UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Amendment
No. 1 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 September 30, 2008OR





 ̈
              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 o    No x




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




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




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




The
number of shares outstanding of the registrant’s Common Stock, par value $0.0001
per share, was 36,855,714 as of November 10, 2008.










EXPLANATORY
NOTE





This
Amendment No. 1 (this “Amendment”) on Form 10-Q/A, which amends and restates
items identified below with respect to the Form 10-Q, filed by NIVS IntelliMedia
Technology Group, Inc. (“we” or the “Company”) with the Securities and Exchange
Commission (the “SEC”) on December 4, 2008 (the “Original Filing”), is being
filed to reflect revisions to Financial Statements, Management’s Discussion and
Analysis of Financial Condition and Results of Operation, Controls and
Procedures, Risk Factors, Other Information, and Exhibits. The Company has
revised its financial statements for the three months and nine months ended
September 30, 2008 and 2007 to reflect various adjustments, primarily to account
for restatements made due to an error in the accounting treatment of imputed
interest on loans due to one of the Company’s shareholders resulting in an
understatement of the Company’s expenses for certain periods and due to a
misclassification for “Due from related parties,” resulting in an overstatement
of the Company’s assets and shareholders’ equity for certain periods. These
adjustments are more fully described in Note 1 of the Notes to the Financial
Statements contained herein.





This Form
10-Q/A only amends information in Item 1 (Financial Statements), Item 1A (Risk
Factors), Item 2 (Management’s Discussion and Analysis of Financial Condition
and Results of Operation), Item 4 (Controls and Procedures), Item 5 (Other
Information), and Item 6 (Exhibits) and the other Items as presented in the
Original Filing are not being amended but are restated without change in this
Amendment for ease of reference. As a result of this Amendment, 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. Except for the foregoing amended
and restated information, this Amendment 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 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 September 30, 2008




INDEX




PagePart I
                        Financial
      InformationItem
      1.
                        
                        Financial
      Statements
                        
                        1a)
                        Condensed
      Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and
      December 31, 2007
                        
                        1b)
                        Condensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      September 30, 2008 and 2007 (Unaudited)
                        
                        2c)
                        Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2008 and
      2007 (Unaudited)
                        
                        3d)
                        Notes
      to Consolidated Financial Statements (Unaudited)
                        
                        4Item
      2.
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        27Item
      3.
                        
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        39Item
      4.
                        
                        Controls
      and Procedures
                        
                        39Part II
                        Other
      InformationItem
      1.
                        
                        Legal
      Proceedings
                        
                        42Item
      1A.
                        
                        Risk
      Factors
                        
                        42Item
      2.
                        
                        Unregistered
      Sale of Equity Securities and Use of Proceeds
                        
                        42Item
      3.
                        
                        Default
      Upon Senior Securities
                        
                        42Item
      4.
                        
                        Submission
      of Matters to a Vote of Security Holders
                        
                        42Item
      5.
                        
                        Other
      Information
                        
                        42Item
      6.
                        
                        Exhibits
                        
                        45Signatures
                        
                        
                        
                        46







Part I.
Financial Information




Item
1. Financial Statements




NIVS INTELLIMEDIA TECHNOLOGY GROUP,
INC. AND SUBSIDIARIES


Condensed
Consolidated Balance Sheets


(In US
Dollars)





September 30,
                      
                      
                      December 31,2008
                      
                      
                      2007(Unaudited)
                      
                      
                      (As restated)(As restated)AssetsCurrent
      AssetsCash
      and cash equivalents
                      
                      $
                      3,114,058
                      
                      
                      $
                      1,438,651Short-term
      investment, marketable securities
                      
                      
                      10,736
                      
                      
                      
                      10,061Trade
      receivables, net (Note 4)
                      
                      
                      20,971,383
                      
                      
                      
                      4,510,833Interest
      receivables
                      
                      
                      393,919
                      
                      
                      
                      -Inventories,
      net (Note 7)
                      
                      
                      6,847,852
                      
                      
                      
                      17,347,370Restricted
      cash (Note 14)
                      
                      
                      4,318,165
                      
                      
                      
                      1,983,247Prepaid
      expenses and deposits
                      
                      
                      2,587,701
                      
                      
                      
                      18,585Total
      current assets
                      
                      
                      38,243,814
                      
                      
                      
                      25,308,747Property
      and equipment, net (Note 9)
                      
                      
                      54,276,881
                      
                      
                      
                      46,624,502Advances
      to suppliers (Note 5)
                      
                      
                      23,975,026
                      
                      
                      
                      14,391,650Intangible
      assets, net (Note 10)
                      
                      
                      2,355,195
                      
                      
                      
                      2,228,974Total
      Assets
                      
                      $
                      118,850,916
                      
                      
                      $
                      88,553,873Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable - trade
                      
                      $
                      8,428,310
                      
                      
                      $
                      14,560,824Due
      to related parties (Note 8)
                      
                      
                      568,063
                      
                      
                      
                      -Customer
      deposit (Note 11)
                      
                      
                      3,134,519
                      
                      
                      
                      2,454,761Accrued
      liabilities and other payable
                      
                      
                      1,017,163
                      
                      
                      
                      490,142Various
      taxes payable
                      
                      
                      983,673
                      
                      
                      
                      187,711Short-term
      loans (Note 12)
                      
                      
                      36,118,646
                      
                      
                      
                      28,645,571Current
      portion of long-term bank loan payable (Note 13)
                      
                      
                      -
                      
                      
                      
                      4,455,656Wages
      payable
                      
                      
                      371,183
                      
                      
                      
                      608,222Bank
      notes payable (Note 14)
                      
                      
                      19,414,388
                      
                      
                      
                      6,399,693Corporate
      tax payable
                      
                      
                      2,330,045
                      
                      
                      
                      1,725,765Total
      current liabilities
                      
                      
                      72,365,990
                      
                      
                      
                      59,528,345Due
      to shareholder (Note 15)
                      
                      
                      9,133,637
                      
                      
                      
                      11,008,770Total
      liabilities
                      
                      
                      81,499,627
                      
                      
                      
                      70,537,115Minority
      interest
                      
                      
                      1,033,786
                      
                      
                      
                      620,131Shareholders'
      EquityPreferred
      stock $0.0001 par value, 10,000,000 shares authorized,none
      outstanding at September 30, 2008 (unaudited) andDecember
      31, 2007 (Note 2)
                      
                      
                      -
                      
                      
                      
                      -Capital
      stock $0.0001 par value, 10,000,000 shares authorized,36,855,714
      and 27,546,667 shares issued and outstanding atSeptember
      30, 2008 (unaudited) and December 31, 2007, respectively
      (Note 2)
                      
                      
                      3,686
                      
                      
                      
                      2,755Additional
      paid-in capital
                      
                      
                      12,454,299
                      
                      
                      
                      755,803Accumulated
      other comprehensive income
                      
                      
                      3,702,406
                      
                      
                      
                      2,122,612Statutory
      surplus reserve fund (Note 17)
                      
                      
                      1,278,764
                      
                      
                      
                      1,278,764Retained
      earnings (unrestricted)
                      
                      
                      26,498,243
                      
                      
                      
                      15,450,063Due
      from related parties (Note 8)
                      
                      
                      (7,619,895
                      )
                      
                      
                      (2,213,370
                      )Total
      Shareholders' Equity
                      
                      
                      36,317,503
                      
                      
                      
                      17,396,627Total
      Liabilities and Shareholders' Equity
                      
                      $
                      118,850,916
                      
                      
                      $
                      88,553,873





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


1


NIVS INTELLIMEDIA TECHNOLOGY GROUP,
INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations


(In US
Dollars)





For Three Months Ended
                    
                    
                    For Nine Months EndedSeptember 30,
                    
                    
                    September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)Revenue
                    
                    $
                    49,411,468
                    
                    
                    $
                    16,730,346
                    
                    
                    $
                    101,048,363
                    
                    
                    $
                    50,660,199Other
      Sales
                    
                    
                    164,939
                    
                    
                    
                    313,838
                    
                    
                    
                    320,992
                    
                    
                    
                    599,219Cost
      of Goods Sold
                    
                    
                    (38,261,969
                    )
                    
                    
                    (12,743,673
                    )
                    
                    
                    (77,852,802
                    )
                    
                    
                    (38,742,351
                    )Gross
      Profit
                    
                    
                    11,314,438
                    
                    
                    
                    4,300,511
                    
                    
                    
                    23,516,553
                    
                    
                    
                    12,517,067Selling
      Expenses
                    
                    
                    1,286,796
                    
                    
                    
                    826,037
                    
                    
                    
                    2,649,900
                    
                    
                    
                    2,543,024General
      and administrativeAmortization
                    
                    
                    18,003
                    
                    
                    
                    14,858
                    
                    
                    
                    51,491
                    
                    
                    
                    45,482Depreciation
                    
                    
                    87,859
                    
                    
                    
                    71,267
                    
                    
                    
                    249,068
                    
                    
                    
                    205,149Bad
      debts
                    
                    
                    424,299
                    
                    
                    
                    338,838
                    
                    
                    
                    808,401
                    
                    
                    
                    1,122,461Merger
      cost
                    
                    
                    1,783,586
                    
                    
                    
                    -
                    
                    
                    
                    1,783,586
                    
                    
                    
                    -Stock-based
      compensation (Note 23)
                    
                    
                    765,000
                    
                    
                    
                    -
                    
                    
                    
                    765,000
                    
                    
                    
                    -Other
      General and administrative (Note 16)
                    
                    
                    857,584
                    
                    
                    
                    765,073
                    
                    
                    
                    1,891,291
                    
                    
                    
                    1,866,401Total
      General and administrative
                    
                    
                    3,936,331
                    
                    
                    
                    1,190,036
                    
                    
                    
                    5,548,837
                    
                    
                    
                    3,239,493Research
      and development
                    
                    
                    261,141
                    
                    
                    
                    115,107
                    
                    
                    
                    668,323
                    
                    
                    
                    257,379Total
      operating expenses
                    
                    
                    5,484,268
                    
                    
                    
                    2,131,180
                    
                    
                    
                    8,867,060
                    
                    
                    
                    6,039,896Income
      from operations
                    
                    
                    5,830,170
                    
                    
                    
                    2,169,331
                    
                    
                    
                    14,649,493
                    
                    
                    
                    6,477,171Other
      income (expenses)Government
      grant
                    
                    
                    21,506
                    
                    
                    
                    -
                    
                    
                    
                    21,506
                    
                    
                    
                    -Write-down
      of inventory
                    
                    
                    -
                    
                    
                    
                    (2,799
                    )
                    
                    
                    -
                    
                    
                    
                    (393,205
                    )Interest
      income
                    
                    
                    250,664
                    
                    
                    
                    (10,104
                    )
                    
                    
                    393,946
                    
                    
                    
                    1,204Interest
      expense
                    
                    
                    (517,857
                    )
                    
                    
                    (353,561
                    )
                    
                    
                    (1,563,094
                    )
                    
                    
                    (993,656
                    )Imputed
      interest
                    
                    
                    (147,620
                    )
                    
                    
                    (245,371
                    )
                    
                    
                    (446,953
                    )
                    
                    
                    (494,610
                    )Sundry
      income (expense), net
                    
                    
                    (31,544
                    )
                    
                    
                    (33,545
                    )
                    
                    
                    (22,370
                    )
                    
                    
                    (65,973
                    )Total
      other income (expenses)
                    
                    
                    (424,851
                    )
                    
                    
                    (645,380
                    )
                    
                    
                    (1,616,965
                    )
                    
                    
                    (1,946,240
                    )Income
      before minority interest and income taxes
                    
                    
                    5,405,319
                    
                    
                    
                    1,523,951
                    
                    
                    
                    13,032,528
                    
                    
                    
                    4,530,931Income
      taxes
                    
                    
                    (645,936
                    )
                    
                    
                    (54,057
                    )
                    
                    
                    (1,621,020
                    )
                    
                    
                    (488,179
                    )Minority
      interest
                    
                    
                    (196,195
                    )
                    
                    
                    (36,761
                    )
                    
                    
                    (363,328
                    )
                    
                    
                    (101,421
                    )Net
      Income
                    
                    $
                    4,563,188
                    
                    
                    $
                    1,433,133
                    
                    
                    $
                    11,048,180
                    
                    
                    $
                    3,941,331Basic
      and diluted earnings per share
                    
                    $
                    0.13
                    
                    
                    $
                    0.05
                    
                    
                    $
                    0.37
                    
                    
                    $
                    0.14Weighted
      average shares outstanding
                    
                    
                    34,147,201
                    
                    
                    
                    27,546,667
                    
                    
                    
                    29,746,845
                    
                    
                    
                    27,546,667





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


2


NIVS INTELLIMEDIA TECHNOLOGY GROUP,
INC. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows


(In US
Dollars)





For Nine Months EndedSeptember 30,2008
                      
                      
                      2007(Unaudited)
                      
                      
                      (Unaudited)(As restated)
                      
                      
                      (As restated)Cash
      Flows From Operating ActivitiesNet
      Income
                      
                      $
                      11,048,180
                      
                      
                      $
                      3,941,331Adjustments
      to reconcile net income to netcash
      used by operating activities:Minority
      Interest
                      
                      
                      363,328
                      
                      
                      
                      101,421Bad
      debts
                      
                      
                      808,401
                      
                      
                      
                      1,122,461Depreciation
                      
                      
                      3,575,811
                      
                      
                      
                      767,755Amortization
                      
                      
                      51,491
                      
                      
                      
                      45,482Imputed
      interest
                      
                      
                      446,953
                      
                      
                      
                      494,610Stock
      based compensation
                      
                      
                      765,000
                      
                      
                      
                      -Write-down
      of inventory
                      
                      
                      -
                      
                      
                      
                      393,205Changes
      in operating assets and liabilities:Account
      receivable-trade
                      
                      
                      (17,268,951
                      )
                      
                      
                      (6,778,942
                      )Interest
      receivable
                      
                      
                      (393,919
                      )
                      
                      
                      -Advances
      to suppliers for purchases
                      
                      
                      (9,583,376
                      )
                      
                      
                      (10,343,039
                      )Prepaid
      expenses and deposits
                      
                      
                      (2,569,116
                      )
                      
                      
                      (127,780
                      )Inventories,
      net
                      
                      
                      10,499,518
                      
                      
                      
                      (6,943,597
                      )Restricted
      cash
                      
                      
                      (2,334,918
                      )
                      
                      
                      (1,678,062
                      )Accounts
      payable and accrued liabilities
                      
                      
                      (4,925,735
                      )
                      
                      
                      4,845,147Various
      taxes payable
                      
                      
                      795,962
                      
                      
                      
                      (1,740,064
                      )Wages
      payable
                      
                      
                      (237,039
                      )
                      
                      
                      (16,510
                      )Corporate
      tax payable
                      
                      
                      604,280
                      
                      
                      
                      259,129Net
      cash used by operating activities
                      
                      
                      (8,354,130
                      )
                      
                      
                      (15,657,453
                      )Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment
                      
                      
                      (8,176,812
                      )
                      
                      
                      (1,847,361
                      )Purchases
      of intangible assets
                      
                      
                      (28,674
                      )
                      
                      
                      -Due
      from related parties
                      
                      
                      (5,406,525
                      )
                      
                      
                      (7,229,905
                      )Net
      cash used by investing activities
                      
                      
                      (13,612,011
                      )
                      
                      
                      (9,077,266
                      )Cash
      Flows From Financing ActivitiesProceeds
      of loans
                      
                      
                      69,977,859
                      
                      
                      
                      58,645,500Repayments
      of loans
                      
                      
                      (66,957,669
                      )
                      
                      
                      (42,016,949
                      )Proceeds
      of bank notes
                      
                      
                      27,571,598
                      
                      
                      
                      16,476,779Repayments
      of bank notes
                      
                      
                      (16,964,527
                      )
                      
                      
                      (17,001,581
                      )Capital
      lease payable
                      
                      
                      -
                      
                      
                      
                      (61,669
                      )Net
      proceeds from private placement
                      
                      
                      10,487,474
                      
                      
                      
                      -Due
      to shareholder
                      
                      
                      (1,875,133
                      )
                      
                      
                      9,655,704Due
      to related parties
                      
                      
                      568,063
                      
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      22,807,665
                      
                      
                      
                      25,697,784Effect
      of exchange rate changes on cash
                      
                      
                      833,883
                      
                      
                      
                      545,730Net
      increase in cash and cash equivalents
                      
                      
                      1,675,407
                      
                      
                      
                      1,508,795Cash
      and cash equivalents, beginning of period
                      
                      
                      1,438,651
                      
                      
                      
                      559,390Cash
      and cash equivalents, end of period
                      
                      $
                      3,114,058
                      
                      
                      $
                      2,068,185Supplemental
      disclosure information:Interest
      expense paid
                      
                      $
                      1,045,237
                      
                      
                      $
                      640,095Income
      taxes paid
                      
                      $
                      975,084
                      
                      
                      $
                      434,122Non
      cash investing and financing activities:Exchange
      of investment equipment
                      
                      $
                      -
                      
                      
                      $
                      -





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


3


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


(Amounts
and disclosures at and for the three and nine months ended September 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 2007, 2006, and 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. The September 30, 2008 Form 10-Q filed with the SEC
on December 4, 2008 was not affected by this issue.





Subsequently,
Kempisty & Company informed the Company that its financial statements for
the year ended 2007, 2006, and 2005 and for the three and nine months ended
September 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 December 4, 2008.





Effects
of Restatements





To
correct the above noted errors, the Company has restated the accompanying
consolidated balance sheets as of September 30, 2008 and December 31, 2007, and
its consolidated statements of cash flows for the nine months ended September
30, 2008 and 2007, 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 September 30,
                      2008
                  
                  
                  As restated at
                      September 30, 2008AssetsDue
      from related parties
                  
                  $
                  2,213,370
                  
                  
                  $
                  -
                  
                  
                  $
                  7,619,895
                  
                  
                  $
                  -Minority
      interest
                  
                  
                  626,346
                  
                  
                  
                  620,131
                  
                  
                  
                  1,040,001
                  
                  
                  
                  1,033,786Shareholders’
      EquityAdditional
      paid-in capital
                  
                  
                  755,803
                  
                  
                  
                  755,803
                  
                  
                  
                  12,205,681
                  
                  
                  
                  12,454,299Retained
      earnings
                  
                  
                  15,443,848
                  
                  
                  
                  15,450,063
                  
                  
                  
                  26,740,646
                  
                  
                  
                  26,498,243Due
      from related parties
                  
                  
                  -
                  
                  
                  
                  (2,213,370
                  )
                  
                  
                  -
                  
                  
                  
                  (7,619,895
                  )





Consolidated
Statements of Cash Flows





For the quarter ended
                      September 30,2008
                  
                  
                  For the quarter ended
                      September 30,2007As previously
                      reported
                  
                  
                  As restated
                  
                  
                  As previously
                      reported
                  
                  
                  As restatedCash
      flow from investing activitiesDue
      from related parties
                  
                  $
                  -
                  
                  
                  $
                  (5,406,525
                  )
                  
                  $
                  -
                  
                  
                  $
                  (7,229,905
                  )Cash
      flow from financing activitiesDue
      from related parties
                  
                  
                  (5,406,525
                  )
                  
                  
                  -
                  
                  
                  
                  (7,229,905
                  )
                  
                  
                  -




4




NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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.





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.


5


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





Concurrently
with the close of the Share Exchange, NIVS USA conducted an initial closing of a
private placement transaction pursuant to which NIVS USA 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 USA conducted a second and
final closing of the private placement pursuant to which NIVS USA 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 USA 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
USA 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 throughout as the “Company”.  To summarize the
paragraphs above, the organization and ownership structure of the Company is
currently as follows:










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.





In the
opinion of the management, the consolidated financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of December 31, 2007 and
as of September 30, 2008, and the results of operations and cash flows for the
three and nine months ended September 30, 2008 and 2007,
respectively.




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.


6





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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


d.
              Fair
      values of financial instruments
 
 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.
 
 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
                38
      yearsMolds
                8
      yearsMachinery
      and Equipment
                10
      yearsElectronic
      Equipment
                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.
  7
  
 NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and nine months ended September 30, 2008
and 2007 are unaudited)
 
 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.
 
 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.
              Segment
      information
 
 SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information”,
requires certain financial and supplementary information to be disclosed on an
annual and interim basis for each reportable segment of an enterprise. The
Company believes that it operates in one business segment (research,
development, production, marketing and sales of auto electronic products) and in
one geographical segment (China), as all of the Company’s current operations are
carried out in China.
 
 m.
              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.
  n.
              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.
 
 o.
              Research and development
      costs
  Research
and development costs are expensed to operations as incurred.  The
Company spent $668,323 and $257,379 on direct research and development
(“R&D”) efforts in the nine months ended September 30, 2008 and 2007,
respectively.
 p.
              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.
  8
 
 NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and nine months ended September 30, 2008
and 2007 are unaudited)
 
 q.
              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.
  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 RatesYear
      ended December 31, 2007
                  
                  
                  7.29410
                  
                  
                  
                  7.59474Nine
      Months ended September 30, 2007
                  
                  
                  7.4974
                  
                  
                  
                  7.6546Nine
      Months ended September 30, 2008
                  
                  
                  6.8353
                  
                  
                  
                  6,9750
 
 The
exchange rates used for foreign currency translation were as follows (USD$1 =
HKD):
 
 Period Covered
                  
                  Balance Sheet Date Rates
                  
                  
                  Average RatesYear
      ended December 31, 2007
                  
                  
                  7.80214
                  
                  
                  
                  7.80153Nine
      Months ended September 30, 2007
                  
                  
                  7.7730
                  
                  
                  
                  7.78101Nine
      Months ended September 30, 2008
                  
                  
                  7.7688
                  
                  
                  
                  7.7973
 
 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.
              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.
  9
 
 NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and nine months ended September 30, 2008
and 2007 are unaudited)
 
 t.
              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.
  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.
  10
 
 NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Amounts
and disclosures at and for the three and nine months ended September 30, 2008
and 2007 are unaudited)
 
 ·
              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.
 
 u.
              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.
 
 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.
  11




NIVS IntelliMedia Technology Group,
Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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.





v.
            Interim
      financial information





The
accompanying interim consolidated financial statements that accompany these
notes are prepared in conformity with U.S. generally accepted accounting
principles. The results of operations for the period ended September 30, 2008
are not necessarily indicative of the operating results for the entire
year.





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.




4.
              ACCOUNTS
      RECEIVABLE





Accounts
receivable consists of the following:





September 30,
                        
                        December 31,2008
                        
                        2007Accounts
      receivable-trade
                        
                        $
                        22,506,747
                        
                        
                        $
                        5,239,098Allowance
      for doubtful accounts
                        
                        
                        (1,535,364
                        )
                        
                        
                        (728,265
                        )Accounts
      receivable-trade, net
                        
                        $
                        20,971,383
                        
                        
                        $
                        4,510,833





The
change of the allowance for doubtful debts between the reporting periods, as of
December 31, 2007, and as of September 30, 2008, is displayed as
follows:





September 30,
                        
                        
                        December 31,2008
                        
                        
                        2007Beginning
      balance
                        
                        $
                        (728,265
                        )
                        
                        $
                        (220,334
                        )Provision/Reversal
      during the period
                        
                        
                        (807,099
                        )
                        
                        
                        (507,931
                        )Ending
      balance
                        
                        $
                        (1,535,364
                        )
                        
                        $
                        (728,265
                        )





5.
            ADVANCES
      TO SUPPLIERS





Advances
to suppliers consist of the following:





September 30,
                        
                        
                        December 31,2008
                        
                        
                        2007Dengfeng
      Digital
                        
                        
                        125,197
                        
                        
                        
                        261,274Liangchuan
      Chemical
                        
                        
                        -
                        
                        
                        
                        280,309Guangdong
      Renxin
                        
                        
                        456,348
                        
                        
                        
                        200,726Kiayi
      Techonology
                        
                        
                        124,844
                        
                        
                        
                        116,994Yintian
      Chemical
                        
                        
                        472,268
                        
                        
                        
                        411,120Desheng
      Digital
                        
                        
                        10,489,728
                        
                        
                        
                        6,466,384Baoyitong
      Trading
                        
                        
                        -
                        
                        
                        
                        2,696,980Huaneng
      Ltd
                        
                        
                        147,426
                        
                        
                        
                        1,077,299Shenghang
                        
                        
                        1,110,897
                        
                        
                        
                        949,118Yide
                        
                        
                        3,650,278
                        
                        
                        
                        364,880Ningxia
      Yuanfeng
                        
                        
                        1,736,581
                        
                        
                        
                        788,994Others
                        
                        
                        5,661,459
                        
                        
                        
                        777,572$
                        23,975,026
                        
                        
                        $
                        14,391,650




12




NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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 nine months ended September 30,
2008.





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 nine months ended September 30, 2008 and 2007 are listed
below:





September 30,
                            
                            
                            December 31,2008
                            
                            
                            2007
                            
                            
                            2007IPTV
      investment
                            
                            $
                            -
                            
                            
                            $
                            13,338,000
                            
                            
                            $
                            -




13





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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:





September 30,
                  
                  
                  December 31,2008
                  
                  
                  2007Raw
      material
                  
                  $
                  1,074,006
                  
                  
                  $
                  15,965,784Finished
      goods
                  
                  
                  5,880,300
                  
                  
                  
                  1,486,977Reserve
      for obsolete inventory
                  
                  
                  (106,454
                  )
                  
                  
                  (105,391
                  )Inventory,
      net
                  
                  $
                  6,847,852
                  
                  
                  $
                  17,347,370





The
change of the reserve for obsolete inventory between the reporting periods, as
of December 31, 2007, and as of September 30, 2008, is displayed as
follows:





September 30,
                      
                      
                      December 31,2008
                      
                      
                      2007Beginning
      balance
                      
                      $
                      (105,391
                      )
                      
                      $
                      (5,130
                      )Provision/Reversal
      during the period
                      
                      
                      -
                      
                      
                      
                      (100,261
                      )Foreign
      exchange adjustment
                      
                      
                      (1,063
                      )
                      
                      
                      -Ending
      balance
                      
                      $
                      (106,454
                      )
                      
                      $
                      (105,391
                      )





8.
            DUE
      FROM (TO) RELATED PARTIES





Due from
related parties consist of the following:




September 30,
                            
                            
                            December 31,2008
                            
                            
                            2007NIVS
      Investment  (SZ) Co., Ltd.
                            
                            $
                            -
                            
                            
                            $
                            773,234Zhongkena
      Technology Development
                            
                            
                            20,921
                            
                            
                            
                            380,470Xentsan
      Technology (SZ) Co., Ltd.
                            
                            
                            -
                            
                            
                            
                            356,452Korea
      Hyundai Light & Electric (Int'l) Holding
                            
                            
                            1,849,865
                            
                            
                            
                            703,214NIVS
      Information & Technology (HZ) Co., Ltd.
                            
                            
                            7,315
                            
                            
                            
                            -Hyundai
      Light & Electric (HZ) Co., Ltd.
                            
                            
                            5,741,794
                            
                            
                            
                            -Total
                            
                            $
                            7,619,895
                            
                            
                            $
                            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.





Due to
related parties consist of the following:





September 30,
                      
                      
                      December 31,2008
                      
                      
                      2007NIVS
      Investment  (SZ) Co., Ltd.
                      
                      $
                      568,063
                      
                      
                      $
                      -





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.





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.




14




NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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.





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.





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.





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.




15




NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





9.
            PROPERTY
      AND EQUIPMENT





Property
and equipments consist of the following:





September 30,
                  
                  
                  December 31,2008
                  
                  
                  2007Building
                  
                  $
                  16,612,494
                  
                  
                  $
                  15,567,497Molds
                  
                  
                  28,636,264
                  
                  
                  
                  26,834,921Machinery
      and Equipments
                  
                  
                  9,129,780
                  
                  
                  
                  5,762,197Electronic,
      office and other equipments
                  
                  
                  642,734
                  
                  
                  
                  590,063Automobiles
                  
                  
                  1,212,156
                  
                  
                  
                  844,218Construction
      in progress
                  
                  
                  4,870,381
                  
                  
                  
                  -Accumulated
      Depreciation
                  
                  
                  (6,826,928
                  )
                  
                  
                  (2,974,394
                  )Property
      and equipments, net
                  
                  $
                  54,276,881
                  
                  
                  $
                  46,624,502





The
depreciation expenses are $3,575,811 and $767,755 in the nine months ended
September 30, 2008 and 2007, respectively.





Nine months ended September 30,2008
                  
                  
                  2007Cost
      of sales
                  
                  $
                  3,293,779
                  
                  
                  
                  423,665Selling
      expenses
                  
                  
                  32,964
                  
                  
                  
                  138,941General
      and administrative expense
                  
                  
                  249,068
                  
                  
                  
                  205,149Total
                  
                  $
                  3,575,811
                  
                  
                  $
                  767,755





10.
            INTANGIBLE
      ASSETS





Intangible
assets consist of the following:





September 30,
                        2008
                      
                      
                      December 31,
                        2007Land use rights
                      
                      $
                      2,750,473
                      
                      
                      $
                      2,577,423Computer
      software use rights
                      
                      
                      34,072
                      
                      
                      
                      4,509Accumulated
      amortization
                      
                      
                      (429,350
                      )
                      
                      
                      (352,958
                      )Intangible
      assets, net
                      
                      $
                      2,355,195
                      
                      
                      $
                      2,228,974





The
amortization expense is $51,491, and $45,482 in the nine months ended September
30, 2008 and 2007, respectively.





Nine months ended September 30,2008
                  
                  
                  2007General
      and administrative expense
                  
                  
                  51,491
                  
                  
                  
                  45,482Total
                  
                  $
                  51,491
                  
                  
                  $
                  45,482





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 year ended December 31, 2007 and the
nine months ended September 30, 2008 and 2007 the Company has had no costs
related to a contract breach or product quality issue.


16


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





Customer
deposit consists of the following:





Nine months ended September 30,
                            
                            
                            Year ended December 31,2008
                            
                            
                            2007
                            
                            
                            2007Name
      of customerMICO
      ELECTRIC (HONGKONG)
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            $
                            140,178
                            
                            
                            
                            4.47
                            %
                            
                            $
                            -
                            
                            
                            
                            
                            
                            $
                            -SWEET
      CRED LTD
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            54,571
                            
                            
                            
                            1.74
                            %印度JUPITER
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            143,670
                            
                            
                            
                            6.87
                            %
                            
                            
                            237,902
                            
                            
                            
                            9.69
                            %MOSCOW
      TOR
                            
                            Purchase
      of company products, delivered in Nov. 2008
                            
                            
                            126,212
                            
                            
                            
                            4.03
                            %
                            
                            
                            115,695
                            
                            
                            
                            5.53
                            %
                            
                            
                            44,193
                            
                            
                            
                            1.80
                            %LISEN
      EAST
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            34,256
                            
                            
                            
                            1.09
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            0.00
                            %SPAIN
      ADL
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            88,468
                            
                            
                            
                            2.82
                            %
                            
                            
                            80,278
                            
                            
                            
                            3.84
                            %
                            
                            
                            81,187
                            
                            
                            
                            3.31
                            %FUZHOU
      XINHONGSHENG
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            55,282
                            
                            
                            
                            1.76
                            %
                            
                            
                            72,700
                            
                            
                            
                            3.47
                            %
                            
                            
                            59,444
                            
                            
                            
                            2.42
                            %INDAI
      MIRC
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            74,664
                            
                            
                            
                            2.38
                            %
                            
                            
                            66,884
                            
                            
                            
                            3.20
                            %
                            
                            
                            68,520
                            
                            
                            
                            2.79
                            %SAMSUNG
      K-TECH
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            124,368
                            
                            
                            
                            3.97
                            %
                            
                            
                            65,278
                            
                            
                            
                            3.12
                            %
                            
                            
                            67,302
                            
                            
                            
                            2.74
                            %BEIJING
      JINDACHENG
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            17,927
                            
                            
                            
                            0.57
                            %
                            
                            
                            89,564
                            
                            
                            
                            4.28
                            %
                            
                            
                            128,871
                            
                            
                            
                            5.25
                            %SHIJIAZHUANG
      YITE
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            41,829
                            
                            
                            
                            1.33
                            %
                            
                            
                            35,825
                            
                            
                            
                            1.71
                            %
                            
                            
                            
                            
                            
                            
                            0.00
                            %CHANGCHUN
      LONGRUIDA
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            72,992
                            
                            
                            
                            2.33
                            %
                            
                            
                            62,515
                            
                            
                            
                            2.99
                            %
                            
                            
                            66,985
                            
                            
                            
                            2.73
                            %HAIWEI'ER
      TRADING
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            215,302
                            
                            
                            
                            10.29
                            %
                            
                            
                            252,052
                            
                            
                            
                            10.27
                            %SHENGKE
      NET
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            223,192
                            
                            
                            
                            9.09
                            %BEIJING
      WIRELESS
                            
                            Purchase
      of company products, delivered in Nov. 2008
                            
                            
                            130,092
                            
                            
                            
                            4.15
                            %
                            
                            
                            127,949
                            
                            
                            
                            6.12
                            %
                            
                            
                            153,576
                            
                            
                            
                            6.26
                            %RUSSIA
      ERIMEX
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            165,055
                            
                            
                            
                            5.27
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            151,472
                            
                            
                            
                            6.17
                            %LITHUANIA
      ACME
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            100,929
                            
                            
                            
                            4.11
                            %HANGZHOU
      WANHAI
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            74,687
                            
                            
                            
                            2.38
                            %
                            
                            
                            63,974
                            
                            
                            
                            3.06
                            %
                            
                            
                            68,541
                            
                            
                            
                            2.79
                            %RUSSIA
      AVE
                            
                            Purchase
      of company products, delivered in Nov. 2008
                            
                            
                            116,810
                            
                            
                            
                            3.73
                            %
                            
                            
                            84,926
                            
                            
                            
                            4.06
                            %
                            
                            
                            61,368
                            
                            
                            
                            2.50
                            %TAIWAN
      ZHIHE
                            
                            Purchase
      of company products, delivered in Oct. 2008
                            
                            
                            60,565
                            
                            
                            
                            1.93
                            %
                            
                            
                            53,280
                            
                            
                            
                            2.55
                            %
                            
                            
                            55,581
                            
                            
                            
                            2.26
                            %DONGGUAN
      SHISHANGOthers
                            
                            
                            
                            
                            1,756,563
                            
                            
                            
                            56.04
                            %
                            
                            
                            1,357,385
                            
                            
                            
                            22.65
                            %
                            
                            633,646
                            
                            
                            
                            25.81
                            %Total:
      (USD)
                            
                            
                            
                            $
                            3,134,519
                            
                            
                            
                            
                            
                            $
                            2,635,225
                            
                            
                            
                            
                            
                            $2,454,761





12.
            SHORT
      TERM LOANS





Short
term loans consist of the following:





September 30,
                    
                    
                    December 31,2008
                    
                    
                    2007Construction
      Bank
                    
                    $
                    19,306,384
                    
                    
                    $
                    12,326,110Defutai
      Bank
                    
                    
                    2,159,622
                    
                    
                    
                    2,023,773Agricultural
      Bank
                    
                    
                    11,161
                    
                    
                    
                    4,590,011Nanyian
      Bank
                    
                    
                    7,380,430
                    
                    
                    
                    7,421,509Henshen
      Bank
                    
                    
                    -
                    
                    
                    
                    541,665Development
      Bank
                    
                    
                    5,559,051
                    
                    
                    
                    1,742,503Dongya
      Bank
                    
                    
                    1,701,998
                    
                    
                    
                    -$
                    36,118,646
                    
                    
                    $
                    28,645,571




The above
outstanding short term loans are used primarily for general working capital
purposes. These recurring bank loans 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:




17


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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




September 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
                  %Development
      Bank
                  
                  
                  6.48
                  %
                  
                  
                  6.48
                  %Dongya
      Bank
                  
                  
                  5.08
                  %
                  
                  
                  -





13.
            LONG
      TERM BANK LOAN





Long term
bank loans consist of the following:





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





14.
            RESTRICTED
      CASH AND BANK NOTES PAYABLE





Bank
notes payable consist of the following:





September 30,
                      
                      
                      December 31,2008
                      
                      
                      2007Shenzhen
      Pingan Bank
                      
                      $
                      -
                      
                      
                      $
                      4,112,913Shenzhen
      Development Bank
                      
                      
                      10,790,047
                      
                      
                      
                      2,286,780Construction
      Bank
                      
                      
                      8,624,341
                      
                      
                      
                      -$
                      19,414,388
                      
                      
                      $
                      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:





September 30,
                    
                    
                    December 31,2008
                    
                    
                    2007Construction
      Bank,
                    
                    $
                    1,762,721
                    
                    
                    $
                    -Shenzhen
      Development Bank
                    
                    
                    2,550,678
                    
                    
                    
                    749,373Shenzhen
      Pingan Bank
                    
                    
                    4,766
                    
                    
                    
                    1,233,874$
                    4,318,165
                    
                    
                    $
                    1,983,247


18


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





15.
            DUE
      TO SHAREHOLDER





Due to
shareholder consists of the following:





September 30,
                  
                  
                  December 31,2008
                  
                  
                  2007Due
      to Mr. Li Tianfu
                  
                  $
                  9,133,637
                  
                  
                  $
                  11,008,770





The above
amounts are due to Mr. Li Tianfu.  These amounts are non-secured with
no fixed repayment date.  The Company has imputed interest are
assessed as an expense to the business operations and an addition to the paid-in
capital.  The calculation is performed quarterly using a variable rate
in the range of 5.22 - 6.57% with the reference to the average nine month bank
loan rate.  The imputed interest for the periods present is as
follows:





Three months ended September 30,
                  
                  
                  Nine months ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Imputed
      interests
                  
                  $
                  147,620
                  
                  
                  $
                  245,371
                  
                  
                  $
                  446,953
                  
                  
                  $
                  494,610





See Note
8 and Note 24 regarding repayment of a portion of the amounts due to
shareholder.





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 public offering being registered with this
prospectus, 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.





16.
            OTHER
      GENERAL AND ADMINISTRATIVE





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





September 30,2008
                    
                    
                    2007Legal
      fees
                    
                    $
                    18,531
                    
                    
                    $
                    -Office
      expenses
                    
                    
                    1,086,188
                    
                    
                    
                    813,697Salary
      and wages
                    
                    
                    479,146
                    
                    
                    
                    590,594Consulting
                    
                    
                    61,921
                    
                    
                    
                    140,029Utilities
                    
                    
                    81,202
                    
                    
                    
                    106,746Others
                    
                    
                    164,303
                    
                    
                    
                    215,335$
                    1,891,291
                    
                    
                    $
                    1,866,401





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.


19


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





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:




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 into 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.




Plant
Renovation





In June
2008, the Company entered into an agreement for a new plant renovation at a
contracted price of RMB 36,117,340 (USD 5,283,997). As of September 30, 2008,
the Company already paid RMB 33,290,368 (USD 4,870,381) for the construction in
progress. The plant renovation is expected to be completed by the end of
December 2008 and remainder balance of RMB 2,826,972 (USD 413,616) will be paid
within six months upon completion.


20


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





Deposits Paid for Equipment
Purchase





In June
2008, the Company signed a purchase contract to acquire equipment to be used in
the new plant production line. The total purchase price is RMB 8,111,694 (USD
1,186,741) and a deposit is required according to the contract. As of September
30, 2008, the Company already paid RMB 2,782,548 (USD 407,087) as a deposit. The
equipment is to be delivered by December 31, 2008 and the remaining balance of
RMB 5,329,146 (USD 779,654) will be paid within 15 days of equipment
delivery.





Violation of Sarbanes Oxley
Act





On
November 24, 2008, the Company has acknowledged its violation of Sarbanes Oxley
Act Section 402. The Company has hired an independent financial consultant to
review its internal controls and usual impairments. It is unable to predict the
outcome of this issue should any litigation arise.





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 December 31, 2007 and 2006 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.





The
following table shows the individual customer’s revenue which was higher than 5%
of total revenue for the nine months ended September 30, 2008 and
2007:





(In US Dollars)
                  
                  September 30,2008
                  
                  
                  
                  
                  
                  2007Shenzhen
      Zhanhui
                  
                  
                  10,401,182
                  
                  
                  
                  10
                  %WEDO
      FAR EAST
                  
                  
                  5,123,928
                  
                  
                  
                  5
                  %Huizhou
      Zhiyuan
                  
                  
                  5,123,928
                  
                  
                  
                  5
                  %
                  
                  
                  4,712,681
                  
                  
                  
                  9
                  %Korea
      Nanshen
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,114,745
                  
                  
                  
                  6
                  %Huizhou
      Dongdian
                  
                  
                  6,657,738
                  
                  
                  
                  7
                  %HongKong
      Huian
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,453,712
                  
                  
                  
                  19
                  %India
      Jupiter
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,586,032
                  
                  
                  
                  7
                  %Singapore
      George
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,938,599
                  
                  
                  
                  6
                  %Huizhou
      Taiming
                  
                  
                  5,615,672
                  
                  
                  
                  6
                  %INTERNATIONAL
      LTD
                  
                  
                  4,747,843
                  
                  
                  
                  5
                  %RADIO
      SHACK GLOBAL SOURCING
                  
                  
                  5,998,487
                  
                  
                  
                  6
                  %


21





NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





22.
                SEGMENT
      INFORMATION





The
segment information for revenue is as follows:





(In
      US Dollars)
                      
                      
                      
                      September
      30,2008
                      
                      
                      2007Standard
      audio and video equipment
                      
                      China
                      
                      $
                      38,429,568
                      
                      
                      $
                      28,806,354Europe
                      
                      
                      3,050,970
                      
                      
                      
                      6,134,435North
      America
                      
                      
                      3,390,087
                      
                      
                      
                      84,286Other
      Asian countries
                      
                      
                      16,486,181
                      
                      
                      
                      12,535,375South
      America
                      
                      
                      5,211,502
                      
                      
                      
                      1,808,638Other
      countries
                      
                      
                      902,654Intelligent
      audio and video equipment
                      
                      China
                      
                      
                      3,048,225
                      
                      
                      
                      894,850North
      America
                      
                      
                      5,390,087
                      
                      
                      
                      0Other
      Asian countries
                      
                      
                      15,236,435
                      
                      
                      
                      371,676Other
      audio and video equipment
                      
                      China
                      
                      
                      9,902,654
                      
                      
                      
                      24,585Total
                      
                      $
                      101,048,363
                      
                      
                      $
                      50,660,199





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





Repayment of Note from
Related Party





On
November 24, 2008, the Company has received the repayment for the note
receivable from Hyundai Electric and Light (HZ) Co Ltd, a related party, in the
amount of RMB 38,039,000. On November 28, 2008, the Company has received the
payment of interest in the amount of RMB 3,719,611 paid in full.





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.


22


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


(Amounts
and disclosures at and for the three and nine months ended September 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, the Company entered into an agreement with Mr. Li pursuant to
which the outstanding debt of $7,841,726 that the Company owed to Mr. Li will be
converted into shares of the Company’s common stock.  According to the
agreement, the shares will be issued upon the closing of our public offering
that the Company is conducting under this prospectus.  The number of
shares that the Company will issue to Mr. Li will be equal to the debt amount of
$7,841,726 divided by the offering price of this public offering.  The
estimated offering price range for the Company’s public 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, the Company will be issuing 2,160,255 shares of common stock to
Mr. Li.  After giving effect to the conversion, the debt owed to Mr.
Li will no longer be outstanding and the Company will not have any outstanding
debt owed to Mr. Li.  As a result of the conversion, the number of
shares that Mr. Li beneficially owns will increase from 12,204,667 shares before
this offering to approximately 14,364,922 shares after this
offering.  This will represent an increase of Mr. Li’s ownership of
the Company’s outstanding shares of common stock from 33.1% to approximately
36.3%, which assumes that the Company issues 550,000 shares of common stock in
this public offering (excluding the underwriter’s over-allotment option of up to
82,500 shares).   For additional information regarding Mr. Li’s
beneficial ownership, see “Beneficial Ownership of Certain Beneficial Owners and
Management” on page 65.





The
unaudited pro forma information below for the year ended December 31, 2007 and
nine months ended September 30, 2008 assumes the conversion of the debt occurred
at the beginning of the period presented. The Company believes that assumptions
used provide a reasonable basis for presenting the significant effects directly
attributable to such transactions.





The
unaudited pro forma information:





Nine months ended
                  
                  
                  Year endedSeptember 30, 2008
                  
                  
                  December 31, 2007Net
      income as reported
                  
                  $
                  11,048,180
                  
                  
                  $
                  8,466,520Adjusted
      for imputed interest
                  
                  
                  446,953
                  
                  
                  
                  526,428Adjusted
      Net Income
                  
                  $
                  11,495,133
                  
                  
                  $
                  8,992,948Basic
      and diluted earnings per common share
                  
                  $
                  0.36
                  
                  
                  $
                  0.30Weighted-Average
      shares outstanding
                  
                  
                  31,907,100
                  
                  
                  
                  29,706,922


23


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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





24.
            CONDENSED
      PARENT COMPANY FINANCIAL
INFORMATION





The
condensed parent company financial statements have been prepared in accordance
with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of
the subsidiaries of NIVS IntelliMedia Technology Group exceed 25% of the
consolidated net assets of Nivs IntelliMedia Technology Group. The ability of
our Chinese operating subsidiaries to pay dividends may be restricted due to the
foreign exchange control policies and availability of cash balances 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.





The
condensed parent company financial statements have been prepared using the same
accounting principles and policies described in the notes to the consolidated
financial statements, with the only exception being that the parent company
accounts for its subsidiaries using the equity method. Refer to the consolidated
financial statements and notes presented above for additional information and
disclosures with respect to these financial statements.




NIVS
IntelliMedia Technology Group, Inc.


(Formerly
SRKP 19, Inc.)





CONDENSED PARENT COMPANY
BALANCE SHEETS


(Dollars
in Thousands)





January 3, 2007(Inception)
      toSeptember
      30,
                            
                            
                            December
      31,2008
                            
                            
                            2007
                            
                            
                            2007(Unaudited)
                            
                            
                            (Unaudited)ASSETSCash
                            
                            $
                            -
                            
                            
                            $
                            12
                            
                            
                            $
                            1Investment
      in subsidiaries, at equity in net assets
                            
                            
                            43,937
                            
                            
                            
                            14,182
                            
                            
                            
                            19,642Total
      Assets
                            
                            
                            43,937
                            
                            
                            
                            14,194
                            
                            
                            
                            19,643LIABILITIES AND STOCKHOLDERS’ EQUITY
      (DEFICIT)CURRENT
      LIABILITIESAccrued
      Liabilities
                            
                            
                            -
                            
                            
                            
                            1
                            
                            
                            
                            -Due
      to Stockholders
                            
                            
                            -
                            
                            
                            
                            22
                            
                            
                            
                            32Total
      Current Liabilities
                            
                            
                            -
                            
                            
                            
                            23
                            
                            
                            
                            32COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY (DEFICIT):Preferred stock, $.0001
      par value, 10,000,000 shares authorized, none issuedCommon
      stock, $.0001 par value, 100,000,000 shares authorized, 36,885,714 and
      27,546,667 shares issuedand
      outstanding at September 30, 2008and
      2007 (unaudited), December 31, 2007 and 2006
                            
                            
                            4
                            
                            
                            
                            3
                            
                            
                            
                            3Additional
      Paid in Capital
                            
                            
                            12,454
                            
                            
                            
                            724
                            
                            
                            
                            756Accumulated
      other comprehensive income
                            
                            
                            3,702
                            
                            
                            
                            1,241
                            
                            
                            
                            2,123Statutory
      surplus reserve fund
                            
                            
                            1,279
                            
                            
                            
                            672
                            
                            
                            
                            1,279Retained
      earnings (unrestricted)
                            
                            
                            26,498
                            
                            
                            
                            11,531
                            
                            
                            
                            15,450Total
      Stockholders’ Equity (Deficit)
                            
                            
                            43,937
                            
                            
                            
                            14,172
                            
                            
                            
                            19,611Total
      Liabilities & Shareholders' Equity
                            
                            $
                            43,937
                            
                            
                            $
                            14,194
                            
                            
                            $
                            19,643


24


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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




NIVS
IntelliMedia Technology Group, Inc.


(Formerly
SRKP 19, Inc.)





CONDENSED PARENT COMPANY
STATEMENTS OF OPERATIONS


(Dollars
in Thousands)





For Nine
                Months Ended
              
              
              January 3, 2007
                (Inception) to
              
              
              January 3, 2007
                (Inception) toSeptember 30,
              
              
              September 30,
              
              
              December 31,2008
                (Unaudited)
              
              
              2007
                (Unaudited)
              
              
              2007Revenue
              
              $
              -
              
              
              $
              -
              
              
              $
              -Merger
      cost
              
              
              944
              
              
              
              -
              
              
              
              -Other
      general and administrative
              
              
              34
              
              
              
              19
              
              
              
              39Total
      Expenses
              
              
              978
              
              
              
              19
              
              
              
              39Equity
      in undistributed incomeof subsidiaries
              
              
              12,026
              
              
              
              3,960
              
              
              
              8,506Income
      before income taxes
              
              
              11,048
              
              
              
              3,941
              
              
              
              8,467Provision
      for income tax
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              $
              11,048
              
              
              $
              3,941
              
              
              $
              8,467


25


NIVS
IntelliMedia Technology Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


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




NIVS
IntelliMedia Technology Group, Inc.


(Formerly
SRKP 19, Inc.)





CONDENSED PARENT COMPANY
STATEMENTS OF CASH FLOWS


(Dollars
in Thousands)





For Nine
                              Months Ended
                              September 30,
                            
                            
                            January 3, 2007
                              (Inception) to
                              September 30,
                            
                            
                            January 3, 2007
                              (Inception) to
                              December 31,2008
                              (Unaudited)
                            
                            
                            2007
                              (Unaudited)
                            
                            
                            2007Cash
      Flows from Operating Activities:Net
      income
                            
                            $
                            11,048
                            
                            
                            $
                            3,941
                            
                            
                            $
                            8,467Equity
      in undistributed income of subsidiaries
                            
                            
                            (12,026
                            )
                            
                            
                            (3,960
                            )
                            
                            
                            (8,506
                            )Increase/(Decrease)
      in accrued expenses
                            
                            
                            -
                            
                            
                            
                            1
                            
                            
                            
                            -Net
      Cash (Used) by Operating Activities
                            
                            
                            (978
                            )
                            
                            
                            (18
                            )
                            
                            
                            (39
                            )Cash
      Flows from Investing Activities:Capital
      contribution to subsidiaries
                            
                            
                            (9,478
                            )
                            
                            
                            -
                            
                            
                            
                            -Net
      Cash (Used) by Investing Activities
                            
                            
                            (9,478
                            )
                            
                            
                            -
                            
                            
                            
                            -Cash
      Flows from Financing Activities:Advances
      from stockholders
                            
                            
                            -
                            
                            
                            
                            22
                            
                            
                            
                            32Repayment
      to stockholders
                            
                            
                            (33
                            )
                            
                            
                            -
                            
                            
                            
                            -Proceeds
      from issuance of shares
                            
                            
                            -
                            
                            
                            
                            3
                            
                            
                            
                            3Proceeds
      from issuance of warrants
                            
                            
                            -
                            
                            
                            
                            5
                            
                            
                            
                            5Net
      proceeds from private placement
                            
                            
                            10,488
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      Cash Provided by Financing Activities
                            
                            
                            10.455
                            
                            
                            
                            30
                            
                            
                            
                            40Net
      increase/(decrease) in cash and cash equivalents
                            
                            
                            (1
                            )
                            
                            
                            12
                            
                            
                            
                            1Cash
      and cash equivalents, beginning of period
                            
                            
                            1
                            
                            
                            
                            -
                            
                            
                            
                            -Cash
      and cash equivalents, end of period
                            
                            $
                            -
                            
                            
                            $
                            12
                            
                            
                            $
                            1


26


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




The
following discussion relates to the financial condition and results of
operations of NIVS IntelliMedia Technology Group, Inc. (the “Company”) and its
subsidiaries, including its wholly-owned subsidiary, NIVS Holding Company
Limited, a British Virgin Islands corporation (“NIVS BVI”), and NIVS (Huizhou)
Audio & Video Tech. Co., Ltd., a company organized under the laws of the PRC
(“NIVS PRC”), which is 97.5% owned by NIVS BVI and 2.5% owned by Tianfu Li, our
Chief Executive Officer and Chairman of the Board. See Note 2 to the financial
statements of this report for more information on our organization and ownership
structure.





Forward-Looking
Statements





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





This
Quarterly Report contains forward-looking statements that involve substantial
risks and uncertainties. All statements other than historical facts contained in
this report, including statements regarding our future financial position,
capital expenditures, cash flows, business strategy and plans and objectives of
management for future operations, are forward-looking statements. The words
“anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,”
“project,” “could,” “may,” and similar expressions are intended to identify
forward-looking statements. Such statements reflect our management’s current
views with respect to future events and financial performance and involve risks
and uncertainties, including, without limitation, 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. Actual results may vary
materially and adversely from those anticipated, believed, estimated or
otherwise indicated should one or more of these risks or uncertainties occur or
if any of the risks or uncertainties described elsewhere in this report occur.
Consequently, all of the forward-looking statements made in this filing are
qualified by these cautionary statements and there can be no assurance of the
actual results or developments.





Overview





Through
NIVS PRC, we engage in the development, production and sales of 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.





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 nine months ended September 30, 2008, we had seven customers that each
accounted for at least 5% of the revenues that we generated. These seven
customers accounted for a total of approximately 48% of our revenue for that
period. During the nine months ended September 30, 2008, we had one
customer—Shenzhen Zhanhui (12%)—that accounted for more than 10% of our
sales.





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.


27





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 nine months of 2008, our sales revenue and sales volume
for DVD players increased 206% and 260%, respectively, compared to our sales
revenue and volume for the first nine months of 2007. In the third quarter of
2008, with the private placement funds we received in August, we expanded our
production scale and completed many orders. In the third quarter of 2008, we
completed an upgrade of our DVD player to maintain the margin and attract more
customers. As a result, we received more orders from customers than in previous
years and, therefore, our sales of DVD-related products have increased. In the
first nine months of 2008, our sales revenue for televisions was approximately
$11.44 million, which represented an increase of approximately 2,019% compared
to revenue of $0.54 million from the sale of televisions for the first nine
months of 2007. The increase in revenue for televisions resulted from an
increase in sales volume. In the first nine months of 2008, our sales volume for
televisions rose approximately 223% as compared to the first nine months 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 nine months ended September 30, 2008,
as compared to 71% for the first nine months 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 nine months of 2007.





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.





Recent
Events





July
2008 Share Exchange, Private Placement, and Investors Relations
Agreement





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.


28





November
2008 Debt Repayment and Set-Off Agreement





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”).





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.





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.  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, as more fully described in Note 8 to the
financial statements contained in this report.  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.


29





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.





The
parties to the Repayment Agreement also acknowledged that there were no
remaining debt obligations owed to 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.





December
2008 Agreement to Convert Debt to Shares





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.  As a result of the conversion, the number of shares that Mr. Li
beneficially owns will increase from 12,204,667 shares before this offering to
approximately 14,364,922 shares after the proposed offering.  This
will represent an increase of Mr. Li’s ownership of our outstanding shares of
common stock from 33.1% to approximately 36.3%, which assumes that we issue
550,000 shares of common stock in this public offering (excluding the
underwriter’s over-allotment option of up to 82,500 shares).  There is
no guarantee that we will complete our proposed public offering, in which event
the debt that we owe to Mr. Li will not be converted into shares of common
stock.





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.


30




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.
 
 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.
  31
  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.
 
 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.




32




Results
of Operations
 
 The
following table sets forth information from our statements of operations (as
restated) for the three and nine months ended September 30, 2008 and 2007 in
dollars and as a percentage of revenue:
 
 For
      Three Months Ended
                  
                  
                  For
      Nine Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(in
                      dollars)
                  
                  
                  (as percent
                      of revenue)
                  
                  
                  (in
                      dollars)
                  
                  
                  (as percent
                      of revenue)
                  
                  
                  (in
                      dollars)
                  
                  
                  (as percent
                      of revenue)
                  
                  
                  (in
                      dollars)
                  
                  
                  (as percentof revenue)(all
      amounts are in thousands except percentages, share and per share
      amounts)Revenue
                  
                  $
                  49,411
                  
                  
                  
                  99.7
                  %
                  
                  $
                  16,730
                  
                  
                  
                  98.2
                  %
                  
                  $
                  101,048
                  
                  
                  
                  99.7
                  %
                  
                  $
                  50,660
                  
                  
                  
                  98.8
                  %Other
      Sales
                  
                  
                  165
                  
                  
                  
                  0.3
                  %
                  
                  
                  314
                  
                  
                  
                  1.8
                  %
                  
                  
                  321
                  
                  
                  
                  0.3
                  %
                  
                  
                  599
                  
                  
                  
                  1.2
                  %Cost
      of Goods Sold
                  
                  
                  (38,262
                  )
                  
                  
                  -77.2
                  %
                  
                  
                  (12,744
                  )
                  
                  
                  -74.8
                  %
                  
                  
                  (77,853
                  )
                  
                  
                  -76.8
                  %
                  
                  
                  (38,742
                  )
                  
                  
                  -75.6
                  %Gross
      Profit
                  
                  
                  11,314
                  
                  
                  
                  22.8
                  %
                  
                  
                  4,301
                  
                  
                  
                  25.2
                  %
                  
                  
                  23,517
                  
                  
                  
                  23.2
                  %
                  
                  
                  12,517
                  
                  
                  
                  24.4
                  %Selling
      Expenses
                  
                  
                  1,287
                  
                  
                  
                  2.6
                  %
                  
                  
                  826
                  
                  
                  
                  4.8
                  %
                  
                  
                  2,650
                  
                  
                  
                  2.6
                  %
                  
                  
                  2,543
                  
                  
                  
                  5.0
                  %General
      and administrativeAmortization
                  
                  
                  18
                  
                  
                  
                  0.0
                  %
                  
                  
                  15
                  
                  
                  
                  0.1
                  %
                  
                  
                  51
                  
                  
                  
                  0.1
                  %
                  
                  
                  45
                  
                  
                  
                  0.1
                  %Depreciation
                  
                  
                  88
                  
                  
                  
                  0.2
                  %
                  
                  
                  71
                  
                  
                  
                  0.4
                  %
                  
                  
                  249
                  
                  
                  
                  0.2
                  %
                  
                  
                  205
                  
                  
                  
                  0.4
                  %Bad
      debts
                  
                  
                  424
                  
                  
                  
                  0.9
                  %
                  
                  
                  339
                  
                  
                  
                  2.0
                  %
                  
                  
                  808
                  
                  
                  
                  0.8
                  %
                  
                  
                  1,122
                  
                  
                  
                  2.2
                  %Merger
      cost
                  
                  
                  1,784
                  
                  
                  
                  3.6
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,784
                  
                  
                  
                  1.8
                  %
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation
                  
                  
                  765
                  
                  
                  
                  1.5
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  765
                  
                  
                  
                  0.8
                  %
                  
                  
                  -
                  
                  
                  
                  -Others
      General and administrative
                  
                  
                  857
                  
                  
                  
                  1.7
                  %
                  
                  
                  765
                  
                  
                  
                  4.5
                  %
                  
                  
                  1,891
                  
                  
                  
                  1.9
                  %
                  
                  
                  1,866
                  
                  
                  
                  3.6
                  %Total
      General and administrative
                  
                  
                  3,936
                  
                  
                  
                  7.9
                  %
                  
                  
                  1,190
                  
                  
                  
                  7.0
                  %
                  
                  
                  5,549
                  
                  
                  
                  5.5
                  %
                  
                  
                  3,239
                  
                  
                  
                  6.3
                  %Research
      and development
                  
                  
                  261
                  
                  
                  
                  0.5
                  %
                  
                  
                  115
                  
                  
                  
                  0.7
                  %
                  
                  
                  668
                  
                  
                  
                  0.7
                  %
                  
                  
                  257
                  
                  
                  
                  0.5
                  %Total
      operating expenses
                  
                  
                  5,484
                  
                  
                  
                  11.1
                  %
                  
                  
                  2,131
                  
                  
                  
                  12.5
                  %
                  
                  
                  8,867
                  
                  
                  
                  8.7
                  %
                  
                  
                  6,040
                  
                  
                  
                  11.8
                  %Income
      from operations
                  
                  
                  5,830
                  
                  
                  
                  11.8
                  %
                  
                  
                  2,169
                  
                  
                  
                  12.7
                  %
                  
                  
                  14,649
                  
                  
                  
                  14.5
                  %
                  
                  
                  6,477
                  
                  
                  
                  12.6
                  %Other
      income (expenses)Government
      grant
                  
                  
                  22
                  
                  
                  
                  0.0
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  22
                  
                  
                  
                  0.0
                  %
                  
                  
                  -
                  
                  
                  
                  -Write-down
      of inventory
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3
                  )
                  
                  
                  0.0
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (393
                  )
                  
                  
                  -0.8
                  %Gain
      on disposal of assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Interest
      income
                  
                  
                  251
                  
                  
                  
                  0.5
                  %
                  
                  
                  (10
                  )
                  
                  
                  -0.1
                  %
                  
                  
                  394
                  
                  
                  
                  0.4
                  %
                  
                  
                  1
                  
                  
                  
                  0.0
                  %Interest
      expense
                  
                  
                  (518
                  )
                  
                  
                  -1.0
                  %
                  
                  
                  (354
                  )
                  
                  
                  -2.1
                  %
                  
                  
                  (1,563
                  )
                  
                  
                  -1.5
                  %
                  
                  
                  (994
                  )
                  
                  
                  -1.9
                  %Imputed
      interest
                  
                  
                  (148
                  )
                  
                  
                  -0.3
                  %
                  
                  
                  (245
                  )
                  
                  
                  -1.4
                  %
                  
                  
                  (447
                  )
                  
                  
                  -0.4
                  %
                  
                  
                  (495
                  )
                  
                  
                  -1.0
                  %Sundry
      income (expense), net
                  
                  
                  (32
                  )
                  
                  
                  -0.1
                  %
                  
                  
                  (34
                  )
                  
                  
                  -0.2
                  %
                  
                  
                  (22
                  )
                  
                  
                  0.0
                  %
                  
                  
                  (66
                  )
                  
                  
                  -0.1
                  %Total
      other income (expenses)
                  
                  
                  (425
                  )
                  
                  
                  -0.9
                  %
                  
                  
                  (645
                  )
                  
                  
                  -3.8
                  %
                  
                  
                  (1,617
                  )
                  
                  
                  -1.6
                  %
                  
                  
                  (1,946
                  )
                  
                  
                  -3.8
                  %Income
      before minority interest and income taxes
                  
                  
                  5,405
                  
                  
                  
                  10.9
                  %
                  
                  
                  1,524
                  
                  
                  
                  8.9
                  %
                  
                  
                  13,033
                  
                  
                  
                  12.9
                  %
                  
                  
                  4,531
                  
                  
                  
                  8.8
                  %Income
      taxes
                  
                  
                  (646
                  )
                  
                  
                  -1.3
                  %
                  
                  
                  (54
                  )
                  
                  
                  -0.3
                  %
                  
                  
                  (1,621
                  )
                  
                  
                  -1.6
                  %
                  
                  
                  (488
                  )
                  
                  
                  -1.0
                  %Minority
      interest
                  
                  
                  (196
                  )
                  
                  
                  -0.4
                  %
                  
                  
                  (37
                  )
                  
                  
                  -0.2
                  %
                  
                  
                  (363
                  )
                  
                  
                  -0.4
                  %
                  
                  
                  (101
                  )
                  
                  
                  -0.2
                  %Net
      Income
                  
                  $
                  4,563
                  
                  
                  
                  9.2
                  %
                  
                  $
                  1,433
                  
                  
                  
                  8.4
                  %
                  
                  $
                  11,048
                  
                  
                  
                  10.9
                  %
                  
                  $
                  3,941
                  
                  
                  
                  7.7
                  %
 
 Three
months ended September 30, 2008 and 2007
 
 Revenues,
which consist of sales of our products, were $49.4 million for the three months
ended September 30, 2008, an increase of $32.7 million, or 195.8%, compared to
$16.7 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
September 30, 2008, our sales revenue for standard audio equipment increased to
$15.96 million, an increase of 7% compared to $14.91 million for the same period
in 2007. Sales revenue for televisions increased to $0.29 million, an increase
of 2,800% compared to $0.01 million for the same period in 2007. Sales revenue
for our intelligent audio and video equipment increased to $7.32 million, an
increase of 6,000% compared to $0.12 million for the same period in 2007. For
the three months ended September 30, 2008, our sales volume for standard audio
equipment decreased by 24% to 1.45 million pieces as compared to 1.92 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 September 30, 2008, our sales volume for televisions
increased by 6,496% to 0.31 million pieces as compared to 0.0047 million pieces
for the same period in 2007. Our sales volume for intelligent audio and video
equipment increased by 5,370% to 0.1641 million pieces as compared to 0.003
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.




33




Cost of
sales, which include raw material, labor and manufacturing overhead, were $38.3
million for the three months ended September 30, 2008, an increase of $25.6
million, or 201.6%, compared to $12.7 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 revenue. As a percentage of the
revenue, cost of sales for the three months ended September 30, 2008 and 2007
were 77.2% and 74.8%, respectively.





Gross
profit for the three months ended September 30, 2008 was $11.3 million, or 22.8%
of revenues, compared to $4.3 million, or 25.2% 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 $1.3 million for the three months ended September 30, 2008, an
increase of $0.5 million, or 62.5%, compared to $0.8 million for the same period
in 2007. The increase was primarily due to an increase in advertising and
marketing activities.





Research
and development expenses were approximately $0.3 million for the three months
ended September 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
$3.9 million for the three months ended September 30, 2008, an increase of $2.7
million, or 225%, compared to $1.2 million for the same period in 2007. The
increase was primarily a result of an increase of bad debt reserves,
professional fees and cost of the reverse merger. 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 September
30, 2008 and 2007, respectively. The increase was due to new short-term and
long-term bank loans during the three months ended September 30,
2008.





Income
tax provisions for the three months ended September 30, 2008 were approximately
$0.6 million, as compared to approximately $0.1 million for the three months
ended September 30, 2007. The increase was primarily due to an increase in the
taxable income for the three months ended September 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
September 30, 2008 and September 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 $4.6 million for three months ended September 30, 2008, an
increase of $3.2 million, or 229%, compared to $1.4 million for the same period
in 2007.





Nine
months ended September 30, 2008 and 2007





Revenues,
which consist of sales of our products, were $101.0 million for the nine months
ended September 30, 2008, an increase of $50.3 million, or 99.2%, compared to
$50.7 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 nine months ended
September 30, 2008, our sales revenue for standard audio equipment increased to
$39.23 million, an increase of 2% compared to $38.4 million for the same period
in 2007. Sales revenue for televisions increased to $11.44 million, an increase
of 2,019% compared to $0.54 million for the same period in 2007. Sales revenue
for our intelligent audio and video equipment increased to $9.93 million, an
increase of 1,141% compared to $0.8 million for the same period in 2007. For the
nine months ended September 30, 2008, our sales volume for standard audio
equipment decreased by 17% to 3.4 million pieces as compared to 4.09 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 nine months ended September 30, 2008, our sales volume for televisions
increased by 6,400% to 0.26 million pieces as compared to 0.004 million pieces
for the same period in 2007. Our sales volume for intelligent audio and video
equipment increased by 2,700% to 0.42 million pieces as compared to 0.015
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.


34





Cost of
sales, which include raw material, labor and manufacturing overhead, were $77.9
million for nine months ended September 30, 2008, an increase of $39.2 million,
or 101.3%, compared to $38.7 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 revenue. As a percentage of the revenue, cost of sales for the
nine months ended September 30, 2008 and 2007 were 76.8% and 75.6%,
respectively.





Gross
profit for the nine months ended September 30, 2008 was $23.5 million, or 23.2%
of revenues, compared to $12.5 million, or 24.4% 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 $2.6 million for nine months ended September 30, 2008, an
increase of $0.1 million, or 4%, compared to $2.5 million for the same period in
2007. The increase was primarily due to an increase in advertising and marketing
activities.





Research
and development expenses, which were approximately $0.7 million for the nine
months ended September 30, 2008, an increase of approximately $0.4 million, or
133.3%, compared to $0.3 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
$5.5 million for the nine months ended September 30, 2008, an increase of $2.3
million, or 71.9%, compared to $3.2 million for the same period in 2007. The
increase was primarily a result of the cost of merger. 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 $1.6 million and $1.0 million for the nine months ended September
30, 2008 and 2007, respectively. The increase was due to new short-term and
long-term bank loans during the nine months ended September 30,
2008.





Income
tax provisions for the nine months ended September 30, 2008 were approximately
$1.6 million, as compared to approximately $0.5 million for the nine months
ended September 30, 2007. The increase was primarily due to an increase in the
taxable income for the nine months ended September 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 nine months ended
September 30, 2008 and September 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 $11.0 million for the nine months ended September 30, 2008, an
increase of $7.1 million, or 182.1%, compared to $3.9 million for the same
period in 2007.





Liquidity
and Capital Resources





We had an
unrestricted cash balance of approximately $3.1 million as of September 30,
2008, as compared to $1.4 million as of December 31, 2007. In addition, we also
had approximately $4.3 million in restricted cash as of September 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.


35





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 that have been incurred
outside the PRC.





We had
negative working capital of approximately $34.1 million, $16.2 million, $34
million and $12 million as at September 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
accounts receivable has been an increasingly significant portion of our current
assets, representing $21 million, $5.8 million, $4.5 million and $0.15 million,
or 54.8%, 16.6%, 18%, 1% of current assets, as at September 30, 2008 and 2007
and as of December 31, 2007 and 2006, respectively.  If customers
responsible for a significant amount of accounts receivable were to become
insolvent or otherwise unable to pay for our products, or to make payments in a
timely manner, our liquidity and results of operations could be materially
adversely affected. An economic or industry downturn could materially adversely
affect the servicing of these accounts receivable, which could result in longer
payment cycles, increased collections costs and defaults in excess of
management’s expectations. A significant deterioration in our ability to collect
on accounts receivable could affect our cash flow and working capital position
and could also impact the cost or availability of financing available to
us.





We
provide our major customers with payment terms ranging from 30 to 90 days.
Additionally, our production lead time is approximately three weeks, from the
inspection of incoming materials, to production, testing and packaging. We need
to keep a large supply of raw materials and 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
September 30, 2008, inventories amounted to $6.8 million, compared to $8.4
million at September 30, 2007. As of December 31, 2007, inventories amounted to
$17.3 million, compared to $1.4 million as of December 31, 2006. We have
experienced increased sales volume annually and, as a result, we expect to
experiences increases in our inventory levels going forward. 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 $55.6 million, $33.8 million, $33.1 million and $16.1 million as
at September 30, 2008 and 2007 and as of December 31, 2007 and 2006,
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 the 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, 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”). 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. 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.


36





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, as
more fully described in Note 8 to the financial statements contained in this
prospectus. 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. 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 proposed public offering. The estimated offering price range for
our proposed 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.  There is no guarantee that our
proposed offering will be completed, in which event the debt that we owed to Mr.
Li will not be converted into shares of common stock.





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. 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


37





We are
required to contribute a portion of our employees’ total salaries to the Chinese
government’s social insurance funds, including pension insurance, medical
insurance, unemployment insurance, and job injuries insurance, and maternity
insurance, in accordance with relevant regulations. Total contributions to the
funds are approximately $214,258 and $157,134 for the nine months ended
September 30, 2008 and 2007, respectively. We expect that the amount of our
contribution to the government’s social insurance funds will increase in the
future as we expand our workforce and operations and commence contributions to
an employee housing fund.





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





Net cash
used in operating activities was $8.4 million for the nine months ended
September 30, 2008, compared to net cash used in operating activities of $15.7
million for the nine months ended September 30, 2007.  The decrease in
net cash used in operating activities was primarily due to an increase in cash
provided from net income from $3.9 million to $11 million, for the respective
periods, which primarily resulted from our increase in sales revenue. In
addition, the change in net cash used in operating activities was due to an
increase of cash used in account receivables from $6.8 million to $17.3 million,
for the respective periods, which primarily resulted from an increase in our
sales volume for the nine months ended September 30, 2008. The change in net
cash used in operating activities was due to an increase of cash used in
depreciation from $0.8 million to $ 3.6 million for the respective periods. Our
increase in net cash used in operating activities for the nine months ended
September 30, 2008 was partially offset by a decrease in cash used in advances
to suppliers from $10.3 million for the first nine months of 2007 to $9.6
million for the first nine months of 2008. We increased our inventories from
$6.9 million to $10.5 million in an attempt to lock in costs of materials in
response to increasing material costs.





Investing
activity during the nine months ended September 30, 2008 and 2007 included the
purchasing of property and equipment and intangible assets, which resulted in
net cash used in investing activities of $13.6 million for the nine months ended
September 30, 2008, compared to net cash used in investing activities of $9.1
million for the nine months ended September 30, 2007. The increase in net cash
used in purchasing of property was primarily due to our purchase of production
equipment to expand our production scale in the third quarter of 2008. In June
2008, we entered into an agreement for a new plant renovation at a contracted
price of RMB 36,117,340 (USD 5,283,997).  As of September 30, 2008, we
had paid RMB 33,290,368 (USD 4,870,381) for the construction in progress. The
plant renovation is expected to be completed by the end of December 2008 and
remainder balance of RMB 2,826,972 (USD 413,616) will be paid within six months
upon completion.





Net cash
provided by financing activities amounted to $22.8 million for the nine months
ended September 30, 2008, compared to net cash provided by financing activities
of $25.7 million for the nine months ended September 30, 2007.  The
decrease in cash provided was primarily a result of an increase in repayment of
loans and bank notes that we took out during 2007.  During the nine
months ended September 30, 2008, lenders extended our credit lines as our
operations expanded, and our net proceeds from loan and bank notes was only
$13.6 million for the nine months ended September 30, 2008, which is $2.4
million less than the net proceeds from loans and banks notes of $16 million for
the nine months ended September 30, 2007.





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.


38





Contractual
obligations




The
following table describes our contractual commitments and obligations as of
September 30, 2008:





Payments
      due by Period (in $)Contractual
      Obligations
                              
                              Total
                              
                              
                              Less
      Than
                                1
      Year
                              
                              
                              1 - 3
                                Years
                              
                              
                              3 - 5
                                Years
                              
                              
                              More
      Than
                                5
      YearsLong
      term bank loans
                              
                              $
                              2,554,125
                              
                              
                              $
                              2,554,125
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -Plant
      and office rent
                              
                              $
                              710,967
                              
                              
                              $
                              179,093
                              
                              
                              $
                              490,391
                              
                              
                              $
                              41,483
                              
                              
                              $
                              -Total
                              
                              $
                              3,265,092
                              
                              
                              $
                              2,733,218
                              
                              
                              $
                              490,391
                              
                              
                              $
                              41,483
                              
                              
                              $
                              -





Seasonality





Our
business is not seasonal in nature.  The seasonal effect does not have
a material impact on our sales.





Off-Balance
Sheet Arrangements





We have
no material off-balance sheet transactions.





Item
3. Quantitative and Qualitative Discloses About Market Risk




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.




39





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.





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 quarter
ended June 30, 2008 and 2007 contained an error in the accounting treatment of
imputed interest on due to shareholders loan, resulting in an understatement of
our expenses for those periods.  We did not account for the addition
of imputed interest in our financial statements at the time of
issuance.  We 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. 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.


40





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





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. Upon the closing of the Share Exchange on July 25, 2008, 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.





Based on
the evaluation of our management as required by paragraph (d) of Rule 13a-15 or
15d-15 of the Exchange Act, and other than as stated in this Item 4, there were
no changes in our internal control over financial reporting that occurred during
the third quarter of the fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




41


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 our public filings before deciding whether to purchase our common
stock. There have been no material revisions to the “Risk Factors” as set forth
in our quarterly report on Form 10-Q/A as filed with the SEC on February 11,
2009.





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. 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”).





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.  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.


42





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.





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.


43





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.





Policy
for Approval of Related Party Transactions





Prior to
adopting our Audit Committee Charter in August 2008, we did not have a policy
with respect to approval of related party transactions.  In addition, prior
to August 2008, our subsidiaries entered into related party loan transactions
with NIVS PRC’s founder and our principal shareholder and current Chief
Executive Officer and Chairman of the Board, Tianfu Li, and the Related
Companies.  As stated above, we continued to make the loans to the Related
Companies after the adoption of our policy in August 2008 without complying with
our policy.  During the period from the adoption of our policy for related
party transactions in August 2008 to the cessation of loan transactions in
November 2008, we made a total of 32 loans to the Related Companies, with
aggregate loan amount of $1,861,841, without complying with our policy.  As
a result, in November 2008, we amended our policy for approval of related party
transaction in an attempt to prevent future violations of our policy.  As
contained in our Amended and Restated Audit Committee Charter, as most recently
amended and restated in January 2009, our revised policy requires that our Audit
Committee discuss and review with management, our general counsel, our
independent auditors and other appropriate parties, as applicable, any proposed
loan, advance of funds, transfer of funds, creation of debt or other liability,
or similar transaction with a related party, including any entity in which one
of our directors or executive officers has a direct or indirect interest, prior
to approving any such transaction.





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 more
formal, detailed 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 (the “RPT Policy”). The RPT Policy indicates that it is our policy
to enter into or ratify related person transactions only when our Board of
Directors, acting through the Audit Committee or as otherwise described in the
RPT Policy, determines that the Related Person Transaction in question is in, or
is not inconsistent with, the best interests of our company and our
stockholders, including but not limited to situations where we may obtain
products or services of a nature, quantity or quality, or on other terms, that
are not readily available from alternative sources or when we provide products
or services to related persons on an arm’s length basis on terms comparable to
those provided to unrelated third parties or on terms comparable to those
provided to employees generally.





Waiver
of Code of Ethics





On
November 28, 2008, we amended and restated our Code of Business Conduct and
Ethics, originally adopted on August 15, 2008, in an attempt to prevent the
occurrence of further loans from the Company to any of its officers or
directors. The occurrence of the loans to the Related Companies, as discussed
above, from August 15, 2008 to November 28, 2008 required a waiver under our
Code of Business Conduct and Ethics, and such waiver was granted to Mr. Li on
November 28, 2008, the date on which all loans were repaid in full by the
Related Companies and the date on which the Code of Business Conduct and Ethics
was amended and restated.  There have been no further loans from the
Company to the Related Companies since November 28, 2008, and the parties agreed
that there shall be no further loans.  On February 3, 2009, our Audit
Committee re-confirmed and ratified the waiver under our Code of Business
Conduct and Ethics of the loan transactions that occurred from August 15, 2008
through November 28, 2008.


44





Item
6.   Exhibits




(a)           Exhibits




Exhibit
              Number
            
            Description of Document14.1**
            
            Amended
      and Restated Code of Business Conduct and Ethics.31.1
            
            Certification
      of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
            
            Certification
      of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
            
            Certification
      of 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.*99.1
            
            Amended
      and Restated Audit Committee Charter (incorporated by reference from
      Exhibit 99.2 to the Current Report on Form 8-K filed with the Securities
      and Exchange Commission on February 3,
2009).





*
            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.




**
                  Previously
      filed to this report as Exhibit
99.2.




45


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:
      February 11, 2009
                                
                                /s/
                                Tianfu
      LiBy:
                                Tianfu
      LiIts:
                                Chairman
      of the Board and Chief Executive
                                  Officer




46