PRC laws, to protect his own interest, which may be adverse to us and our
investors. For example, should we wish to transfer our equity interest in NIVS
PRC, in whole or in part, to a third-party, Mr. Li, if he dissents to such a
transfer, will have a right to have his interests purchased under general
company regulations. If Mr. Li exercises his rights, any proposed sale and
transfer of our interests in NIVS PRC may be delayed and our financial condition
and results of operations may suffer.




Following
the Share Exchange, the former principal shareholders of NIVS BVI have
significant influence over us.





The
former shareholders of NIVS BVI, and their designees, beneficially own or
control approximately 77.5% of our outstanding shares as of the close of the
Share Exchange. If these shareholders were to act as a group, they would have a
controlling influence in determining the outcome of any corporate transaction or
other matters submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets, election
of directors, and other significant corporate actions. Such shareholders may
also have the power to prevent or cause a change in control. In addition,
without the consent of the former NIVS BVI shareholders and their designees, we
could be prevented from entering into transactions that could be beneficial to
us. The interests of the former NIVS BVI shareholders and their designees may
differ from the interests of our other stockholders.





If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.





We are
required to establish and maintain appropriate internal controls over financial
reporting. Failure to establish those controls, or any failure of those controls
once established, could adversely impact our public disclosures regarding our
business, financial condition or results of operations. Any failure of these
controls could also prevent us from maintaining accurate accounting records and
discovering accounting errors and financial frauds. Rules adopted by the SEC
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual
assessment of our internal control over financial reporting, and attestation of
this assessment by our independent registered public accountants. The SEC
extended the compliance dates for non-accelerated filers, as defined by the SEC.
Accordingly, we believe that the annual assessment of our internal controls
requirement will first apply to our annual report for the 2008 fiscal year and
the attestation requirement of management’s assessment by our independent
registered public accountants will first apply to our annual report for the 2009
fiscal year. The standards that must be met for management to assess the
internal control over financial reporting as effective are new and complex, and
require significant documentation, testing and possible remediation to meet the
detailed standards.





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. Furthermore, in November 2008, our management
identified a material weakness in our controls and procedures regarding our
failure to timely disclose and prevent loan transactions made to entities owned
and controlled by our CEO and related parties in violation of Section 402 of the
Sarbanes-Oxley Act of 2002. We may encounter additional problems or delays in
completing activities necessary to improve our internal control over financial
reporting.  In addition, the attestation process by our independent
registered public accountants is new and we may encounter problems or delays in
completing the implementation of any requested improvements and receiving an
attestation of our assessment by our independent registered public accountants.
If we cannot assess our internal control over financial reporting as effective,
or our independent registered public accountants are unable to provide an
unqualified attestation report on such assessment, investor confidence and share
value may be negatively impacted.


57





In
addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to be
addressed in our internal control over financial reporting, disclosure of
management’s assessment of our internal controls over financial reporting, or
disclosure of our public accounting firm’s attestation to or report on
management’s assessment of our internal controls over financial reporting may
have an adverse impact on the price of our common stock.





We
provided loans to certain entities owned and controlled by our chief executive
officer in violation of Section 402 of the Sarbanes-Oxley Act of 2002 and we
and/or our chief executive officer could become subject to criminal, civil or
administrative sanctions, penalties, or investigations and may also face
potential private securities litigation.





Section
402 of the Sarbanes-Oxley Act of 2002 ("Section 402") prohibits us from directly
or indirectly, including through any subsidiary, extending or maintaining
credit, arranging for the extension of credit, or renewing an extension of
credit, in the form of a personal loan to or for any of our directors or
executive officers. Prior to the Share Exchange, our subsidiaries entered into
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
transactions, our subsidiaries would borrow funds from Mr. Li, directly and
indirectly through entities owned by Mr. Li, and our subsidiaries would lend
funds to entities that were owned and controlled by Mr. Li. These entities 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”). The loans,
which were unsecured with no fixed repayment date, were for temporary funding of
each of the Related Companies’ business.





It was
intended that all loans from the Company to the entities owned by our CEO and
related parties be repaid prior to the closing of the Share Exchange, and no
further loans would be made after the closing of the Share Exchange. In November
2008, it was discovered that the loans to entities owned by our CEO and related
parties continued after the closing of the Share Exchange, as more fully
described in Note 8 to the financial statements contained in this report.
Although we have attempted to take remedial steps to address the violation of
Section 402 by requiring immediate and full repayment of all outstanding loan
balances, the violation of Section 402 may cause governmental authorities, such
as the United States Securities and Exchange Commission, to subject us to
criminal, civil, or administrative sanctions, penalties, or investigations,
which may not be resolved favorably and will require significant management time
and attention, and we could incur costs which could materially and negatively
affect our business, results of operations and cash flows. There are no
assurances that an investigation or litigation will not commence, and if
commenced, that such investigation or litigation will result in a favorable
outcome for us. Similarly, private parties may also initiate civil litigation
against us for such violations.





We
may not be able to achieve the benefits we expect to result from the Share
Exchange.




On June
27, 2008, we entered into the Exchange Agreement with all of the shareholders of
NIVS BVI, pursuant to which we agreed to acquire 100% of the issued and
outstanding securities of NIVS BVI in exchange for shares of our common stock.
On July 25, 2008, the Exchange Agreement was amended, the Share Exchange closed,
NIVS BVI became our 100%-owned subsidiary, and our sole business operations
became that of NIVS BVI. We also have a new Board of Directors and management
consisting of persons from NIVS BVI and changed our corporate name from SRKP 19,
Inc. to NIVS IntelliMedia Technology Group, Inc.





We may
not realize the benefits that we hoped to receive as a result of the Share
Exchange, which include:





·
              access
      to the capital markets of the United
States;




·
              the
      increased market liquidity expected to result from exchanging stock in a
      private company for securities of a public company that may eventually be
      traded;




·
              the
      ability to use registered securities to make acquisition of assets or
      businesses;




·
              increased
      visibility in the financial
community;




·
              enhanced
      access to the capital
markets;




·
              improved
      transparency of operations;
and




·
              perceived
      credibility and enhanced corporate image of being a publicly traded
      company.


58


There can
be no assurance that any of the anticipated benefits of the Share Exchange will
be realized with respect to our new business operations. In addition, the
attention and effort devoted to achieving the benefits of the Share Exchange and
attending to the obligations of being a public company, such as reporting
requirements and securities regulations, could significantly divert management’s
attention from other important issues, which could materially and adversely
affect our operating results or stock price in the future.





Compliance
with changing regulation of corporate governance and public disclosure will
result in additional expenses.




Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
regulations, have created uncertainty for public companies and significantly
increased the costs and risks associated with accessing the public markets and
public reporting. NIVS’ management team will need to invest significant
management time and financial resources to comply with both existing and
evolving standards for public companies, which will lead to increased general
and administrative expenses and a diversion of management time and attention
from revenue generating activities to compliance activities.





We
will incur an expense charge of up to approximately $765,000 in connection with
the issuance of 425,000 shares of common stock that we issued in connection with
an agreement for investor relations services.





We
entered into a two-year consulting agreement with Nascent Value LLC (“Nascent”)
pursuant to which we issued 425,000 shares of our common stock to Nascent. In
connection with the issuance of the shares of common stock, we expect to
recognize a charge to stock compensation in the third quarter of 2008 in the
amount of $765,000, which is derived from valuing each share at $1.80, the price
at which shares of our common stock were sold in the Private Placement. The
expense will have a negative effect on our results of operations and we may not
realize a benefit from the investor relations services that is comparable to
such negative effect. As a result, our operations may suffer and our stock price
may decline.





Our
common stock may be considered a “penny stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.




Our
common stock, which is not currently listed or quoted for trading, may be
considered to be a “penny stock” if it does not qualify for one of the
exemptions from the definition of “penny stock” under Section 3a51-1 of the
Securities Exchange Act for 1934, as amended (the “Exchange Act”) once, and if,
it starts trading. Our common stock may be a “penny stock” if it meets one or
more of the following conditions (i) the stock trades at a price less than $5.00
per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it
is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less than
$5.00 per share; or (iv) is issued by a company that has been in business less
than three years with net tangible assets less than $5 million.





The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers participating in sales of our common stock will be
subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
promulgated under the Exchange Act. For example, Rule 15g-2 requires
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document at least two business days before
effecting any transaction in a penny stock for the investor’s account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any
investor for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.




We
do not foresee paying cash dividends in the foreseeable future and, as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.





We do not
plan to declare or pay any cash dividends on our shares of common stock in the
foreseeable future and currently intend to retain any future earnings for
funding growth. As a result, investors should not rely on an investment in our
securities if they require the investment to produce dividend income. Capital
appreciation, if any, of our shares may be investors’ sole source of gain for
the foreseeable future. Moreover, investors may not be able to resell their
shares at or above the price they paid for them.


59





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




The
information contained in this report, including in the documents incorporated by
reference into this report, includes some statements that are not purely
historical and that are “forward-looking statements.”  Such
forward-looking statements include, but are not limited to, statements regarding
our company’s and our management’s expectations, hopes, beliefs, intentions or
strategies regarding the future, including our financial condition, results of
operations, and the expected impact of the Share Exchange.  In
addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements.  The words “anticipates,”
“believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,”
“should,” “will,” “would” and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.





The
forward-looking statements contained in this report are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction.  There can be no assurance
that future developments actually affecting us will be those
anticipated.  These forward-looking statements involve a number of
risks, uncertainties (some of which are beyond the parties’ control) or other
assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements,
including the following:





·
              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 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;




·
              Protection
      of our intellectual property
rights;




·
              Changes
      in the laws of the PRC that affect our
  operations;




·
              Inflation
      and fluctuations in foreign currency exchange
  rates;




·
              Our
      ability to obtain all necessary government certifications, approvals,
      and/or licenses to conduct our
business;




·
              Development
      of a public trading market for our
securities;




·
              The
      cost of complying with current and future governmental regulations and the
      impact of any changes in the regulations on our operations;
      and




·
              The
      other factors referenced in this report, including, without limitation,
      under the sections entitled “Risk Factors” and “Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations.”




The risks
included above are not exhaustive. Other sections of this report may include
additional factors that could adversely impact our business and operating
results.  Moreover, we operate in a very competitive and rapidly
changing environment.  New risk factors emerge from time to time and we
cannot predict all such risk factors, nor can we assess the impact of all such
risk factors on our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward-looking statements.


60




You
should not rely upon forward-looking statements as predictions of future events.
We cannot assure you that the events and circumstances reflected in the
forward-looking statements will be achieved or occur.  Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.  Moreover, neither we nor any other person assume
responsibility for the accuracy and completeness of the forward-looking
statements.  Except as required by law, we undertake no obligation to
update publicly any forward-looking statements for any reason after the date of
this report to conform these statements to actual results or to changes in our
expectations.




You
should read this report, and the documents that we reference in this report and
have filed as exhibits to this report with the Securities and Exchange
Commission, completely and with the understanding that our actual future
results, levels of activity, performance and achievements may materially differ
from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.





Item
2. Unregistered Sale of Equity Securities and Use of Proceeds





Not applicable.




Item
3. Default Upon Senior Securities




Not
applicable.




Item
4. Submission of Matters to a Vote of Security Holders




Not
applicable.




Item
5. Other Information




July
2008 Share Exchange Transaction





On July
25, 2008, we consummated a share exchange transaction (the “Share Exchange”)
pursuant to a share exchange agreement (the “Exchange Agreement”) dated as of
June 27, 2008, and amended as of July 25, 2008, with NIVS Holding Company
Limited, a British Virgin Islands corporation (“NIVS BVI”) and the shareholders
of NIVS BVI (the “Shareholders”), whereby we (i) became the 100% parent of NIVS
BVI and its subsidiaries, including its 97.5%-owned subsidiary NIVS (Huizhou)
Audio & Video Tech. Co., Ltd., a company organized under the laws of the PRC
(“NIVS PRC”); (ii) assumed the operations of NIVS BVI and its subsidiaries and
(iii) changed our name from SRKP 19, Inc. to NIVS IntelliMedia Technology Group,
Inc. See Note 2 to the financial statements of this report for more information
on the Company’s organization and ownership structure. Upon the closing of the
Share Exchange on July 25, 2008, which occurred after the end of the period
covered by this report, the internal control over financial reporting utilized
by NIVS BVI prior to the Share Exchange became the internal control over
financial reporting of our company. Following the Share Exchange the sole
business conducted by our company became the business conducted by NIVS BVI, and
we appointed new officers and directors.





Loans
involving Directors, Officers, Stockholders and Affiliated Parties;
Repayment





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, our subsidiaries would borrow funds from Mr. Li,
directly and indirectly through entities controlled by Mr. Li, and 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 38,474,900RMB, 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.
 
 The
amount of the loans made by our subsidiaries to the Related Companies ranged in
amount.  The aggregate amount loaned from our subsidiaries to the
Related Companies was approximately $13 million, $10 million, and $4 million
during the nine months ended September 30, 2008 and the years ended December 31,
2007 and 2006, respectively.  The loan amounts owed to our
subsidiaries by the Related Companies as of September 30, 2008 and December 31,
2007 and 2006 were approximately $7.6 million, $2.2 million, and $7.0 million,
respectively.  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.  Other than the loan to a
supplier of Hyundai Light and Electric (HZ) Co. Ltd., all of the loans to and
from our subsidiaries were unsecured with no fixed repayment
date.  The loans were borrowed and repaid
frequently.  Normally, it was agreed that the loan amounts were to be
paid back to ours subsidiaries within three to six months from the date of the
loan transaction.


61





The loans
to the Related Companies were for temporary funding of each of the Related
Companies’ business.  The businesses of the Related Companies are as
follows:  NIVS Investment (SZ) Co., Ltd. invests in various
industries, including real estate developments and electronic, internet,
communication and digital manufacturing and distribution; Zhongkena Technology
Development develops and distributes digital media products, electronic home
appliances, and portable baby-education products; Xentsan Technology (SZ) Co.,
Ltd. purchases and distributes electronic products and domestic commercial
products; Korea Hyundai Light & Electric (Int’l) Holding and Hyundai Light
& Electric (HZ) Co., Ltd. is in the business of electronic and lighting
products development and sales; and NIVS Information & Technology (HZ) Co.,
Ltd. designs, manufactures and sells computer appliance software and digital
products.





Mr. Li
owns and controls each of the Related Companies.  Mr. Li owns 90% of,
and is a director of, NIVS Investment (SZ) Co., Ltd., which owns 60% of
Zhongkena Technology Development, 51% of Xentsan Technology (SZ) Co., Ltd., and
95% of NIVS Information & Technology (HZ) Co., Ltd.  Mr. Li is
also a director of Xentsan Technology (SZ) Co., Ltd.  Prior to July
2008, Mr. Li was the 100% owner of Korea Hyundai Light & Electric (Int’l)
Holding Limited., which is the 100% owner of Hyundai Light & Electric (HZ)
Co., Ltd.  He was also a director of the entities.  On July
18, 2008, Mr. Li sold his 100% ownership in Korea Hyundai Light & Electric
(Int’l) Holding Limited to China Intelligent Electronic Holding Company
Limited., which is now 100% owned by Ms. Jin Xiang Ying.  Ms. Jin
Xiang Ying is an individual who is not related to Mr. Li or the Related
Companies. After the transfer, Mr. Li is no longer a director of Korea Hyundai
Light & Electric (Int’l) Holding Limited and Hyundai Light & Electric
(HZ) Co., Ltd.  Mr. Li's sister, Ms. Li Xue Mei, is an executive
director and general manager of Hyundai Light & Electric (HZ) Co.,
Ltd.





Upon the
closing of the Share Exchange, we, a publicly reporting company under U.S.
securities laws, gained ownership of the subsidiaries.  As a result,
our subsidiaries became subject to the Sarbanes-Oxley Act of 2002, including
Section 402’s prohibition against personal loans to directors and executive
officers, either directly or indirectly.  Because the loans did not
have a purpose directly related to the business operations of our company or our
subsidiaries, we believe that the loans made and outstanding after the closing
of the Share Exchange may violate of Section 402 of Sarbanes-Oxley, which would
subject us and our chief executive officer to possible criminal, civil or
administrative sanctions, penalties, or investigations, in addition to potential
private securities litigation.  It was intended that all loans from
our subsidiaries to our officers and directors, whether directly or indirectly,
be repaid in full prior to the closing of the Share Exchange, and no further
loans were to be made to such related parties after the closing of the Share
Exchange, which occurred on July 25, 2008.  In November 2008, it was
discovered that the loans to the entities owned by Mr. Li continued after the
closing of the Share Exchange.  We made a total of 47 loans, with a
total loan amount of $3,221,915, to the Related Companies after the closing of
the Share Exchange.





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 $996,433 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 $8,838,159 owed to Mr. Li (the “Li
Debt”).  On the same date, Mr. Li, through the Related Companies, had
an aggregate outstanding loan amount of $996,433 owed to our subsidiaries (the
“Related Companies’ Debt”), which consisted of $996,433 owed by Korea Hyundai
Light & Electric (Int'l) Holding.





Pursuant
to the Agreement, the Related Companies’ Debt of $996,433 was repaid by set off
against the Li Debt of $8,838,159.  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
$7,841,726.


62





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
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 $7,841,726 that we owe to Mr. Li will be converted into shares of our
common stock.  According to the agreement, the shares will be issued
upon the closing of our proposed public offering.   The number of
shares that we will issue to Mr. Li will be equal to the debt amount of
$7,841,726 divided by the offering price of our public offering.  The
estimated offering price range for our offering is $3.25 to $4.00 per share, and
based on the mid-range point of the per share offering price of $3.63, we
estimate that we will be issuing 2,160,255 shares of common stock to Mr.
Li.  After giving effect to the conversion, the debt will no longer be
outstanding and we will not have any outstanding debt owed to Mr.
Li.  Mr. Li’s beneficial ownership will increase from 33.1% to 36.3%
as a result of the debt conversion.  There is no guarantee that our
proposed public offering will be completed, in which event the debt will not be
converted into shares of common stock.





Item
6. Exhibits




(a)           Exhibits




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


63


NIVS
INTELLIMEDIA TECHNOLOGY GROUP, INC.




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:
      March 9, 2009
                  /s/
                  Tianfu
      LiBy:
                  Tianfu
      LiIts:
                  Chairman
      of the Board and Chief Executive
                    Officer


64