XASE:NEWN Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
T
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                      For the quarterly period ended March 31, 2012

¨
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                      For the transition period from _______ to _______

Commission file number: 000-52763

NEW ENERGY SYSTEMS GROUP
______________________________________________________
(Exact name of small business issuer as specified in its charter)
 
 
Nevada
91-2132336
(State or other jurisdiction of incorporation or organization)
(IRS Employer identification No.)
 
 
116 West 23rd ST., 5th Floor
New York, NY 10011
(Address of principal executive offices)
 
(917) 573-0302
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 T  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes T  No  o

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

       Large accelerated filer o                                                                              Accelerated filero
 
       Non-accelerated filer o (Do not check if a smaller reporting company)     Smaller reporting company T

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o  No o


APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,551,731 shares of common stock, $.001 par value, were outstanding as of May 15, 2012.
 
 
 
1

 
TABLE OF CONTENTS

 
 
Page
 
PART I
 
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
Item 4.
Controls and Procedures
30
 
PART II
 
Item 1.
Legal Proceedings
31
Item 1A.
Risk Factors
31
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 3.
Defaults Upon Senior Securities
31
Item 4.
Mine Safety Disclosures
31
Item 5.
Other Information
31
Item 6.
Exhibits
31
 SIGNATURES
34

 
2

 

PART I – FINANCIAL INFORMATION
 
 
Item 1.     Financial Statements
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
             
             
   
March 31, 2012
   
December 31, 2011
 
    (Unaudited)        
Current assets
           
Cash and equivalents
  $ 8,540,268     $ 4,528,731  
Accounts receivable
    5,644,163       6,614,814  
Inventory
    829,823       1,661,515  
Prepayments
    324,631       554,375  
Other receivables
    9,802,811       14,121,556  
Taxes receivable
    251,930       217,106  
Due from shareholders
    284,636       284,337  
Prepaid expense
    100,000       -  
Deferred compensation
    683,838       686,979  
                 
        Total current assets
    26,462,100       28,669,413  
                 
Noncurrent assets
               
Property and equipment
    196,959       208,271  
Deferred compensation - noncurrent
    254,742       423,493  
Goodwill
    39,888,807       39,888,807  
Intangible assets, net
    10,533,645       11,051,910  
                 
        Total noncurrent assets
    50,874,153       51,572,481  
                 
Total assets
  $ 77,336,253     $ 80,241,894  
                 
Current liabilities
               
Accounts payable
  $ 1,991,134     $ 2,837,889  
Accrued expenses and other payables
    996,981       818,452  
Taxes payable
    121,112       21,103  
Loans payable to related parties
    -       571,347  
                 
Total current liabilities
    3,109,227       4,248,791  
                 
Deferred tax liability
    2,635,005       2,764,571  
                 
Total Liabilities
    5,744,232       7,013,362  
                 
Commitments and Contingencies
               
                 
Stockholders' equity
               
Preferred stock, $.001 par value, 60,000,000 shares authorized, 0 shares issued and outstanding
    -       -  
Common stock, $.001 par value, 140,000,000 shares authorized, 14,571,731 shares issued and outstanding
    14,571       14,571  
Additional paid in capital
    74,261,543       74,255,585  
Statutory reserves
    2,410,573       2,410,573  
Other comprehensive income
    3,301,907       3,292,074  
Accumulated deficit
    (8,396,573 )     (6,744,271 )
                 
Total stockholders' equity
    71,592,021       73,228,532  
                 
Total liabilities and stockholders' equity
  $ 77,336,253     $ 80,241,894  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
3

 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
             
             
   
Three Months Ended March 31,
 
   
2012
   
2011
 
         
 
 
NET SALES
           
Battery
  $ 2,996,861     $ 6,968,898  
Solar panel
    1,958,404       5,514,918  
  Total revenue
    4,955,265       12,483,816  
                 
COST OF SALES
               
Battery
    2,875,569       3,279,195  
Solar panel
    1,862,693       3,876,878  
  Total cost of sales
    4,738,262       7,156,073  
                 
GROSS PROFIT
    217,003       5,327,743  
                 
OPERATING EXPENSES
               
Selling
    395,355       321,863  
General and administrative
    1,665,598       1,382,432  
  Total operating expenses
    2,060,953       1,704,295  
                 
INCOME (LOSS) FROM OPERATIONS
    (1,843,950 )     3,623,448  
                 
OTHER INCOME (EXPENSES)
               
Other income (expenses)
    (259 )     2,614  
Interest income
    7,178       1,275  
  Total other income, net
    6,919       3,889  
                 
INCOME (LOSS) BEFORE INCOME TAXES
    (1,837,031 )     3,627,337  
                 
INCOME TAX BENEFIT (EXPENSE)
    184,729       (987,101 )
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS
    (1,652,302 )     2,640,236  
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
    -       2,820,319  
                 
NET INCOME (LOSS)
    (1,652,302 )     5,460,555  
                 
OTHER COMPREHENSIVE INCOME
               
     Foreign currency translation
    9,833       114,851  
                 
COMPREHENSIVE INCOME (LOSS)
  $ (1,642,469 )   $ 5,575,406  
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
               
Basic
    14,571,731       14,286,511  
Diluted
    14,571,731       14,558,566  
                 
NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS
               
Basic
  $ (0.11 )   $ 0.18  
Diluted
  $ (0.11 )   $ 0.18  
                 
NET INCOME (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS
               
Basic
  $ -     $ 0.20  
Diluted
  $ -     $ 0.19  
                 
NET INCOME (LOSS) PER SHARE
               
Basic
  $ (0.11 )   $ 0.38  
Diluted
  $ (0.11 )   $ 0.37  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
4

 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
             
             
   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ (1,652,302 )   $ 5,460,555  
Adjustments to reconcile net income (loss) to net cash
               
provided by operating activities:
               
   Depreciation and amortization
    529,770       768,370  
   Changes in deferred taxes
    (129,566 )     (167,641 )
   Deferred stock compensation
    171,892       168,750  
   Stock options and warrant expense
    5,958       10,071  
(Increase) / decrease in current assets:
               
   Accounts receivable
    1,124,971       (5,840,687 )
   Inventory
    831,703       (2,341,718 )
   Prepaid expenses, deposits and other receivables
    129,846       790  
Increase/(decrease) in current liabilities:
               
   Accounts payable
    (997,380 )     4,325,793  
   Accrued expenses and other payables
    178,374       61,580  
   Taxes payable
    65,256       1,131,689  
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES
    258,522       3,577,552  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
   Cash from the sale of disposed subsidiaries
    3,739,666       -  
   Acquisition of property and equipment
    -       (12,456 )
                 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    3,739,666       (12,456 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
   Repayment of acquisition liability for subsidiaries
    -       (6,714,060 )
   Cash proceeds from warrant exercise
    -       87,500  
                 
NET CASH USED IN FINANCING ACTIVITIES
    -       (6,626,560 )
                 
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS
    13,349       118,251  
                 
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    4,011,537       (2,943,213 )
                 
CASH AND EQUIVALENTS, BEGINNING OF PERIOD
    4,528,731       13,065,008  
                 
CASH AND EQUIVALENTS, END OF PERIOD
  $ 8,540,268     $ 10,121,795  
                 
SUPPLEMENTAL DISCLOSURES:
               
Cash paid during the period for:
               
     Income taxes
  $ -     $ 1,396,883  
     Interest
  $ -     $ -  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011

Note 1 – ORGANIZATION
 
New Energy Systems Group ("New Energy" or the "Company", FKA: China Digital Communication Group) was incorporated under the laws of the State of Nevada on March 27, 2001, operates its business through its wholly owned subsidiaries E'Jenie Technology Development Co., Ltd ("E'Jenie"), Shenzhen Anytone Technology Co., Ltd. ("Shenzhen Anytone"), Shenzhen NewPower Technology Development Co., Ltd. ("NewPower"), Shenzhen Kim Fai Solar Energy Technology Co., Ltd. ("Kim Fai"), companies incorporated under the laws of the People's Republic of China ("PRC" of “China”). Through our subsidiaries, the Company manufactures and distributes lithium battery, battery shells and related application products primarily in China. When used in these notes, the terms "Company," "we," "our," or "us" mean New Energy Systems Group and its Subsidiaries.
 
On September 30, 2004, the Company entered into an Exchange Agreement with Billion Electronics Co., Ltd (“Billion”). Billion owned all of the issued and outstanding shares of E’Jenie. Billion was incorporated under the laws of the British Virgin Islands (“BVI”) on July 27, 2004. Pursuant to the Exchange Agreement, the Company purchased all of the shares of Billion for $1,500,000 and 4,566,210 shares of the Company’s common stock, or 8.7% of then issued and outstanding shares. 
 
On October 20, 2010, the Company filed an Amendment to its Certification of Designations, Preferences and Rights for its Series A Convertible Preferred Stock. As a result of the Amendment, the Series A is convertible at the option of the holder until June 29, 2011, when every ten (10) issued and outstanding shares of Series A were automatically convertible into one (1) share of common stock (on a post-split basis). Additionally, the Series A shall continue to be subject to a lock-up provision through June 29, 2011, provided, however, that the common stock issuable upon the optional conversion of the Series A shall not be subject to such lock-up limitations. In 2011, 5,022,727 shares Series A preferred stock were converted to 502,273 shares of common stock, and there were 2,553,030 shares of Series A preferred stock outstanding, however, all the outstanding Series A preferred stock was automatically converted.
 
On December 7, 2009, the Company closed the transactions contemplated by the share exchange agreement dated November 19, 2009 with Anytone International (H.K.) Co., Ltd. (“Anytone International”) and Shenzhen Anytone.  Shenzhen Anytone is a subsidiary of Anytone International, collectively referred to as “Anytone”.  Pursuant to the share exchange agreement, the Company issued the shareholders of Anytone International 3,593,939 shares of the Company's common stock with a restrictive legend, and agreed to pay $10,000,000. The acquisition was completed on December 7, 2009.  Anytone is engaged in manufacturing and distribution of lithium batteries.
 
On January 12, 2010, the Company closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with NewPower. Pursuant to the share exchange agreement, the Company’s subsidiary E’jenie acquired NewPower. The Company issued the shareholders of NewPower, 1,823,346 shares of the Company’s common stock with a restrictive legend, and $3,000,000. NewPower is engaged in manufacturing and distribution of lithium batteries.

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone executed a share exchange agreement to acquire all the equity interest of Kim Fai, a Chinese company engaged in the development and sale of solar application products, with the shareholders of Kim Fai. The price for 100% of the outstanding stock of Kim Fai was $13,000,000 in cash and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy at the acquisition date. The $13,000,000 was paid in RMB88,400,000 at an exchange rate of 6.8:1 as stated in the agreement; however, based on the exchange rate of 6.645:1 at the acquisition date, RMB88,400,000 was equivalent to $13,303,236 which was the actual cash portion of the purchase consideration that was recorded.
 
 
6

 

On November 24, 2011, the Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement”) with Xuemei Fang (“Fang”) and Weirong Xu (“Xu”, and together with Fang, the “Buyers”) to transfer 100% of the equity interest of Billion to the Buyers for RMB85,553,892 ($13,578,043). The selling price equaled the appraisal value of Billion, including its wholly owned subsidiaries E’Jenie and NewPower less RMB153,033,107 ($24,287,500) of debt that the Company owes E’Jenie, which shall be cancelled upon completion of the Equity Transfer. Xu is the Director of Marketing of NewPower and Fang is the Vice President of E’Jenie. 20% of the purchase price will be paid upon the registration of the Equity Transfer with the relevant PRC authority; thereafter, the Buyers will pay an aggregate of RMB5,800,000 ($920.000) every two months, until the purchase price is paid in full.  As of April 30, 2012, the Company received RMB29,780,733 ($4,731,381) and had an outstanding receivable of RMB55,773,160 ($8,860,900).

Effective on January 13, 2012, Kim Fai’s business including all the assets and liabilities were transferred into Shenzhen Anytone to maximize operational efficiency and save the costs.  All of Kimfai’s products will be sold under the “Anytone” brand name.  Kim Fai was owned 100% by Shenzhen Anytone; accordingly, this transfer was recorded at historical cost due to the equity being under common control. Kim Fai will be dissolved after the transfer and is currently in the process of deregistration.

The consolidated interim financial information as of March 31, 2012 and for the three month periods ended March 31, 2012 and 2011 was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) have not been included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2012, its consolidated results of operations and cash flows for the three month periods ended March 31, 2012 and 2011, as applicable, were made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
 
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying consolidated financial statements were prepared in conformity with US GAAP.  The Company’s functional currency is the Chinese Yuan Renminbi (“CNY” or “RMB“); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).
 
Exchange Gain
 
During the three months ended March 31, 2012, the transactions of Anytone and Kim Fai, and during the three months ended March 31, 2011, the transactions of E’Jenie, Anytone, Kim Fai and NewPower were denominated in foreign currency and were recorded in CNY at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
 
Foreign Currency Translation and Comprehensive Income (Loss)
 
During the three months ended March 31, 2012 and 2011, the accounts of Anytone and Kim Fai were maintained, and its financial statements were expressed, in CNY. Such financial statements were translated into USD in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, “Foreign Currency Translation,” with the CNY as the functional currency. According to Topic 830, all assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220, “Reporting Comprehensive Income” as a component of shareholders’ equity. There were no significant fluctuations in the exchange rate for the conversion of CNY to USD after the balance sheet date.
 
 
7

 

Use of Estimates
 
The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of New Energy Systems Group and its wholly owned subsidiaries Anytone and Kim Fai are collectively referred to as the Company.   All material intercompany accounts, transactions and profits were eliminated in consolidation.
 
Reclassifications

Certain prior year amounts were reclassified to conform to the presentation in the current year including the disposal of Billion, E’jenie and NewPower on December 9, 2011. The reclassifications did not have an effect on the results of operations or cash flow.
 
Revenue Recognition
 
The Company manufactures and distributes batteries, battery shells and covers for cellular phones in PRC. The Company’s revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due or the possible return of goods. Payments received before satisfaction of all relevant criteria for revenue recognition are recorded as unearned revenue.
 
Sales revenue is the invoiced value of goods, net of value-added tax (“VAT”). All of the Company’s products sold in the PRC are subject to Chinese value-added tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
 
Stock-Based Compensation
 
The Company accounts for its stock-based compensation in accordance with FASB ASC Topics 718 and 505, “Share-Based Payment.” The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. Non-employees stock based compensation is accounted for according to ASC 718.
 
Income Taxes
 
The Company utilizes FASB ASC Topic 740, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
 
 
8

 
 
The Company follows FASB ASC Topic 740, “Accounting for Uncertainty in Income Taxes.” When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

At March 31, 2012 and December 31, 2011, the Company had not taken any significant uncertain tax positions on its tax returns for 2011 or prior years or in computing its tax provision for 2012.

Statement of Cash Flows
 
In accordance with FASB ASC Topic 230, “Statement of Cash Flows”, cash flows from the Company’s operations are based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
 
Concentration of Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
Risks and Uncertainties
 
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
 
Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
 
If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
 
 
9

 
 
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Equivalents
 
Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At March 31, 2012 and December 31, 2011, the Company had $8,539,000 and $4,307,000 cash in state-owned banks, respectively, of which no deposits were covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
 
Allowance for Doubtful Accounts
 
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The allowance for doubtful accounts was $0 at March 31, 2012 and December 31, 2011.
 
Inventory
 
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of March 31, 2012 and December 31, 2011, inventory consisted of the following:

   
2012
   
2011
 
                 
Raw Materials
 
$
599,520
   
$
1,562,024
 
Work-in-process
   
82,484
     
45,323
 
Finished goods
   
147,819
     
54,168
 
   
$
829,823
   
$
1,661,515
 
 
Property and Equipment
 
Property and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
 
Furniture and Fixtures
5 years
Equipment
5 years
Computer Hardware and Software
5 years
   
 
As of March 31, 2012 and December 31, 2011, Property and Equipment consisted of the following:

   
 
2012
   
2011
 
                 
Machinery
 
$
298,305
   
$
297,992
 
Office equipment
   
116,247
     
116,125
 
Subtotal
   
414,552
     
414,117
 
Accumulated depreciation
   
(217,593
)
   
(205,846
)
Plant and Equipment, Net
 
$
196,959
   
$
208,271
 
 
 
10

 
 
Depreciation was $11,506 and $10,919 for the three months ended March 31, 2012 and 2011, respectively.
 
Fair Value of Financial Instruments
 
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value (“FV”) of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
 
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
 
As of March 31, 2012 and December 31, 2011, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.
 
Basic and Diluted Earnings (loss) per Share (EPS)
 
Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). The following tables present a reconciliation of basic and diluted earnings per share:

   
Three Months Ended
March 31,
 
   
2012
   
2011
 
                 
Income (loss) from continuing operations
 
$
(1,652,302)
   
$
2,640,236
 
Income (loss) from discontinued operations
   
-
     
2,820,319
 
Net income (loss)
   
(1,652,302)
     
5,460,555
 
                 
Weighted average shares outstanding - basic
   
14,571,731
     
14,286,511
 
Effect of dilutive securities:
               
Preferred stock
   
-
     
255,303
 
Options issued
   
-
     
16,752
 
                 
Weighted average shares outstanding – diluted
   
14,571,731
     
14,558,566
 
Income (loss) per share from continuing operations – basic
 
$
(0.11)
   
$
0.18
 
Income (loss) per share from continuing operations – diluted
 
$
(0.11)
   
$
0.18
 
Income (loss) per share from discontinued operations – basic
 
$
--
   
$
0.20
 
Income (loss) per share from discontinued operations – diluted
 
$
--
   
$
0.19
 
Net income (loss) per share – basic
 
$
(0.11)
   
$
0.38
 
Net income (loss) per share – diluted
 
$
(0.11)
   
$
0.37
 
 
 
11

 
 
The warrants and options to purchase up to 261,000 shares of common stock were anti-dilutive during the three months ended March 31, 2012 and 2011. The Company had 0 and 255,303 dilutive preferred shares during three months ended March 31, 2012 and 2011.

Goodwill
 
Goodwill is the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of in its subsidiaries. Under FASB ASC Topic 350, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its FV, with the FV of the reporting unit determined using discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.

During the third quarter of 2011, the Company performed annual goodwill impairment assessment for NewPower. During the fourth quarter of 2011, the Company performed annual goodwill impairment assessment for Anytone and Kim Fai.  The goodwill balance prior to the impairment charge was $60,858,842 and was established primarily as a result of acquisitions of NewPower, Anytone and Kim Fai in 2010 and 2011. The Company completed the step one analysis using a combination of market capitalization approach and discounted cash flow. The market capitalization approach uses the Company’s publicly traded stock price to determine FV. The DCF method uses revenue and expense projections and risk-adjusted discount rates. The process of determining FV is subjective and requires management to exercise a significant amount of judgment in determining future growth rates, discount and tax rates and other factors. The current economic environment has impacted the Company’s ability to forecast future demand and has in turn resulted in the use of higher discount rates, reflecting the risk and uncertainty in current markets. The results of the step one analysis indicated potential impairment in NewPower and Anytone reporting units, which were corroborated by a combination of factors including a significant and sustained decline in the market capitalization, which is below the book value, and the deteriorating macro environment, which has resulted in a decline in expected future demand. The Company therefore performed the second step of the goodwill impairment assessment for NewPower and Anytone to quantify the amount of impairment. This involved calculating the implied FV of goodwill, determined in a manner similar to a purchase price allocation, and comparing the residual amount to the carrying amount of goodwill. Based on the analysis incorporating the declining market capitalization in 2011, as well as the significant end market deterioration and economic uncertainties impacting expected future demand including continued slow-down of the battery industry in China, and increased competition resulting from counterfeit products and decreased selling price from other manufacturers.  The Company concluded the entire goodwill balance of NewPower of $14,306,538 and a portion of Anytone’s goodwill of $7,405,344 were impaired and expensed. The goodwill impairment charge is non-cash. The goodwill impairment charge is not deductible for income tax purposes and, therefore, the Company did not record a corresponding tax benefit in 2011.  On December 9, 2011, the Company disposed its subsidiaries Billion, E’jenie and NewPower. As of March 31, 2012, the Company concluded there was no impairment to the goodwill for its Anytone and Kim Fai reporting units.
 
 
12

 
 
Intangible Assets
 
The Company follows FASB ASC Topic 805, “Business Combinations,” to determine if an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per FASB ASC Topic 350, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with FASB ASC Topic 360, “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to 10 years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that assets may be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible to its future net undiscounted cash flows. If the intangible is considered impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible exceeds the FV of the intangible, calculated using a DCF analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
 
The Company follows FASB ASC Topic 360 (“ASC 360”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB ASC Topic 225, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
 
Segment reporting

FASB ASC Topic 280, “Disclosures about Segments of an Enterprise and Related Information,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
 
The Company had three operating segments: battery components manufacture, battery assembly and distribution, and solar panel manufacture.  The Company disposed of battery components manufacture segment through the disposition of Billion and its subsidiaries. These remaining operating segments were determined based on the nature of the products offered.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance.  The Company's chief executive and chief financial officers were identified as the chief operating decision makers.  The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and other measurement factors of each respective segment.
 
 
13

 
 
Recent accounting pronouncements
 
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (“IFRS”), which is adopted for fiscal years, and interim periods beginning after December 15, 2011 for public entities with retrospective application. There was no material impact on the consolidated financial statements upon adoption.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. There was no material impact on the consolidated financial statements upon adoption.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the FV of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the FV is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this ASU beginning with its Quarterly Report on Form 10-Q for the three months ended March 31, 2012. There was no material impact on the consolidated financial statements upon adoption.

As of March 31, 2012, there is no other recently issued accounting standards not yet adopted that would have a material effect on the Company’s consolidated financial statements.
 
Note 3 – INTANGIBLE ASSETS
 
As of March 31, 2012 and December 31, 2011, intangible assets consisted of the following:
 
   
2012
   
2011
 
             
Patents
 
15,167,497
   
15,167,497
 
Accumulated amortization
   
(4,633,852
)
   
(4,115,587
)
Intangible assets, net
 
$
10,533,645
   
$
11,051,910
 
 
The intangible assets are amortized over 10-30 years.  Amortization was $518,264 and $496,552 for the three months ended March 31, 2012 and 2011, respectively.

Amortization for the Company’s intangible assets over the next five fiscal years from March 31, 2012 is estimated to be:

Years ending
March 31, 2013
 
$
1,915,000
 
March 31, 2014
   
1,915,000
 
March 31, 2015
   
1,915,000
 
March 31, 2016
   
1,915,000
 
March 31, 2017
   
1,915,000
 
Thereafter
   
958,645
 
Total
 
$
10,533,645
 
 
 
14

 
 
Note 4 - OTHER RECEIVABLES

As of March 31, 2012 and December 31, 2011, other receivables are comprised of the following:
 
   
2012
   
2011
 
             
Receivable for sale of discontinued operations
 
$
9,753,923
   
$
13,501,372
 
Other receivables and deposits
   
48,888
     
620,184
 
Total
 
         9,802,811
   
14,121,556
 
 
As of April 30, 2012, the Company has received $4.73 million from the sale of discontinued operations.

Note 5 – TAXES RECEIVABLE

As of March 31, 2012 and December 31, 2011, taxes receivable are comprised of the following:
 
   
2012
   
2011
 
             
Income tax
 
$
251,930
   
$
196,445
 
VAT
   
-
     
20,661
 
Total
 
$
251,930
   
$
217,106
 

Note 6 – TAXES PAYABLE
 
As of March 31, 2012 and December 31, 2011, taxes payable are comprised of the following:
 
   
2012
   
2011
 
             
VAT
 
89,300
   
-
 
Other
   
31,812
     
21,103
 
Total
 
$
121,112
   
$
21,103
 
 
Note 7 –ACCRUED EXPENSES AND OTHER PAYABLES
 
As of March 31, 2012 and December 31, 2011, accrued expenses and other payables are comprised of the following:
 
   
 
2012
   
2011
 
             
Payable for expense reimbursement
 
$
748,641
   
$
540,653
 
Payroll payables
   
173,326
     
201,484
 
Accrued expenses
   
75,014
     
76,315
 
Total
 
$
996,981
   
$
818,452
 
 
Note 8 – RELATED PARTY TRANSACTIONS
 
Due from Shareholders

As of March 31, 2012 and December 31, 2011, the Company had $284,636 and $284,337 unsecured, due on demand, and non interest bearing advances to the original owners of Anytone International.
 
 
15

 

Loans payable to Related Parties

As of December 31, 2011, the Company had $571,347 unsecured, due on demand and non interest-bearing loans payable to the original owners of Shenzhen Anytone for the acquisition of Shenzhen Anytone by Anytone International. This loan was paid during the first quarter of 2012 and no loan is outstanding as of March 31, 2012.

Note 9 – DEFERRED TAX LIABILITY
 
Deferred tax is the tax effect of the difference between the tax bases and book bases of intangible assets. At March 31, 2012 and December 31, 2011, deferred tax liability represents the difference between the fair value and the tax basis of patents acquired in the acquisition of Anytone.
 
Note 10 – STOCK OPTIONS AND WARRANTS

Options
 
On June 11, 2010, the Company granted options to acquire 25,000 shares of the Company’s common stock, par value $0.001, at $6.55 per share, with a life of 3 years to an independent director. The options vested in two equal installments, the first being on the date of grant and the second being on the first anniversary of the date of grant. The fair value of the options was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. The grant date fair value of options was $103,047. On June 11, 2011, the Company granted options to acquire 25,000 shares of the Company’s common stock, par value $0.001, at $3.13 per share, with a life of 3 years to the same independent director. The options vested in two equal installments, the first being on the date of grant and the second being on the first anniversary of the date of grant. The FV of the options was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 0.71%, and dividend yield of 0%. The grant date FV of options was $48,329.
 
The outstanding options (post-reverse stock split) as of March 31, 2012 listed as follow:
 
   
Number of Shares
 
Outstanding at January 1, 2011
   
25,000
 
Exercisable at January 1, 2011
   
12,500
 
         
Granted
   
25,000
 
Exercised
   
-
 
Expired
   
-
 
         
Outstanding at December 31, 2011
   
50,000
 
Exercisable at December 31, 2011
   
37,500
 
         
Granted
   
-
 
Exercised
   
-
 
Expired
   
-
 
         
Outstanding at March 31, 2012
   
50,000
 
Exercisable at March 31, 2012
   
37,500
 
 
Options outstanding (post-reverse stock split) at March 31, 2011 are as follows:
 
Exercise Price
   
Total
Options
Outstanding
   
Weighted
Average
Remaining
Life
(Years)
   
Total
Weighted
Average
Exercise
Price
   
Options
Exercisable
   
Weighted
Average
Exercise
Price
 
                                 
$
6.55 - 3.13
     
50,000
     
1.69
   
$
4.84
     
37,500
   
$
5.41
 
 
 
16

 
 
Warrants

On November 11, 2009, The Company entered into a one-year consulting agreement with an investment relations (“IR”) firm. The Company granted the IR firm warrants to purchase 200,000 shares of the Company’s common stock as compensation for its service. The warrants included Series A warrant and Series B warrant with a term of two years (the “Series A Warrant”, the “Series B Warrant”), to purchase 50,000 shares at $5.00 and $5.50, respectively. The warrants included Series C warrant and Series D warrant with a term of three years (the “Series C Warrant”, the “Series D Warrant”), to purchase 50,000 shares at $6.00 and $6.50, respectively. 35% of all series warrants were vested at the grant date and 65% of all series of the warrants were vested upon the duty of service the IR completed, which was January 5, 2010.
 
The FV of the warrants was calculated using the following assumptions: for the warrants with estimated life of two years, volatility of 100%, risk free interest rate of 0.85%, and dividend yield of 0%; for the warrants with estimated life of three years, volatility of 100%, risk free interest rate of 1.39%, and dividend yield of 0%. The total FV of warrants was $868,872.

The Company entered into a one-year consulting agreement with an IR firm on November 1, 2010. The monthly payment at $8,550 will be made at the beginning of each month; on December 4, 2010, the Company also granted the IR firm a warrant to purchase 36,000 shares for each 6 months contract period at $5.90, a term of three years which vested on November 1, 2011. The FV of the warrants was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. The grant date FV of warrants was $188,993.
 
On May 30, 2011, the Company granted the IR firm a warrant to purchase the second 36,000 shares at excise price of $5.90, a term of three years which vested on November 1, 2011. If the agreement is cancelled after six months by either party, the IR firm will be entitled to a pro-rata of the warrants for the period services were provided. The FV of the warrants was calculated using the following assumptions: estimated life of three years, volatility of 100%, risk free interest rate of 0.81%, and dividend yield of 0%. The grant date FV of warrants was $33,055.

The Company accounted for warrants issued to investor relations firms based on ASC 505-50 at each balance sheet date and expense recorded based on the period elapsed at each balance sheet date, which is the date at which the counterparty’s performance is deemed to be completed for the period. The FV of each warrant granted is estimated on the date of the grant using the Black-Scholes option pricing model under ASC 505-30-11 and is recognized as compensation expense over the service term of the investor relations agreement as it is a better matching of cost with services received. The warrants are classified as equity instruments and are exercisable into a fixed number of common shares. There is no commitment or requirement to change the quantity or terms based on conditions to the counterparty’s performance or market conditions.

The Company recorded $0 and $10,071 warrant expense in the three months ended March 31, 2012 and 2011. The outstanding warrants as of March 31, 2012 listed were as follows:

   
Number of Shares
 
Outstanding at January 1, 2011
   
236,000
 
Exercisable at January 1, 2011
   
200,000
 
         
Granted
   
36,000
 
Exercised
   
(17,500)
 
Expired
   
82,500
 
         
Outstanding at December 31, 2011
   
172,000
 
Exercisable at December 31, 2011
   
172,000
 
         
Granted
   
-
 
Exercised
   
-
 
Expired
   
-
 
         
Outstanding at March 31, 2012
   
172,000
 
Exercisable at March 31, 2012
   
172,000
 
 
 
17

 
 
Warrants outstanding at March 31, 2012 are as follows:
 
Exercise Price
   
Total
Warrants
Outstanding
   
Weighted
Average
Remaining
Life
(Years)
   
Total
Weighted
Average
Exercise
Price
   
Warrants
Exercisable
   
Weighted
Average
Exercise
Price
 
                                 
$
$5.00-$6.50
     
172,000
     
1.16
   
$
6.10
     
172,000
   
$
6.10
 

Note 11 – COMMON STOCK AND NON-CASH STOCK COMPENSATION

Stock issued to consultants

On August 18, 2009, the Company entered into four-year consulting agreements to promote the Company's image in both the industry and capital markets. In connection with the agreements, the Company issued 1,000,000 shares of Common Stock valued at $2.70 (stock price at grant date) to eight consultants, and recorded $2,700,000 as deferred compensation. During the three months ended March 31, 2012 and 2011, the Company amortized $168,750 as stock-based compensation for each period. According to ASC 505-50-25-6, a grantor shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services received. A grantor may need to recognize an asset before it actually receives goods or services if it first exchanges share-based payment for an enforceable right to receive those goods or services; therefore, the Company recorded unamortized portion of deferred compensation as an asset, of which, $675,000 was current, and $254,742 was noncurrent as of March 31, 2012.

On December 14, 2011, the Company entered into a one-year consulting agreement with an IR firm for financial newsletter, business and industry publication campaigning. The Company is required to issue 20,000 shares of restricted common stock valued at $0.63 (stock price at grant date) to the IR firm, and is currently in the process of issuance of these stocks. During three months ended March 31, 2012 and 2011, the Company recorded $3,141 and $0 as stock compensation expense; and had $8,838 as deferred compensation as an asset as of March 31, 2012, which will be amortized within one year. 

Note 12 – INCOME TAXES
 
As of March 31, 2012, the Company in the US had $4,338,000 in net operating loss (“NOL”) carry forwards available to offset future taxable income. Federal NOLS can generally be carried forward 20 years. The deferred tax assets for the US entities at December 31, 2011 consisted mainly of NOL carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at the location as of March 31, 2012. Accordingly, the Company has no net deferred tax assets.

There is no income tax for companies domiciled in the BVI. Accordingly, the Company's consolidated financial statements do not present any income tax provisions related to BVI tax jurisdiction where Billion is domiciled.
 
 
18

 
 
The subsidiaries Anytone and Kim Fai’s effective Enterprise Income Tax (“EIT”) for 2012 is 25% and 2011 is 24%.

The following is a reconciliation of the provision for income taxes at the US federal income tax rate to the income taxes reflected in the Statement of Operations for the three months ended March 31, 2012 and 2011, respectively:

   
2012
   
2011
 
US statutory rates
   
(34.0)%
     
34.0%
 
Tax rate difference
   
7.1%
     
(10.2)%
 
Effect of tax holiday
   
-%
     
(1.2)%
 
Valuation allowance on deferred tax on US NOL
   
16.8%
     
4.6%
 
Tax expense (benefit) at actual rate
   
(10.1)%
     
27.2%
 
 
The provisions for income tax expense (benefit) for the three months ended March 31, 2012 and 2011consisted of the following:

   
2012
   
2011
 
Income tax expense (benefit) – current
 
$
(55,163
 
$
1,106,273
 
Income tax (benefit) – deferred
   
(129,566
)
   
(119,172
)
Total income tax expense (benefit)
 
$
(184,729
 
$
987,101
 

Note 13 – LOAN AGREEMENTS

Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd.
 
On April 21, 2011, the Company entered into a Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd. (“CIC”). Under the CIC Loan Agreement, CIC committed to make advances to the Company up to RMB 30,000,000 ($4,766,217) with interest at 10% (the “CIC Loan”). Repayments under the CIC Loan Agreement are due 730 days from the date the CIC Loan is made. The Company can repay all principal and interest in one lump sum when the CIC Loan comes due, or can repay the CIC Loan in installments. The CIC Loan has no processing fee or management fee.
 
The CIC Loan Agreement is guaranteed by Weihu Yu, the Company’s Chairman, pursuant to a Guarantee Letter, dated April 21, 2011, made by Weihu Yu to CIC (the “CIC Guarantee Letter”) for two years commencing at the date of maturity of the CIC Loan Agreement. The CIC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver Industrial Holding Limited (“GoldRiver”) pursuant to a Security Agreement, dated April 21, 2011, by and between GoldRiver and CIC (the “CIC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the CIC Security Agreement terminates two years after the statute of limitation expires for which CIC can make a claim under the CIC Loan. The CIC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to CIC financial statements and other relevant materials. The CIC Loan Agreement also gives CIC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the CIC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

As of March 31, 2012 and December 31, 2011, the Company did not have an outstanding balance under the CIC Loan.
 
Loan Agreement with Beijing Guojincheng Asset Management Co., Ltd.
 
On April 21, 2011, the Company also entered into a Loan Agreement (the “GJC Loan Agreement”) with Beijing Guojincheng Asset Management Co., Ltd. (“GJC”). Under the GJC Loan Agreement, GJC committed to make advances to the Company up to RMB 30,000,000 ($4,766,217) with interest at 10% (the “GJC Loan”). Repayments of the Loan under the GJC Loan Agreement are due 730 days from the date the GJC Loan is made. The Company can repay all principal and interest in one lump sum when the GJC Loan comes due, or can repay the GJC Loan in installments. The GJC Loan has no processing fee or management fee.
 
 
19

 
 
The GJC Loan Agreement is guaranteed by Weihu Yu pursuant to a Guarantee Letter, dated April 21, 2011, made by Weihu Yu to GJC (the “GJC Guarantee Letter”) for two years commencing at the date of maturity of the GJC Loan Agreement. The GJC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver pursuant to that certain Security Agreement, dated April 21, 2011, by and between GoldRiver and GJC (the “GJC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the GJC Security Agreement terminates two years after the statute of limitation expires for which GJC can make a claim under the GJC Loan. The GJC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to GJC financial statements and other relevant materials. The GJC Loan Agreement also gives GJC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the GJC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

As of March 31, 2012 and December 31, 2011, the Company did not have an outstanding balance under the GJC Loan.

Note 14 – STATUTORY RESERVES
 
Surplus Reserve Fund

The Company’s Chinese subsidiaries are required to transfer 10% of each subsidiary’s net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The Company’s Chinese subsidiaries are not required to make appropriation to other reserve funds and do not intend to make appropriations to any other reserve funds. There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Company’s Chinese subsidiaries do not do so.
 
The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
 
Common Welfare Fund
 
Common welfare fund is a voluntary fund that the Company can elect to transfer 5% to 10% of its net income to this fund. This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. The Company did not contribute to this fund.
 
Note 15 - MAJOR CUSTOMERS AND VENDORS
 
One customer accounted for 16% and 10% of the sales during the three months ended March 31, 2012 and 2011. Accounts receivable from this customer were $935,953 as of March 31, 2012, and $81,963 as of December 31, 2011.
 
There was no vendor which accounted for more than 10% of the Company’s purchases during the three months ended March 31, 2012 and 2011, respectively.

Note 16 – SEGMENT REPORTING
 
The Company had three operating segments: battery components manufacture, battery assembly and distribution, and solar panel manufacture. The Company disposed of battery components manufacture segment through the disposition of E’Jenie. These remaining operating segments were determined based on the nature of the products offered.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance.  The Company's chief executive and chief financial officers were identified as the chief operating decision makers.  The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and other measurement factors of each respective segment.
 
 
20

 
 
The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The following table shows the operations of the Company's reportable segments, the Company does not identify assets by segment.

   
2012
   
2011
 
             
Revenues from unaffiliated customers:
           
Battery
 
$
2,996,861
   
$
6,968,898
 
Solar panel
   
1,958,404
     
5,514,918
 
Consolidated
 
$
4,955,265
   
$
12,483,816
 
Operating income (loss)
               
Battery
 
$
(887,342
 
$
2,634,126
 
Solar panel
   
(568,300
   
1,474,694
 
Corporation
   
(388,308
)
   
(485,372
)
Consolidated
 
$
(1,843,950
 
$
3,623,448
 
Net income (loss) from continuing operations
               
Battery
 
$
(695,545
 
$
2,004,180
 
Solar panel
   
(568,300
   
1,121,640
 
Corporation
   
(388,457
)
   
(485,584
)
Consolidated
 
$
(1,652,302
 
$
2,640,236
 
Depreciation and amortization:
               
Battery
 
$
521,942
   
$
500,593
 
Solar panel
   
7,828
     
6,877
 
Consolidated
 
$
529,770
   
$
507,470
 
  
Note 17 – DISPOSAL OF SUBSIDIARIES
 
Disposal of Subsidiaries

On November 24, 2011, the Company entered into an Equity Transfer Agreement with Xuemei Fang (“Fang”) and Weirong Xu (“Xu”, and together with Fang, the “Buyers”) to transfer 100% of the equity interest of Billion to the Buyers for RMB 85,553,893 ($13.50 million). The selling price equals the appraisal value of Billion, including its wholly owned subsidiaries E’Jenie and NewPower, less RMB 153,033,107 ($24.16 million) of debt that the Company owes E’Jenie, which shall be cancelled upon completion of the Equity Transfer. Xu was the Director of Marketing of NewPower and Fang was the Vice President of E’Jenie at the time of the sale. 20% of the purchase price will be paid upon the registration of the Equity Transfer with the relevant PRC authority. Thereafter, the Buyers will pay an aggregate of approximately $920,000 (RMB 5,800,000) every two months until the purchase price is paid in full.  As of April 30, 2012, the Company received RMB 29,780,733 ($4,731,381) and had an outstanding receivable of RMB 55,773,160 ($8,860,900).
 
The following table summarizes the fair values of the assets and liabilities disposed assumed at the date of disposal. The fair values of the assets disposed and liabilities assumed at agreement date are used for the purpose of selling price allocation. The excess of the selling price over the FV of the net assets disposed of $292,067 was recorded as disposal gain.
 
 
21

 

Cash
 
$
4,033,446
 
Accounts receivable
   
2,626,389
 
Other receivable
   
24,156,003
 
Inventory
   
518,457
 
Taxes receivable
   
1,297,924
 
Property and equipment, net
   
912,775
 
Intangible assets, net
   
6,285,970
 
Accounts payable
   
(861,597
)
Other payable and accrued expenses
   
(241,125
)
Deferred tax liability
   
(1,362,935
)
Disposal gain
   
292,067
 
Selling price
 
$
37,657,374
 

Note 18- COMMITMENTS

Anytone leases its office under a renewable operating lease expiring December 30, 2013. The monthly rent is $13,000. On January 1, 2011, Kim Fai entered into two 3-year leases with monthly payments of $6,200 and $1,600, respectively.
 
For the three months ended March 31, 2012 and 2011, rent expense was $67,000 and $38,600, respectively.
 
Future minimum rental payments required under operating leases as of March 31, 2012 are as follows by years:

2013
 
$
255,000
 
2014
   
191,000
 
   
$
446,000
 
 
Note 19- CONTINGENCY

Class Action by Investors

In February 2012, two separate securities class action complaints were filed in the US District Court for the Southern District of New York against the Company and certain of its current and former officers and directors. The complaints alleged that the Company issued materially false and misleading statements and omitted to state material facts that rendered its affirmative statements misleading as they related to the Company’s financial performance, business prospects, and financial condition, and that the defendants failed to prevent such statements from being issued or corrected, during a putative class period between April 15, 2010 and November 14, 2011. The complaints seek, among other relief, compensatory damages and attorneys’ fees. On May 10, 2012, the Court consolidated the two complaints for all purposes under the caption In re New Energy Systems Group Sec. Litig., and appointed a lead plaintiff.  The Company believes it is likely that a consolidated amended complaint will be filed shortly. The Company has not yet responded to either complaint, but the Company believes that the lawsuit has no merit and intends to vigorously defend against it. While certain legal defense costs may be later reimbursed by the Company’s insurance carrier, no reasonable estimate of any impact of the outcome of the litigation or related legal fees on the financial statements can be made as of the date of this statement.

Derivative Action by Shareholder

In April 2012, a shareholder derivative complaint entitled Campbell, et al. v. Yu, et al. was filed in the US District Court for the Southern District of New York by a shareholder purporting to act on behalf of the Company against certain of the Company's current and former officers and directors, and the company's independent auditor Goldman Kurland & Mohidin, LLP.  The Company is named as a nominal defendant.  The complaint asserts causes of action for breach of fiduciary duty and gross mismanagement against the officer and director defendants, and a claim for unjust enrichment against the Company's auditor, based upon allegations that the defendants caused the Company to issue materially false and misleading statements relating to the Company’s financial performance, business prospects, and financial condition. The complaints seek, among other relief, compensatory damages, restitution and attorneys’ fees. As of May 12, 2012, none of the defendants have responded to the complaint, but the Company believes that the complaint has no merit and intends to vigorously defend against it.  While certain legal defense costs may be later reimbursed by the Company’s insurance carrier, no reasonable estimate of any impact of the outcome of the litigation or related legal fees on the financial statements can be made as of the date of this statement.

 

 
22

 

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

Forward-Looking Statements

Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission (“SEC”).

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place too much reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

BUSINESS OVERVIEW

We operate our business through our wholly-owned subsidiariesShenzhen Anytone Technology Co., Ltd. ("Shenzhen Anytone") and Shenzhen Kim Fai Solar Energy Technology Co., Ltd. ("Kim Fai"), companies incorporated under the laws of the Peoples’ Republic of China (“PRC” or “China”).

Through our subsidiaries, we manufacture and distribute lithium battery related products, solar panels, and solar related products in China. Our professional marketing team maintains relationships with our current customers and at the same time searches for potential new customers. We seek to maintain and strengthen our position as a provider of lithium battery related products, solar panels, and solar related products while increasing the breadth of our product line and improving the quality of our products.

In August 2008, under the then depressed economic environment, management of the Company made some adjustments to keep the Company running and growing. To keep the existing battery pack accessories segment, the Company expanded into a related field – finished battery packs’ assembly and distribution, to diversify our line of products; consequently, the Company competes in the entire battery industry.
 
 
 
23

 

The lithium battery was created in the 1990s, with the first mass production in 1993 in Japan. Lithium batteries were first used in notebook computers and now are used in cellular phones, video machines, laptops, digital cameras, MP3 players, global positioning satellite systems, 3G communication devices, hybrid cars and other electronic products. Batteries are becoming smaller, lighter, more efficient, longer lasting and free of pollution. The lithium battery energy/weight ratio exceeds its counterparts and with an excellent safety standard we believe it is the future of the battery industry. According to Market Research, the market for lithium ion battery is expected to reach $43 billion by 2020. China has become one of the largest producers and consumers of lithium ion batteries. We anticipate there will be greater demand for lithium batteries in China and worldwide in the next few years. We believe the current trend towards smaller, lighter portable consumer products will continue and because of its size, the demand for lithium batteries will keep increasing.

Having engaged in the battery business for years, management of the Company has accumulated abundant knowledge about the battery industry, established a strong network among battery companies which are both upstream and downstream in the battery distribution flow, and gained a lot of experience in battery distribution. Assembling and distributing finished batteries has a higher profit margin than manufacturing battery accessories, so management of the Company believed our battery distribution business will be profitable due to the outstanding battery quality and strong distribution network the Company has.

On December 7, 2009, we closed the transactions contemplated by the share exchange agreement dated November 19, 2009 with Anytone International (HK) Co., Ltd. (“Anytone International”) and Shenzhen Anytone. Pursuant to the share exchange agreement, we issued the shareholders of Anytone International 3,593,939 shares of the Company's restricted common stock and paid $10,000,000 in cash. Shenzhen Anytone is the Chinese operating subsidiary of Anytone International, collectively referred to a “Anytone.” Anytone is engaged in the production of mobile power and related power backup products.

Through Anytone, we develop and market our branded mobile power and related power backup devices. Shenzhen Anytone was founded in 2005 and has very strong ability in R&D and marketing. In addition, Anytone has built its branded name in China and its products are sold to the end consumers directly. By focusing on R&D and marketing, Anytone only produces sample products in-house for testing.  It primarily outsources its production to certified third parties.

Mobile power units are lithium ion batteries’ application product. Currently, more and more advanced portable consumer electronic products are introduced to the market, such as laptops, smartphones, tablet PCs, etc. All these products consume power at a high rate. The original single lithium ion battery is not enough to support these products. Mobile power units are the solution. Compared to the creation of lithium ion battery in the 1990s, mobile power was started around 10 years ago and became popular and competitive in the past few years. The increasing competition is due to 1) increasing demand – many consumers have more than one portable consumer electronic device which need power support; 2) higher profits – mobile power units are sold to end consumers directly; 3) low technology limit – a mobile power unit includes three major components, battery cells, PCBs and cases. Therefore, most lithium ion battery related manufacturers can easily find a niche market; 4) no industry standards – mobile power is still a new business in the lithium ion battery industry without official standards. Therefore, this market is very unorganized and is in disorder with counterfeit or exaggerated products sold in the marketplace. However, we believe that this market is still in its early stage. Once the official industry standards are created and the consumers’ feedbacks are accumulated, only those products with real quality will survive.
 
 
24

 

On January 12, 2010, we closed the transactions contemplated by the share exchange agreement dated December 11, 2009 with NewPower. Pursuant to the share exchange agreement, our Chinese subsidiary E’jenie acquired NewPower. We issued the shareholders of NewPower 1,823,346 shares of the Company’s restricted common stock and paid them $3,000,000 in cash. NewPower is engaged in manufacturing and distribution of lithium battery cells.

On November 10, 2010, the Company’s subsidiary, Shenzhen Anytone executed a share exchange agreement to acquire all the equity interest of Kim Fai, a Chinese company engaged in the technology development and sale of solar application products and solar energy batteries, with all of the shareholders of Kim Fai. The price for the outstanding stock of Kim Fai was $13,303,236 to be paid in cash, and 1,913,265 shares of common stock valued at $14,999,998, which was determined by multiplying the 1,913,265 shares by the stock price of New Energy on November 10, 2010. As of September 30, 2011, $13,303,326 was paid and 1,913,265 shares were issued.

On November 24, 2011, the Company entered into an Equity Transfer Agreement (“Equity Transfer”) with Xuemei Fang (“Fang”) and Weirong Xu (“Xu”, and together with Fang, the “Buyers”) to transfer 100% of the equity interest of Billion Electronics Limited (BVI) to the buyers for RMB85,553,892 ($13,578,043). The selling price equaled the appraised value of Billion Electronics, including its wholly owned subsidiaries E’Jenie and NewPower, less RMB153,033,107 ($24,287,500) of debt the Company owes E’Jenie, which shall be cancelled upon completion of the Equity Transfer. Xu is the Director of Marketing of NewPower and Fang is the Vice President of E’Jenie. As of April 30, 2012, the Company received RMB 29,780,733 ($4,731,381) and had outstanding receivable of RMB 55,773,160 ($8,860,900)..

During the third quarter of 2011, the Company performed annual goodwill impairment assessment for NewPower. During the fourth quarter of 2011, the Company performed annual goodwill impairment assessment for Anytone and Kim Fai. The goodwill balance prior to the impairment charge was $60,858,842 and was established primarily as a result of a series acquisition of NewPower, Anytone and Kim Fai in 2010 and 2011. The Company completed the step one analysis using a combination of market capitalization approach and discounted cash flow. The market capitalization approach uses the Company’s publicly traded stock price to determine FV. The Discounted Cash Flow (“DCF”) method uses revenue and expense projections and risk-adjusted discount rates. The process of determining fair value is subjective and requires management to exercise a significant amount of judgment in determining future growth rates, discount and tax rates and other factors. The current economic environment has impacted the Company’s ability to forecast future demand and has in turn resulted in the use of higher discount rates, reflecting the risk and uncertainty in current markets. The results of the step one analysis indicated potential impairment in NewPower and Anytone reporting units, which were corroborated by a combination of factors including a significant and sustained decline in the market capitalization, which is significantly below the book value, and the deteriorating macro environment, which has resulted in a decline in expected future demand. The Company therefore performed the second step of the goodwill impairment assessment for NewPower and Anytone to quantify the amount of impairment. This involved calculating the implied FV of goodwill, determined in a manner similar to a purchase price allocation, and comparing the residual amount to the carrying amount of goodwill. Based on the analysis incorporating the declining market capitalization in 2011, as well as the significant end market deterioration and economic uncertainties impacting expected future demand including continued slow-down of the battery industry in China, and increased competition resulting from counterfeit products and decreased selling price from other manufacturers. The Company concluded the entire goodwill balance of NewPower of $14,306,538 and a portion of Anytone’s goodwill of $7,405,344 were impaired and recorded in operating expense. The goodwill impairment charge is non-cash. The goodwill impairment charge is not deductible for income tax purposes and, therefore, the Company has not recorded a corresponding tax benefit in 2011. On December 9, 2011, the Company disposed its subsidiaries Billion, E’jenie and NewPower. As of March 31, 2012, the Company concluded there was no impairment to the goodwill for the Anytone and Kim Fai reporting units.
 
 
25

 
 
Effective on January 13, 2012, Kim Fai’s business, including all the assets and liabilities, were transferred into Shenzhen Anytone to maximize operational efficiency and save costs.  All of Kim Fai’s products will be sold under the “Anytone” brand name.  Kim Fai was owned 100% by Shenzhen Anytone; accordingly, this business transfer was recorded at historical cost due to the equity being under common control. Kim Fai will be dissolved after the transfer and is currently in the process of deregistration.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011
 
The following table presents certain consolidated statements of operations information for the three months ended March 31, 2012 and 2011. The discussion following the table is based on these results. Certain columns may not add due to rounding.

   
2012
   
% of Sales
   
2011
   
% of Sales
 
                         
Revenue, net
                       
Battery
  $ 2,996,861       60 %   $ 6,968,898       56 %
Solar panel
    1,958,404       40 %     5,514,918       44 %
Total revenue
  $ 4,955,265       100 %   $ 12,483,816       100 %
                                 
Cost of sales
                               
Battery
    2,875,569       96 %   $ 3,279,195       47 %
Solar panel
    1,862,693       95 %     3,876,878       70 %
Total cost of sales
  $ 4,738,262       96 %   $ 7,156,073       57 %
                                 
Gross profit
    217,003       4 %     5,327,743       43 %
                                 
Operating expenses
                               
Selling
    395,355       8 %     321,863       3 %
General and administrative
    1,665,598       34 %     1,382,432       11 %
Total operating expenses
    2,060,953       42 %     1,704,295       14 %
                                 
Income (loss) from operations
    (1,843,950 )     (37 )%     3,623,448       29 %
                                 
Other income, net
    6,919       - %     3,889       - %
                                 
Income (loss) before income taxes
    (1,837,031 )     (37 )%     3,627,337       29 %
                                 
Provision for income taxes (benefit)
    184,829       4 %     (987,101 )     (8 ) %
                                 
Income (loss) from continued operations, net of tax
    (1,652,302 )     (33 )%     2,640,236       21 %
Incomefrom discontinued operations, net of tax
    -       - %     2,820,319       23 %
Net income (loss)
  $ (1,652,302 )     (33 )%   $ 5,460,555       44 %

 
26

 
 
Net Sales

Net sales for the three months ended March 31, 2012 was $4.96 million, compared to $12.48 million for the comparable period of 2011, a decrease of $7.52 million or 60%. Battery production and sales, mainly from Anytone, was $3.0 million for the three months ended March 31, 2012 compared to $6.97 million in the comparable period of 2011, a decrease of $3.97 million or 57%. Sales of solar products was $1.96 million in the three months ended March 31, 2012, compared to $5.51 million in the comparable period of 2011, a decrease of $3.55 million or 64%. The decrease was mainly due to (1) the battery industry being depressed in China; (2) integration of the business section, resulting in reduced production and sales of batteries, compare to the three months ended March 31, 2011, the overall sales volume decreased 62% in 2012.

Cost of Sales

Cost of Sales ("COS") for the three months ended March 31, 2012 was $4.74 million, compared to $7.16 million for the comparable period of 2011, a decrease of $2.42 million, or 34% due to decreased sales and production volume.

COS for the battery segment was $2.88 million, or 96% of total battery revenue, for the three months ended March 31, 2012, compared to $3.28 million, or 47%, for the comparable period of 2011, a decrease of $0.4 million, or 12%.

COS for solar products for the three months ended March 31, 2012 was $1.86 million, or 95% of solar products sales, compared to $3.88 million for the comparable period of 2011, or 70% of sales, a decrease of $2.02 million, or 52%.

The decrease on total cost of sales was due to decreased sales and production volume.  The percentage increase for COS to sales was mainly due to the increase of labor cost and the increase in price of certain raw materials, as well as decreased production and sales volume, therefore the fixed overhead cost absorbed by products increased in the three months ended March 31, 2012 compared to the comparable period of 2011. We adjusted our employees’ salary as a result of overall inflation in China especially for our workshop workers, their base salary increased 15% in 2012 compared to the Comparable period of 2011.

Operating Expenses

Operating expenses for the three months ended March 31, 2012 were $2.06 million, or 42% of net revenue, compared to $1.70 million, or 14% of net revenue, for the comparable period of 2011, an increase of $0.36 million, or 21%.

Selling expenses for the three months ended March 31, 2012 were $0.40 million, or 8% of net revenue, compared to $0.32 million, or 3% of net revenue, for the comparable period of 2011, an increase of $0.08 million, or 23%, which was mainly due to the increased marketing expenses including $0.07 million of advertisement and promotional expenses and $0.04 million of exhibition fees.
 
 
27

 

General and administrative (“G&A”) expenses for the three months ended March 31, 2012 were $1.67 million, or 34% of net revenue, compared to $1.38 million, or 11% of net revenue, for the comparable period of 2011.  The increase in G&A expenses of $0.29 million was mainly due to the increase of $0.37 million of employees’ salary and welfare expenses. For the three months ended March 31, 2012 and 2011, the US Parent Company recorded $0.39 million and $0.49 million as G&A expenses, respectively. These expenses mainly included stock option and warrant compensation expense and certain expenses relating in being public in the USA including accounting and legal fees.

Income From Discontinued Operations, net of tax

Net income from discontinued operations, net of tax for the three months ended March 31, 2012 was $0 compared to $2.82 million for the comparable period of 2011, which was mainly due to the disposed subsidiaries, NewPower and E’Jenie.

Net Income (Loss)

Net loss for the three months ended March 31, 2012 was $1.65 million compared to net income of $5.46 million for the comparable period of 2011, a decrease of $7.11 million, or 130%, due to the reasons listed above.

LIQUIDITY AND CAPITAL RESOURCES

Our operations and liquidity needs are funded primarily through cash flows from operations and. Cash and equivalents were $8,540,268 as of March 31, 2012. Working capital at March 31, 2012 was $23,352,873.

The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2012 and 2011:

 
2012
 
2011
 
Cash provided by (used in):
       
Operating Activities
  $ 258,522     $ 3,577,552  
Investing Activities
    3,739,666       (12,456 )
Financing Activities
    -       (6,626,560 )

Net cash provided by operating activities was $0.26 million for the three months ended March 31, 2012 compared to $3.58 million for the comparable period of 2011. The decrease in net cash provided by operating activities for the first quarter of 2012 was mainly due to the net loss in the period and the quick payment on accounts payable and tax payable, despite timely collection on accounts receivable and lower inventory compared to the comparable period of 2011. We have experienced timely payment from our customers.

Net cash provided in investing activities was $3.74 million for the three months ended March 31, 2012 compared to $12,456 cash used in the comparable period of 2011. The cash provided in the first quarter of 2012 was from the proceeds from disposal of subsidiaries. While in the first quarter of 2011, the cash used was for the purchase of fixed assets.

Net cash used in financing activities was $0 for the three months ended March 31, 2012, compared to $6.63 million for the comparable period of 2011. During the first quarter of 2011, the cash outflow was due to the repayment of the acquisition liability for Kim Fai of $6.71 million partially offset by cash inflows of $87,500 from warrants exercised.

Related Party Loans

As of March 31, 2012, the Company had no related party loans. As of December 31, 2011, the Company had a $571,347 unsecured, due on demand, and non-interest bearing loans payable to Dongrong Xu and Zaoxian Fang, the original owners of Shenzhen Anytone, of $485,645 and $85,702, respectively, in connection with the acquisition of Shenzhen Anytone by Anytone International.

Working Capital Requirements

Historically, cash from operations, short term financing and the sale of our Company stock have been sufficient to meet our cash needs. We believe we will be able to generate sufficient cash from operations to meet our working capital needs. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by economic environment for the industry and opportunities and availability of financing and raising capital by selling stock.
 
Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd.
 
On April 21, 2011, the Company entered into a Loan Agreement with Chuangding Investment Consulting (Shenzhen) Co., Ltd. (“CIC”). Under the CIC Loan Agreement, CIC committed to make advances to the Company up to RMB 30,000,000 ($4,766,217) with interest at 10% (the “CIC Loan”). Repayments under the CIC Loan Agreement are due 730 days from the date the CIC Loan is made. The Company can repay all principal and interest in one lump sum when the CIC Loan comes due, or can repay the CIC Loan in installments. The CIC Loan has no processing fee or management fee.
 
The CIC Loan Agreement is guaranteed by Weihu Yu, the Company’s Chairman, pursuant to a Guarantee Letter, dated April 21, 2011, made by Weihu Yu to CIC (the “CIC Guarantee Letter”) for two years commencing at the date of maturity of the CIC Loan Agreement. The CIC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver Industrial Holding Limited (“GoldRiver”) pursuant to a Security Agreement, dated April 21, 2011, by and between GoldRiver and CIC (the “CIC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the CIC Security Agreement terminates two years after the statute of limitation expires for which CIC can make a claim under the CIC Loan. The CIC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to CIC financial statements and other relevant materials. The CIC Loan Agreement also gives CIC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the CIC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

As of March 31, 2012 and December 31, 2011, the Company did not have an outstanding balance under the CIC Loan.
 
Loan Agreement with Beijing Guojincheng Asset Management Co., Ltd.
 
On April 21, 2011, the Company also entered into a Loan Agreement (the “GJC Loan Agreement”) with Beijing Guojincheng Asset Management Co., Ltd. (“GJC”). Under the GJC Loan Agreement, GJC committed to make advances to the Company up to RMB 30,000,000 ($4,766,217) with interest at 10% (the “GJC Loan”). Repayments of the Loan under the GJC Loan Agreement are due 730 days from the date the GJC Loan is made. The Company can repay all principal and interest in one lump sum when the GJC Loan comes due, or can repay the GJC Loan in installments. The GJC Loan has no processing fee or management fee.

The GJC Loan Agreement is guaranteed by Weihu Yu pursuant to a Guarantee Letter, dated April 21, 2011, made by Weihu Yu to GJC (the “GJC Guarantee Letter”) for two years commencing at the date of maturity of the GJC Loan Agreement. The GJC Loan Agreement is also secured by 539,091 shares of the Company’s common stock held by GoldRiver pursuant to that certain Security Agreement, dated April 21, 2011, by and between GoldRiver and GJC (the “GJC Security Agreement”). Weihu Yu is the beneficial owner of the shares held by GoldRiver. The security interest granted under the GJC Security Agreement terminates two years after the statute of limitation expires for which GJC can make a claim under the GJC Loan. The GJC Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to GJC financial statements and other relevant materials. The GJC Loan Agreement also gives GJC priority rights in the event that the Company needs financing, including equity investment, strategic investor introduction or share ownership restructuring. Any failure by the Company to comply with these covenants and any other obligations under the GJC Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.

As of March 31, 2012 and December 31, 2011, the Company did not have an outstanding balance under the GJC Loan.
 
 
28

 

OFF-BALANCE SHEET ARRANGEMENTS

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

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principle in the United States (“US GAAP”). The Company’s functional currency is the Chinese Yuan Renminbi (“CNY” or “RMB”); however the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

Principles of Consolidation

The consolidated financial statements include the accounts of New Energy Systems Group and its wholly owned subsidiaries Anytone and Kim Fai, are collectively referred to the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

Revenue Recognition

The Company manufactures and distributes batteries, battery shells and covers for portable consumer electronic devices in the PRC. The Company’s revenue recognition policies are in compliance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, delivery is complete, no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due or the possible return of goods. Payments received before satisfaction of all relevant criteria for revenue recognition are recorded as unearned revenue.
 
 
29

 

Sales revenue is the invoiced value of goods, net of value-added tax (“VAT”). All of the Company’s products sold in the PRC are subject to Chinese value-added tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.

Recent Accounting Pronouncement

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is adopted for fiscal years, and interim periods beginning after December 15, 2011 for public entities with retrospective application. There was no material impact on our consolidated financial statements upon adoption.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. There was no material impact on our consolidated financial statements upon adoption.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this ASU beginning with its Quarterly Report on Form 10-Q for the three months ended March 31, 2012. There was no material impact on our consolidated financial statements upon adoption.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
 
N/A.
 
Item 4.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company's principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of March 31, 2012. Based upon that evaluation, the Company’s CEO and CFO noted a material weakness and concluded that the Company’s disclosure controls and procedures were not effective.  

The Company’s material weakness in its internal control over financial reporting is related to a limited U.S. GAAP technical accounting expertise.  The Company’s internal accounting department has been primarily engaged in ensuring compliance with PRC accounting and reporting requirements for our operating affiliates. As a result, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies.  Although the Company’s accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management determined they require additional training and assistance in U.S. GAAP matters. As a result of such evaluation, the Company's CEO concluded that, as of the date of evaluation, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls
 
Our management, with the participation of our CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the quarter ended March 31, 2012.  Based on that evaluation, our CEO and CFO concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
 
 
30

 

PART II – OTHER INFORMATION
 
 
Item 1.                      Legal Proceedings.

In February 2012, two separate securities class action complaints were filed in the US District Court for the Southern District of New York against the Company and certain of its current and former officers and directors. The complaints alleged that the Company issued materially false and misleading statements and omitted to state material facts that rendered its affirmative statements misleading as they related to the Company’s financial performance, business prospects, and financial condition, and that the defendants failed to prevent such statements from being issued or corrected, during a putative class period between April 15, 2010 and November 14, 2011. The complaints seek, among other relief, compensatory damages and attorneys’ fees. On May 10, 2012, the Court consolidated the two complaints for all purposes under the caption In re New Energy Systems Group Sec. Litig., and appointed a lead plaintiff.  The Company believes it is likely that a consolidated amended complaint will be filed shortly. The Company has not yet responded to either complaint, but the Company believes that the lawsuit has no merit and intends to vigorously defend against it. While certain legal defense costs may be later reimbursed by the Company’s insurance carrier, no reasonable estimate of any impact of the outcome of the litigation or related legal fees on the financial statements can be made as of the date of this statement.
 
In April 2012, a shareholder derivative complaint entitled Campbell, et al. v. Yu, et al. was filed in the US District Court for the Southern District of New York by a shareholder purporting to act on behalf of the Company against certain of the Company's current and former officers and directors, and the company's independent auditor Goldman Kurland & Mohidin, LLP.  The Company is named as a nominal defendant.  The complaint asserts causes of action for breach of fiduciary duty and gross mismanagement against the officer and director defendants, and a claim for unjust enrichment against the Company's auditor, based upon allegations that the defendants caused the Company to issue materially false and misleading statements relating to the Company’s financial performance, business prospects, and financial condition. The complaints seek, among other relief, compensatory damages, restitution and attorneys’ fees. As of May 12, 2012, none of the defendants have responded to the complaint, but the Company believes that the complaint has no merit and intends to vigorously defend against it.  While certain legal defense costs may be later reimbursed by the Company’s insurance carrier, no reasonable estimate of any impact of the outcome of the litigation or related legal fees on the financial statements can be made as of the date of this statement.
 
Item 1A.                   Risk Factors.

N/A.

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

None.

Item 3.                      Defaults Upon Senior Securities.

To our knowledge, there are no material defaults upon senior securities.

Item 4.                      Mine Safety Disclosures.

Not Applicable.

Item 5.                      Other Information.

None.

Item 6.
Exhibits.
 
(a)  
Exhibits
 
Exhibit No.
Title of Document
Location
2.1
Share Exchange Agreement, dated February 14, 2006, between us, UPE Limited (Far East), Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., and the shareholders of UPE Limited
Incorporated by reference as Exhibit 2.1 to Form 8-K filed February 21, 2006
       
2.2
Amended and Restated Share Exchange Agreement, dated March 22, 2006, between us, Galaxy View International Ltd., Shenzhen Sono, and the shareholders of Galaxy View International Ltd.
Incorporated by reference as Exhibit 2.1 to Form 8-K filed March 24, 2006
       
2.3
Share Exchange Agreement and Plan or Reorganization
Incorporated by reference as Exhibit 10.1 to Form 8-K filed September 29, 2004
       
3.1.1
Articles of Incorporation
Incorporated by reference as Exhibit 3(i)(1) to Form 8-K filed September 16, 2004
       
3.1.2
Amendment to Articles of Incorporation
Incorporated by reference as Exhibit 3(i)(2) to Form 8-K filed September 16, 2004
       
3.1.3
Amendment to Articles of Incorporation
Incorporated by reference as Exhibit 3(i)(3) to Form 8-K filed September 16, 2004
       
3.1.4
Certificate of Designation of Series A Convertible Preferred Stock
Incorporated by reference as Exhibit 3(i) to Form 8-K filed July 28, 2006
       
3.1.5
Certificate of Amendment to Articles of Incorporation
Incorporated by reference as Exhibit 3.1 to Form 8-K filed on November 19, 2009
       
 
 
31

 
 
3.1.6
Amendment to the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
Incorporated by reference as Exhibit 3.1 to Form 8-K filed on October 21, 2010.
       
3.2
Bylaws
Incorporated by reference as Exhibit 3.4 to Form SB-2/A filed March 22, 2002
       
4.1
Form of Stock Certificate
Incorporated by reference as Exhibit 4.1 to Form SB-2/A filed March 22, 2002
       
4.2
2004 Equity Incentive Plan
Incorporated by reference as Exhibit 4.1 to Form S-8 filed March 2, 2004
     
4.3
Form of Class A, B and C Warrants
Incorporated by reference as Exhibit 4.3 to Form 10-KSB filed March 30, 2006
     
4.4
Form of Subscription Agreement dated March 17, 2004 by and among Jasmine's Garden and the Investors
Incorporated by reference as Exhibit 4.1 to Form 8-K filed March 22, 2004
     
4.5
2011 Equity Incentive Plan
Incorporated by reference as Exhibit 21.1 to Form 10-K filed April 2, 2012
     
10.1
Sales Contract dated April 21, 2005 between Shenzhan E'Jenine Science & Technology Co., LTD. and Shenzhen Gao Yi Electonics Co. LTD.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed April 22, 2005
     
10.2
Sales Contract dated July 12, 2005 between Shenzhan E'Jenine Science & Technology Co., LTD. and Wuhan Jie Xin Communication Development Co., LTD.
Incorporated by reference as Exhibit 2.1 to Form 8-K filed July 14, 2005
     
10.3
Sales Contract dated December 31, 2005 between Shenzhan E'Jenine Science & Technology Co., LTD. and Yin Si Qi Electronics Co.
Incorporated by reference as Exhibit 2.1 to Form 8-K filed January 6, 2006
     
10.4
Loan Agreement dated March 10, 2006, between New Energy Systems Group and United Private Equity (The Pacific) Limited
Incorporated by reference as Exhibit 2.1 to Form 8-K filed March 15, 2006
     
10.5
Employment Agreement dated December 10, 2009 between New Energy Systems Group and Weihe Yu
Incorporated by reference as Exhibit 21.1 to Form 10-K filed April 15, 2010
     
10.6
Employment Agreement dated July 1, 2009 between New Energy Systems Group and Fushun Li
Incorporated by reference as Exhibit 21.1 to Form 10-K filed April 15, 2010
     
10.7
Employment Agreement dated September 1, 2009 between New Energy Systems Group and Junfeng Chen
Incorporated by reference as Exhibit 21.1 to Form 10-K filed April 15, 2010
     
10.8
Share Exchange Agreement, dated November 10, 2010, by and among Shenzhen Anytone Technology Co. Ltd, Shenzhen Kim Fai Solar Energy Technology Co., Ltd., and the Company.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed November 12, 2010
     
10.9
Letter of Appointment, dated June 11, 2010, by and between Mr. Elan Yaish and the Company.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed June 17, 2010
     
10.10
Lease Agreement, dated August 28, 2009, by and between Shenzhen Longgang District Tailian Industrial Development Co., Ltd. and Shenzhen NewPower Technology Co., Ltd.
Incorporated by reference as Exhibit 10.10 to Form 10-K filed March 28, 2011
     
10.11
Lease Agreement, dated January 1, 2009, by and between China Great wall calculator Shenzhen Co., Ltd. And Shenzhen Anytone Technology Co., Ltd.
Incorporated by reference as Exhibit 10.11 to Form 10-K filed March 28, 2011
     
10.12
2004 Equity Incentive Plan
Incorporated by reference to the Registration Statement on Form S-8 filed on March 2, 2004
     
10.13
China Digital Communication Group 2009 Equity Incentive Plan
Incorporated by reference to the Registration Statement on Form S-8 filed on October 28, 2009
     
 10.14
Employment Agreement, dated September 1, 2008, by and between Nian Chen and Shenzhen Anytone Technology Co., Ltd.
Incorporated by reference as Exhibit 10.14 to Form 10-K filed March 28, 2011
     
10.15
Lease Agreement, dated December 23, 2005, by and between Kim Fai
Incorporated by reference as Exhibit 10.15 to Form 10-K filed March 28, 2011
     
10.16
Branding Strategy Consulting Agreement, dated August 18, 2009, by and between the Company and Rui Wang, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.15 to Form 10-K/A filed August 19, 2011
     
 
 
32

 
 
10.17
Branding Strategy Consulting Agreement, dated August 18, 2009, by and between the Company and Qiong Xiong, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.16 to Form 10-K/A filed August 19, 2011
     
10.18
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Zhiyong Xu, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.17 to Form 10-K/A filed August 19, 2011
     
10.19
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Changsuo Li, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.18 to Form 10-K/A filed August 19, 2011
     
10.20
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Fang Gao, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.19 to Form 10-K/A filed August 19, 2011
     
10.21
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Xi Li, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.20 to Form 10-K/A filed August 19, 2011
     
10.22
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Shuang Yang, and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.21 to Form 10-K/A filed August 19, 2011
     
10.23
Financial Consulting Agreement, dated August 18, 2009, by and between the Company and Jie Zhang and amended pursuant to that certain Supplemental Agreement dated October 10, 2009
Incorporated by reference as Exhibit 10.22 to Form 10-K/A filed August 19, 2011
     
10.24
Loan Agreement between New Energy Systems Group and Chuangding Investment Consulting (Shenzhen) Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed April 26, 2011
     
10.25
Security Agreement between New Energy Systems Group and Chuangding Investment Consulting (Shenzhen) Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.2 to Form 8-K filed April 26, 2011
     
10.26
Guarantee Letter with between New Energy Systems Group and Chuangding Investment Consulting (Shenzhen) Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.3 to Form 8-K filed April 26, 2011
     
10.27
Loan Agreement between New Energy Systems Group and Beijing Guojincheng Asset Management Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.4 to Form 8-K filed April 26, 2011
     
10.28
Security Agreement New Energy Systems Group and Beijing Guojincheng Asset Management Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.5 to Form 8-K filed April 26, 2011
     
10.29
Guarantee Letter New Energy Systems Group and Beijing Guojincheng Asset Management Co., Ltd., dated April 21, 2011.
Incorporated by reference as Exhibit 10.6 to Form 8-K filed April 26, 2011
     
10.30
Equity Transfer Agreement between New Energy Systems Group and Billion Electronics Limited (BVI), dated November 24, 2011.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed November 30, 2011
     
10.31
Security Agreement between New Energy Systems Group and Shenzhen E’Jenie Technology Development Co., Ltd., dated November 24, 2011.
Incorporated by reference as Exhibit 10.2 to Form 8-K filed November 30, 2011
     
10.32
Guarantee Agreement made to New Energy Systems Group by Xuemei Fang, dated November 24, 2011.
Incorporated by reference as Exhibit 10.3 to Form 8-K filed November 30, 2011
     
10.33
Guarantee Agreement made to New Energy Systems Group by Weirong Xu, dated November 24, 2011.
Incorporated by reference as Exhibit 10.4 to Form 8-K filed November 30, 2011
     
14.1
Code of Ethics
Incorporated by reference as Exhibit 14.1 to Form 8-K filed June 17, 2010
     
21.1
Subsidiaries
Incorporated by reference as Exhibit 21.1 to Form 10-K filed April 2, 2012
     
31.1
Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.
Filed herewith
     
31.2
Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.
Filed herewith
     
32.1
Certification Required Under Section 906 of Sarbanes-Oxley Act of 2002.
Filed herewith
     
32.2
Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002.
Filed herewith
     
101.INS
XBRL Instance Document.*
   
101.SCH
XBRL Taxonomy Extension Schema.*
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.*
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase.*
   
101.LAB
XBRL Taxonomy Extension Label Linkbase.*
   
101.PRE
XBRL Extension Presentation Linkbase.*
 
* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 
33

 
 
 
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.
 
 
 
NEW ENERGY SYSTEMS GROUP
 
       
Dated: May 16, 2012
By:
/s/ Weihe Yu  
   
Name: Weihe Yu
 
   
Title: Chief Executive Officer
 
       
       
       
Dated: May 16, 2012
By:
/s/ Junfeng Chen  
   
Name: Junfeng Chen
 
   
Title: Chief Financial Officer
 
       
       
 
 
 
 
 
 
 
 
 
 
 
34

XASE:NEWN Quarterly Report 10-Q Filling

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