S-1 1 v123166_s1.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM S-1
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
________________
NIVS IntelliMedia Technology Group, Inc.
(Name of Registrant As Specified in its Charter)

Delaware
 
3651
 
20-8057809
(State or Other Jurisdiction of
 
(Primary Standard Industrial
 
(I.R.S. Employer Identification No.)
Incorporation
 
Classification Code Number)
   
or Organization)
       
 
NIVS Industry Park
Shuikou, Huizhou, Guangdong
People’s Republic of China 516006
86-752-2323616
(Address and Telephone Number of Principal Executive Offices)
________________
Tianfu Li
NIVS Industry Park
Shuikou, Huizhou, Guangdong
People’s Republic of China 516006
86-752-2323616
(Name, Address and Telephone Number of Agent for Service)
________________
Copies to
Thomas J. Poletti, Esq.
Anh Q. Tran, Esq.
K&L Gates LLP
10100 Santa Monica Blvd., 7th Floor
Los Angeles, CA 90067
Telephone (310) 552-5000
Facsimile (310) 552-5001
 
Joseph V. Stubbs, Esq.
Scott Galer, Esq.
Stubbs Alderton & Markiles, LLP
15260 Ventura Boulevard, 20th Floor
Sherman Oaks, California 91403
Telephone (818) 444-4500
Facsimile (818) 444-4520
________________
 
Approximate Date of Proposed Sale to the Public: From time to time after the effective date of this Registration Statement

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.R

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering. £

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. (Check one):

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

 
CALCULATION OF REGISTRATION FEE
                   
       
Proposed
 
Proposed
     
       
Maximum
 
Maximum
 
Amount of
 
Title of Each Class of
 
Amount To Be
 
Offering Price
 
Aggregate
 
Registration
 
Securities To Be Registered
 
Registered (1)
 
Per Share
 
Offering Price
 
Fee
 
Common Stock, $0.0001 par value per share
   
575,000
(2)     
$
4.00
(2)     
$
2,300,000
(2)     
$
90.39
 
Common Stock, $0.0001 par value per share
   
7,446,641
(3)
$
4.00
(5)
$
29,786,564
(5)
$
1,170.61
 
Common Stock, $0.0001 par value per share
   
193,214
(4)
$
4.00
(5)
$
772,856
(5)
$
30.37
 
Total Registration Fee
                   
$
1,291.38
(6)     

 
(1)
In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of additional shares of Common Stock that shall be issuable pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or similar transactions.

 
(2)
The registration fee for securities to be offered by the Registrant is based on an estimate of the Proposed Maximum Aggregate Offering Price of the securities, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(o). Includes shares which the underwriter has the option to purchase to cover over-allotments, if any.

 
(3)
This Registration Statement also covers the resale under a separate resale prospectus (the “Resale Prospectus”) by selling stockholders of the Registrant of up to 7,446,641shares of Common Stock previously issued to the selling stockholders as named in the Resale Prospectus and 193,214 shares of Common stock that may be or have been issued to the selling stockholders upon exercise of outstanding warrants.

 
(4)
Represents shares of the Registrant’s Common Stock being registered for resale that have been or may be acquired upon the exercise of warrants that have been previously issued to selling stockholders named in the Resale Prospectus.

 
(5)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.

 
(6)
This amount is being paid herewith.
________________

The Registrant amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
 



 
EXPLANATORY NOTE

This Registration Statement contains two prospectuses, as set forth below.

 
·
IPO Prospectus. A prospectus to be used for the initial public offering by the Registrant of up to 500,000 shares of the Registrant's common stock (in addition to 75,000 shares that may be sold upon exercise of the underwriter’s over-allotment option) (the "IPO Prospectus") through the underwriter named on the cover page of the IPO Prospectus.

 
·
Resale Prospectus. A prospectus to be used for the resale by selling stockholders of up to 7,639,855 shares of the Registrant’s common stock (including 193,214 shares that have been or may be acquired upon the exercise of warrants that have been previously issued to selling stockholders named in the Resale Prospectus) (the “Resale Prospectus”).

The Resale Prospectus is substantively identical to the IPO Prospectus, except for the following principal points:

 
·
they contain different outside and inside front covers;
 
·
they contain different Offering sections in the Prospectus Summary section beginning on page 1;
 
·
they contain different Use of Proceeds sections on page 23;
 
·
the Capitalization and Dilution sections are deleted from the Resale Prospectus on page 23 and page 24, respectively;
 
·
a Selling Stockholder section is included in the Resale Prospectus beginning on page 62A;
 
·
references in the IPO Prospectus to the Resale Prospectus will be deleted from the Resale Prospectus;
 
·
the Underwriting section from the IPO Prospectus on page 62 is deleted from the Resale Prospectus and a Plan of Distribution is inserted in its place;
 
·
the Legal Matters section in the Resale Prospectus on page 64 deletes the reference to counsel for the underwriter; and
 
·
the outside back cover of the IPO Prospectus is deleted from the Resale Prospectus.

The Registrant has included in this Registration Statement, after the financial statements, a set of alternate pages to reflect the foregoing differences of the Resale Prospectus as compared to the IPO Prospectus.
 
Notwithstanding the Resale Prospectus, certain of the selling stockholders named in the Resale Prospectus holding an aggregate of 6,544,047 shares of common stock that were purchased in a private placement that closed on August 12, 2008 have agreed that they will not sell any of such securities until 90 days after our common stock begins to be listed or quoted on either the New York Stock Exchange, American Stock Exchange, NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin Board, when one-twelfth of their shares will be released from the lock-up restrictions, and after which their shares will automatically be released from the lock-up restrictions every 30 days in eleven equal installments.


 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. 
 
PROSPECTUS

Subject to Completion, Dated August 13, 2008
 
500,000 SHARES
 
NIVS IntelliMedia Technology Group, Inc.

COMMON STOCK
 
________________
 
We are a reporting company under Section 13 of the Securities Exchange Act of 1934, as amended. Our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. We intend to apply for the listing of our common stock on the American Stock Exchange. We propose to obtain the trading symbol "[____]". We expect that the public offering price of our common stock will be between $3.25 and $4.00 per share.
 
The purchase of the securities involves a high degree of risk. See section entitled “Risk Factors” beginning on page 6.
________________

           
 
 
Per Share
 
Total
 
Public offering price 
 
$
[___
]
$
[___
]
Underwriting discounts and commissions 
 
$
[___
]
$
[___
]
Proceeds, before expenses, to NIVS IntelliMedia Technology Group, Inc. 
 
$
[___
]
$
[___
]
 
The underwriter has a 45-day option to purchase up to 75,000 additional shares of common stock from us solely to cover over-allotments, if any.
 
The underwriter expects to deliver the shares of common stock to purchasers on or about __________, 2008.
 
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of anyone’s investment in these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
________________

WestPark Capital, Inc.
 
________________

The Date of this Prospectus is: ____________________, 2008



TABLE OF CONTENTS

PROSPECTUS SUMMARY
1
SUMMARY FINANCIAL DATA
5
RISK FACTORS
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
22
USE OF PROCEEDS
23
DIVIDEND POLICY
23
CAPITALIZATION
23
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
24
DILUTION
24
ACCOUNTING FOR THE SHARE EXCHANGE
25
SELECTED CONSOLIDATED FINANCIAL DATA
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
27
DESCRIPTION OF BUSINESS
36
MANAGEMENT
48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
54
BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
55
DESCRIPTION OF SECURITIES
57
SHARES ELIGIBLE FOR FUTURE SALE
60
UNDERWRITING
62
LEGAL MATTERS
64
EXPERTS
64
ADDITIONAL INFORMATION
64
INDEX TO FINANCIAL STATEMENTS
F-1
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
II-1
SIGNATURES
II-8
________________
Please read this prospectus carefully. It describes our business, our financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision.

You should rely only on information contained in this prospectus. We have not, and the underwriter has not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

i

 


PROSPECTUS SUMMARY
 
Because this is only a summary, it does not contain all of the information that may be important to you. You should carefully read the more detailed information contained in this prospectus, including our financial statements and related notes. Our business involves significant risks. You should carefully consider the information under the heading "Risk Factors" beginning on page 6.

As used in this prospectus, unless otherwise indicated, the terms “we”, “Company” and “NIVS” refer to NIVS IntelliMedia Technology Group, Inc., a Delaware corporation, formerly known as SRKP 19, Inc. (“SRKP 19”), its wholly-owned subsidiary, NIVS Holding Company Limited, a British Virgin Islands corporation (“NIVS BVI”), and its subsidiaries, including its 97.5%-owned subsidiary NIVS (Huizhou) Audio & Video Tech. Co., Ltd., a company organized under the laws of the PRC (“NIVS PRC”). “China” or “PRC” refers to the People’s Republic of China. “RMB” or “Renminbi” refers to the legal currency of China and “$” or “U.S. Dollars” refers to the legal currency of the United States.

NIVS IntelliMedia Technology Group, Inc.

We are engaged in the design, manufacture, marketing and sale of audio and video consumer products. Our products include digital audio systems, televisions, digital video broadcasting (“DVB”) set-top boxes, DVD players, as well as peripheral and accessory products such as remote controls, headphone sets and portable entertainment devices (MP3/MP4 players). We have invested substantial resources in the research and development of our intelligent audio and video consumer products, most of which utilize our Chinese speech interactive technology to permit users to control our products through their spoken commands. Our products are distributed worldwide, including markets in Europe, Southeast Asia and North America.

Our goal is to become a global leader in the development and manufacture of standard and intelligent audio and video consumer electronics. We intend to achieve this goal by implementing the following strategies.

 
·
Expand offering of speech-controlled products. We plan to leverage our expertise in product design and development, our intellectual property platform, and our diverse distribution network by continuing to develop and introduce new and enhanced products, particularly audio and video consumer products that utilize our Chinese speech-controlled technology.
 
 
·
Build partnerships with new and existing clients. We intend to strengthen relationships with our existing clients and explore opportunities for product expansion with new and existing customers. We also seek to leverage our Chinese-speech interactive technology to develop relationships and strategic alliances with third-party developers, vendors and manufacturers of mobile phones, entertainment devices and GPS navigation devices for use in their products.
 
 
·
Expand global presence. We intend to expand our international resources to better serve our global customers and business associates and to leverage opportunities in markets such as Hong Kong, the Middle East, India, Great Britain, Germany, the United States and Argentina.
 
 
·
Expand sales network and distribution channels. We intend to expand our sales network in China and develop relationships with a broader set of wholesalers, distributors and resellers, all in order to expand the market availability of our products in China.
 
 
·
Augment marketing and promotion efforts to increase brand awareness. We continue to devote our efforts towards brand development and utilize marketing concepts in an attempt to strengthen the marketability of our products.
 
1

 


Corporate Information

We were incorporated in the State of Delaware on December 7, 2006. We were originally organized as a “blank check” shell company to investigate and acquire a target company or business seeking the perceived advantages of being a publicly held corporation. On July 25, 2008, we (i) closed a share exchange transaction, described below, pursuant to which we became the 100% parent of NIVS BVI, (ii) assumed the operations of NIVS BVI and its subsidiaries, and (iii) changed our name from SRKP 19, Inc. to NIVS IntelliMedia Technology Group, Inc. NIVS BVI is primarily a holding company. NIVS PRC was founded in 1998 in Huizhou, Guangdong.

Our principal executive offices and our manufacturing and product development facilities are located in Huizhou, Guangdong, China. Our corporate offices are located at NIVS Industry Park, Shuikou, Huizhou, Guangdong, China 516006. Our corporate website is located at www.nivs.cn/en/. Information contained on, or that can be accessed through, our corporate website is not part of this prospectus.

Our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. We intend to apply for the listing of our common stock on the American Stock Exchange.

Recent Events

July 2008 Share Exchange

On June 27, 2008, we entered into a share exchange agreement with NIVS BVI and all of the shareholders of NIVS BVI. Pursuant to the exchange agreement, as it was amended on July 25, 2008 (the “Exchange Agreement”), we agreed to issue an aggregate of 27,546,667 shares of our common stock in exchange for all of the issued and outstanding securities of NIVS BVI (the “Share Exchange”). The Share Exchange closed on July 25, 2008.

Upon the closing of the Share Exchange, we issued an aggregate of 27,546,667 shares of our common stock to the shareholders of NIVS BVI and their designees in exchange for all of the issued and outstanding securities of NIVS BVI. Prior to the closing of the Share Exchange, our shareholders canceled an aggregate of 4,756,390 shares held by them such that there were 2,340,000 shares of common stock outstanding immediately prior to the Share Exchange. Our shareholders also canceled an aggregate of 6,149,723 warrants such that the shareholders held an aggregate of 946,667 warrants immediately after the Share Exchange. After the closing of the Share Exchange and private placement, as described below, we had 36,855,714 outstanding shares of common stock, no shares of preferred stock, no options, and warrants to purchase 946,667 shares of common stock. Our outstanding shares include 425,000 shares of common stock issued upon the closing of the Share Exchange to Nascent Value LLC in connection with investor relation services to be provided.

Pursuant to the terms of the Share Exchange, we agreed to register the 2,340,000 shares of common stock and the 946,667 shares of common stock underlying the warrants held by our stockholders immediately prior to the Share Exchange. Of the shares, 670,808 shares are included in the registration statement of which this prospectus is a part and 2,615,859 shares will be included in a subsequent registration statement filed by us on or about February 20, 2009, which is 10 days after the end of the six-month period that immediately follows the date on which we file the registration statement of which this prospectus is a part.

Immediately after the closing of the Share Exchange, on July 25, 2008, we changed our corporate name from “SRKP 19, Inc.” to “NIVS IntelliMedia Technology Group, Inc.”

The transactions contemplated by the Exchange Agreement, as amended, were intended to be a “tax-free” contribution and/or reorganization pursuant to the provisions of Sections 351 and/or 368(a) of the Internal Revenue Code of 1986, as amended.

The acquisition of NIVS BVI by us pursuant to the Share Exchange was accounted for as a recapitalization by us. The recapitalization was, at the time of the Share Exchange, the merger of a private operating company (NIVS BVI) into a non-operating public shell corporation (us) with nominal net assets and as such is treated as a capital recapitalization, rather than a business combination. As a result, the assets of the operating company are recorded at historical cost. The transaction is the equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation. The pre-acquisition financial statements of NIVS BVI are treated as the historical financial statements of the consolidated companies. The financial statements presented will reflect the change in capitalization for all periods presented, therefore the capital structure of the consolidated enterprise, being the capital structure of the legal parent, is different from that appearing in the financial statements of NIVS BVI in earlier periods due to this recapitalization.

2

 

 
July 2008 Private Placement

On July 25, 2008, concurrently with the close of the Share Exchange, we conducted an initial closing of a private placement transaction pursuant to which we sold an aggregate of 5,239,460 shares of common stock at $1.80 per share, for gross proceeds of approximately $9.4 million. On August 12, 2008, we conducted a second and final closing of the private placement pursuant to which we sold an additional 1,304,587 shares of common stock at $1.80 per share for gross proceeds of approximately $2.3 million, of which $1.3 million was represented by subscription receivables. Accordingly, we sold a total of 6,544,047 shares of common stock in the private placement for aggregate gross proceeds of approximately $11.8 million (the “Private Placement”). WestPark Capital, Inc., the placement agent for the Private Placement, was paid a commission equal to 6.5% of the gross proceeds from the financing, in addition to a $130,000 success fee for the Share Exchange, for an aggregate fee of approximately $896,000.

We agreed to file a registration statement covering the common stock sold in the Private Placement within 30 days of the closing of the Share Exchange pursuant to the subscription agreement entered into with each investor. The investors in the Private Placement also entered into a lock-up agreement pursuant to which they agreed not to sell their shares until 90 days after our common stock is listed or quoted on either the New York Stock Exchange, American Stock Exchange, NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin Board, at which time one-twelfth of their shares will be released from the lock-up restrictions, and after which their shares will automatically be released from the lock-up restrictions every 30 days in eleven equal installments.

Some of the controlling stockholders and control persons of WestPark Capital, Inc. were also, prior to the completion of the Share Exchange, our controlling stockholders and control persons, including Richard Rappaport, who is the Chief Executive Officer of WestPark Capital, Inc. and was our President and a significant stockholder of ours prior to the Share Exchange, and Anthony C. Pintsopoulos, who is the Chief Financial Officer of WestPark Capital, Inc. and was one of our controlling stockholders and an officer and director prior to the Share Exchange. In addition, Debbie Schwartzberg, one of our principal stockholders, is a note holder of WestPark Capital Financial Services, LLC, the parent company of WestPark Capital, Inc.; her note entitles her to a 1.5% interest in the net profits of WestPark Capital Financial Services, LLC, one of our principal stockholders prior to the Share Exchange. Kevin DePrimio and Jason Stern, each employees of WestPark Capital, Inc., are also our stockholders. Mr. Rappaport is the sole owner of the membership interests in WestPark Capital Financial Services, LLC. Each of Messrs. Rappaport and Pintsopoulos resigned from all of their executive and director positions with us upon the closing of the Share Exchange.

July 2008 Investor Relations Agreement

We also entered into a consulting agreement with Nascent Value LLC (“Nascent”) pursuant to which Nascent will provide us with business consulting and investor relation services. As consideration for entering into the agreement and compensation for Nascent’s services under the agreement, we issued to Nascent 425,000 shares of our common stock upon the closing of the Share Exchange. In connection with the issuance of the shares of common stock, we expect to recognize a charge to operations in an amount equal to approximately $765,000, which is derived from valuing each share at $1.80, the price at which shares of our common stock were sold in the Private Placement. We also agreed to pay Nascent $6,000 per month for their services. Nascent will agree to enter into a lock-up agreement pursuant to which the shares are released during the 24-month period following the listing of our securities on a national securities exchange, with (i) 32,000 shares released when our securities are listed on a national securities exchange, (ii) 16,000 shares released at the beginning of each month thereafter during the term of our engagement, (iii) 12,500 shares released at the end of the first year of engagement, and (iv) 12,500 shares released at the end of the second year of engagement. The term of the agreement is two years. We will retain the option to terminate the engagement after six months based on unsatisfactory performance by Nascent, in which event the unreleased shares would be cancelled. We also agreed to register the shares in the resale registration statement to be filed in connection with the Private Placement, of which this prospectus is a part.

3

 


The Offering

Common stock we are offering
 
500,000 shares (1)
     
Common stock outstanding after the offering
 
37,355,714 shares (2)
     
Offering price
 
$3.25 to $4.00 per share (estimate)
     
Use of proceeds
 
We intend to use the net proceeds of this offering for general corporate purposes. See "Use of Proceeds" on page 23 for more information on the use of proceeds.
     
Risk factors
 
Investing in these securities involves a high degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 6.
____________________

 
(1)
Excludes up to 75,000 shares that may be sold upon the underwriter’s over-allotment option. We are also concurrently registering for resale under a separate prospectus up to 7,639,855 shares of our common stock held by the selling stockholders named under such prospectus (including 193,214 shares that have been or may be acquired upon the exercise of warrants that have been previously issued to selling stockholders named in such prospectus). None of these securities are being offered by us and we will not receive any proceeds from the sale of these shares. For additional information, see above under “Prospectus Summary - Recent Events.”

 
(2)
Based on 36,855,714 shares of common stock issued and outstanding as of August 12, 2008.
 
4

 


SUMMARY FINANCIAL DATA
 
The following summary financial information contains consolidated statement of operations data for the three months ended March 31, 2008 and 2007 (unaudited) and for each of the years in the five-year period ended December 31, 2007 and the consolidated balance sheet data as of March 31, 2008 and year-end for each of the years in the five-year period ended December 31, 2007. The consolidated statement of operations data and balance sheet data were derived from the audited consolidated financial statements, except for data for the three months ended and as of March 31, 2008 and 2007 and the years ended and as of December 31, 2004 and 2003. Such financial data should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements starting on page F-1 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Consolidated Statements of Operations

   
Three Months Ended March 31,
 
Years Ended December 31,
 
   
2008
 
2007
 
2007
 
2006
 
2005
 
2004
 
2003
 
   
(unaudited)
 
(unaudited)
             
(unaudited)
 
(unaudited)
 
   
(all amounts are in thousands except share and per share amounts)
 
Revenue
 
$
26,776
 
$
16,368
 
$
77,627
 
$
37,735
 
$
21,966
 
$
12,976
 
$
1,826
 
Other Sales
   
63
   
107
   
516
   
53
   
-
   
-
   
-
 
Cost of Goods Sold
   
(20,383
)
 
(12,263
)
 
(58,864
)
 
(28,073
)
 
(17,300
)
 
11,206
   
1,653
 
Gross Profit
   
6,456
   
4,212
   
19,279
   
9,716
   
4,666
   
1,770
   
173
 
                                             
Selling Expenses
   
620
   
922
   
3,269
   
1,792
   
837
   
351
   
69
 
                                             
General and administrative
                                           
Amortization
   
17
   
15
   
62
   
59
   
137
   
57
   
5
 
Depreciation
   
95
   
70
   
328
   
300
   
198
   
58
   
8
 
Bad debts
   
452
   
154
   
473
   
133
   
81
   
-
   
-
 
Other G&A expense
   
761
   
531
   
2,548
   
1,126
   
832
   
263
   
93
 
Total General and administrative
   
1,326
   
770
   
3,411
   
1,618
   
1,248
   
378
   
106
 
Research and development
   
155
   
63
   
373
   
417
   
230
   
60
   
-
 
Gain on disposal of assets
   
-
   
-
   
-
   
(1,226
)
 
-
   
-
   
-
 
Total operating expenses
   
2,101
   
1,755
   
7,054
   
2,601
   
2,315
   
789
   
175
 
Income from operations
   
4,355
   
2,457
   
12,225
   
5,889
   
2,351
   
981
   
(2
)
                                             
Other income (expenses)
                                           
Government grant
   
-
   
-
   
28
   
-
   
160
   
84
   
24
 
Write-down of inventory
   
-
   
(387
)
 
(105
)
 
-
   
(5
)
 
-
   
-
 
Interest income
   
-
   
10
   
235
   
19
   
11
   
2
   
1
 
Interest expense
   
(532
)
 
(286
)
 
(1,791
)
 
(863
)
 
(319
)
 
(7
)
 
(15
)
Sundry income (expense), net
   
16
   
-
   
(111
)
 
(56
)
 
(7
)
 
(18
)
 
(1
)
Total other income (expenses)
   
(516
)
 
(663
)
 
(1,745
)
 
326
   
(160
)
 
61
   
9
 
                                             
Income before MI and income taxes
   
3,840
   
1,794
   
10,479
   
6,215
   
2,191
   
1,042
   
7
 
Income taxes
   
(506
)
 
(217
)
 
(1,269
)
 
(753
)
 
-
   
1
   
1
 
Minority interest
   
(84
)
 
(40
)
 
(231
)
 
(138
)
 
(59
)
 
(28
)
 
(0.18
)
                                             
Net Income
   
3,250
   
1,538
   
8,980
   
5,324
   
2,132
   
1,041
   
6
 
                                             
Basic and Diluted Earnings Per Share
 
$
0.12
 
$
0.06
 
$
0.33
 
$
0.19
 
$
0.08
 
$
0.04
 
$
-
 
                                             
Weighted-Average Shares Outstanding
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
 
 
Consolidated Balance Sheets
 
March 31,
 
December 31,
 
   
2008
 
2007
 
2006
 
2005
 
2004
 
2003
 
 
 
(unaudited)
     
 
 
 
 
(unaudited)
 
(unaudited)
 
 
 
(in thousands)
 
Total Current Assets
 
$
29,544
 
$
27,357
 
$
17,046
 
$
12,287
 
$
6,973
 
$
5,599
 
Total Assets
   
97,135
   
90,767
   
44,030
   
35,716
   
16,986
   
10,783
 
Total Current Liabilities
   
62,079
   
59,528
   
28,715
   
19,415
   
6,560
   
7,679
 
Total Liabilities
   
72,260
   
70,537
   
34,808
   
29,469
   
15,064
   
10,414
 
Total Stockholders' Equity
   
24,123
   
19,591
   
8,929
   
6,246
   
1,922
   
368
 

5


RISK FACTORS
 
Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our common stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. Our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. If and when our common stock is traded, the trading price could decline due to any of these risks, and an investor may lose all or part of his investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting our company. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere in this prospectus.
 
RISKS RELATED TO OUR OPERATIONS

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

The vast majority of our sales are generated from a small number of customers. For three months ended March 31, 2008, we had seven customers that each accounted for at least 5% of the revenues that we generated, with one customer accounting for 13% of our revenue. These seven customers accounted for a total of approximately 68% of our revenue for that period. During the year ended December 31, 2007 and 2006, we had five and four customers that generated revenues of at least 5% of our revenues, with one customer accounting for 13% and 17% of our revenue, respectively. These customers accounted for a total of approximately 38% and 49% of our revenue for the years ended December 31, 2007 and 2006, respectively. We expect that we will continue to depend upon a small number of customers for a significant majority of our sales for the foreseeable future.

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

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

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

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

Our accounts receivable represented approximately 33%, 18% and 1% of our total current assets as of March 31, 2008 and December 31, 2007 and 2006, respectively. As of March 31, 2008, 77% of our accounts receivable represented amounts owed by four customers, each of which represented over 5% of the total amount of our accounts receivable. As a result of the substantial amount and concentration of our accounts receivable, if any of our major customers fails to timely pay us amounts owed, we could suffer a significant decline in cash flow and liquidity which could adversely affect our ability to borrow funds to pay our liabilities and to purchase inventory to sustain or expand our current sales volume.

In addition, our business is characterized by long periods for collection from our customers and short periods for payment to our suppliers, the combination of which may cause us to have liquidity problems. We experience an average accounts settlement period ranging from one month to as high as four months from the time we sell our products to the time we receive payment from our customers. In contrast, we typically need to place certain deposits and advances with our suppliers on a portion of the purchase price in advance and for some suppliers we must maintain a deposit for future orders. Because our payment cycle is considerably shorter than our receivable cycle, we may experience working capital shortages. Working capital management, including prompt and diligent billing and collection, is an important factor in our results of operations and liquidity. We cannot assure you that system problems, industry trends or other issues will not extend our collection period, adversely impact our working capital.
 
6

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

We had negative working capital of approximately $33 million, $16 million, $34 million and $12 million as at March 31, 2008 and 2007 and as of December 31, 2007 and 2006, respectively. The increase of negative working capital was largely caused by the substantial increases increase in financing from bank loans and notes. Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Notes and Credit Facility. Our high degree of leverage could have important consequences for you, including:

 
·
increasing our vulnerability to adverse economic, industry or competitive developments;
 
·
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
 
·
exposing us to the risk of increased interest rates;
 
·
making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any of our debt instruments that we may have or obtain, including restrictive covenants and borrowing conditions, could result in an event of default the agreements governing such other indebtedness;
 
·
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
 
·
limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and
 
·
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.

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

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

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

We do not carry any business interruption insurance, products liability insurance or any other insurance policy except for a limited property insurance policy. As a result, we may incur uninsured losses, increasing the possibility that you would lose your entire investment in our company.
 
We could be exposed to liabilities or other claims for which we would have no insurance protection. We do not currently maintain any business interruption insurance, products liability insurance, or any other comprehensive insurance policy except for property insurance policies with limited coverage. As a result, we may incur uninsured liabilities and losses as a result of the conduct of our business. There can be no guarantee that we will be able to obtain additional insurance coverage in the future, and even if we are able to obtain additional coverage, we may not carry sufficient insurance coverage to satisfy potential claims. Should uninsured losses occur, any purchasers of our common stock could lose their entire investment.
 
7

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

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

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

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

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

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


 
·
foreign countries could change regulations or impose currency restrictions and other restraints;
 
 
·
changes in foreign currency exchange rates and hyperinflation or deflation in the foreign countries in which we operate;
 
 
·
exchange controls;
 
 
·
some countries impose burdensome tariffs and quotas;
 
 
·
political changes and economic crises may lead to changes in the business environment in which we operate;
 
 
·
international conflict, including terrorist acts, could significantly impact our financial condition and results of operations; and
 
 
·
Economic downturns, political instability and war or civil disturbances may disrupt distribution logistics or limit sales in individual markets.
 
In addition, we utilize third-party distributors to act as our representative for the geographic region that they have been assigned. Sales through distributors represent approximately 70% of total revenue. Significant terms and conditions of distributor agreements include FOB source, net 30 days payment terms, with no return or exchange rights, and no price protection. Since the product transfers title to the distributor at the time of shipment by us, the products are not considered inventory on consignment. Our success is dependent on these distributors finding new customers and receiving new orders from existing customers.
 
8


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

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

Our speech-controlled products may not achieve widespread acceptance or may have bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers or claims against us.
 
We have invested and expect to continue to invest heavily in the research, development and marketing of our Chinese-speech technology consumer products. The market for these products are is relatively new and rapidly evolving. Our ability to increase revenue in the future depends largely on acceptance of speech-controlled consumer electronic products in general and our products in particular. The continued development of the market for our current and future speech solutions will also depend on:
     
consumer and business demand for speech-enabled products and applications;
continuous improvement in speech interactive technology; and
development by third-party vendors and manufacturers of applications using speech technologies.
 
Sales of our speech-controlled products would be harmed if the market for such products does not continue to develop or develops more slowly than we expect, and, consequently, our business would be harmed and we may not recover the costs associated with our investment in our speech interactive technologies.

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

We have significant outstanding short-term borrowings, and we may not be able to obtain extensions when they mature.
 
Our notes payable to banks for short-term borrowings as of March 31, 2008 and December 31, 2007 and 2006 were approximately $28.2 million, $28.6 million and $13.0 million, respectively. Generally, these short-term bank loans mature in one year or less and contain no specific renewal terms. However, in China it is customary practice for banks and borrowers to negotiate roll-overs or renewals of short-term borrowings on an on-going basis shortly before they mature. Although we have renewed our short-term borrowings in the past, we cannot assure you that we will be able to renew these loans in the future as they mature. If we are unable to obtain renewals of these loans or sufficient alternative funding on reasonable terms from banks or other parties, we will have to repay these borrowings with the cash on our balance sheet or cash generated by our future operations, if any. We cannot assure you that our business will generate sufficient cash flow from operations to repay these borrowings.

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

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

9

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

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

 
reliability;
 
 
 
 
brand recognition;
 
 
 
 
quality;
 
 
 
 
price;
 
 
 
 
design;
 
 
 
 
consumer acceptance of our trademark; and
 
 
 
 
quality service and support to retailers and our customers.

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

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

As a result, our competitors may be able to:

 
adapt more quickly to new or emerging technologies and changes in customer requirements;
 
 
 
 
devote greater resources to the promotion and sale of their products and services; and
 
 
 
 
respond more effectively to pricing pressures.

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

 
new companies enter the market;
 
 
 
 
existing competitors expand their product mix; or
 
 
 
 
we expand into new markets.

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

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

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

10

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

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

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

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

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

We may not be able to effectively recruit and retain skilled employees, particularly scientific, technical and management professionals.
 
Our ability to compete effectively depends largely on our ability to attract and retain certain key personnel, including scientific, technical and management professionals. We anticipate that we will need to hire additional skilled personnel in all areas of our business. Industry demand for such employees, however, exceeds the number of personnel available, and the competition for attracting and retaining these employees is intense. Because of this intense competition for skilled employees, we may be unable to retain our existing personnel or attract additional qualified employees to keep up with future business needs. If this should happen, our business, operating results and financial condition could be adversely affected.

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

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

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

 
enforce our intellectual property rights;

11

 
 
protect our trade secrets; and
 
 
 
 
determine the scope and validity of such intellectual property rights.

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

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

Our failure to effectively manage growth could harm our business.
 
We have rapidly and significantly expanded the number and types of products we sell, and we will endeavor to further expand our product portfolio. We must continually introduce new products and technologies, enhance existing products in order to remain competitive, and effectively stimulate customer demand for new products and upgraded versions of our existing products.
 
This expansion of our products places a significant strain on our management, operations and engineering resources. Specifically, the areas that are strained most by our growth include the following:
 
  New Product Launch: With the growth of our product portfolio, we experience increased complexity in coordinating product development, manufacturing, and shipping. As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effective marketing to stimulate demand and market acceptance. If we are unable to scale and improve our product launch coordination, we could frustrate our customers and lose retail shelf space and product sales;
 
  Forecasting, Planning and Supply Chain Logistics: With the growth of our product portfolio, we also experience increased complexity in forecasting customer demand and in planning for production, and transportation and logistics management. If we are unable to scale and improve our forecasting, planning and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory; and
 
  Support Processes: To manage the growth of our operations, we will need to continue to improve our transaction processing, operational and financial systems, and procedures and controls to effectively manage the increased complexity. If we are unable to scale and improve these areas, the consequences could include: delays in shipment of product, degradation in levels of customer support, lost sales, decreased cash flows, and increased inventory. These difficulties could harm or limit our ability to expand.
 
Our facilities and information systems could be damaged as a result of disasters or unpredictable events, which could have an adverse effect on our business operations.
 
Our headquarters and major facilities including manufacturing plants, sales offices and research and development centers are located in China. We also operate procurement, logistics, sales and marketing facilities in other parts of the world. If major disasters such as earthquakes, fires, floods, wars, terrorist attacks, computer viruses, transportation disasters or other events occur, or our information system or communications network breaks down or operates improperly as a result of such events, our facilities may be seriously damaged, and we may have to stop or delay production and shipment. We may incur expenses relating to such damages.
 
12


RISKS RELATED TO DOING BUSINESS IN CHINA

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

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

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

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

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

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

 
l
levying fines;

 
l
revoking our business license, other licenses or authorities;

 
l
requiring that we restructure our ownership or operations; and

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

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

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

13

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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We have enjoyed certain preferential tax concessions and the loss of these preferential tax concessions may cause our tax liabilities to increase and our profitability to decline.
 
Under the tax laws of PRC, we have had tax advantages granted by local government for corporate income taxes and sales taxes commencing April 6, 2004. We have been entitled to have a full tax exemption for the first two profitable years, followed by a 50% reduction on normal tax rate of 24% for the following three consecutive years. On March 16, 2007, the National People’s Congress of China enacted a new PRC Enterprise Income Tax Law, under which foreign invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25%. The new law became effective on January 1, 2008. During the transition period for enterprises established before March 16, the tax rate will be gradually increased starting in 2008 and be equal to the new tax rate in 2012. The expiration of the preferential tax treatment will increase our tax liabilities and reduce our profitability.

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

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

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

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

 
Ÿ
a general slowdown in the Chinese economy.

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

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

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

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

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

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RISKS RELATED TO OUR CAPITAL STRUCTURE

Our wholly-owned subsidiary, NIVS BVI, as the 97.5% owner of NIVS PRC, is required to pay to NIVS PRC an amount equal to approximately $8.7 million for NIVS BVI’s unpaid equity interest in NIVS PRC in fiscal year 2008. If this payment is not made, we may be subject to penalties and, if amounts due are not eventually paid, we may not be able to continue to participate in the profits of NIVS PRC.

If NIVS BVI does not timely make payment to NIVS PRC an aggregate amount of $8.7 million for the unpaid equity interests owned by NIVS BVI, we may be subject to penalties from the PRC government. In addition, the PRC government has the discretion to prevent NIVS BVI from participating in the profits of NIVS PRC until such amount is paid, which would have a substantial material adverse effect on our business, financial condition and results of operations. We expect to cause NIVS BVI to pay all amounts due in October 2008, prior to the due dates; however, there can be no assurance that we or NIVS BVI will have sufficient funds to make such payment, which would cause our stock price to decline.

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

Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.
 
Pursuant to the terms of the Share Exchange, we agreed to file a registration statement, of which this prospectus is a part, with the Securities and Exchange Commission to register the 6,544,047 shares of our common stock issued in an equity financing that was conducted in connection with the Share Exchange. Each investor may sell or transfer any shares of the common stock after the effective date of the registration statement except that they entered into a lock-up agreement pursuant to which they agreed not to conduct any sales until 90 days after our common stock is listed or quoted on a national securities exchange, at which time one-twelfth of the shares purchased may be sold, and thereafter the shares will be automatically released from the lock-up restrictions every 30 days in eleven equal installments. In addition, WestPark Capital, Inc., in its discretion, may release some or all the shares earlier than the schedule set forth in this section. Any early release by WestPark Capital, Inc. will apply equally to each of the investors in the Private Placement.

We also are registering with the Private Placement shares all of the 425,000 shares that we issued to an investor relations firm and the 2,340,000 shares of common stock and the 946,667 shares of common stock underlying the warrants held by our stockholders immediately prior to the Share Exchange. Of the shares, 1,095,808 shares are included in the registration statement of which this prospectus is a part and 2,615,859 shares will be included in a subsequent registration statement filed by us on or about February 20, 2009, which is 10 days after the end of the six-month period that immediately follows the date on which we file the registration statement of which this prospectus is a part. All of the shares included in an effective registration statement may be freely sold and transferred, subject to a lock-up agreement.

Additionally, the former stockholders of NIVS BVI and their designees, may be eligible to sell all or some of our shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”) as early as July 2009, subject to certain limitations. Under Rule 144, an affiliate stockholder who has satisfied the required holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. As of the date of this prospectus, 1% of our issued and outstanding shares of common stock was approximately 368,557 shares. Non-affiliate stockholders are not subject to volume limitations. Any substantial sale of common stock pursuant to any resale prospectus or Rule 144 may have an adverse effect on the market price of our common stock by creating an excessive supply.

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

NIVS PRC, our principal operating subsidiary, is an equity joint venture in which we directly own a 97.5% interest and our founder, Chief Executive Office, and Chairman of the Board, Tianfu Li, owns the remaining 2.5% interest. Mr. Li’s interest may not be aligned with our interest at all times. If our interests diverge, Mr. Li may exercise his rights, as dictated under PRC laws, to protect his own interest, which may be adverse to us and our investors. For example, should we wish to transfer our equity interest in NIVS PRC, in whole or in part, to a third-party, Mr. Li will have a right to force us to repurchase his interests under general company regulations. If Mr. Li exercises his rights, our control of NIVS PRC may be compromised and our financial condition and results of operations may suffer.

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

The former shareholders of NIVS BVI and their designees, beneficially own or control approximately 74.7% of our outstanding shares as of the date of this prospectus. If these shareholders were to act as a group, they would have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. Such shareholders may also have the power to prevent or cause a change in control. In addition, without the consent of the former NIVS BVI shareholders and their designees, we could be prevented from entering into transactions that could be beneficial to us. The interests of the former NIVS BVI shareholders and their designees may differ from the interests of our other stockholders.

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

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of this assessment by our independent registered public accountants. The SEC extended the compliance dates for non-accelerated filers, as defined by the SEC. Accordingly, we believe that the annual assessment of our internal controls requirement will first apply to our annual report for the 2008 fiscal year and the attestation requirement of management’s assessment by our independent registered public accountants will first apply to our annual report for the 2009 fiscal year. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

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

We may not be able to achieve the benefits we expect to result from the Share Exchange.
 
On July 25, 2008, the Share Exchange closed and NIVS BVI became our 100%-owned subsidiary, and our sole business operations became that of NIVS BVI. We also appointed a new Board of Directors and management consisting of persons from NIVS BVI and changed our corporate name from SRKP 19, Inc. to NIVS IntelliMedia Technology Group, Inc.

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

 
Ÿ
access to the capital markets of the United States;

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Ÿ
the increased market liquidity expected to result from exchanging stock in a private company for securities of a public company that may eventually be traded;
 
Ÿ
the ability to use registered securities to make acquisition of assets or businesses;
     
 
Ÿ
increased visibility in the financial community;
 
Ÿ
enhanced access to the capital markets;
     
 
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improved transparency of operations; and
 
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perceived credibility and enhanced corporate image of being a publicly traded company.
 
There can be no assurance that any of the anticipated benefits of the Share Exchange will be realized with respect to our new business operations. In addition, the attention and effort devoted to achieving the benefits of the Share Exchange and attending to the obligations of being a public company, such as reporting requirements and securities regulations, could significantly divert management’s attention from other important issues, which could materially and adversely affect our operating results or stock price in the future.

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

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

We entered into an investor relations agreement with Nascent Value LLC (“Nascent”) pursuant to which we issued 425,000 shares of our common stock to Nascent upon the closing of the Share Exchange in exchange for investor relation services. We expect to recognize a charge to operations in an amount of up to approximately $765,000, which is derived from valuing each share at $1.80, the price at which shares of our common stock were sold in the Private Placement. The expense will have a negative effect on our results of operations and we may not realize a benefit from the investor relation services that is comparable to such negative effect. As a result, our operations may suffer and our stock price may decline.

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

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

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

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

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

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

·
Our reliance on our major customers for a large portion of our net sales;
 
·
Our ability to develop and market new products;
 
·
Our ability to raise additional capital to fund our operations;
 
·
Our ability to accurately forecast amounts of supplies needed to meet customer demand;
 
·
Exposure to market risk through sales in international markets;
 
·
The market acceptance of our products;
 
·
Exposure to product liability and defect claims;
 
·
Fluctuations in the availability of raw materials and components needed for our products;
 
·
Protection of our intellectual property rights;
 
·
Changes in the laws of the PRC that affect our operations;
 
·
Inflation and fluctuations in foreign currency exchange rates;
 
·
Our ability to obtain all necessary government certifications, approvals, and/or licenses to conduct our business;
 
·
Development of a public trading market for our securities;
 
·
The cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations; and
 
·
The other factors referenced in this prospectus, including, without limitation, under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”
 
The risks included above are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and operating results. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

22

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

USE OF PROCEEDS
 
We estimate that the net proceeds from the sale of the 500,000 shares of common stock in the offering will be approximately $[_____] after deducting the estimated underwriting discounts and commissions and estimated offering expenses. If the underwriter’s over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $[__] million.

The principal purposes of this offering are to increase our working capital, to create a public market for our common stock, and to facilitate our future access to the public capital markets. The net proceeds will be used for general corporate purposes. We cannot specify with certainty the particular uses for the net proceeds. The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities, the amount of cash generated or used by our operations and competition. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. We have no current intentions to acquire any other businesses. Pending these uses, the proceeds will be invested in short-term, investment grade, interest-bearing securities.

 
We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant. We did not pay cash dividends in the three months ended March 31, 2008 or the three years ended December 31, 2007.

CAPITALIZATION
 
The following table summarizes our capitalization as of March 31, 2008 (unaudited), on an actual basis and as adjusted basis to reflect our receipt of estimated net proceeds from the sale of 500,000 shares of common stock (excluding the 75,000 shares which the underwriter has the option to purchase to cover over-allotments, if any) in this offering at an assumed public offering price of $[_____] per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $[_____].

You should read this table in conjunction with “Use of Proceeds,” “Summary Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
 
 
March 31, 2008
 
 
 
 Actual
 
As adjusted
 
 
 
(unaudited, in thousands)
 
Due to shareholder
   
10,181
       
Minority interest
 
$
751
 
$
751
 
Stockholders' equity:
             
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2008
   
-
   
-
 
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,546,667 issued and outstanding at March 31, 2008 and 28,046,667 shares issued and outstanding on an as-adjusted basis at March 31, 2008(1)
   
28
   
28
 
Accumulated other comprehensive income
   
3,404
   
[_____
]
Statutory surplus reserve fund
   
1,279
       
Retained earnings
   
19,430
   
[_____
]
Total stockholders' equity
 
$
24,123
 
$
[_____
]
Total capitalization
 
$
35,055
 
$
[_____
]
 

(1)
The number of our shares of common stock shown above to be outstanding after this offering is based on 27,546,667 shares outstanding as of March 31, 2008.

23

 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
There has never been a public trading market for our common stock and our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. We intend to apply for the listing of our common stock on the American Stock Exchange. We propose to obtain the trading symbol “[___].” As of August 12, 2008, we had 199 registered stockholders.

DILUTION
 
If you invest in our shares of common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share you will pay in this offering and the net tangible book value per share of common stock immediately after this offering.

Investors participating in this offering will incur immediate, substantial dilution. Our net tangible book value as of March 31, 2008 was $[__] million, or $[_____] per share (unaudited) based on [_____] shares of common stock outstanding. Assuming the sale by us of [_____] shares of common stock offered in this offering at an assumed public offering price of $[_____] per share, and after deducting the estimated underwriting discount and commissions and estimated offering expenses, our as adjusted net tangible book value as of March 31, 2008 would have been $[__] million, or $[_____] per share. This represents an immediate increase in net tangible book value of $[_____] per share to our existing stockholders and an immediate dilution of $[_____] per share to the new investors purchasing shares of common stock in this offering.

The following table illustrates this per share dilution:
 
Public offering price per share
       
$
[_____
]
Net tangible book value per share as of March 31, 2008
 
$
[_____
]
     
Increase per share attributable to new public investors
   
[_____
]
     
 
             
Net tangible book value per share after this offering
         
[_____
]
 
             
Dilution per share to new public investors
         
[_____
]
 
The following table sets forth, on an as adjusted basis as of March 31, 2008, the difference between the number of shares of common stock purchased from us, the total cash consideration paid, and the average price per share paid by our existing stockholders and by new public investors before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $[_____] per share of common stock:

24



 
 
Shares Purchased
 
Total Cash Consideration 
 
 
 
 
 
Number
 
Percent
 
Amount
(in thousands)
 
Percent
 
Average Price Per 
Share
 
Existing stockholders
        % 
$
   
 
%
$
 
New investors
   
 
   
%  
   
 
%  
$
 
Total
          
100
%
        
100
%
     

The total consideration amount for shares of common stock held by our existing stockholders includes total cash paid for our outstanding shares of common stock as of March 31, 2008 and excludes the value of securities that we have issued for services. If the underwriters’ over-allotment option of [_____] shares of common stock is exercised in full, the number of shares held by existing stockholders will be reduced to [__]% of the total number of shares to be outstanding after this offering; and the number of shares held by the new investors will be increased to [_____] shares, or [__]%, of the total number of shares of common stock outstanding after this offering.

The discussion and tables above is based on 27,546,667 shares of common stock issued and outstanding as of March 31, 2008. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

ACCOUNTING FOR THE SHARE EXCHANGE
 
The acquisition of NIVS BVI by us pursuant to the Share Exchange was accounted for as a recapitalization by us. The recapitalization was, at the time of the Share Exchange, the merger of a private operating company (NIVS BVI) into a non-operating public shell corporation (us) with nominal net assets and as such is treated as a capital recapitalization, rather than a business combination. As a result, the assets of the operating company are recorded at historical cost. The transaction is the equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation. The pre-acquisition financial statements of NIVS BVI are treated as the historical financial statements of the consolidated companies. The financial statements presented will reflect the change in capitalization for all periods presented, therefore the capital structure of the consolidated enterprise, being the capital structure of the legal parent, is different from that appearing in the financial statements of NIVS BVI in earlier periods due to this recapitalization.

25


SELECTED CONSOLIDATED FINANCIAL DATA
 
The following selected consolidated statement of operations data contains consolidated statement of operations data for the three months ended March 31, 2008 and 2007 (unaudited) and for each of the years in the five-year period ended December 31, 2007 and the consolidated balance sheet data as of March 31, 2008 and year-end for each of the years in the five-year period ended December 31, 2007. The consolidated statement of operations data and balance sheet data were derived from the audited consolidated financial statements, except for data for the three months ended and as of March 31, 2008 and 2007 and the years ended and as of December 31, 2004 and 2003. Such financial data should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements starting on page F-1 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Consolidated Statements of Operations

   
Three Months Ended March 31,
 
Years Ended December 31,
 
   
2008
 
2007
 
2007
 
2006
 
2005
 
2004
 
2003
 
   
(unaudited)
 
(unaudited)
             
(unaudited)
 
(unaudited)
 
   
(all amounts are in thousands except share and per share amounts)
 
Revenue 
 
$
26,776
 
$
16,368
 
$
77,627
 
$
37,735
 
$
21,966
 
$
12,976
 
$
1,826
 
Other Sales
   
63
   
107
   
516
   
53
   
-
   
-
   
-
 
Cost of Goods Sold
   
(20,383
)
 
(12,263
)
 
(58,864
)
 
(28,073
)
 
(17,300
)
 
11,206
   
1,653
 
Gross Profit
   
6,456
   
4,212
   
19,279
   
9,716
   
4,666
   
1,770
   
173
 
                                             
Selling Expenses
   
620
   
922
   
3,269
   
1,792
   
837
   
351
   
69
 
                                             
General and administrative
                                           
Amortization
   
17
   
15
   
62
   
59
   
137
   
57
   
5
 
Depreciation
   
95
   
70
   
328
   
300
   
198
   
58
   
8
 
Bad debts
   
452
   
154
   
473
   
133
   
81
   
-
   
-
 
Other G&A expense
   
761
   
531
   
2,548
   
1,126
   
832
   
263
   
93
 
Total General and administrative
   
1,326
   
770
   
3,411
   
1,618
   
1,248
   
378
   
106
 
Research and development
   
155
   
63
   
373
   
417
   
230
   
60
   
-
 
Gain on disposal of assets
   
-
   
-
   
-
   
(1,226
)
 
-
   
-
   
-
 
Total operating expenses
   
2,101
   
1,755
   
7,054
   
2,601
   
2,315
   
789
   
175
 
Income from operations
   
4,355
   
2,457
   
12,225
   
5,889
   
2,351
   
981
   
(2
)
                                             
Other income (expenses)
                                           
Government grant
   
-
   
-
   
28
   
-
   
160
   
84
   
24
 
Write-down of inventory
   
-
   
(387
)
 
(105
)
 
-
   
(5
)
 
-
   
-
 
Interest income
   
-
   
10
   
235
   
19
   
11
   
2
   
1
 
Interest expense
   
(532
)
 
(286
)
 
(1,791
)
 
(863
)
 
(319
)
 
(7
)
 
(15
)
Sundry income (expense), net
   
16
   
-
   
(111
)
 
(56
)
 
(7
)
 
(18
)
 
(1
)
Total other income (expenses)
   
(516
)
 
(663
)
 
(1,745
)
 
326
   
(160
)
 
61
   
9
 
                                             
Income before MI and income taxes
   
3,840
   
1,794
   
10,479
   
6,215
   
2,191
   
1,042
   
7
 
Income taxes
   
(506
)
 
(217
)
 
(1,269
)
 
(753
)
 
-
   
1
   
1
 
Minority interest
   
(84
)
 
(40
)
 
(231
)
 
(138
)
 
(59
)
 
(28
)
 
(0.18
)
                                             
Net Income
   
3,250
   
1,538
   
8,980
   
5,324
   
2,132
   
1,041
   
6
 
                                             
Basic and Diluted Earnings Per Share
 
$
0.12
 
$
0.06
 
$
0.33
 
$
0.19
 
$
0.08
 
$
0.04
 
$
-
 
                                             
Weighted-Average Shares Outstanding
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
   
27,546,667
 

Consolidated Balance Sheets
 
March 31,
 
December 31,
 
   
2008
 
2007
 
2006
 
2005
 
2004
 
2003
 
 
 
(unaudited)
     
 
 
 
 
 (unaudited)
 
(unaudited)
 
 
 
(in thousands)
 
Total Current Assets
 
$
29,544
 
$
27,357
 
$
17,046
 
$
12,287
 
$
6,973
 
$
5,599
 
Total Assets
   
97,135
   
90,767
   
44,030
   
35,716
   
16,986
   
10,783
 
Total Current Liabilities
   
62,079
   
59,528
   
28,715
   
19,415
   
6,560
   
7,679
 
Total Liabilities
   
72,260
   
70,537
   
34,808
   
29,469
   
15,064
   
10,414
 
Total Stockholders' Equity
   
24,123
   
19,591
   
8,929
   
6,246
   
1,922
   
368
 

26


MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS

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

This prospectus contains forward-looking statements. The words “anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond our control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements and there can be no assurance of the actual results or developments.

OVERVIEW

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

We sell our products to wholesalers and distributors of electronic products. For export sales and OEM production, we produce based on customer demand and orders. For products with our own brand names, customers generally do not provide us with any long-term commitments. As a result it is necessary for us to estimate, based in part on non-binding estimates by our customers and potential customers, the requirements for our products. In addition, in some instances, we develop products based on anticipated customer demand with no assurance that we will receive the anticipated orders. To the extent that we do not receive the anticipated orders or that our customers require products in greater quantities than anticipated, our revenue and margins will be affected.
 
A small number of customers account for a very significant percentage of our revenue. For the three months ended March 31, 2008, we had seven customers that each accounted for at least 5% of the revenues that we generated, with one customer accounting for 13% of our revenue. These seven customers accounted for a total of approximately 68% of our revenue for that period. During the year ended December 31, 2007, we had five customer that generated revenues of at least 5% of our revenues, with one customer accounting for 13% of our revenue. These five customers accounted for a total of approximately 38% of our revenue for the year ended December 31, 2007. For the year ended December 31, 2006, we had four customers that accounted for at least 5% of revenue, and these three customers accounted for approximately 49% of our revenue. For the year ended December 31, 2005, we had four customers that accounted for at least 5% of revenue, and these three customers accounted for approximately 41% of our revenue. Unless we replace a customer, the loss of any of these customers could have a material adverse effect upon our revenue and net income. We have long term supply contracts with stable supply source. This practice reduces our risk on shortage of raw material supply. But the purchase price fluctuation will still affect our production cost and gross margin.

Recent Events

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

27


In addition, on July 25, 2008, concurrently with the close of the Share Exchange, we conducted an initial closing of a private placement transaction pursuant to which we sold an aggregate of 5,239,460 shares of common stock at $1.80 per share, for gross proceeds of approximately $9.4 million. On August 12, 2008, we conducted a second and final closing of the private placement pursuant to which we sold an additional 1,304,587 shares of common stock at $1.80 per share for gross proceeds of approximately $2.3 million, of which $1.3 million was represented by subscription receivables. Accordingly, we sold a total of 6,544,047 shares of common stock in the private placement for aggregate gross proceeds of approximately $11.8 million (the “Private Placement”). WestPark Capital, Inc., the placement agent for the Private Placement, was paid a commission equal to 6.5% of the gross proceeds from the financing, in addition to a $130,000 success fee for the Share Exchange, for an aggregate fee of approximately $896,000.

We entered into a consulting agreement with Nascent Value LLC (“Nascent”) pursuant to which Nascent will provide us with business consulting and investor relation services. As consideration for entering into the agreement and compensation for Nascent Value’s services under the agreement, we issued 425,000 shares of our common stock upon the closing of the Share Exchange. In connection with the issuance of the shares of common stock, we expect to recognize a charge to operations in an amount equal to approximately $765,000, which is derived from valuing each share at $1.80, the price at which shares of our common stock were sold in the Private Placement. We also agreed to pay Nascent $6,000 per month for their services.

Critical Accounting Policies and Estimates

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

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

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

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

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

Taxation. Under the tax laws of PRC, we have had tax advantages granted by local government for corporate income taxes and sales taxes commencing April 6, 2004. We have been entitled to have a full tax exemption for the first two profitable years, followed by a 50% reduction on normal tax rate of 24% for the following three consecutive years. On March 16, 2007, the National People’s Congress of China enacted a new PRC Enterprise Income Tax Law, under which foreign invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25%. The new law became effective on January 1, 2008. During the transition period for enterprises established before March 16, the tax rate will be gradually increased starting in 2008 and be equal to the new tax rate in 2012. We believe that our profitability will be negatively affected in the near future as a result of the new EIT Law.

28


Recently Issued Accounting Pronouncements

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

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

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

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

Recently Adopted Accounting Pronouncements

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

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

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

29


Results of Operations

The following table sets forth information from our statements of operations for the years ended December 31, 2007, 2006 and 2005, and three months ended March 31, 2008 and 2007 in dollars and as a percentage of revenue:

   
Three Months Ended 
     
Years Ended 
     
   
March 31, 
     
December 31, 
     
   
2008
     
2007
     
2007
     
2006
     
2005
     
   
(Unaudited)
     
(Unaudited)
                             
   
(all amounts are in thousands except share and per share amounts)
 
                                           
Revenue
 
$
26,776
   
99.8
%
$
16,368
   
99.3
%
$
77,627
   
99.3
%
$
37,735
   
99.9
%
$
21,966
   
100.0
%
Other Sales
   
63
   
0.2
%
 
107
   
0.7
%
 
516
   
0.7
%
 
53
   
0.1
%
 
-
       
Cost of Goods Sold
   
(20,383
)
 
-75.9
%
 
(12,263
)
 
-74.4
%
 
(58,864
)
 
-75.3
%
 
(28,073
)
 
-74.3
%
 
(17,300
)
 
-78.8
%
Gross Profit
   
6,456
   
24.1
%
 
4,212
   
25.6
%
 
19,279
   
24.7
%
 
9,716
   
25.7
%
 
4,666
   
21.2
%
                                                               
Selling Expenses
   
620
   
2.3
%
 
922
   
5.6
%
 
3,269
   
4.2
%
 
1,792
   
4.7
%
 
837
   
3.8
%
                                                               
General and administrative
                                                             
Amortization
   
17
   
0.1
%
 
15
   
0.1
%
 
62
   
0.1
%
 
59
   
0.2
%
 
137
   
0.6
%
Depreciation
   
95
   
0.4
%
 
70
   
0.4
%
 
328
   
0.4
%
 
300
   
0.8
%
 
198
   
0.9
%
Bad debts
   
452
   
1.7
%
 
154
   
0.9
%