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EX-31.1 - Sunway Global Inc.v220392_ex31-1.htm
EX-32.2 - Sunway Global Inc.v220392_ex32-2.htm
EX-31.2 - Sunway Global Inc.v220392_ex31-2.htm
EX-32.1 - Sunway Global Inc.v220392_ex32-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549
 
FORM 10-Q/A
Amendment No. 1
 
(Mark One)
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
 
OR
 
¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION FROM _______ TO ________.
 
COMMISSION FILE NUMBER 000-27159
 
SUNWAY GLOBAL INC.
(Exact Name of Registrant as Specified in its Charter)
 
Nevada
 
26-1650042
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

Daqing Hi-Tech Industry Development Zone, Daqing, Heilongjiang, People’s Republic of China, 163316
(Address of principal executive offices) (Zip Code)

Issuer's telephone Number: 86-459-604-6043
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨  No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer ¨
Accelerated filer ¨
   
Non-accelerated filer ¨
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No x
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes  ¨ No ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 13, 2010, there were 18,499,736 outstanding shares of the Registrant's Common Stock, $0.0000001 par value.
 
 
 

 
 
EXPLANATORY NOTE
 
The Amendment No.1 to Sunway Global Inc.’s (the "Company", "Sunway") Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2010  amends certain financial information included in Part I, Item 1, Note 20; and corrects typographical errors and clarifies disclosure details in Note 1, 4, 15, Item 2 and Item 4. No other information included in the original Form 10Q is amended hereby.
 
For convenience and ease of reference, the Company is filing the Quarterly Report in its entirety with applicable changes. Unless otherwise stated, all information contained in this amendment is as of August 13, 2010, the filing date of the original Quarterly Report and does not reflect events or transactions occurring after such filing.
 
TABLE OF CONTENTS

     
Page
 
PART I
   
Item 1.
Financial Statements
 
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
34
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
41
Item 4.
Controls and Procedures
 
41
 
PART II
   
Item 1.
Legal Proceedings
 
42
Item 1A.
Risk Factors
 
42
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
42
Item 3.
Defaults Upon Senior Securities
 
42
Item 4.
(Removed and Reserved)
 
42
Item 5.
Other Information
 
42
Item 6.
Exhibits
 
42
 
 
2

 
 
 
PART I
FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

CONTENTS
 
PAGES
     
CONSOLIDATED BALANCE SHEETS
 
4 – 5
     
CONSOLIDATED STATEMENTS OF INCOME AND
   
COMPREHENSIVE INCOME
 
6 – 7
     
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
8
     
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
9 – 10
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
11 – 33
 
 
3

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2010 AND DECEMBER 31, 2009
(Stated in US Dollars)
   
Notes
 
June 30, 2010
(Unaudited)
(Restated)
   
December 31, 2009
(Audited)
(Restated)
 
ASSETS
               
Current assets
               
Cash and cash equivalents
 
2(k)
 
$
6,620,384
   
$
4,717,240
 
Trade receivables, net
 
5
   
6,303,713
     
3,537,395
 
Inventories
 
8
   
927,705
     
589,871
 
Advances to suppliers
       
476,548
     
940,872
 
Prepayments
       
229,083
     
127,388
 
Tender deposits
       
81,540
     
122,050
 
Travel advances to shareholders
 
6
   
58,447
     
71,372
 
Advances to employees
 
7
   
177,453
     
217,865
 
Total current assets
     
$
14,874,873
   
$
10,324,053
 
Restricted cash
       
183,920
     
283,175
 
Amount due from a related company
 
4
   
830
     
830
 
Property, plant and equipment, net
 
9
   
9,937,989
     
10,508,415
 
Intangibles, net
 
10
   
19,327,037
     
15,109,988
 
Deposit for technology-based designed
       
618,597
     
4,318,643
 
TOTAL ASSETS
     
$
44,943,246
   
$
40,545,104
 
LIABILITIES AND
                   
STOCKHOLDERS’ EQUITY
                   
Current liabilities
                   
Accounts payable
     
$
112,404
   
$
271,139
 
Income tax payable
       
393,013
     
269,082
 
Turnover and other taxes
       
304,090
     
154,871
 
Expected warranty liabilities
 
11
   
32,755
     
32,618
 
Customer deposits
 
12
   
374,501
     
304,093
 
Accrued liabilities
       
642,151
     
657,215
 
Total current liabilities
     
$
1,858,914
   
$
1,689,018
 
Warrants liabilities
 
13
   
41,611,723
     
40,808,327
 
TOTAL LIABILITIES
     
$
43,470,637
   
$
42,497,345
 

See accompanying notes to consolidated financial statements
 
 
4

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS (Continued)
AS AT JUNE 30, 2010 AND DECEMBER 31, 2009
(Stated in US Dollars)
 
   
Notes
   
June 30, 2010
   
December 31, 2009
 
         
(Unaudited)
(Restated)
   
(Audited)
(Restated)
 
STOCKHOLDERS’ EQUITY
                 
                   
Series B Convertible Preferred
                 
Stock $0.0000001 par value; 400,000
                 
shares authorized; 160,494 shares issued
                 
and outstanding at June 30, 2010
                 
and  December 31, 2009
   
14
   
$
1
   
$
1
 
                         
Common stock at $0.0000001 par
                       
value; 100,000,000 shares authorized;
                       
18,499,736 shares issued and
                       
outstanding at June 30, 2010
                       
and December 31, 2009
           
2
     
2
 
Additional paid-in capital
           
13,833,383
     
13,833,383
 
Statutory reserves
           
3,033,855
     
3,033,855
 
Accumulated deficit
           
(18,488,145
)
   
(21,735,219
)
Accumulated other comprehensive income
           
3,093,513
     
2,915,737
 
           
$
1,472,609
   
$
(1,952,241
)
TOTAL LIABILITIES AND
                       
STOCKHOLDERS’ EQUITY
         
$
44,943,246
   
$
40,545,104
 

See accompanying notes to consolidated financial statements
 
 
5

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)
 
   
Notes
 
Six months ended June 30
 
       
2010
   
2009
 
                 
Net revenues
 
18
 
$
10,651,461
   
$
5,668,342
 
Cost of net revenues
 
18
   
(3,525,352
)
   
(1,981,286
)
Gross profit
     
$
7,126,109
   
$
3,687,056
 
                     
Selling expenses
       
(750,724
)
   
(361,302
)
General and administrative expenses
       
(1,596,341
)
   
(1,394,473
)
Income from operations
     
$
4,779,044
   
$
1,931,281
 
Interest expenses
       
-
     
(1,727
)
Interest income
       
9,269
     
42,240
 
Impairment on investment
       
-
     
(4,831,386
)
Changes in fair value of warrants
       
(803,396
)
   
10,934,559
 
Income before income tax
     
$
3,984,917
   
$
8,074,967
 
                     
Income tax expense
 
15
   
(737,843
)
   
(333,673
)
Net income
     
$
3,247,074
   
$
7,741,294
 
                     
Net income per share:
                   
-Basic
     
$
0.18
   
$
0.42
 
-Diluted
     
$
0.12
   
$
0.25
 
                     
Weighted average number of common stock
                   
-Basic
 
16
   
18,499,736
     
18,499,736
 
-Diluted
 
16
   
27,631,984
     
30,969,100
 

See accompanying notes to consolidated financial statements
 
 
6

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)(Unaudited)

       
Three months ended June 30,
 
  
     
2010
   
2009
 
   
Notes
           
                 
Net revenues
     
$
5,451,337
   
$
2,734,631
 
Cost of net revenues
       
(1,767,876
)
   
(1,087,385
)
Gross profit
     
$
3,683,461
   
$
1,647,246
 
                     
Selling expenses
       
(344,460
)
   
(180,950
)
General and administrative expenses
       
(853,688
)
   
(760,473
)
Income from operation
     
$
2,485,313
   
$
705,823
 
Interest expenses
       
-
     
(1,728
)
Interest income
       
4,906
     
18,735
 
Change in fair value of warrants
       
659,878
     
31,415,835
 
                     
Income before income taxes
     
$
3,150,097
   
$
32,138,665
 
                     
Income taxes
       
(388,191
)
   
(125,635
)
Net income
     
$
2,761,906
   
$
32,013,030
 
Net income per share:
                   
-Basic and diluted
     
$
0.15
   
$
1.73
 
-Diluted
     
$
0.10
   
$
1.06
 
Weighted average number of common stock
                   
-Basic
       
18,499,736
     
18,499,736
 
-Diluted
       
27,561,231
     
30,243,833
 

See accompanying notes to consolidated financial statements
 
 
7

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2009 AND SIX MONTHS ENDED JUNE 30, 2010
(Stated in US Dollars)(Unaudited)

                      
Additional
               
Accumulated
       
  
 
Preferred
   
No. of
         
paid
               
other
       
  
 
Series
   
shares
   
Common
   
in
   
Statutory
   
Accumulated
   
comprehensive
       
  
 
B
   
outstanding
   
stock
   
capital
   
reserves
   
deficit
   
income
   
Total
 
                       
(Restated)
         
(Restated)
             
Balance, January 1, 2009 (Restated)
 
$
1
     
18,499,736
   
$
2
   
$
17,824,325
   
$
2,127,978
   
$
17,102,689
   
$
2,844,190
   
$
39,899,185
 
Reclassification of warrants from equity to derivative liabilities
   
  -
     
  -
     
  -
     
(3,990,942
)
   
  -
     
(65,910,931
)
   
  -
     
(69,901,873
)
Net income
   
-
     
-
     
-
     
-
     
-
     
27,978,900
     
-
     
27,978,900
 
Appropriations to statutory
                                                               
reserves
   
-
     
-
     
-
     
-
     
905,877
     
(905,877
)
   
-
     
-
 
Foreign currency translation
                                                               
adjustment
   
-
     
-
     
-
     
-
     
-
     
-
     
71,547
     
71,547
 
Balance, December 31, 2009 (Restated)
 
$
1
     
18,499,736
   
$
2
   
$
13,833,383
   
$
3,033,855
   
$
(21,735,219
)
 
$
2,915,737
   
$
(1,952,241
)
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance, January 1, 2010 (Restated)
 
$
1
     
18,499,736
   
$
2
   
$
13,833,383
   
$
3,033,855
   
$
(21,735,219
)
 
$
2,915,737
   
$
(1,952,241
)
                                                                 
Net income
   
-
     
-
     
-
     
-
     
-
     
3,247,074
     
-
     
3,247,074
 
Foreign currency translation
                                                               
adjustment
   
-
     
-
     
-
     
-
     
-
     
-
     
177,776
     
177,776
 
Balance, June 30, 2010 (Restated)
 
$
1
     
18,499,736
   
$
2
   
$
13,833,383
   
$
3,033,855
   
$
(18,488,145
)
 
$
3,093,513
   
$
1,472,609
 

See accompanying notes to consolidated financial statements
 
 
8

 

 
SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars) (Unaudited)

   
Six months ended June 30
 
   
2010
   
2009
 
Cash flows from operating activities
           
Net income/(loss)
 
$
3,247,074
   
$
7,741,294
 
Depreciation
   
884,100
     
474,148
 
Amortization
   
782,662
     
407,773
 
Loss on disposal of fixed assets
   
-
     
9,552
 
Changes in fair value of warrants
   
803,396
     
(10,934,559
)
Impairment on investment
   
-
     
4,831,386
 
                 
Adjustments to reconcile net income
               
to net cash provided by operating activities:
               
Trade receivables, net
   
(2,740,952
)
   
(114,774
)
Inventories
   
(334,075
)
   
(245,971
)
Advances to suppliers
  
 
466,488
     
(496,537
)
Prepayments
   
(100,774
)
   
(61,658
)
Tender deposits
   
40,866
     
85,880
 
Travel advances to shareholders
   
13,174
     
(28,788
)
Advances to employees
   
41,169
     
136,417
 
Other receivables
   
-
     
240,716
 
Accounts payable
   
(159,264
)
   
36,096
 
Income tax payable
   
122,332
     
(504,951
)
Turnover and other taxes
   
148,001
     
(271,363
)
Customer deposits
   
68,866
     
247,580
 
Accrued liabilities
   
(17,739
)
   
230,102
 
Net cash provided by operating activities
 
$
3,265,324
   
$
1,782,343
 
                 
Cash flows from investing activities
               
Used of restricted cash
 
$
99,255
   
$
57,601
 
Purchase of plant and equipment
   
(271,879
)
   
(253,601
)
Purchase of intangibles assets
   
(1,216,391
)
   
(2,284,177
)
Deposit for technology assets designed
   
-
     
(5,134,586
)
Deposit for property, plant and equipment
   
-
     
(1,906,605
)
Net cash used in investing activities
 
$
(1,389,015
)
 
$
(9,521,635
)
                 
Cash flows from financing activities
 
$
-
   
$
-
 
                 
Net cash provided by financing activities
 
$
-
   
$
-
 
 
 
9

 
 
SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)
 
   
Six months ended June 30
 
   
2010
   
2009
 
             
Net in cash and cash equivalents sourced/(used)
 
$
1,876,309
   
$
(7,739,292
)
Effect of foreign currency translation on
               
cash and cash equivalents
   
26,835
     
134,178
 
Cash and cash equivalents–beginning of period
   
4,717,240
     
15,189,941
 
Cash and cash equivalents–end of period
 
$
6,620,384
   
$
7,584,827
 
 
   
Six months ended June 30
 
   
2010
   
2009
 
             
Supplementary cash flow information:
           
Tax paid
 
$
615,394
   
$
838,625
 
Interest received
   
9,269
     
42,240
 
Interest expenses
   
-
     
1,727
 
 
SUPPLEMENTAL NON-CASH DISCLOSURES:
 
1.
During the six months ended June 30, 2010 and 2009, an amount of $3,700,045 and $1,750,751 were transferred from “deposit for technology-based designed” to “Purchase of intangibles assets”, respectively.

2.
During the six months ended June 30, 2010 and 2009, an amount of nil and $7,725,445 were transferred from “deposit for the acquisition of subsidiary” to “acquisition of subsidiary, net of cash acquisition”.

See accompanying notes to consolidated financial statements
 
 
10

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)
 
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES

Sunway Global Inc. (the “Company”) was incorporated in the state of Nevada on October 18, 1971. Prior to June 6, 2007 the company has only nominal operations and assets.

On June 6, 2007, the Company executed a reverse-merger with Rise Elite International Limited (“Rise Elite (BVI)”) by an exchange of shares whereby the Company issued 210,886 shares of the Company’s Series A Convertible Preferred Stock, par value $0.0000001 per share in exchange for all shares in World Through Limited, a British Virgin Islands corporation (“World Through (BVI)”).

World Through (BVI) holds Sunway World Through Technology (Daqing) Co Ltd (“SWT” or “WFOE”), which entered into a series of agreements with Daqing Sunway Technology Co., Ltd (“Sunway”) including but not limited to management, loan, purchase option, consignment, trademark licensing, non-competition, etc. As a result of entering the abovementioned agreements, WFOE  deems to control Sunway as a Variable Interest Entity as required by FASB Interpretation No. 46 (revised December 2003) Consolidated of Variable Interest Entities, an Interpretation of ARB No. 51 since SWT was the primary beneficiary. On March 16, 2008, SWT acquired Beijing Sunway New-force Medical Treatment Tech Co., Ltd (“Beijing Sunway”) as its wholly-owned subsidiary. Beijing Sunway was incorporated in Beijing, PRC on May 24, 2007.

On February 7, 2008, the Company changed its name from National Realty and Mortgage, Inc. to Sunway Global Inc.
 
On January 16, 2009, World Through (BVI) acquired Qingdao Liheng Textiles Co Ltd (“Liheng”) as its wholly-owned subsidiary. Liheng was incorporated in PRC on June 6, 2003.

The Company, through its subsidiaries and Sunway, (hereinafter, collectively referred to as “the Group”), is now in the business of designing, manufacturing and selling logistic transport systems and medicine dispensing systems and equipment.
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Method of accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.
 
 
11

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b)
Principles of consolidation

The consolidated financial statements, which include the Company and its subsidiaries, are compiled in accordance with generally accepted accounting principles in the United States of America. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.

The Company owned five subsidiaries since its reverse-merger on June 6, 2007. The detailed identities of the consolidating subsidiaries would have been as follows:

 
Name of subsidiaries
 
Place of
incorporation
 
Attributable
interest
 
           
World Through Ltd
 
British Virgin Islands
   
100
%
             
Sunway World Through Technology (Daqing) Co Ltd
 
PRC
   
100
%
             
*Daqing Sunway Technology Co Ltd
 
PRC
   
100
%
             
Beijing Sunway New-force Medical Treatment Tech Co., Ltd
 
PRC
   
100
%
             
Qingdao Liheng Textiles Co Ltd
 
PRC
   
100
%
             
*Note: Deemed variable interest entity
           

(c)
Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(d)
Economic and political risks

The Group’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Group’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
 
 
12

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(e)
Intangibles

Intangibles are stated at cost less accumulated amortisation. Amortisation is provided over the respective useful lives, using the straight-line method.  Estimated useful lives of the intangibles are as follows:

Land use rights
 
over the lease terms
Technology-based design
 
10 years

(f)
Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation.  Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:

Buildings
 
20 years
Machinery and equipment
 
6 years
Mouldings
 
10 years
Computer software
 
3 - 10 years
Office equipment and motor vehicles
 
6 - 10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.

(g)
Maintenance and repairs

The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(h)
Accounting for the impairment of long-lived assets

The Group periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in FASB ASC 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognised based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

For the six months ended June 30, 2010 and 2009, impairment loss was nil and $4,831,386 respectively.
 
 
13

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i)
Inventories

Inventories consist of finished goods and raw materials, and stated at the lower of cost or market value. Substantially all inventory costs are determined using the weighted average basis. Finished goods are comprised of direct materials, direct labour and an appropriate proportion of overhead. The management regularly evaluates the composition of its inventory to identify slow-moving and obsolete inventories to determine if additional write-downs are required.

(j)
Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. Bad debts are written off as incurred.  During the reporting years, there were no bad debts.

Outstanding accounts balances are reviewed individually for collectability. The Company do not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.

(k)
Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in the PRC and Hong Kong. The Company does not maintain any bank accounts in the United States of America.

   
June 30, 2010
   
December 31, 2009
 
             
Bank of Communications, Branch of Daqing
           
City Economic Zone
 
$
6,219,004
   
$
4,402,294
 
China Construction Bank, Beijing Branch
   
293,792
     
147,273
 
Qingdao bank
   
44,781
     
16,111
 
Agricultural Bank of China
   
21,472
     
100,025
 
HSBC
   
34,775
     
35,106
 
Cash on hand
   
6,560
     
16,431
 
   
$
6,620,384
   
$
4,717,240
 
 
(l)
Restricted cash
 
Restricted cash are pledged deposits in an escrow account for investor relations purpose.

(m)
Revenue recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met:
- Persuasive evidence of an arrangement exists;
- Delivery has occurred or services have been rendered;
- The seller’s price to the buyer is fixed or determinable; and
- Collection is reasonably assured.
 
 
14

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m)
Revenue recognition (Continued)

Contract revenues are recognized when the manufacturing and installation of the medical equipments is completed. Generally, the company receives total contract sum from clients in 4 instalments. Deposit of 30% is received from client when the contract is signed. Second payment of 30% is received when the project commenced. Third payment of 30%-35% is received after the construction is completed within 4 months. The final sum of the remaining portion is received after the construction is completed until one year or the sixth month.

(n)
Expected warranty liabilities

The Company warrants its products against defects in design, materials, and workmanship generally for one year. A provision for estimated future costs relating to warranty expense are recorded when products are shipped, and the provision is based upon our own historical claim experience.

(o)
Cost of sales

Cost of sales consists primarily of material costs, employee compensation, depreciation and related expenses, which are directly attributable to the production of products. All inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and the other costs of distribution network are also included. Write-down of inventory to lower of cost or market is also recorded in cost of revenues.

(p)
Leases

The Group did not have lease which met the criteria of capital lease. Leases which do not qualify as capital lease are classified as operating lease. Operating lease rental payment included in general and administrative expenses were $6,123 and $37,719, and cost of sales were $512 and $9,864, selling expenses were $39,099 and $2,362 for the six months ended June 30, 2010 and 2009 respectively.

(q)
Advertising

The Group expensed all advertising costs as incurred. Advertising expenses included in selling expenses were $9,613 and $585 for the six months ended June 30, 2010 and 2009 respectively.

(r)
Shipping and handling

All shipping and handling are expensed as incurred. Shipping and handling expenses included in selling expenses were $44,288 and $15,797 for the six months ended June 30, 2010 and 2009 respectively.

(s)
Research and development

All research and development costs are expensed as incurred. The research and development costs included in general and administrative expenses were $91,823 and $51,141 for the six months ended June 30, 2010 and 2009 respectively.
 
 
15

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(t)
Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred. The retirement benefit expenses included in general and administrative expenses were $105,544 and $58,617 for the six months ended June 30, 2010 and 2009 respectively.
 
(u)
Income taxes

The Group accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future realization is uncertain.

(v)
Foreign currency translation

The accompanying financial statements are presented in United States dollars. The reporting currency of the Group is the U.S. dollar ($). SWT, Sunway, Beijing Sunway and Liheng use its local currency, Renminbi (RMB), as its functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the end of period exchange rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Group because it has not engaged in any significant transactions that are subject to the restrictions.

The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:

   
June 30, 2010
   
December 31, 2009
   
June 30, 2009
 
Twelve months ended
                 
RMB : USD exchange rate
   
-
     
6.8372
     
-
 
Six months ended
                       
RMB : USD exchange rate
   
6.8086
     
-
     
6.8448
 
Average six months ended
                       
RMB : USD exchange rate
   
6.8347
     
-
     
6.8432
 
Average six months ended
RMB : USD exchange rate
   
6.8335
     
-
     
6.8399
 
 
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
 
 
16

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(w)
Statutory reserves

As stipulated by the PRC’s Company Law and as provided in the SWT, Sunway, Beijing Sunway and Liheng’s Articles of Association, SWT, Sunway, Beijing Sunway and Liheng’s net income after taxation can only be distributed as dividends after appropriation has been made for the following:

 
(i)
Making up cumulative prior years’ losses, if any;
 
(ii)
Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital, which is restricted for set off against losses, expansion of production and operation or increase in registered capital;
 
(iii)
Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's “Statutory common welfare fund”, which is restricted for capital expenditure for the collective benefits of the Company's employees; and
 
(iv)
Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.

(x)
Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Group’s current component of other comprehensive income is the foreign currency translation adjustment.

(y)
Recent accounting pronouncements

ASC 105, Generally Accepted Accounting Principles (“ASC 105”) (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162) reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative”. ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company’s references to GAAP authoritative guidance but did not impact the Company’s financial position or results of operations.
 
 
17

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(y)Recent accounting pronouncements (Continued)

ASC 805, Business Combinations (“ASC 805”) (formerly included under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations) contains guidance that was issued by the FASB in December 2007. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with certain exceptions. Additionally, the guidance requires changes to the accounting treatment of acquisition related items, including, among other items, transaction costs, contingent consideration, restructuring costs, indemnification assets and tax benefits. ASC 805 also provides for a substantial number of new disclosure requirements. ASC 805 also contains guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies which was intended to provide additional guidance clarifying application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after the first annual reporting period beginning after December 15, 2008. The Company implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on the Company’s financial position or results of operations; however it will likely have an impact on the Company’s accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future.

In June 2009, FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“Statement No. 167”). Statement No. 167 amends FASB Interpretation No. 46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (“FIN 46R”) to require an analysis to determine whether a company has a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The statement requires an ongoing assessment of whether a company is the primary beneficiary of a variable interest entity when the holders of the entity, as a group, lose power, through voting or similar rights, to direct the actions that most significantly affect the entity’s economic performance. This statement also enhances disclosures about a company’s involvement in variable interest entities. Statement No. 167 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. Although Statement No. 167 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 167 to have a material impact on its financial position or results of operations.
 
 
18

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(y) Recent accounting pronouncements (Continued)

ASC 855, Subsequent Events (“ASC 855”) (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes guidance that was issued by the FASB in May 2009, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence and timing of a company’s evaluation of its subsequent events. ASC 855 defines two types of subsequent events, “recognized” and “non-recognized”. Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore; are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included in ASC 855 as of July 1, 2009. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

In August 2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value (“ASC Update No. 2009-05”). This update amends ASC 820, Fair Value Measurements and Disclosures and provides further guidance on measuring the fair value of a liability. The guidance establishes the types of valuation techniques to be used to value a liability when a quoted market price in an active market for the identical liability is not available, such as the use of an identical or similar liability when traded as an asset. The guidance also further clarifies that a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are both Level 1 fair value measurements. If adjustments are required to be applied to the quoted price, it results in a level 2 or 3 fair value measurement. The guidance provided in the update is effective for the first reporting period (including interim periods) beginning after issuance. The effect of implementing of ASC Update No. 2009-05 was not material to the Company’s financial position or results of operations.

In September 2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (“ASC Update No. 2009-12”). This update sets forth guidance on using the net asset value per share provided by an investee to estimate the fair value of an alternative investment. Specifically, the update permits a reporting entity to measure the fair value of this type of investment on the basis of the net asset value per share of the investment (or its equivalent) if all or substantially all of the underlying investments used in the calculation of the net asset value is consistent with ASC 820. The update also requires additional disclosures by each major category of investment, including, but not limited to, fair value of underlying investments in the major category, significant investment strategies, redemption restrictions, and unfunded commitments related to investments in the major category. The amendments in this update are effective for interim and annual periods ending after December 15, 2009 with early application permitted. The effect of implementing of ASC Update No. 2009-12 was not material to the Company’s financial position or results of operations.
 
 
19

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(y) Recent accounting pronouncements (Continued)

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (“Statement No. 166”). Statement No. 166 revises FASB Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Extinguishment of Liabilities a replacement of FASB Statement 125 (“Statement No. 140”) and requires additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets, and enhances disclosure requirements. Statement No. 166 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. Although Statement No. 166 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 166 will have a material impact on its financial position or results of operations.

In June 2008, Emerging Issues Task Force Issue No. 07-5 (EITF 07-5) (ASC 820) was issued.  The adoption of EITF 07-5 will affect issuers accounting for warrants and many convertible instruments with provisions that protect holders from declines in stock prices (“down-round provisions).  Warrants with such provisions will no longer be recorded in equity. The Company adopted the provision of EITF 07-5 as of January 1, 2009 (see Note 12).

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. The Update would affect all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The Board concluded that users will benefit from improved disclosures in this Update and that the benefits of the increased transparency in financial reporting will outweigh the costs of complying with the new requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 30, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact this update will have on our financial statements.

In January 2010,  the Financial Accounting Standards Board (“FASB”) issued an accounting standard update to address implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification™, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction.

We are currently evaluating the impact this update will have on our financial statements.
 
 
20

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

3.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments which potentially expose the Group to concentrations of credit risk, consists of cash and trade receivables as of June 30, 2010 and December 31, 2009. The Group performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

As of June 30, 2010 and December 31, 2009, the Group’s bank deposits were all placed with banks in the PRC and Hong Kong where there is currently no rule or regulation in place for obligatory insurance of bank accounts.

For the six months ended June 30, 2010 and 2009, the group’s sales were generated from the PRC and Western Europe. Trade receivables as of June 30, 2010 and December 31, 2009 arose in the PRC and overseas.

The maximum amount of loss due to credit risk that the group would incur if the counter parties to the financial instruments failed to perform is represented the carrying amount of each financial asset in the balance sheet.

Normally the Group does not obtain collateral from customers or debtors.

Details of the customers accounting for 10% or more of the Group’s revenue are as follows:

   
For the six months ended June 30
 
   
2010
   
2009
 
             
Customer A
 
$
1,146,344
   
$
-
 
Customer B
 
$
837,910
   
$
659,506
 
Customer D
 
$
488,352
   
$
-
 
Customer E
 
$
1,089,798
   
$
-
 
Customer F
 
$
920,159
   
$
331,776
 
Customer K
 
$
-
   
$
552,099
 
Customer L
 
$
-
   
$
350,539
 

Details of customers accounting for 10% or more of the Group’s trade receivables are as follows:

   
June 30, 2010
   
December 31, 2009
 
             
Customer A
 
$
671,027
   
$
347,195
 
Customer B
 
$
718,215
   
$
373,223
 
Customer C
 
$
543,105
   
$
310,245
 
Customer D
 
$
762,186
   
$
421,177
 
Customer E
 
$
271,252
   
$
214,417
 
Customer F
 
$
394,774
   
$
287,106
 
 
 
21

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

4.
AMOUNT DUE FROM A RELATED COMPANY

As at June 30, 2010, amount due from Rise Elite International Ltd (Rise Elite), a related company where Mr. Liu Bo, the director of the company is a shareholder. The amount is unsecured, interest free and repayable on demand. The amount was held by Rise Elite for the initial setup expenses.

5.
TRADE RECEIVABLES, NET

Trade receivables comprise the following:
   
June 30, 2010
   
December 31, 2009
 
             
Trade receivables, gross
 
$
6,321,771
   
$
3,555,378
 
Provision for doubtful debts
   
(18,058
)
   
(17,983
)
Trade receivables, net
 
$
6,303,713
   
$
3,537,395
 

All of the above trade receivables are due within one year of aging.

An analysis of the allowance for doubtful accounts for the six months ended June 30, 2010 and for the year ended December 31, 2009 is as follows:

   
June 30, 2010
   
December 31, 2009
 
             
Balance at beginning of period/year
 
$
17,983
   
$
8,414
 
Addition of the provision
   
-
     
9,549
 
Foreign exchange adjustment
   
75
     
20
 
Balance at end of period/year
 
$
18,058
   
$
17,983
 

Allowance was made when collection of the full amount is no longer probable.  Management reviews and adjusts this allowance periodically based on historical experience, current economic climate as well as its evaluation of the collectability of outstanding accounts. The Group evaluates the credit risks of its customers utilizing historical data and estimates of future performance.
 
 
22

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

6.
TRAVEL ADVANCES TO SHAREHOLDERS

Travel advances were made to shareholders. These shareholders are also the management of the company and these advances are used to enable their execution of operational duties such as marketing and sales promotion. The following table provides the details of the outstanding accounts. They are unsecured, interest free and repayable on demand.

   
June 30, 2010
   
December 31, 2009
 
             
Bo Liu
 
$
42,740
   
$
28,015
 
Deli Liang
   
15,707
     
43,357
 
   
$
58,447
   
$
71,372
 

The following table provides the rollforward of the activity in the travel advances to shareholders:
   
June 30, 2010
   
December 31, 2009
 
             
Beginning balance, January 1
 
$
71,372
   
$
38,733
 
Add: Advanced during the period/year
   
46,974
     
122,997
 
                 
Less: Transferred to income statement
   
(9,609
)
   
(90,358
)
  Repayment by directors
   
(50,290
)
   
-
 
Ending balance
 
$
58,447
   
$
71,372
 

7.
ADVANCES TO EMPLOYEES

Advances to employees are advances for purchases and travelling. They are unsecured, interest free and repayable on demand. The following table provides the rollforward of the activity in the advances to employees:

   
June 30, 2010
   
December 31, 2009
 
             
Beginning balance, January 1
 
$
217,865
   
$
429,804
 
Add: Advanced during the period/year
   
158,501
     
610,677
 
                 
Less: Transferred to income statement
   
(108,153
)
   
(418,288
)
  Recollected from employees
   
(90,760
)
   
(404,328
)
Ending balance
 
$
177,453
   
$
217,865
 

8.
INVENTORIES

Inventories comprise the followings:
   
June 30, 2010
   
December 31, 2009
 
             
Finished goods
 
$
367,002
   
$
241,831
 
Work in process
   
196,551
     
26,152
 
Raw materials
   
364,152
     
321,888
 
Total Inventories
 
$
927,705
   
$
589,871
 
 
 
23

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

9.
PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net comprise the followings:

   
June 30, 2010
   
December 31, 2009
 
At cost
           
Buildings
 
$
1,855,838
   
$
1,848,075
 
Machinery and equipment
   
694,995
     
1,087,332
 
Moldings
   
9,004,237
     
8,966,572
 
Computer software
   
2,110,335
     
2,101,507
 
Office equipment and motor vehicles
   
621,699
     
97,728
 
   
$
14,287,104
   
$
14,101,214
 
Less: accumulated depreciation
   
(5,582,313
)
   
(4,678,587
)
   
$
8,704,791
   
$
9,422,627
 
Construction in progress
   
1,233,198
     
1,085,788
 
Property, plant and equipment, net
 
$
9,937,989
   
$
10,508,415
 

Construction in progress represents direct costs of construction incurred for factory infrastructure. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

Depreciation expenses are included in the statement of income as follows:

   
June 30, 2010
   
June 30, 2009
 
Cost of net revenues
 
$
798,704
   
$
438,129
 
General and administrative expenses
   
52,378
     
15,195
 
Selling expenses
   
33,018
     
20,824
 
Total depreciation expenses
 
$
884,100
   
$
474,148
 
 
 
24

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

10.      INTANGIBLES, NET

Details of intangibles are as follows:
   
June 30, 2010
   
December 31, 2009
 
Land use rights, at cost
 
$
2,616,616
   
$
2,502,082
 
Technology-based design, at cost
   
19,713,671
     
14,811,984
 
   
$
22,330,287
   
$
17,314,066
 
Less: accumulated amortization
   
(3,003,250
)
   
(2,204,078
)
Total intangibles, net
 
$
19,327,037
   
$
15,109,988
 

During the year of 2009, the Group acquired the rights to use a parcel of land totalling 9,082 square meters, for a consideration of $89,552 (RMB613,035), located at Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China for a term of 48 years from November 3, 2006 to July 24, 2053. The Group acquired secondly the rights to use a parcel of land totalling 10,841 square meters, for a consideration of $106,709 (RMB730,485), located at Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China. Both lands have been used to build the Liheng’s facility. The certificate of land use rights was under processing, no lease terms can be determined yet.

During the year of 2009, the Group acquired the design and internal device control of medicine dispensing and packing machine, for a consideration of $6,988,882 (RMB47,300,000).

Amortization expense included in the general and administrative expenses were $782,662 and $407,773 for the six months ended June 30, 2010 and 2009 respectively.

 
 
25

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

11.
EXPECTED WARRANTY LIABILITIES

An analysis of the expected warranty liabilities for the six months ended June 30, 2010 and for the year ended December 31, 2009 is as follows:

   
June 30, 2010
   
December 31, 2009
 
Balance at beginning of period/year
 
$
32,618
   
$
50,396
 
Warranty expense for the period/year
   
-
     
(17,903
)
Foreign currency difference
   
137
     
125
 
Balance at end of period/year
 
$
32,755
   
$
32,618
 

12.
CUSTOMER DEPOSITS

Customer deposits account for the deposits received from customers prior to completion of the manufacture and installation of our medical equipment and are recorded as “Customer deposits” under current assets.  As of June 30, 2010 and December 31, 2009, four and five equipment units, respectively, were under installation.

13.
WARRANTS LIABILITIES

Valued at fair value using the Black-Scholes valuation method using the quoted price of the company’s common stock in an active market, volatility based on the actual market activity of the company’s stock, the remaining life of the warrant and the risk free interest rate for the six months ended June 30, 2010 and for the year ended December 31, 2009 is as follows:

   
June 30, 2010
   
December 31, 2009
 
Balance at beginning of period/year
 
$
40,808,327
   
$
69,901,873
 
Changes in fair value of warrants
   
803,396
     
(29,093,546
)
Balance at end of period/year
 
$
41,611,723
   
$
40,808,327
 

14.
SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS

On June 5, 2007, the Company entered into a purchase agreement, whereby the company agreed to sell 165,432 shares of the Company’s Series B Preferred shares and various stock purchase warrants to purchase up to 18,686,054 shares of the Company’s common shares. The exercise price, expiration date and number of share eligible to be purchased with the warrants is summary in the following table:
   
Investment
Amount
 
Preferred
B
 
A
Warrant
 
B
Warrant
 
J
Warrant
 
C
Warrant
 
D
Warrant
 
Vision Opportunity Master Fund, Ltd.
   
6,500,000
 
160,494
   
4,814,815
 
2,407,407
   
4,362,416
 
4,362,416
   
2,181,208
 
Columbia China Capital Group, Inc.
   
200,000
 
4,938
   
148,148
 
74,074
   
134,228
 
134,228
   
67,114
 

Series of Warrant
 
Number of shares
   
Exercise Price
 
Expiry Date
Series A
   
4,962,963
   
$
1.76
 
6 /5 /2012
Series B
   
2,481,481
     
2.30
 
6 /5 /2012
Series J
   
4,496,644
     
1.49
 
6 /5 /2008
Series C
   
4,496,644
     
1.94
 
6 /5 /2012
Series D
   
2,248,322
     
2.53
 
6 /5 /2012
 
 
26

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

14.  SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS
(Continued)
 
The Series B preferred stock has liquidation rights senior to common stock and Series A preferred stock.  In the event of a liquidation of the Company, holders of Series B preferred stock are entitled to receive a distribution equal to $40.50 per share of Series B preferred stock prior to any distribution to the holders of common stock and Series A preferred stock.  The Series B preferred stock is entitled to non-cumulative dividends only upon declaration of dividends by the Company.  To date, no dividends have been declared or accrued.  The Series B preferred stock will participate based on their respective as-if conversion rates if the Company declares any dividends.  After the Amendment were filed effect the Reverse Split, each share of Series B preferred stock would be convertible into 30 shares of Common Stock for $1.35 each, which both may be adjusted from time to time pursuant to the conversion rate.
 
The holders of Series B preferred stock shall be entitled to voting rights by applicable law and the right to vote together with the holders of Common and Series A Preferred Stock.
 
The gross proceeds of the transaction were $6.7 million. The proceeds from the transaction were allocated to the Series B preferred stock, warrants and beneficial conversion feature based on the relative fair value of the securities.  The value of the Preferred Series B was determined by reference to the market price of the common shares into which it converts, and the gross value of the warrants was calculated using the Black –Scholes model with the following assumptions:  expected life of 1 year, volatility of 117% and an interest rate of 4.99%.
 
The Company recognized a beneficial conversion feature discount on the Series B preferred stock at its intrinsic value, which was the fair value of the common stock at the commitment date for the Series B preferred stock investment, less the effective conversion price but limited to the $6.7 million of proceeds received from the sale. The Company recognized the $6.7 million beneficial conversion feature as an increase in paid in capital in the accompanying consolidated balance sheets on the date of issuance of the Series B preferred shares since the Series B preferred shares were convertible at the issuance date.
 
The agreement, also provided that if a Registration Statement is not effective within a certain period of time or the common shares are not listed on the NASDAQ or American exchange by December 31, 2008, the Company will pay the holders of the shares a penalty that can range from $67,000 to $670,000 and certain principal shareholders would issue up to 1,000,000 additional shares to the purchasers of the Preferred Series B shares.  The company is accounting for these penalties in accordance with FAS 5 - Accounting for Contingencies, whereby the penalty will not be recorded as a liability until and if it is probable the penalty will be incurred. No penalty has been recorded in the accompanying financial statements for this contingency.
 
Under the agreement, Warrant J was expired on June 5, 2008. On that day, Vision Opportunity Master Fund Ltd. converted all the Warrant J, totally 4,362,416 shares into 4,362,416 of common stock.
 
On February 7, 2008, 12 shareholders of Preferred Series A converted 228,530 shares into 13,711,831 shares of common stock, in which Rise Elite International Limited, Vision Opportunity Master Fund, Ltd and Kuhns Brothers, Inc converted 210,886, 7,990 and 2,647 shares of Preferred Series A into 12,653,160, 479,400 and 158,820 shares of common stock respectively.
 
On June 18, 2008, Columbia China Capital Group, Inc. converted 4,938 shares of Preferred Series B into 148,140 shares of common stock.

 
 
27

 

SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

14.  SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS
(Continued)

On November 10, 2008, Columbia China Capital Group, Inc. converted the Warrant J, totally 53,691 shares into 53,691 of common stock.

Effective January 1, 2009, the company adopted the provisions of Emerging Issues Task Force Issue No. 07-5 “Determining Whether and Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5) (ASC 820).  In accordance with  EITF 07-5, warrants issued by the company in prior periods with “down-round protection” for the holder will no longer be classified in shareholders’ equity but will be classified as a liability and recorded at current fair value, computed using the Black-Scholes valuation method.  Changes in the liability from period to period will be recorded in other income (expense) under the caption “Change in fair value of warrant liability.” If the warrants are ultimately settled in shares, any gains or losses on those contracts will continue to be included in earnings. Upon adoption of EITF 07-5, the company reclassified $65,910,931 from retained earnings and $3,990,942 from paid in capital – warrants to the “Warrant Liability.”

For the fiscal year ended December 31, 2009, the Company recorded a total charge to earnings of $40,808,327 related to the warrant liability. This amount includes a charge of $65,910,931 to retaining earnings, an additional paid-in capital of $3,990,942 and a total benefit of $29,093,546 resulting from changes in the fair value of the warrant liability during the year.

On March 18, 2010, the Company entered into an agreement with Vision Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, LP ("Vision") to exchange the Series A, B, C and D warrants into two million (2,000,000) Common Stock of the company (the "Warrant Exchange").  The closing of the Warrant Exchange is conditional upon a closing of a financing with minimum proceeds of $10 million to the company.

On April 5, 2010, the Company entered into a Security Escrow Agreement as an inducement to the holders of warrants to enter into the Security Exchange Agreement, the principal shareholders of the Company have agreed to place an amount of common stock equal to one million shares into escrow for the benefit of the holders in the event the Company fails to achieve certain milestones by December 31, 2010. As with the Securities Exchange Agreement, the closing of the Securities Escrow Agreement is conditioned upon the closing of a minimum $10 million offering of the Company’s equity securities at a per share price that is acceptable to both the Company and to Vision.

15.      INCOME TAXES

The Company, being registered in the State of Nevada and which conducts all of its business through its subsidiaries incorporated in PRC, is  subject to  federal income tax but not to the state level. The subsidiaries are SWT, Sunway, Beijing Sunway, and Liheng (see note 1).

SWT, Sunway, Beijing Sunway, and Liheng, being registered in the PRC, are subject to PRC’s Corporate Income Tax (“CIT”). Under applicable income tax laws and regulations, an enterprise located in PRC, including the district where our operations are located, is subject to a rate of 25% for the six months ended June 30, 2010 and 2009.

 
 
28

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

15. INCOME TAXES (Continued)

However, Sunway is a high technology company, and in accordance with the relevant regulations regarding the favourable tax treatment for high technology companies, Sunway is entitled to a reduced tax rate of 15% as long as Sunway located and registered in the high and advance technology development zone.

The Group uses the asset and liability method, where deferred tax assets and liabilities are determined based in the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. There are no material temporary differences and therefore no deferred tax asset or liabilities as at June 30, 2010 and December 31, 2009.

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

   
June 30, 2010
     
June 30, 2009
 
             
U.S. statutory rate
   
34
%
   
34
%
Foreign income not recognized in the U.S.
   
(34
)%
   
(34
)%
PRC CIT
   
25
%
   
25
%
Tax holiday
   
(10
)%
   
(10
)%
Provision for income taxes
   
15
%
   
15
%

The provision for income taxes consists of the following:

   
June 30, 2010
   
June 30, 2009
 
             
Current tax - PRC CIT
 
$
737,843
   
$
333,673
 
Deferred tax provision
   
-
     
-
 
Income tax expenses
 
$
737,843
   
$
333,673
 

Reconciliation of these items is as follows:

   
June 30, 2010
  
June 30, 2009
 
Income before taxation (as of June 30, 2010)
 
$
3,984,917
   
$
8,074,967
 
Add: Impairment on investment
   
-
     
4,831,386
 
Change in fair value of warrants
   
803,396
     
(10,934,559
)
Other non-tax deductible items
   
130,640
     
252,693
 
Adjusted PRC EIT taxable income
 
$
4,918,953
   
$
2,224,487
 

 
 
29

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

16.
EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the common stock holders is based on the following data:

   
For the six months ended June 30
 
   
2010
   
2009
 
Income:
           
Income for the purpose of basic earnings per share
 
$
3,247,074
   
$
7,741,294
 
Effect of dilutive potential common Stock
   
-
     
-
 
Income for the purpose of dilutive earnings per share
 
$
3,247,074
   
$
7,741,294
 
                 
Number of shares:
               
Weighted average number of common stock for the purpose of basic earnings per share
   
18,499,736
     
18,499,736
 
Effect of dilutive potential common stock
               
-conversion of Series A convertible preferred stock
   
-
     
-
 
-conversion of Series B convertible preferred stock
   
4,814,820
     
4,814,820
 
-conversion of Warrant Series A
   
1,984,393
     
3,003,740
 
-conversion of Warrant Series B
   
535,257
     
1,201,307
 
-conversion of Warrant Series C
   
1,494,677
     
2,494,470
 
-conversion of Warrant Series D
   
303,101
     
955,027
 
Weighted average number of common stock for the purpose of dilutive earnings per share
   
27,631,984
     
30,969,100
 
 
 
30

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

17.
COMMITMENTS AND CONTINGENCIES

The Group has entered into a tenancy agreement for factory expiring through 2011. Total rental expenses for the six months ended June 30, 2010 and 2009 amounted to $26,009 and $49,945 respectively.

As at June 30, 2010, the Group’s commitments for minimum lease payments under these leases for the next one year are as follows:

June 30,
     
2011
 
$
84,702
 
2012 and thereafter
   
-
 
   
$
84,702
 

18.
SEGMENT INFORMATION

The Group currently is engaged in the manufacturing and selling of logistic transport systems and operating in one segment. The Group has contracted with customers with four types of product altogether, workstation type A, workstation type B, workstation type C and Sunway Automatic Dispensing and Packing (“SADP”) and others.  Workstation types A, B and C are of the same function but with different product design.

Net revenues and cost of revenues by product:
For the six
months ended
June 30, 2010
 
Workstation
   
Workstation
   
Workstation
                   
   
Type A
   
Type B
   
Type C
   
SADP
   
Other
   
Consolidated
 
                                     
Net revenues
 
$
2,647,900
   
$
203,618
   
$
7,136,955
   
$
474,374
   
$
188,614
   
$
10,651,461
 
Cost of net revenues
   
(834,486
)
   
(50,406
)
   
(2,440,326
)
   
(194,411
)
   
(5,723
)
   
(3,525,352
)
   
$
1,813,414
   
$
153,212
   
$
4,696,629
   
$
279,963
   
$
182,891
   
$
7,126,109
 
 
For the six
months ended
June 30, 2009 
 
Workstation
   
Workstation
   
Workstation
                   
   
Type A
   
Type B
   
Type C
   
SADP
   
Other
   
Consolidated
 
                                     
Net revenues
 
$
2,044,292
   
$
601,327
   
$
2,504,453
   
$
434,901
   
$
83,369
   
$
5,668,342
 
Cost of net revenues
   
(627,672
)
   
(174,297
)
   
(854,162
)
   
(254,402
)
   
(70,753
)
   
(1,981,286
)
   
$
1,416,620
   
$
427,030
   
$
1,650,291
   
$
180,499
   
$
12,616
   
$
3,687,056
 

The Group’s operations are located in the PRC.  All revenues are derived from customers in the PRC and overseas. All of the Group’s assets are located in the PRC.  Sales of workstations are carried out in the PRC. Accordingly, no analysis of the Group's sales and assets by geographical market is presented.

 
 
31

 
 
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)(Unaudited)

19.      FAIR VALUE MEASUREMENTS

The Company has adopted FASB Statement No. 157, Fair Value Measurements (ASC 820), establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).  The three levels of the fair value hierarchy under FASB Statement No. 157 are described as follows:

Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
   
Level 2
Inputs to the valuation methodology include
 
·
quoted prices for similar assets or liabilities in active markets
 
·
quoted prices for identical or similar assets or liabilities in inactive markets
 
·
inputs other than quoted prices that are observable for the asset or liability
 
·
inputs that are derived principally from or corroborated by observable market data by correlation or other means
 
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
   
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

Warrant Liability: Valued at fair value using the Black-Scholes valuation method using the quoted price of the company’s common stock in an active market, volatility based on the actual market activity of the company’s stock, the remaining life of the warrant and the risk free interest rate at the date of the financial statements.

20.
RESTATEMENTS
 
As a result of the restatement of the consolidated balance sheet as of December 31, 2007 that has carryover effect to December 31, 2009, additional paid-in capital decreased from $18,689,023 to $13,833,383.  The Accumulated deficit reduced from $26,590,859 to 21,735,219. The assets, liabilities and total stockholders’ equity have no changes. 
 
ITEMS
 
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
 
   
Notes
 
Original
   
Restated
 
       
December 31, 2009
 
       
(Audited)
   
(Audited)
 
STOCKHOLDERS’ EQUITY
               
                 
Series B Convertible Preferred
               
Stock $0.0000001 par value; 400,000
               
shares authorized; 160,494 shares issued
               
and outstanding at December 31, 2009
 
13
  $ 1     $ 1  
                     
Common stock at $0.0000001 par
                   
value; 100,000,000 shares authorized;
                   
18,499,736 shares issued and
                   
outstanding at December 31, 2009
        2       2  
Additional paid-in capital
        18,689,023       13,833,383  
Statutory reserves
        3,033,855       3,033,855  
Accumulated deficit
        (26,590,859 )     (21,735,219 )
Accumulated other comprehensive income
        2,915,737       2,915,737  
                     
STOCKHOLDERS’ EQUITY
      $ (1,952,241 )   $ (1,952,241 )
 
As a result of the restatement of the consolidated balance sheet as of December 31, 2007 that has carryover effect to June 30, 2010, additional paid-in capital decreased from $18,689,023 to $13,833,383.  The accumulated deficit was reduced from 23,343,785 to 18,488,145. The assets, liabilities and total stockholders’ equity have no changes. 
 
 
32

 
 
ITEMS
 
CONSOLIDATED BALANCE SHEETS
 
(Stated in US Dollars)
 
   
Notes
 
Original
   
Restated
 
       
June 30, 2010
 
       
(Unaudited)
   
(Unaudited)
 
STOCKHOLDERS’ EQUITY
               
                 
Series B Convertible Preferred
               
Stock $0.0000001 par value; 400,000
               
shares authorized; 160,494 shares issued
               
and outstanding at March 31, 2010
 
13
  $ 1     $ 1  
                     
Common stock at $0.0000001 par
                   
value; 100,000,000 shares authorized;
                   
18,499,736 shares issued and
                   
outstanding at March 31, 2010
        2       2  
Additional paid-in capital
        18,689,023       13,833,383  
Statutory reserves
        3,033,855       3,033,855  
Accumulated deficit
        (23,343,785 )     (18,488,145 )
Accumulated other comprehensive income
        2,921,917       2,921,917  
                     
STOCKHOLDERS’ EQUITY
      $ (1,460,888 )   $ (1,460,888 )

 
33

 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could," "possibly," "probably," anticipates," "projects," "expects," "may," "will," or "should" or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
 
Overview
 
Since June 27, 2007, the Company has operated as a holding company for entities that, through contractual relationships, control the business of Daqing Sunway Technology Co., Ltd. (“Daqing Sunway”), a company organized under the laws of the PRC that designs, manufactures and sells logistic transport systems medicine dispensing systems and equipment that are principally used by hospitals and other medical facilities in the PRC, and we have sold our first logistic transport systems to chain stores in the second quarter of 2010. We have served approximately 300 customers in the PRC and 14 customers in France, Germany and Spain. We generate our revenue from sales in two product categories: pneumatic transport systems (“PTS”) and Sunway Automatic Dispensing and Packing (“SADP”). Currently our Company is the only producer of these two products in the PRC.
 
This discussion and analysis focuses on the business results of Daqing Sunway, Beijing Sunway and Qingdao Liheng, comparing its results in the three and six month periods ended June 30, 2010 to the three and six month periods ended June 30, 2009.

Three-month period ended June 30, 2010 and June 30, 2009
 
Results of Operations
In the three months ended June 30, 2010, the Company’s net revenues, gross profit and operating income grew substantially as compared with the same period in the same period of 2009. Exclude changes in fair value of warrants net income increased during these periods. These increases are primarily attributable to a result of more effective sales and marketing effort.
 
The following table summarizes the results of our operations during the three months ended June 30, 2010 and 2009, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended June 30, 2010 and 2009.
   
Three Months Ended June 30,
             
   
2010
   
2009
   
Change
   
Change rate
 
Net Revenues
 
$
5,451,337
   
$
2,734,631
   
$
2,716,706
     
99.34
%
Cost of net revenues
 
$
1,767,876
   
$
1,087,385
   
$
680,491
     
62.58
%
Gross Profit
 
$
3,683,461
   
$
1,647,246
   
$
2,036,215
     
123.61
%
Gross Margin
   
67.57
%
   
60.24
%
 
-
     
7.33
%
Operating Income
 
$
2,485,313
   
$
705,823
   
$
1,779,490
     
252.12
%
Changes in fair value of warrants
 
$
659,878
   
$
31,415,835
   
$
(30,755,957
)
   
(97.90
)%
Net Income
 
$
2,761,906
   
$
32,013,030
   
$
(29,251,124
)
   
(91.37
)%
Net profit margin
   
57.79
%
   
1,170.65
%
   
-
     
(1,112.86
)%
 
 
34

 
 
Net Revenue
 
Net revenue for the three months ended June 30, 2010, which resulted entirely from sales, was $5,451,337, an increase of 99.34% as compared with net revenue of $2,734,631 for the three months ended June 30, 2009. In the three months ended June 30, 2010, we sold 1,044 workstations, an increase of 150.96% as compared with 416 workstations sold in the three months ended June 30, 2009. The increase was due primarily to the positive results of more effective sales and marketing efforts.
 
The following table breaks down application categories as percentage of total net revenue:

   
Three Months Ended June 30,
 
   
2010
   
2009
 
   
sales
   
% of total sales
   
sales
   
% of total sales
 
PTS
  $ 5,340,232       97.96 %   $ 2,216,111       81.04 %
SADP
  $ -       - %   $ 435,111       15.91 %
Other
  $ 111,105       2.04 %     83,409       3.05 %
Total net revenue
  $ 5,451,337       100.00 %   $ 2,734,631       100.00 %

Gross Profit

Gross profit increased 12.61% to $3,683,461 for the three months ended June 30, 2010, as compared to $1,647,246 for the three months ended June 30, 2009. Our gross profit margin rose 7.33% from 60.24% as of the three months ended June 30, 2009 to 67.57% as of the same period of 2010, mainly due to an increase in product output caused by the fall in average fixed cost per unit.

The table below presents information about our gross profit for the periods indicated:

   
Three Months Ended June 30,
 
   
2010
   
2009
 
   
US$
   
Gross profit
margin
   
US$
 
Gross profit
margin
 
Gross Profit
 
$
3,683,461
     
67.57
%
 
$
1,647,246
     
60.24
%

Income from Operations

Operating income increased 252.12% to $2,485,313 for the three months ended June 30, 2010, as compared to $705,823 for the three months ended June 30, 2009. The increase was primarily attributable to the higher sales growth during this period.

Cost of Net Revenue

Cost of net revenue increased to $1,767,876 for the three months ended June 30, 2010, representing a 62.58% increase as compared with $1,087,385 for the same period of 2009. The increase was primarily due sales growth.

The table below presents information about our cost of net revenue for the periods indicated:

   
Three Months Ended June 30,
     
   
2010
   
2009
 
Change
 
Cost of net revenue
 
$
1,767,876
   
$
1,087,385
     
62.58
%

Operating Expenses

Operating expenses were $1,198,148 for the three months ended June 30, 2010, an increase as compared with $941,423 for the same period of 2009. The increase was primarily due to two factors: (i) selling expenses increased $163,510, or 90.36% to $344,460 in the three months ended June 30, 2010 from $180,950 for the same period of 2009; and (ii) general and administration expenses increased $93,215, or 12.26% to $853,688 for the three months ended June 30, 2010 from $760,473 for the same period of 2009. In the three months ended June 30, 2010, we increased direct sales office expenses to support our increased effective sales and marketing efforts. Reflecting this change, costs related to direct sales offices expenses were $155,581 for the three months ended June 30, 2010, as compared to 58,739 for the same period of 2009.

 
 
35

 

The table below presents information about our operating expenses for the periods indicated:

   
Three Months Ended June 30,
       
   
2010
   
2009
   
Change
 
Selling expenses
 
$
344,460
   
$
180,950
     
90.36
%
General & Administrative expenses
 
$
853,688
   
$
760,473
     
12.26
%
Total operating expenses
 
$
1,198,148
   
$
941,423
     
27.27
%

Changes in fair value of warrants

Changes in fair value of warrants were $659,878 for the three months ended June 30, 2010. This is recorded as a non-cash income, which resulted from the change in fair value of warrants issued to investors in conjunction with the Company’s issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic 815, “Derivative and Hedging” (ASC 815). The accounting treatment of the warrants resulted from a provision providing anti-dilution protection to the warrant holders. On March 18, 2010, the Company entered into a Securities Exchange Agreement intending to exchange all warrants into common stock. As a result of this agreement, on the closing date of the agreement, the Company will issue 2,000,000 shares of common stock in exchange for the retirement of all of the outstanding warrants owned by Vision Opportunity Master Fund Ltd. and its affiliates. The closing of the agreement is conditioned upon a closing of a financing with minimum proceeds of $10 million to the Company.

Net Income

Net income was $2,761,906 for the three months ended June 30, 2010, a decrease of 91.37% as compared with $32,013,030 of net income for the same period of 2009. In the second quarter of 2010, our net income was impacted by a non-cash income of $658,878 unrelated to the Company’s operations. Excluding the changes in fair value of warrants in non-cash income, the Company’s net income from operations would have been $2,102,028 for the three months ended June 30, 2010 and $597,195 for the three months ended June 30, 2009, representing an increase of 251.98% from the second quarter of 2009 to the second quarter of 2010. The increase was primarily due to sales growth.

Earnings per Share

Basic and diluted earnings per share for the three months ended June 30, 2010 were $0.15 and $0.10 compared to $1.73 and $1.06 for the same period of 2009. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended June 30, 2010 and June 30, 2009, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 27,561,231 and 30,243,833 for the three months ended June 30, 2010 and June 30, 2009.

Six-month period ended June 30, 2010 and June 30, 2009

Results of Operations

In the six months ended June 30, 2010, the company’s net revenues, gross profit, operating income, and operating expenses increased as compared with the same period of 2009. These increases were primarily attributable to a result of more effective sales and marketing efforts. Our net income was impacted by a non-cash charge of $803,396 unrelated to the Company’s operations; however, excluding the changes in fair value of warrants and Impairment on investment in non-cash income and charge, the Company’s net income from operations increased as compared with the same period of 2009.

The following table summarizes the results of our operations during the six months ended June 30, 2010 and 2009, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the six months ended June 30, 2010 and 2009.
   
 
Six Months Ended June 30,
       
   
2010  
   
2009  
   
Change
   
Change rate
 
Net Revenue
  $ 10,651,461     $ 5,668,342     $ 4,983,119       87.91 %
Cost of net revenue
  $ 3,525,352     $ 1,981,286     $ 1,544,066       77.93 %
Gross Profit
  $ 7,126,109     $ 3,687,056     $ 3,439,053       93.27 %
Gross Margin
      66.90 %       65.05 %    
-
      1.85 %
Operating Income
  $ 4,779,044     $ 1,931,281     $ 2,847,763       147.45 %
Impairment on investment
  $   -     $ (4,831,386 )       $ 4,831,386       -  
Change in fair value of warrants
  $ (803,396 )       $ 10,934,559     $ (11,737,955 )       (107.35 ) %
Net Income
  $ 3,247,074     $ 7,741,294     $ (4,494,220 )       (58.05 ) %
Net profit margin
      30.48 %       136.57 %       -       (106.09 ) %
 
 
36

 
 
Net Revenue
 
Net revenue for the six months ended June 30, 2010, which resulted entirely from sale growth, was $10,651,461, an increase of 87.91% as compared with net revenue of $5,668,342 for the six months ended June 30, 2009. In the six months ended June 30, 2010, we sold 1,948 workstations, an increase of 98.37% as compared with 982 workstations sold for the six months ended June 30, 2009. During the same period of 2010, we also sold 5 units of SADP. The increase was due primarily to a result of more effective sales and marketing efforts.
 
The following table breaks down application categories as percentage of total net revenue.

   
Six Months Ended June 30,
 
   
2010
   
2009
 
   
sales
   
% of total sales
   
sales
   
% of total sales
 
PTS
 
$
9,988,473
     
93.78
%
 
$
5,150,072
     
90.86
%
SADP
 
$
475,910
     
4.47
%
 
$
434,901
     
7.67
%
OTHER
 
$
187,078
     
1.75
%
 
$
83,369
     
1.47
%
Total net revenue
 
$
10,651,461
     
100.00
%
 
$
5,668,342
     
100.00
%

Gross Profit

Gross profit increased 93.27% to $7,126,109 for the six months ended June 30, 2010, as compared to $3,687,056 for the six months ended June 30, 2009. Our gross profit margin rose 1.85% from 65.05% for the six months ended June 30, 2009 to 66.90% for the same period of 2010, mainly due to an increase in product output caused by the fall in average fixed cost per unit.

The table below presents information about our gross profit for the periods indicated:
 
   
  Six Months Ended June 30,
 
   
2010
   
2009
 
   
US$
   
Gross profit
margin  
   
US$
   
Gross profit
margin
 
   
 
   
 
             
Gross Profit
  $ 7,126,109       66.90 %     $ 3,687,056       65.05 %

Income from Operations

Operating income increased 147.45% to $4,779,044 for the six months ended June 30, 2010, as compared to $1,931,281 for the six months ended June 30, 2009. The increase was primarily attributable to a sharp increase in sales growth.

Cost of Net Revenue

Cost of net revenue increased to $3,525,352 for the six months ended June 30, 2010, representing a 77.93% increase as compared with $1,981,286 for the same period of 2009. The increase was primarily due to sales growth and an increase in product volume caused by the fall of average fixed cost per unit.

The table below presents information about our cost of net revenue for the periods indicated:

   
Six Months Ended June 30,
     
   
2010
   
2009
 
Change
 
Cost of net revenue
  $ 3,525,352     $ 1,981,286       77.93 %
 
 
37

 
 
Operating Expenses
 
Operating expenses were $2,347,065 for the six months ended June 30, 2010, an increase as compared with $1,755,775 for the same period of 2009. The increase was composed of two reasons: (i) selling expenses increased $389,422, or 107.78% to $750,24 for the six months ended June 30, 2010 from $361,302 for the same period of 2009; and (ii) general and administration expenses increased $201,868, or 14.48% to $1,596,341 for the six months ended June 30, 2010 from $1,394,473 for the same period of 2009. In the six months ended June 30, 2010, we increased direct sales offices expenses. Reflecting this change, costs related to direct sales offices expenses were $386,981 for the six months ended June 30, 2010, as compared to 112,999 for the same period of 2009.

The table below presents information about our operating expenses for the periods indicated:
   
Six Months Ended June 30,
     
   
2010
   
2009
 
Change
 
Selling expenses
 
$
750,724
   
$
361,302
     
107.78
%
General & Administrative expenses
 
$
1,596,341
   
$
1,394,473
     
14.48
%
Total operating expenses
 
$
2,347,065
   
$
1,755,775
     
33.68
%

Changes in fair value of warrants

Changes in fair value of warrants were $803,396 for the six months ended June 30, 2010. This is recorded as a non-cash charges, which resulted from the change in fair value of warrants issued to investors in conjunction with the Company’s issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic 815, “Derivative and Hedging” (ASC 815). The accounting treatment of the warrants resulted from a provision providing anti-dilution protection to the warrant holders. On March 18, 2010, the Company entered into a Security Exchange Agreement intending to exchange all warrants into common stock. As a result of this agreement, on the closing date of the agreement, the Company will issue 2,000,000 shares of common stock in exchange for the retirement of all of the outstanding warrants owned by Vision Opportunity Master Fund Ltd. and its affiliates. The closing of the agreement is conditioned upon a closing of a financing with minimum proceeds of $10 million to the Company.

Impairment on investment

Impairment on investment was $4,831,386 for the fiscal year ended December 31, 2009. Originally, it was showed on goodwill in the first quarter of 2009, it represents the excess of the cost of an acquisition over the fair value of the net acquired identifiable assets at the date of acquisition. In the first quarter of 2010, after performing extended analysis into the definition of a business as set forth in the paragraph 805-10-20 of the FASB Accounting Standards Codification, we recognized the acquisitions based on the fair value of net assets obtained. For the amount over the fair value of the net assets obtained, we wrote them off as expenses at the time of acquisition.

Net Income

Net income was $3,247,074 for the six months ended June 30, 2010, a decrease as compared with $7,741,294 for the same period of 2009. In the six months ended June 30, 2010, our net income was impacted by a non-cash charge of $6,103,173 unrelated to the Company’s operations. Excluding the changes in fair value of warrants and impairment on investment in non-cash charge, the Company’s net income from operations would have been $4,050,470 for the six months ended June 30, 2010 and $1,638,121 for the six months ended June 30, 2009, representing an increase of 147.26% from the six months ended June 30, 2009 to the same period of 2010. The increase was primarily due to sales growth.

Earnings Per Share

Basic and diluted earnings per share for the six months ended June 30, 2010 were $0.18 and $0.16 compared to $0.42 and $0.25 for the same period of 2009. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the six months ended June 30, 2010 and June 30, 2009, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 27,631,984 and 30,969,100 for the six months ended June 30, 2010 and June 30, 2009.
Trade Receivables, net

Trade receivables, net increased 78.20% to $6,303,713 as of June 31, 2010, compared with $3,537,395 as of December 31, 2009. The increase in trade receivables was primarily attributable to change in our sales policy

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of June 30, 2010, the recorded value of our inventory has increased 57.27% to $927,705 from $589,871 as of December 31, 2009. The increase was mainly due to an increase of 51.76% in finished goods from $241,831 as of December 31, 2009 to $ 367,002 as of June 30, 2010; an increase of 13.13% in raw material inventory from $321,888 as of December 31, 2009 to $364,152 as of June 30, 2010, an increase of 651.57% in work in progress inventory from $26,152 as of December 31, 2009 to $196,551 as of June 30, 2010. The increase was primarily attributable to our sales volume growth.
 
 
38

 
 
The table below presents information about our inventory for the periods indicated:
Item
 
June 30,
2010
   
December 31,
2009
   
Change
 
Finished goods
 
$
367,002
   
$
241,831
     
51.76
%
Work in progress
 
$
196,551
   
$
26,152
     
651.57
%
Raw material
 
$
364,152
   
$
321,888
     
13.13
%
Total
 
$
927,705
   
$
589,871
     
57.27
%

Accounts Payable

Accounts payable amounted to $112,404 as of June 30, 2010, an increase as compared with $271,139 as of December 31, 2009. The decrease was primarily attributable to the transfer of our SADP product line to our Qingdao factory from our Daqing factory in April of 2010. This transition period, during which our Qingdao factory just started to choose new supplies, resulted in a considerable reduction in purchase volume.

Liquidity and Capital Resources

We have historically financed our operations and capital expenditures principally through private placements of debt and equity offerings and cash provided by operations.

The table below presents information about our cash flow for the periods indicated:

   
Six months ended June 30,
       
   
2010
   
2009
   
Change
 
Net cash provided by (used in) operating activities
 
$
3,265,324
   
$
1,782,343
   
$
1,482,981
 
Net cash provided by (used in) investing activities
 
$
(1,389,015)
   
$
(9,521,635
)
 
$
8,132,620
 
Net cash provided by (used in) financing activities
 
$
-
   
$
-
   
$
-
 
Effect of foreign currency translation on cash and cash equivalents
 
$
26,835
   
$
134,178
   
$
(107,343)
 
Beginning cash and cash equivalent
 
$
4,717,240
   
$
15,189,941
   
$
(10,472,701)
 
Ending cash and cash equivalent
 
$
6,620,384
   
$
7,584,827
   
$
(964,443)
 
 
Operating Activities

For the six months ended June 30, 2010, net cash provided by operating activities was $3,265,324. This was primarily attributable to our net income of $3,247,074, adjusted by an add-back of non-cash expenses mainly consisting of depreciation, amortization and change in fair value of warrants $2,470,158 offset by a $2,451,908 decrease in working capital. Specifically, the working capital increase was primarily due to (i) a $2,740,952 trade receivables increase driven by a change in sales policy; (ii) a $334,075 inventories increase, principally in work in process and finished goods, due to sales growth; (iii) a $466,488 decrease in advance to suppliers to choose new suppliers for SADP; (iv) a $5,565 increase in prepayments, travel advances to directors, tender deposits and advances to employees, consisting primarily of prepayments for raw materials and supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $162,196 increase in accounts payable, tax payable, loans from unrelated parties, amount due from a director, customer deposits and accrued liabilities.

Investing Activities

For the six months ended June 30, 2010, net cash used in investing activities was $1,389,015. This was primarily attributable to: (i) a $271,897 capital expenditure for purchase of new plant and equipment; (ii) a $850,611 capital expenditure for purchase of new intangible assets; (iii) a $365,780 capital expenditure for the purchase of certain technology-based designs, and $99,255 in restricted cash.

Cash and Cash Equivalents

Our cash and cash equivalents as at the beginning of January 1, 2010 were $4,717,240 and increased to $6,620,384 by the end of the period.

 
 
39

 
 
In future periods, we believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next six months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

Trends

We are not aware of any trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

Inflation

We believe that inflation has not had a material or significant impact on our revenue or our results of operations.

Obligations under Material Contracts

We do not have any material contractual obligations as of June 30, 2010.

Critical Accounting Policies

Management's discussion and analysis of its financial condition and results of operations is based upon Sunway’s consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Sunway’s financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Sunway believes that the following reflect the more critical accounting policies that currently affect Sunway’s financial condition and results of operations.

Impairment of long-lived assets. We account for impairment of property, plant and equipment and amortizable intangible assets in accordance with SFAS No. SFAS No. 144. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. During the reporting years, there was no impairment loss incurred. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets.
 
Inventories. Inventories consist of finished goods and raw materials, and stated at the lower of cost or market value. Substantially all inventory costs are determined using the weighted average basis. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead. The management regularly evaluates the composition of its inventory to identify slow-moving and obsolete inventories to determine if additional write-downs are required.

Trade receivable. Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.  Bad debts are written off as incurred.  During the reporting years, there were no bad debts.

Outstanding accounts balances are reviewed individually for collectability. The Company do not charge any interest income on trade receivables.  Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.

Revenue recognition. Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met:

- Persuasive evidence of an arrangement exists;
- Delivery has occurred or services have been rendered;
- The seller’s price to the buyer is fixed or determinable, and

 
 
40

 
 
- Collection is reasonably assured.

Contract revenues are recognized when the manufacturing and installation of the medical equipments is completed.  Generally, the company receives total contract sum from clients in 3 installments. A 30% deposit is received from client when the contract is signed.  A second payment of 30% is received when the project commenced.  The final sum of the remaining portion is received after the construction is completed within 4 months.

Expected warranty liabilities. The Company warrants its products against defects in design, materials, and workmanship generally for one year. A provision for estimated future costs relating to warranty expense are recorded when products are shipped, and the provision is based upon our own historical claim experience.

Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements as of June 30, 2010.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
N/A.
 
ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

During the course of internal evaluation of the Company’s disclosure controls and procedures for the six months ended June 30, 2010, our accounting staff found the following misstatements in our previously reported financial statements in 2009 that require correction:

 
1.
The Company’s Annual Report on Form 10-K for the year ended December 31, 2009 to correct and reclassify the Company’s financial statements, notes, and related disclosure as relates to comply with paragraph 740-10-50-12 of the FASB Accounting Standards Codification; correction for a typographical error on the Company’s financial statements for the year ended December 31, 2008, and additional explanation to be included to clarify the statement of cash flows for the year ended December 31,2009.

 
2.
All Quarterly Reports on Form 10-Q/A filed for the interim fiscal periods in 2009 to correct and restate its financial statements, notes, and related disclosure as relates to changes in the classification of the fair value of warrants in accordance with to paragraph 815-40.15 of the FASB Accounting Standards Codification (EITF 07-05) as adopted on January 1, 2009 and the classification of the Company’s acquisition of Qingdao Liheng Textiles Co., Ltd as an impairment on investment.
 
Our management identified an improper classification of additional paid in capital items for the year ended December 31, 2007; which required overstated additional paid-in capital to be adjusted down by $4,855,640, and understated retained earnings to be adjusted up by $4,855,640. These adjustments will be made of the financial statements for the year ended December 31, 2009 and the six months ended June 30, 2010.

Our management determined that the misstatements identified above were due to not having internal personnel with sufficient expertise and knowledge of the requirements for disclosure of the information that have been collected and reported, as required under the securities laws and disclosures required under U.S. GAAP.  Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2010, such controls and procedures were ineffective and that such conditions gave rise to a material weakness in the Company’s internal controls over financial reporting as of June 30, 2010.

In light of the above-mentioned weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the six months ended June 30, 2010 on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our consolidated financial statements for the period ended June 30, 2010 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 
 
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Changes in Internal Control over Financial Reporting

Other than as disclosed above, no changes in the Company’s internal control over financial reporting have come to management’s attention during the Company’s last fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II
 
OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
To our knowledge, there is no material litigation pending or threatened against us.
 
ITEM 1A. RISK FACTORS
 
Not Applicable.
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
To our knowledge, there are no material defaults upon senior securities.
 
ITEM 4.  (REMOVED AND RESERVED)

 
ITEM 5.  OTHER INFORMATION
 
None.
 
ITEM 6.  EXHIBITS.

Exhibit No.
 
Description of Exhibit
31.1
 
Certification by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.
31.2
 
Certification by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.
32.1
 
Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.
32.2
 
Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.

 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SUNWAY GLOBAL INC.
     
Dated:   May 12, 2011
By:  
/s/ Liu Bo
 
Name: Liu Bo
 
Title: Chief Executive Officer

Dated:    May 12, 2011
By:  
/s/ Samuel Sheng
 
Name: Samuel Sheng
 
Title: Chief Financial Officer
 
 
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