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

Forward-Looking Statements

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

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "anticipated," "believe," "expect, "plan," "intend," "seek," "estimate," "project," "could," "may," and similar expressions are intended to identify forward-looking statements. Such statements reflect our management's current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, Our reliance on our major customers for a large portion of our net sales; our ability to develop and market new products; our ability to continue to borrow and raise additional capital to fund our operations; our ability to collect aging trade receivables and the effect of a growing doubtful account allowance; our ability to accurately forecast amounts of supplies needed to meet customer demand; exposure to market risk through sales in international markets; the market acceptance of our products; exposure to product liability and defect claims; and fluctuations in the availability of raw materials and components needed for our products; and various other matters, many of which are beyond our control. Actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated should one or more of these risks or uncertainties occur or if any of the risks or uncertainties described elsewhere in this report occur. Consequently, all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments.

Overview

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

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

A small number of customers account for a very significant percentage of our revenue. For the nine months ended September 30, 2008, we had three customers that each accounted for at least 5% of the revenues that we generated. These three customers accounted for a total of approximately 28.3 % of our revenue for that period. During the nine months ended September 30, 2008, we had one customer that accounted for more than 10% of our sales. The customer accounted for 13.1 % of our sales. The loss of any of these customers could have a material adverse effect upon our revenue and net income.

We have longstanding business relationships with certain suppliers with stable supply sources, and we believe this practice helps us reduce our risk on shortage of raw material supply. We also enter into one-year agreements with some of our suppliers that provide our forecast of the quantity that we believe that we will need for the upcoming year. These agreements typically result in obtaining a discount on our purchases from our suppliers during the year as we submit purchase orders further to the agreements. Notwithstanding our practices to reduce the cost of our materials, price fluctuations of materials will still affect our production cost and gross margin.

Various factors may impact our company's performance in different ways. Our ability to compete effectively in light of the short life cycle of many of our products is related to the amount of resources we invest in research and development and how quickly we are able to produce new product models to replace products with older functionality. By upgrading our products, adding functionality, and improving technological specifications, we can increase the value of such products and the resulting product price, which can help compensate for losses associated with the short life cycle of many of our products and can help increase our revenue. For example, the average selling price for certain of our existing speaker and CRT TV has been declining. By adding functionality and developing new design to our speaker to form new intelligent audio and video equipment and shift CRT TV to LCDTV production, we believe we increased the value of such products and the resulting product price.

In addition, we have shifted our focus from one product to another product that we believe would increase our profitability. For example, in the first nine months of 2009, our sales revenue for LCDTV increased approximately 38.8%, respectively, compared to our sales revenue for the first nine months of 2008.

During the first nine months of 2009, our sales revenue for new intelligent audio and video equipment was approximately $54.5 million, which represented an increase of approximately 52.4% compared to revenue of $34.8 million from the sale of intelligent audio and video equipment for the first nine months of 2008. The increase in revenue for new intelligent audio and video equipment resulted from an increase in sales volume. In the first six months of 2009, our sales volume for home theater increased approximately 66.1% as compared to the first six months of 2008. We believe the increase in sales revenue and volume are a result of our investment of resources into the research and development of new products and design, our focus on the promotion of our brand, and expansion of our sales channels.

In the past, we have relied more heavily on sales to original equipment manufacturers (OEMs) for a significant portion of our revenues; however, we have increased our focus on and investment of resources in sales of our own brand, which we believe will permit us to decrease our reliance on OEM sales. OEM sales accounted for approximately 56.1% of our revenues for the nine months ended September 30, 2009, as compared to 64.8% for the nine months ended September 30, 2008, and sales of products with our own brand accounted for approximately 43.9 % of our revenues for the same period, as compared to 35.2 % for the same period in 2008.

Results of Operations

The following table sets forth information from our statements of operations for
the three months ended September 30, 2009 and 2008 (unaudited) in dollars and as
a percentage of revenue:

                                                          For Three Months Ended                                                 For Nine months Ended
                                                               September 30,                                                         September 30,
                                                  2009                               2008                              2009                                2008
                                        (in         (as percent of         (in         (as percent of         (in         (as percent of         (in         (as percent of
                                     dollars)          revenue)         dollars)          revenue)         dollars)          revenue)         dollars)          revenue)
                                                                 (all amounts are in thousands except percentages, share and per share amounts)

Revenue                              $  52,385                 99.9 %      49,411                 99.7 %     122,501                 99.8 %     101,048                 99.7 %
Other Sales                                 71                  0.1 %         165                  0.3 %         223                  0.2 %         321                  0.3 %
Cost of Goods Sold                     (40,334 )              -76.9 %     (38,262 )              -77.2 %     (94,604 )              -77.1 %     (77,853 )              -76.8 %
Gross Profit                            12,121                 23.1 %      11,314                 22.8 %      28,120                 22.9 %      23,517                 23.2 %

Selling Expenses                         2,884                  5.5 %       1,287                  2.6 %       5,534                  4.5 %       2,650                  2.6 %

General and administrative
Amortization                                24                  0.0 %          18                  0.0 %          60                  0.0 %          51                  0.1 %
Depreciation                                84                  0.2 %          88                  0.2 %         248                  0.2 %         249                  0.2 %
Bad debts                                    -                  0.0 %         424                  0.9 %           -                  0.0 %         808                  0.8 %
Merger cost                                  -                  0.0 %       1,784                  3.6 %           -                  0.0 %       1,784                  1.8 %
Stock-based compensation                     -                  0.0 %         765                  1.5 %           -                  0.0 %         765                  0.8 %
Others General and administrative          968                  1.8 %         858                  1.7 %       2,933                  2.4 %       1,891                  1.9 %
Total General and administrative         1,076                  2.1 %       3,936                  7.9 %       3,241                  2.6 %       5,549                  5.5 %
Research and development                 1,122                  2.1 %         261                  0.5 %       2,457                  2.0 %         668                  0.7 %
Total operating expenses                 5,083                  9.7 %       5,484                 11.1 %      11,233                  9.2 %       8,867                  8.7 %
Income from operations                   7,039                 13.4 %       5,830                 11.8 %      16,887                 13.8 %      14,649                 14.5 %

Other income (expenses)
Government grant                           335                  0.6 %          22                  0.0 %         402                  0.3 %          22                  0.0 %
Interest income                              -                                251                  0.5 %           -                  0.0 %         394                  0.4 %
Interest expense                          (404 )               -0.8 %        (518 )               -1.0 %      (1,290 )               -1.1 %      (1,563 )               -1.5 %
Imputed interest                             -                               (148 )               -0.3 %           -                  0.0 %        (447 )               -0.4 %
Sundry income (expense), net                 -                                (32 )               -0.1 %          10                  0.0 %         (22 )                0.0 %
Total other income (expenses)              (69 )                0.1 %        (425 )               -0.9 %        (878 )               -0.7 %      (1,617 )               -1.6 %

Income before minority interest
and income taxes                         6,970                 13.3 %       5,405                 10.9 %      16,009                 13.0 %      13,033                 12.9 %
Income taxes                            (1,166 )               -2.2 %        (646 )               -1.3 %      (2,442 )               -2.0 %      (1,621 )               -1.6 %
Minority interest

Net Income                           $   5,804                 11.1 %   $   4,759                  9.6 %   $  13,567                 11.1 %   $  11,412                 11.3 %

Three months ended September 30, 2009 and 2008

Revenues, which consist of sales of our products, were $52.4 million for the three months ended September 30, 2009, an increase of $3.0 million, or 6.0%, compared to $49.4 million for the same period in 2008. The increase in revenue was attributed mainly to the increased demand for our products, which we believe is a result of our market expansion efforts. The increase of revenue was also due to the new sales of digital equipment and LCD products. For the three months ended September 30, 2009, our sales revenue for standard audio equipment increased to $18.7 million, a decrease of 35.4% compared to $28.9 million for the same period in 2008. Sales revenue for televisions decreased to $5.8 million, a decrease of 15.8% compared to $6.8 million for the same period in 2008. Sales revenue for our intelligent audio and video equipment increased to $25.3 million, an increase of 200.0% compared to $8.4 million for the same period in 2008. For the three months ended September 30, 2009, our sales volume for standard audio equipment decreased by 29.4% to 1.0 million pieces as compared to 1.5 million pieces for the same period in 2008. The decrease was due to product upgrades to the intelligent products from standard products. For the three months ended September 30, 2009, our sales volume for televisions decreased by 34.3% to 42,000 pieces as compared to 64,000 pieces for the same period in 2008. Our sales volume for intelligent audio and video equipment increased by 184.4% to 0.9 million pieces as compared to 320,000 pieces for the same period in 2008. We believe the increase in intelligent equipment sales revenue and volume are a result of our investment of resources into the research and development of new products and design to meet the requirements of the market, our focus on the promotion of our brand, and expansion of our sales channels.

Costs of sales, which include raw material, labor and manufacturing overhead, were $40.3 million for the three months ended September 30, 2009, an increase of $2.0 million, or 5.4 %, compared to $38.3 million for the same period in 2008. The increase was primarily a result of the increase in sales and was relatively consistent with the increase in our net revenue. As a percentage of net revenue, cost of sales for the three months ended September 30, 2009 and 2008 was 76.9 % and 77.2%, respectively.

Gross profit for the three months ended September 30, 2009 was $12.1 million, or 23.1 % of revenues, compared to $11.3 million, or 22.8% of revenues, for the comparable period in 2008. Gross profit margins are a factor of cost of sales, product mix and product demand. In the third quarter of 2009, the price of intelligent audio and video equipment which are large percentage of our sales increased and some of the costs involved in production decreased. These factors caused the increase in gross margin.

Selling expenses, which mainly include marketing, shipping, insurance, wage and other expenses, were $2.9 million for the three months ended September 30, 2009, an increase of $1.6 million, or 124.2 %, compared to $1.3 million for the same period in 2008. The increase was primarily due to an increase in television advertising (on CCTV) and marketing activities.

Research and development expenses were approximately $1.1 million for the three months ended September 30, 2009, an increase of approximately $0.8 million, or 329.7 %, compared to $0.3 million for the same period in 2008. We believe that our focus on research and development contributed to the increase in our total sales. In the future, we expect to continue to increase our research and development efforts and to enable us to manufacture wider lines of products.

General and administrative expenses, which include wage, benefit, bad debts, utility, consulting, professional fee, various taxes and levies and other expenses, were $1.1 million for the three months ended September 30, 2009, a decrease of $2.9 million, or 265.8 %, compared to $4.0 million for the same period in 2008. The decrease was primarily a result of a decrease in the expense related to merger and financing in 2008. We expect our general and administrative expenses to increase as a result of professional fees incurred as a result of being a publicly reporting company in the United States.

Interest expenses were $0.4 million and $0.5 million for the three months ended September 30, 2009 and 2008, respectively. The decrease was due to the decrease in the interest rate during the three months ended September 30, 2009.

Income tax provisions for the three months ended September 30, 2009 were approximately $1.2 million, as compared to approximately $0.6 million for the three months ended September 30, 2008. The increase was primarily due to an increase in the taxable income for the three months ended September 30, 2009. NIVS PRC is registered in PRC and has had tax advantages granted by local government for corporate income taxes and sales taxes commencing April 6, 2004. NIVS PRC has been entitled to have a full tax exemption for the first two profitable years, followed by a 50% reduction on a normal tax rate of 24% for the following three consecutive years. Our effective income tax rates for the three months ended September 30, 2009 and September 30, 2008 were 15% and 12.5%, respectively. On March 16, 2007, the National People's Congress of China enacted a new PRC Enterprise Income Tax Law, under which foreign invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25%. The new law became effective on January 1, 2008. During the transition period for enterprises established before March 16, the tax rate will be gradually increased starting in 2008 and be equal to the new tax rate in 2012. We believe that our profitability will be negatively affected in the near future as a result of the new EIT Law.

Net income was $5.8 million for the three months ended September 30, 2009, an increase of $1.0 million, or 21.9 %, compared to $4.8 million for the same period in 2008.

Nine months ended September 30, 2009 and 2008

Revenues were $122.5 million for the nine months ended September 30, 2009, an increase of $21.5 million, or 21.2%, compared to $101.0 million for the same period in 2008. The increase in revenue was attributed mainly to the increased demand for our products, which we believe is a result of our market expansion efforts. The increase of revenue was also due to the new sales of digital equipment and LCD products. For the nine months ended September 30, 2009, our sales revenue for standard audio equipment decreased to $56.4 million, a decrease of 4.3% compared to $58.9 million for the same period in 2008. Sales revenue for televisions increased to $17.6 million, an increase of 34.3% compared to $13.1 million for the same period in 2008. Sales revenue for our intelligent audio and video equipment increased to $41.3 million, an increase of 101.8% compared to $20.5 million for the same period in 2008. For the nine months ended September 30, 2009, our sales volume for standard audio equipment decreased by 3.6% to 3.0 million pieces as compared to 3.1 million pieces for the same period in 2008. The decrease was due to product upgrades to the intelligent products from standard products. For the nine months ended September 30, 2009, our sales volume for televisions increased by 25.3% to 124,000 pieces as compared to 99,000 pieces for the same period in 2008. Our sales volume for intelligent audio and video equipment increased by 107.2% to 1.5 million pieces as compared to 0.7 million pieces for the same period in 2008. We believe the increase in sales revenue and volume of intelligent equipment are a result of our investment of resources into the research and development of new products and design to meet the requirements of the market, our focus on the promotion of our brand, and expansion of our sales channels.

Costs of sales were $94.6 million for the nine months ended September 30, 2009, an increase of $16.8. million, or 21.5 %, compared to $77.8 million for the same period in 2008. The increase was primarily a result of the increase in sales and was relatively consistent with the increase in our net revenue. As a percentage of net revenue, cost of sales for the nine months ended September 30, 2009 and 2008 was 77.1 % and 76.8%, respectively.

Gross profit for the nine months ended September 30, 2009 was $28.1 million, or 22.9 % of revenues, compared to $23.5 million, or 23.2% of revenues, for the comparable period in 2008. Gross profit margins are a factor of cost of sales, product mix and product demand. In the nine months of 2009, the price of standard audio equipments which are large percentage of our sales decreased and some of the costs involved in production increased; however, its effect is partially offset by increase in the new intelligent products. These factors caused the small decrease in gross margin

Selling expenses, which mainly include marketing, shipping, insurance, wage and other expenses, were $5.5 million for the nine months ended September 30, 2009, an increase of $2.8 million, or 108.8 %, compared to $2.7 million for the same period in 2008. The increase was primarily due to an increase in television advertising (on CCTV), internet advertising, and marketing activities.

Research and development expenses were approximately $2.5 million for the nine months ended September 30, 2009, an increase of approximately $1.8 million, or 267.7 %, compared to $0.7 million for the same period in 2008. We believe that our focus on research and development contributed to the increase in our total sales. In the future, we expect to continue to increase our research and development efforts and to enable us to manufacture wider lines of products.

General and administrative expenses were $3.2 million for the nine months ended September 30, 2009, a decrease of $2.3 million, or 41.6 %, compared to $5.5 million for the same period in 2008. The decrease was primarily a result of no bad debt expense in the first quarter of 2009. We expect our general and administrative expenses to increase as a result of professional fees incurred as a result of being a publicly reporting company in the United States.

Interest expenses were $1.3 million and $1.6 million for the nine months ended September 30, 2009 and 2008, respectively. The decrease was due to the decrease in the interest rate during the nine months ended September 30, 2009.

Income tax provisions for the nine months ended September 30, 2009 were approximately $2.4 million, as compared to approximately $1.6 million for the nine months ended September 30, 2008. The decrease was primarily due to a decrease in the taxable income for the nine months ended September 30, 2009. NIVS PRC is registered in PRC and has had tax advantages granted by local government for corporate income taxes and sales taxes commencing April 6, 2004. NIVS PRC has been entitled to have a full tax exemption for the first two profitable years, followed by a 50% reduction on a normal tax rate of 24% for the following three consecutive years. Our effective income tax rates for the nine months ended September 30, 2009 and September 30, 2008 were 15 % and 12.5%, respectively. On March 16, 2007, the National People's Congress of China enacted a new PRC Enterprise Income Tax Law, under which foreign invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25%. The new law became effective on January 1, 2008. During the transition period for enterprises established before March 16, the tax rate will be gradually increased starting in 2008 and be equal to the new tax rate in 2012. We believe that our profitability will be negatively affected in the near future as a result of the new EIT Law.

Net income was $13.6 million for the nine months ended September 30, 2009, an increase of $2.2 million, or 18.9 %, compared to $11.4 million for the same period in 2008.

Liquidity and Capital Resources

We had an unrestricted cash balance of approximately $2.3 million as of September 30, 2009, as compared to $0.5 million as of December 31, 2008. In addition, we also had approximately $5.6 million in restricted cash as of September 30, 2009, as compared to $11.7 million as of December 31, 2008. Our restricted cash is held as a security deposit for our recurring, short-term bank notes. Our funds are kept in financial institutions located in China, and banks and other financial institutions in the PRC do not provide insurance for funds held on deposit, and in the event of a bank failure, we may not have access to our funds on deposit. In addition, we are subject to the regulations of the PRC, which restrict the transfer of cash from China, except under certain specific circumstances. Accordingly, such funds may not be readily available to us to satisfy obligations that have been incurred outside the PRC.

We had negative working capital of approximately $2.0 million, and $18.6 million as at September 30, 2009 and as of December 31, 2008, respectively. The decrease of negative working capital was largely caused by public offering fund raising and management attention to the aging of accounts payable.

Our accounts receivable has been an increasingly significant portion of our current assets, representing $29.5 million, $20.4 million, or 49.1%, 45.3%, and of current assets, as at September 30, 2009 and as of December 31, 2008, respectively. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for our products, or to make payments in a timely manner, our liquidity and results of operations could be materially adversely affected. An economic or industry downturn could materially adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collections costs and defaults in excess of management's expectations. A significant deterioration in our ability to collect on accounts receivable could affect our cash flow and working capital position and could also impact the cost or availability of financing available to us.

. . .