Sunway Global Inc. - FORM 10-Q/A

Attached files

file	filename
EX-32.1 - Sunway Global Inc.	v213289_ex32-1.htm
EX-31.2 - Sunway Global Inc.	v213289_ex31-2.htm
EX-31.1 - Sunway Global Inc.	v213289_ex31-1.htm
EX-32.2 - Sunway Global Inc.	v213289_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 2

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

¨ 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 November 13, 2010, there were 18,499,736 outstanding shares of the Registrant's Common Stock, $0.0000001 par value.

EXPLANATORY NOTE

The Amendment No.2 to Sunway Global Inc.’s (the "Company", "Sunway") Quarterly Report on Form 10-Q/A No.2 for the quarter ended September 30, 2009 amends certain of the financial information included in Part I, Item 1, Note 19; and corrects typographical errors and clarify disclosure details in Notes 1, 4, 10, 14 and Item 4. No other information included in the original Form 10-Q, as amended by Amendment No.1 to and Form 10Q are 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 November14, 2009, 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	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
	PART II
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Removed and Reserved	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
SIGNATURES		49

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNWAY GLOBAL INC.

CONTENTS		PAGES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		4

CONSOLIDATED BALANCE SHEETS		5 - 6

CONSOLIDATED STATEMENTS OF INCOME		7 - 8

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		9

CONSOLIDATED STATEMENTS OF CASH FLOWS		10 - 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		12 – 38

ALBERT WONG & CO.

CERTIFIED PUBLIC ACCOUNTANTS

7th Floor, Nan Dao Commercial Building

359-361 Queen’s Road Central

Hong Kong

Tel : 2851 7954

Fax: 2545 4086

ALBERT WONG

B.Soc., Sc., ACA., LL.B.

CPA(Practising)

To:	The board of directors and stockholders of

Sunway Global Inc.

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying interim consolidated balance sheets, related consolidated statements of income, stockholders’ equity and cash flows statement of Sunway Global Inc. and consolidated subsidiaries as of September 30, 2009 and 2008, and for the three-month and nine-month periods then ended. These interim financial information statements are the responsibility of the company's management.

We conducted our review in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

Since our previous report dated November 12, 2009, it was determined that the consolidated financial statements needed restatement to make corrections as described in note 19.

Hong Kong	Albert Wong & Co.
November 12, 2009	Certified Public Accountants
Except for note 20 which is dated February 14, 2011

SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS

AS AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

(Stated in US Dollars)

	Notes	September 30,2009		December 31, 2008
		(Unaudited Restated)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	2(k)	$	4,860,548	$	15,189,941
Trade receivables, net	5		3,214,439		2,953,919
Inventories	8		649,024		590,738
Advances to suppliers			1,047,955		547,952
Prepayments			236,925		-
Tender deposits			119,144		112,735
Travel advances to directors	6		92,402		38,733
Advances to employees	7		297,250		429,804
Other receivables			199,434		-

Total current assets		$	10,717,121	$	19,863,822
Amount due from a related company	4		830		830
Restricted cash			311,916		378,366
Property, plant and equipment, net	9		8,117,438		5,069,871
Intangible assets, net	10		13,904,188		6,576,769
Deposit for the acquisition of subsidiary			-		7,725,445
Deposit for technology-based designs			4,405,786		1,750,751
Deposit for property, plant and equipment			1,411,606		-

TOTAL ASSETS		$	38,868,885	$	41,365,854

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	109,007	$	59,912
Income tax payable			172,452		632,893
Turnover and other taxes			21,386		406,839
Expected warranty liabilities	11		50,519		50,396
Customers deposits			300,428		-
Accrued liabilities			565,497		301,461
Other payables			8,705		15,168

Total current liabilities		$	1,227,994	$	1,466,669
Warrant liabilities			56,537,920		-

TOTAL LIABILITIES		$	57,765,914	$	1,466,669

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS (Continued)

AS AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

(Stated in US Dollars)

	Notes	September 30, 2009			December 31, 2008
		(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 September 30, 2009
and December 31, 2008 respectively	12	$	1		$	1

Common stock at $0.0000001 par
value; 100,000,000 shares authorized;
18,499,736 shares issued and
outstanding at September 30, 2009
and December 31, 2008 respectively			2			2
Additional paid-in capital			11,989,023			17,824,325
Statutory reserves			3,033,855			2,127,978
(Accumulated deficit)/retained earnings			(36,833,037	)		17,102,689
Accumulated other comprehensive income			2,913,127			2,844,190

		$	(18,897,029	)	$	39,899,185

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	38,868,885		$	41,365,854

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

		Nine months ended September 30,
		2009			2008
	Notes	(Restated)

Net revenues	17	$	8,819,247		$	14,074,768
Cost of net revenues	17		(3,068,381	)		(4,154,866	)
Gross profit		$	5,750,866		$	9,919,902

Selling expenses			(697,057	)		(279,167	)
General and administrative expenses			(2,097,560	)		(2,135,759	)

Income from operation		$	2,956,249		$	7,504,976
Interest expenses			(1,727	)		-
Interest income			52,284			44,698
Impairment on investment	18		(4,831,386	)		-
Change in fair value of warrants			13,363,953			-

Income before income taxes		$	11,539,373		$	7,549,674

Income taxes	14		(502,651	)		(1,132,451	)

Net income		$	11,036,722		$	6,417,223

Net income per share:
-Basic		$	0.60		$	0.46

-Diluted		$	0.36		$	0.22

Weighted average number of common stock
-Basic	13		18,499,736			14,003,444

-Diluted	13		30,763,019			28,690,904

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

		Three months ended September 30,
		2009			2008
	Notes	(Restated)

Net revenues	17	$	3,150,969		$	6,025,075
Cost of net revenues	17		(1,087,115	)		(1,790,475	)

Gross profit		$	2,063,854		$	4,234,600

Selling expenses			(335,787	)		(187,978	)
General and administrative expenses			(697,782	)		(700,544	)

Income from operation		$	1,030,285		$	3,346,078
Interest income			10,041			8,267
Change in fair value of warrants			2,429,394			-

Income before income taxes		$	3,469,720		$	3,354,345

Income taxes	14		(168,978	)		(484,486	)

Net income		$	3,300,742		$	2,869,859

Net income per share:
-Basic and diluted		$	0.18		$	0.16

-Diluted		$	0.11		$	0.10

Weighted average number of common stock
-Basic			18,499,736			18,446,045

-Diluted			30,323,548			27,587,392

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2008 AND

NINE MONTHS ENDED SEPTEMBER 30, 2009

(Stated in US Dollars)(Unaudited)(Restated)

										Additional					Retained			Accumulated
	Preferred			Preferred		No.				paid					earnings/			other
	Series			Series		shares		Common		in			Statutory		(accumulated			comprehensive
	A			B		outstanding		stock		capital			reserves		deficit)			income		Total

Balance, January 1, 2008	$	1		$	1		223,658	$	1	$	11,244,325		$	2,127,978	$	8,043,920		$	1,180,288	$	22,596,514
Conversion of Preferred Series A into Common Stock		(1	)		-		13,711,831		-		1			-		-			-		-
Conversion of Preferred Series B into Common Stock		-			-		148,140		-		-			-		-			-		-
Conversion of Warrant Series J into Common Stock		-			-		4,416,107		1		6,579,999			-		-			-		6,580,000
Net income		-			-		-		-		-			-		9,058,769			-		9,058,769
Foreign currency translation adjustment		-			-		-		-		-			-		-			1,663,902		1,663,902

Balance, December 31,2008 (restated)	$	-		$	1		18,499,736	$	2	$	17,824,325		$	2,127,978	$	17,102,689		$	2,844,190	$	39,899,185

Balance, January 1, 2009	$	-		$	1		18,499,736	$	2	$	17,824,325		$	2,127,978	$	17,102,689		$	2,844,190	$	39,899,185
Net income		-			-		-		-		-			-		11,036,722			-		11,036,722
Appropriations to statutory Reserves		-			-		-		-		-			905,877		(905,877	)		-		-
Reclassification of warrants from equity to derivative liabilities		-			-		-		-		(3,990,942	)		-		(65,910,931	)		-		(69,901,873	)
Foreign currency translation Adjustment		-			-		-		-		-			-		-			68,937		68,937

Balance, September 30, 2009 (restated)	$	-		$	1		18,499,736	$	2	$	13,833,383		$	3,033,855	$	(38,677,397	)	$	2,913,127	$	(18,897,029	)

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

	Nine months ended September 30,
	2009			2008
	(Restated)
Cash flows from operating activities
Net income	$	11,036,722		$	6,417,223
Depreciation		730,606			588,069
Amortization		743,651			638,114
Loss on disposal of fixed assets		9,553			-
Change in fair value of warrants		(13,363,953	)		-
Impairment on investment		4,831,386			-

Adjustments to reconcile net income to net cash provided by operating activities:
Trade receivables, net		(253,167	)		(1,383,854	)
Inventories		(56,811	)		(142,793	)
Advances to suppliers		(320,629	)		(747,483	)
Prepayments		(236,756	)		90,978
Tender deposits		(6,131	)		(62,756	)
Travel advances to shareholders		(53,536	)		(31,345	)
Advances to employees		133,501			120,991
Other receivables		445,950			-
Accounts payable		48,915			(194,875	)
Income tax payable		(461,647	)		291,223
Turnover and other taxes		(357,705	)		315,610
Customers deposits		300,213			(217,655	)
Accrued liabilities		1,154			(5,512	)
Other Payables		255,501			-

Net cash provided by operating activities	$	3,426,817		$	5,675,935

Cash flows from investing activities
Purchase of plant and equipment	$	(4,287,278	)	$	(1,103,720	)
Purchase of intangible assets		(7,027,411	)		-
Amount due from a director		-			1,074,798
Restricted cash		66,450			99,019
Advances to a related company		-			611,191
Deposit for technology-based designs		(2,648,886	)		-
Deposit for property, plant and equipment		-			(2,917,536	)

Net cash used in investing activities	$	(13,897,125	)	$	(2,236,248	)

Cash flows from financing activities
Proceeds from exercise of Series J Convertible	$	-		$	6,530,000

Net cash provided by financing activities	$	-		$	6,530,000

SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

	Nine months ended September 30,
	2009		2008
	(Restated)

Net in cash and cash equivalents (used)/sourced	$	(10,470,308)	$	9,969,687

Effect of foreign currency translation on cash and cash equivalents		140,915		499,689

Cash and cash equivalents–beginning of period		15,189,941		5,820,100

Cash and cash equivalents–end of period	$	4,860,548	$	16,289,476

SUPPLEMENTAL NON-CASH DISCLOSURES:

During the nine months ended September 30, 2009 and 2008, an amount of $1,752,695 and nil were transferred from “deposit for the acquisition of technology-based design” to “intangible assets”, respectively.

During the nine months ended September 30, 2009 and 2008, an amount of $7,725,445 and nil were transferred from “deposit for the acquisition of subsidiary” to “acquisition of subsidiary, net of cash acquisition”.

Supplementary cash flow information:
Interest received	$	52,284	$	44,698
Interest paid		1,727		-
Tax paid		964,297		1,101,281

Regarding the non-cash disclosures of Liheng acquisition, the balance was transferred to the following assets, liabilities and statements of income:

Cash and cash equivalents	$	73,193
Property, plant and equipment		955,208
Land use rights		1,133,323
Other receivables		1,127,949
Turnover and other taxes		28,477
Other payables		(424,091	)
Impairment on investment		4,831,386
	$	7,725,445

See accompanying notes to consolidated financial statements

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(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 (“US GAAP”) and have been consistently applied in the presentation of financial statements.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

(a)	Method of Accounting (Continued)

The interim results of operations are not necessarily indicative of the results to be expected for the fiscal period ending September 30, 2009. The Company’s consolidation balance sheet as of December 31, 2008 has been taken from the Company’s consolidation balance sheet as of the date. All other financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows for the period presented.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC and Hong Kong, the accounting standards used in the places of their domicile. The accompanying condensed interim consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company's subsidiaries to present them in conformity with US GAAP.

(b)	Principles of Consolidation

The consolidated financial statements, which include the Company and its subsidiaries, are complied 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

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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.

(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 lease terms
Technology-based design	10 years

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f)	Property, plant and equipment

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 plant and equipment are as follows:

Buildings	20 years
Machinery and equipment	6 years
Molding	10 years
Computer software	3 - 10 years
Office equipment and motor vehicles	5 - 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 No. 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.

During the reporting period, there was no impairment loss.

(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 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.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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 nine months or less to be cash equivalents. The Company maintains bank accounts in the PRC and only HSBC in Hong Kong. The Company does not maintain any bank accounts in the United States of America.

	September 30, 2009		December 31, 2008
Bank of Communications, Branch of
Daqing city economic zone	$	4,691,983	$	9,606,188
Commercial Bank, Daqing City		-		4,536,667
Agricultural Bank of China		63,064		930,332
China Construction Bank, Beijing Branch		46,787		-
Qingdao bank		17,540		-
Only HSBC in Hong Kong		35,174		109,151
Cash on hand		6,000		7,603
	$	4,860,548	$	15,189,941

(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.

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 installments. 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 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.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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 net revenues

Cost of net revenues 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 $56,807 and $154,839, cost of sales were $9,865 and nil, selling expenses were $5,805 and nil for the nine months ended September 30, 2009 and 2008 respectively.

(q)	Advertising

The Group expensed all advertising costs as incurred. Advertising expenses included in selling expenses were $585 and $46,779 for the nine months ended September 30, 2009 and 2008 respectively.

(r)	Shipping and handling

All shipping and handling are expensed as incurred. Shipping and handling expenses included in selling expenses, general and administrative expenses, and cost of net revenues were $23,091 and $16,477 for the nine months ended September 30, 2009 and 2008 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 $86,191 and $18,197 for the nine months ended September 30, 2009 and 2008 respectively.

(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 and selling expenses were $93,579 and $18,387 for the nine months ended September 30, 2009 and 2008 respectively.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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:

	September 30, 2009		December 31, 2008		September 30, 2008
Twelve months ended
RMB : USD exchange rate		-		6.8542		-
Nine months ended
RMB : USD exchange rate		6.8376		-		6.8551
Average three months ended
RMB : USD exchange rate		6.8411		-		6.8529
Average nine months ended
RMB : USD exchange rate		6.8425		-		6.9989

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.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(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, and Sunway’s Articles of Association, SWT and Sunway’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.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(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 Company does not expect that the implementation of ASC Update No. 2009-05 will have a material effect on its 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 Company does not expect that the implementation of ASC Update No. 2009-12 will have a material effect on its financial position or results of operations.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(y)	Recent accounting pronouncements (continued)

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.

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.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(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 September 30, 2009 and December 31, 2008. The Group performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

As of September 30, 2009 and December 31, 2008, the Group’s bank deposits were all placed with banks in the PRC where there is currently no rule or regulation in place for obligatory insurance of bank accounts.

For the nine months ended September 30, 2009 and 2008, except for one sale of SADP in Europe, all of the Group’s sales were generated from the PRC.

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 nine months ended September 30,
	2009		2008
Customer A	$	906,389	$	1,550,244
Customer D		-		1,500,236

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

	September 30, 2009		December 31, 2008

Customer A	$	325,799	$	499,583
Customer B		480,658		396,822
Customer C		-		387,263
Customer D		-		371,218
Customer E		-		325,129
Customer F		317,636		315,570
Customer H		286,686		-
Customer I		277,874		-

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

4.	AMOUNT DUE FROM A RELATED COMPANY

As at December 31, 2008, the 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

	September 30, 2009			December 31, 2008

Trade receivables, gross	$	3,222,873		$	2,962,333
Provision for doubtful debts		(8,434	)		(8,414	)
	$	3,214,439		$	2,953,919

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

An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2009 and December 31, 2008 is as follows:

	September 30, 2009		December 31, 2008

Balance at beginning of period/year	$	8,414	$	7,884
Foreign exchange adjustment		20		530
Balance at end of period/year	$	8,434	$	8,414

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.

6.	TRAVEL ADVANCES TO DIRECTORS

Travel advances were made to directors. These directors are also engaging in 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 an analysis of the outstanding accounts. They are unsecured, interest free and repayable on demand.

	September 30, 2009		December 31, 2008

Bo Liu	$	39,890	$	23,495
Deli Liang		52,512		15,238
	$	92,402	$	38,733

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

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:

	September 30, 2009			December 31, 2008

Beginning balance, January 1	$	429,804		$	548,364
Add: Advanced during the period/year		435,997			659,177

Less: Transferred to income statement		(185,390	)		(406,262	)
Recollected from employees		(383,161	)		(371,475	)
Ending balance	$	297,250		$	429,804

8.	INVENTORIES

Inventories comprise the followings:

	September 30, 2009		December 31, 2008

Finished goods	$	138,783	$	218,448
Work in progress		23,197		188,855
Raw materials		487,044		183,435
	$	649,024	$	590,738

9.	PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net comprise the followings:

	September 30, 2009			December 31, 2008
At cost
Building	$	1,847,967		$	1,447,402
Machinery and equipment		680,302			1,116,941
Moldings		6,506,045			4,155,598
Computer software		2,100,715			2,073,181
Office equipment and motor vehicles		410,438			288,736

	$	11,545,467		$	9,081,858
Less: accumulated depreciation		(4,298,298	)		(4,011,987	)

	$	7,247,169		$	5,069,871
Construction in progress		870,269			-

	$	8,117,438		$	5,069,871

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

9.	PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)

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 is included in the statement of income and as follows:

	For the nine months ended September 30,
	2009		2008
Cost of net revenues	$	619,907	$	577,959
General and administrative expenses		78,897		10,110
Selling expenses		31,802		-
	$	730,606	$	588,069

10.	INTANGIBLE ASSETS, NET

Intangible assets, net are as follows:

	September 30, 2009			December 31, 2008
Land use rights, at cost	$	2,494,931		$	1,354,308
Technology-based design, at cost		13,254,223			6,320,577

	$	15,749,154		$	7,674,885
Less: accumulated amortization		(1,844,966	)		(1,098,116	)

	$	13,904,188		$	6,576,769

Patent of the Pneumatic Tube System has been registered with the PRC government under Serial No. 264-2004 2005 with a registration fee of $347 (RMB 2,800) which was expensed in 2003. This amount was immaterial for capitalization.

The Group acquired the rights to use a parcel of land totaling 26,522 square meters, for a consideration of $1,149,788 (RMB9,282,700), located at Daqing Hi-Tech Industry Development Zone, Daqing, Heilongjiang in the People’s Republic of China 163316 for a term of 46 years from September 16, 2005 to June 13, 2052. The land has been used to build the Group’s facility.

The Group acquired the rights to use a parcel of land totaling 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 land has been used to build the Liheng’s facility.

The issuance of land certificate is in progress, we have already paid in cash. It is totaling 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. The land has been used to build the Liheng’s facility.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

10.	INTANGIBLE ASSETS, NET (CONTINUED)

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 for the nine months ended 2009 and 2008 were $743,651 and $638,114 respectively.

11.	EXPECTED WARRANTY LIABILITIES

An analysis of the expected warranty liabilities as at September 30, 2009 and December 31, 2008 is as follows:

	September 30, 2009		December 31, 2008

Balance at beginning of period/year	$	50,396	$	55,351
Warranty expense for the period/year		-		(8,533	)
Foreign currency difference		123		3,578

Balance at end of period/year	$	50,519	$	50,396

12.	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 purchases 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 are 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

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

12.	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 ASC 450 - 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.

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

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

13.	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 nine months ended September 30,
	2009		2008
Earnings:
Earnings for the purpose of basic earnings per share	$	11,036,722	$	6,417,223
Effect of dilutive potential common stock		-		-

Earnings for the purpose of dilutive earnings per share	$	11,036,722	$	6,417,223

Number of shares:
Weighted average number of common stock for the purpose of basic earnings per share		18,499,736		14,003,444
Effect of dilutive potential common stock
-conversion of Series A
convertible preferred stock		-		1,851,598
-conversion of Series B
convertible preferred stock		4,814,820		4,906,191
-conversion of Warrant Series A		2,940,791		2,311,283
-conversion of Warrant Series B		1,160,176		748,849
-conversion of Warrant Series J		-		1,848,402
-conversion of Warrant Series C		2,432,728		521,504
-conversion of Warrant Series D		914,768		2,499,633

Weighted average number of common stock for the purpose of dilutive earnings per share		30,763,019		28,690,904

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

14.	INCOME TAXES

The Company is registered in the State of Nevada whereas its subsidiary, WTL being incorporated in the British Virgin Islands is not subject to any income tax and conducts all of its business through its PRC subsidiary, SWT, Sunway and Liheng. (see note 1).

SWT, Sunway and Liheng, being registered in the PRC, are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at a statutory rate of 25%.

However, Sunway is a high technology company, and in accordance with the relevant regulations regarding the favorable 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.

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

	Nine months ended September 30,
	2009			2008

U.S. statutory rate		34	%		34	%
Foreign income not recognized in the U.S.		(34	)%		(34	)%
PRC Enterprise Income Tax		25	%		25	%
Tax holiday		(10	)%		(10	)%

Provision for income tax		15	%		15	%

The provision for income taxes consists of the following:

	Nine months ended September 30,
	2009		2008

Current tax – PRC EIT	$	502,651	$	1,132,451
Deferred tax provision		-		-

Income tax expenses	$	502,651	$	1,132,451

The Reconciliation of non-taxable and non-tax deductible items is as follows:

	Nine months ended September 30,
	2009			2008
Income before taxation (as per reported)	$	11,539,373		$	6,417,223
Add: Impairment on investment		4,831,386			-
Other non-tax deductible items		344,201			1,132,450
Less: Change in fair value of warrants		(13,363,953	)		-


Adjusted PRC EIT taxable income	$	3,351,007		$	7,549,673

15.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade receivables, other receivables, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and the availability of the market rates of interest.

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

16.	COMMITMENTS AND CONTINGENCIES

The Group has entered into a tenancy agreement for factory expiring through 2010. Total rental expenses for the nine months ended September 30, 2009 and for the year ended December 31, 2008 amounted to $72,477 and $154,839 respectively.

As at September 30, 2009, the Group’s commitments for minimum lease payments under these leases for the next one year and thereafter are as follows:

September 30, 2010	$	70,009

	$	70,009

As of September 30, 2009, the Group had outstanding commitments with respect to the construction in progress, amounted to $8,180.

17.	SEGMENT INFORMATION

The Group currently is engaged in the manufacturing and selling of logistic transport systems. 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”). These three types of workstation are of the same function but with different product design.

Net revenues and cost of revenues by product:

For the Nine
Months ended
September 30,	Workstation			Workstation			Workstation
2009	Type A			Type B			Type C			SADP			Other			Consolidated
Net revenues	$	3,157,837		$	1,177,786		$	3,727,970		$	672,276		$	83,378		$	8,819,247
Cost of net revenues		(999,727	)		(364,953	)		(1,271,340	)		(361,927	)		(70,434	)		(3,068,381	)

	$	2,158,110		$	812,833		$	2,456,630		$	310,349		$	12,944		$	5,750,866

For the Nine
Months ended
September 30,	Workstation			Workstation			Workstation
2008	Type A			Type B			Type C			SADP			Other		Consolidated
Net revenues	$	2,880,802		$	5,435,885		$	4,400,717		$	1,357,364		$	-	$	14,074,768
Cost of net revenues		(751,548	)		(1,555,025	)		(1,211,795	)		(636,498	)		-		(4,154,866	)

	$	2,129,254		$	3,880,860		$	3,188,922		$	720,866		$	-	$	9,919,902

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

17.	SEGMENT INFORMATION (Continued)

The Group’s operations are located in the PRC. All revenue is from customers in the PRC. 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.

18.	ACQUISITIONS

In order to expand, on August 31, 2008, the Group entered an agreement with a third party, Qingdao Liheng Textiles Co, Ltd, to acquire its 100% interest of it, for a cash consideration of approximately $7.29 million (RMB$50,000,000). The whole amount of $7,725,445 was paid and classified as “Deposit for the acquisition of subsidiary” as at December 31, 2008. The transaction was planned to be finished at December 1, 2008, but due to the PRC authority processing delay, was completed on January 16, 2009.

Details of net assets acquired and impairment are as follows:

Purchase consideration	$	7,725,445

Less: Fair value of net assets acquired (see below)		(2,894,059	)

Impairment on investment	$	4,831,386

The assets and liabilities arising from the acquisition, provisionally determined, are as follows:

	Fair value
Cash and cash equivalents	$	73,193
Property, plant and equipment		955,208
Land use rights		1,133,323
Other receivables		1,127,949
Turnover and other taxes		28,477
Other payables		(424,091	)

Net assets acquired	$	2,894,059

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)(Unaudited)

19.	RESTATEMENTS

On June 5, 2007 and as discussed in Note 12 above, the Company issued a number of series of warrants to certain investors. Each warrant is convertible into 1 share of common stock or a total of 14,068,605 shares of common stock. The warrants have a three year life and the Series A warrants are exercisable at an equivalent price of $1.76 per share, the Series B are exercisable at an equivalent price of $2.30 per share, the Series C are exercisable at an equivalent price of $1.94 per share and the Series D are exercisable at an equivalent price of $2.53 per share.

During the year-end audit of December 31, 2009 financial statements, the Company had discovered that the warrants prescribed above were not appropriately accounted in accordance with the provisions of FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”) (previously EITF 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock”) which was effective January1, 2009. For quarterly reporting periods during 2009 or effective January 1, 2009, the Company incorrectly recorded these warrants under equity treatment. These warrants contained down-round protection (full-ratchet down round protection) and were not considered indexed to the Company’s own stock, and as such, all future changes in the fair value of these warrants should have been recognized in earnings for all reporting periods effective January 1, 2009 until such time as the warrants are exercised or expire.

As a result of the amendment 1, the Company restated its financial statements by appropriately adopting ASC 815 whereby recording these warrants from equity to liability measured at fair value with changes in fair value recognized in earnings for each reporting periods and recording a cumulative-effect adjustment to the opening balance of retained earnings.

As a result of the restatement of the consolidated balance sheet as of December 31, 2007 that has carryover effect to December 31, 2008 and September 30, 2009, the amendment 2 further decreased the additional paid-in capital from $18,689,023 to $13,833,383. The retained earnings/(accumulated deficit) decreased from $(43,533,037) to $(38,677,397). The assets, liabilities and total stockholders’ equity have no changes.

The changes from amendment 1 and amendment 2 are listed in separate columns in the following:

SUNWAY GLOBAL INC.

BALANCE SHEETS

ITEMS	Original							Restated
			September 30, 2009
	(Unaudited)		Amendment 1			Amendment 2		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,860,548		-				$	4,860,548
Trade receivables, net		3,214,439							3,214,439
Inventories		649,024		-					649,024
Advances to suppliers		1,047,955		-					1,047,955
Prepayments		236,925		-					236,925
Tender deposits		119,144		-					119,144
Travel advances to directors		92,402		-					92,402
Advances to employees		297,250		-					297,250
Other receivables		199,434		-					199,434

Total current assets	$	10,717,121						$	10,717,121
Amount due from a related company		830		-					830
Restricted cash		311,916		-					311,916
Property, plant and equipment, net		8,117,438		-					8,117,438
Intangible assets, net		13,904,188		-					13,904,188
Deposit for the acquisition of subsidiary		-		-					-
Deposit for technology-based designs		4,405,786		-					4,405,786
Deposit for property, plant and equipment		1,411,606		-					1,411,606
Goodwill		4,831,386		(4,831,386	)		0		-

TOTAL ASSETS	$	43,700,271		(4,831,386	)		0	$	38,868,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	109,007		-				$	109,007
Income tax payable		172,452		-					172,452
Turnover and other taxes		21,386		-					21,386
Expected warranty liabilities		50,519		-					50,519
Customers deposits		300,428		-					300,428
Accrued liabilities		565,497		-					565,497
Other payables		8,705		-					8,705

Total current liabilities	$	1,227,994		-				$	1,227,994

Warrant liabilities	$	-		56,537,920			0	$	56,537,920
TOTAL LIABILITIES	$	1,227,994		56,537,920			0	$	57,765,914

SUNWAY GLOBAL INC.

BALANCE SHEETS (Continued)

ITEMS	Original								Restated
			September 30, 2009
	(Unaudited)		Amendment 1			Amendment 2			(Unaudited)
STOCKHOLDERS’ EQUITY
Series B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at September 30, 2009	$	1		-						1

Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at September 30, 2009		2		-						2
Additional paid-in capital		22,679,965		(3,990,942	)		(4,855,640	)		13,833,383
Statutory reserves		3,033,855		-						3,033,855
Retained earnings/(accumulated deficit)		13,845,104		(57,378,141	)		4,855,640			(38,677,397	)
Accumulated other comprehensive income		2,913,350		(223	)		0			2,913,127

	$	42,472,277		(61,369,306	)		0		$	(18,897,029	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	43,700,271		(4,831,386	)		0		$	38,868,885

ITEMS	Original							Restated
			December 31, 2008
	(Unaudited)		Amendment 1		Amendment 2			(Unaudited)
STOCKHOLDERS’ EQUITY
Series B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at December 31, 2008	$	1							1

Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at December 31, 2008		2							2
Additional paid-in capital		22,679,965		0		(4,855,640	)		17,824,325
Statutory reserves		2,127,978							2,127,978
Retained earnings		12,247,049		0		4,855,640			17,102,689
Accumulated other comprehensive income		2,844,190							2,844,190

	$	39,899,185		0		0		$	39,899,185

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	41,365,854		0		0		$	41,365,854

SUNWAY GLOBAL INC.

STATEMENT OF INCOME (Continued)

ITEMS	Original								Restated
	Nine months ended September 30, 2009
	(Unaudited)			Amendment 1			Amendment 2		(Unaudited)

Net revenues	$	8,819,247			-				$	8,819,247
Cost of net revenues		(3,068,381	)		-					(3,068,381	)

Gross profit	$	5,750,866			-				$	5,750,866

Selling expenses		(697,057	)							(697,057	)
Loss on disposal of fixed assets		(9,553	)		9,553			0		-
General and administrative expenses		(2,087,917	)		(9,643	)		0		(2,097,560	)

Income from operation	$	2,956,339			(90	)		0	$	2,956,249
Interest expenses		(1,727	)		-					(1,727	)
Interest income		51,971			313			0		52,284
Impairment on investment		-			(4,831,386	)		0		(4,831,386	)
Change in fair value of warrants		-			13,363,953			0		13,363,953

Income before income taxes	$	3,006,583			8,532,790			0	$	11,539,373

Income taxes		(502,651	)		-					(502,651	)

Net income	$	2,503,932			8,532,790			0	$	11,036,722

Net income per share:
-Basic	$	0.14			0.46			0	$	0.60

-Diluted	$	0.08			0.28			0	$	0.36

Weighted average number of common stock
-Basic		18,499,736			-					18,499,736

-Diluted		30,763,019			-					30,763,019

SUNWAY GLOBAL INC.

STATEMENTS OF INCOME

ITEMS	Original							Restated
	Three months ended September 30,2009
	(Unaudited)			Amendment 1		Amendment 2		(Unaudited)

Net revenues	$	3,150,969			-			$	3,150,969
Cost of net revenues		(1,087,115	)		-				(1,087,115	)

Gross profit	$	2,063,854			-			$	2,063,854

Selling expenses		(335,787	)		-				(335,787	)
General and administrative expenses		(697,782	)		-				(697,782	)

Income from operation	$	1,030,285			-			$	1,030,285
Change in fair value of warrants		-			2,429,394		0		2,429,394
Interest income		10,041			-				10,041

Income before income taxes	$	1,040,326			2,429,394		0	$	3,469,720

Income taxes		(168,978	)		-				(168,978	)

Net income	$	871,348			2,429,394		0	$	3,300,742

Net income per share:
-Basic and diluted	$	0.05			0.13		0	$	0.18

-Diluted	$	0.03			0.08		0	$	0.11

Weighted average number of common stock
-Basic		18,499,736			-				18,499,736

-Diluted		30,323,548			-				30,323,548

SUNWAY GLOBAL INC.

STATEMENTS OF CASH FLOWS

ITEMS	Original								Restated
	Nine months ended September 30,2009
	(Unaudited)			Amendment 1			Amendment 2		(Unaudited)
Cash flows from operating activities
Net income	$	2,503,932			8,532,790			0	$	11,036,722
Depreciation		730,606			-					730,606
Amortization		743,651			-					743,651
Loss on disposal of fixed assets		9,553			-					9,553
Change in fair value of warrants		-			(13,363,953	)		0		(13,363,953	)
Impairment on investment		-			4,831,386			0		4,831,386

Adjustments to reconcile net income to net cash provided by operating activities:
Trade receivables, net		(253,167	)		-					(253,167	)
Inventories		(56,811	)		-					(56,811	)
Advances to suppliers		(498,413	)		177,784			0		(320,629	)
Prepayments		862,716			(1,099,472	)		0		(236,756	)
Tender deposits		(6,131	)		-					(6,131	)
Travel advances to shareholders		(53,536	)		-					(53,536	)
Advances to employees		133,501			-					133,501
Other receivables		(199,292	)		645,242			0		445,950
Accounts payable		48,915			-					48,915
Income tax payable		(461,647	)		-					(461,647	)
Turnover and other taxes		(386,164	)		28,459			0		(357,705	)
Customers deposits		300,213			-					300,213
Accrued liabilities		1,154								1,154
Other Payables		(168,590	)		424,091			0		255,501

Net cash provided by operating activities	$	3,250,490			176,327			0	$	3,426,817

Cash flows from investing activities
Purchase of plant and equipment	$	(2,808,483	)		(1,478,795	)		0	$	(4,287,278	)
Purchase of intangible assets		(6,916,545	)		(110,866	)		0		(7,027,411	)
Restricted cash		66,450			-					66,450
Deposit for moulding		(1,410,596	)		1,410,596			0		-
Deposit for technology-based designs		(2,648,886	)		-					(2,648,886	)
Reversal of deposit for acquisition of subsidiary		7,725,445			(7,725,445	)		0		-
Acquisition of subsidiary, net of cash acquired		(7,652,252	)		7,652,252			0		-

Net cash used in investing activities	$	(13,644,867	)		(252,258	)		0	$	(13,897,125	)

Cash flows from financing activities	$	-			-				$	-

Net cash provided by financing activities	$	-			-				$	-

SUNWAY GLOBAL INC.

STATEMENTS OF CASH FLOWS (Continued)

ITEMS	Original								Restated
	Nine months ended September 30,2009
	(Unaudited)			Amendment 1			Amendment 2		(Unaudited)

Net in cash and cash equivalents used	$	(10,394,377	)		(75,931	)		0	$	(10,470,308	)
Effect of foreign currency translation on cash and cash equivalents		64,984			75,931			0		140,915
Cash and cash equivalents–beginning of period		15,189,941			-					15,189,941

Cash and cash equivalents–end of period	$	4,860,548			-				$	4,860,548

Supplementary cash flow information:
Interest received	$	51,971			313			0	$	52,284
Interest paid		1,727			-					1,727
Tax paid		964,297			-					964,297

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 and medicine dispensing systems and equipment that are principally used by hospitals and other medical facilities in the PRC. Currently our Company is the only producer of two products in the PRC. We have served approximately 300 customers in the PRC from our facilities in Daqing and Qingdao. We generate our revenue from sales in two product categories: pneumatic transport systems (“PTS”) and Sunway Automatic Dispensing and Packing (“SADP”). We forecast that our company’s third product, and advanced automatic dispensing system, will be introduced to the market in the first quarter of 2010.

Our sales were negatively affected by the global financial crisis and uncertainty in the market caused by recent government reforms to medical institutions in the PRC in nine months ended September 30, 2009. We believe the global liquidity crisis has affected all businesses. However, unlike other businesses, our strong balance sheet and liquidity position should enable us to not only weather the current economic environment but potentially benefit and continue to execute growth strategies and pursue opportunities as they arise.

This discussion and analysis focuses on the business results of Daqing Sunway, comparing its results in the three and nine month periods ended September 30, 2009 to the three and nine month periods ended September 30, 2008.

Three-month period ended September 30, 2009 and September 30, 2008

Results of Operations

In the three months ended September 30, 2009, the Company’s net revenues, gross profit and operation income decreased quickly as compared with the same period of 2008, but operating expenses increased during the same periods. These decreases are primarily attributable to the departure of one of our sales managers, who left to set up his own company in the fourth quarter of 2008. However, in the third quarter of 2009, we hired a new vice-president of sales and have been to perfect our sales system. We believe that an improved sales network and the pending introduction of a new product- —an advanced automatic dispensing system —to the market will increase our sales in 2010. Our new product is currently undergoing testing and is expected to be introduced to the market in the first quarter of 2010.

The following table summarizes the results of our operations during the three months ended September 30, 2009 and 2008, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended September 30, 2009 and 2008.

	Three Months Ended September 30,
	2009			2008			Change			Change rate
Net Revenue	$	3,150,969		$	6,025,075		$	(2,874,106	)		(47.70	)%
Cost of net revenue	$	1,087,115		$	1,790,475		$	(703,360	)		(39.28	)%
Gross Profit	$	2,063,854		$	4,234,600		$	(2,170,746	)		(51.26	)%
Gross Margin		65.50	%		70.28	%		-			(4.78	)%
Operating Income	$	1,030,285		$	3,346,078		$	(2,315,793	)		(69.21	)%
Change in fair value of warrants	$	2,429,394		$	-		$	2,429,394				-
Net Income	$	3,300,742		$	2,869,859		$	430,883			15.10	%
Net profit margin		104.75	%		47.63	%		-			57.12	%

Net Revenue

Net revenue for the three months ended September 30, 2009, which resulted entirely from sales, was $3,150,969, a decrease of 47.70% as compared with net revenue of $6,025,075 for the three months ended September 30, 2008. In the three months ended September 30, 2009, we sold 542 workstations, a decrease of 46.60% as compared with 1,015 workstations sold in the three months ended September 30, 2008. During the same period ended September 30, 2009, we also sold two units of SADP, a decrease of 33.33% as compared with three units of SADP in the three months ended September 30, 2008. The decrease was due primarily to (i) a decline in hospital-related investment due to governmental reforms requiring pharmacies to be operated outside of and separate from hospitals in the PRC; (ii) the departure of one of our sales managers, who left to set up his own company; and (iii) our inability to boost morale in our management personnel, who have been constrained in their efforts to attract new investors by the large number of investor warrants outstanding.

The following table breaks down our product categories as percentage of total net revenue.

	Three Months Ended September 30,
	2009					2008
	sales		% of total sales			Sales		% of total sales
PTS	$	2,913,590		92.47	%	$	5,193,310		86.19	%
SADP	$	237,379		7.53	%	$	831,765		13.81	%
Total net revenue	$	3,150,969		100.00	%	$	6,025,075		100.00	%

Gross Profit

Gross profit decreased 51.26% to $2,063,854 for the three months ended September 30, 2009, as compared to $4,234,600 for the three months ended September 30, 2008. Our gross profit margin dropped 4.78% from70.28% as of the three months ended September 30, 2008 to 65.50% as of the same period of 2009, mainly due to a decrease in product volume caused the rise of average fixed cost per unit.

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

	Three Months Ended September 30,
	2009					2008
	US$		Gross profit margin			US$		Gross profit margin

Gross Profit	$	2,063,854		65.50	%	$	4,234,600		70.28	%

Income from Operations

Operating income decreased 69.21% to $1,030,285 for the three months ended September 30, 2009, as compared to $3,346,078 for the three months ended September 30, 2008. The decrease was primarily attributable to a decrease in sales and increase in operating expenses.

Cost of Net Revenue

Cost of net revenue decreased to $1,087,115 for the three months ended September 30, 2009, representing a 39.28% decrease as compared with $1,790,475 for the same period of 2008. The decrease is primarily due to a decrease in sales and decrease in product volume caused by the rise of average fixed cost per unit.

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

	Three Months Ended September 30,
	2009		2008		Change
Cost of net revenue	$	1,087,115	$	1,790,475		(39.28	)%

Operating Expenses

Operating expenses were $1,033,569 for the three months ended September 30, 2009, an increase as compared with $888,522 for the same period of 2008. The increase was primarily attributable to (1) selling expenses increased $147,809 or 78.63% to $335,787 in the three months ended September 30, 2009 from $187,978 for the same period of 2008; and (2) general and administrative expenses decreased $697,782 or 0.39% in the three months ended September 2009 from $700,544 for the same period of 2008. In the three months ended September 2009, we have added 31 employees to our sales force and direct sales offices, which caused a sharp increase in selling expenses.

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

	Three Months Ended September 30,
	2009		2008		Change
Selling expenses	$	335,787	$	187,978		78.63	%
General & Administrative expenses	$	697,782	$	700,544		(0.39	)%
Total operating expenses	$	1,033,569	$	888,522		16.32	%

Changes in fair value of warrants

Changes in fair value of warrants were $2,429,394 for the three months ended September 30, 2009. 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 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.

Net Income

Net income was $3,300,742 for the three months ended September 30, 2009, a 15.01% increase as compared with $2,869,859 for the same period of 2008. In the three months ended June 30, 2009, our net income was impacted by a non-cash income of $2,429,394 unrelated to the Company’s operations. Excluding this $2,429,394 non-cash income of change in fair value of warrants, the Company’s net income from operations for the three months ended September 30, 2009 would have been $871,348, representing the third quarter of 2008 to the same period of 2009 net income fall of 69.64%.

Earnings Per Share

Basic and diluted earnings per share for the three months ended September 30, 2009 were $0.18 and $0.11 compared to $0.16 and $0.10 for the same period of 2008. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,446,045 for the three months ended September 30, 2009 and September 30, 2008, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 30,323,548 and 27,587,392 for the three months ended September 30, 2009 and September 30, 2008, respectively.

Nine-month period ended September 30, 2009 and September 30, 2008

Results of Operations

In the nine months ended September 30, 2009, our company’s net revenue, gross profit and operation income decreased as compared with the same period of 2008, but operating expenses increased quickly during the same periods. The decreases are primarily attributable to (i) negative effects of the global financial crisis; (ii) a decline in hospital-related investment due to governmental reforms requiring pharmacies to be operated outside of and separate from hospitals in the PRC; (iii) the departure of one of our sales managers, who left to set up his own company; and (iv) our inability to boost morale in our management personnel, who have been constrained in their efforts to attract new investors by the large number of investor warrants outstanding. We recently hired a new vice-president of sales in the third quarter of 2009, and have started to perfect our company’s sales system. We believe that an improved sales network and the pending introduction of a new product- an advanced automatic dispensing system - will increase our sales in 2010. Our new product is currently undergoing testing and is expected to be introduced to the market in the first quarter of 2010.

The following table summarizes the results of our operations during the nine months ended September 30, 2009 and 2008, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the nine months ended September 30, 2009 and 2008.

	Nine Months Ended September 30,
	2009			2008			Change			Change rate
Net Revenue	$	8,819,247		$	14,074,768		$	(5,255,521	)		(37.34	)%
Cost of net revenue	$	3,068,381		$	4,154,866		$	(1,086,485	)		(26.15	)%
Gross Profit	$	5,750,866		$	9,919,902		$	(4,169,036	)		(42.03	)%
Gross Margin		65.21	%		70.48	%		-			(5.27	)%
Operating Income	$	2,956,249		$	7,504,976		$	(4,548,727	)		(60.61	)%
Impairment on investment	$	4,831,386		$	-			4,831,386			-	%
Change in fair value of warrants	$	13,363,953		$	-		$	13,363,953			-	%
Net Income	$	11,036,722		$	6,417,223		$	(4,619,499	)		(71.99	)%
Net profit margin		125.14	%		45.59	%		-			79.55	%

Net Revenue

Net revenue for the nine months ended September 30, 2009, which resulted entirely from sales, was $8,819,247, a decrease of 37.34% as compared with net revenue of $14,074,768 for the nine months ended September 30, 2008. In the nine months ended September 30, 2009, we sold 1,524 workstations, a decrease of 40.28% as compared with 2,552 workstations sold in the nine months ended September 30, 2008. The decrease was due primarily to (i) negative effects of the global financial crisis; (ii) a decline in hospital-related investment due to governmental reforms requiring pharmacies to be operated outside of and separate from hospitals in the PRC; (iii) the departure of one of our sales managers, who left to set up his own company; and (iv) our inability to boost morale in our management personnel, who have been constrained in their efforts to attract new investors by the large number of investor warrants outstanding. Notwithstanding the decrease in workstation sales, we sold six units of SADP in the nine months ended September 30, 2009, an increase of 20.00% as compared with five units of SADP sold in the nine months ended September 30, 2008.

The following table breaks down application categories as percentage of total net revenue.

	Nine Months Ended September 30,
	2009					2008
	sales		% of total sales			sales		% of total sales
PTS	$	8,063,593		91.43	%	$	12,717,404		90.36	%
SADP	$	672,276		7.62	%	$	1,357,364		9.64	%
Other	$	83,378		0.95	%		-		-
Total net revenue	$	8,819,247		100.00	%	$	14,074,768		100.00	%

Gross Profit

Gross profit decreased 42.03% to $5,750,866 for the nine months ended September 30, 2009, as compared to $9,919,902 for the nine months ended September 30, 2008. Our gross profit margin dropped 5.27% from 70.48% as of the nine months ended June 30, 2008 to 65.21% as of the same period of 2009, mainly due to a decrease in product output caused by the rise of average fixed cost per unit and an approximately 33% decrease in the pricing of SADP units as compared to SADP pricing prior to January 1, 2009.

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

	Nine Months Ended September 30,
	2009					2008
	US$		Gross profit margin			US$		Gross profit margin

Gross Profit	$	5,750,866		65.21	%	$	9,919,902		70.48	%

Income from Operations

Operating income decreased 60.61% to $2,956,249 for the nine months ended September 30, 2009, as compared to $7,504,976 for the nine months ended September 30, 2008. The decrease was primarily attributable to a decrease in sales and increase in operating expenses.

Cost of Net Revenue

Cost of net revenue decreased to $3,068,381 for the nine months ended September 30, 2009, representing a 26.15% decrease as compared with $4,154,866 for the same period of 2008. The decrease is primarily due to a decrease in sales and a decrease in product volume caused by the rise of average fixed cost per unit.

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

	Nine Months Ended September 30,
	2009		2008		Change
Cost of net revenue	$	3,068,381	$	4,154,866		(26.15	)%

Operating Expenses

Operating expenses were $2,794,617 for the nine months ended September 30, 2009, an increase of 15.32% as compared with $2,414,926 for the same period of 2008. The increase was primarily attributable to (1) an increase in selling expenses of $417,890 or 149.69% to $697,057 in the nine months ended September 30, 2009 from $279,167 for the same period of 2008; and (2) a decrease in general and administrative expenses of $38,199 or 1.79% to 2,097,560 in the nine months ended September 2009 from $2,135,759 for the same period of 2008. In the third quarter of 2009, we added 31 employees to our sales force and set up direct sales offices. The combination of these factors contributed to a sharp increase in selling expenses.

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

	Nine Months Ended September 30,
	2009		2008		Change
Selling expenses	$	697,057	$	279,167		149.69	%
General & Administrative expenses	$	2,097,560	$	2,135,759		(1.79	)%
Total operating expenses	$	2,794,617	$	2,414,926		15.72	%

Change in fair value of warrants

Changes in fair value of warrants were $13,363,953 for the nine months ended September 30, 2009. 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 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 nine months ended September 30, 2009. Originally, it was showed on goodwill representing 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 $11,036,722 for the nine months ended September 30, 2009, increases of 71.99% from $6,417,223 for the same period of 2008. In the nine months ended September 30, 2009, our net income was impacted by a non-cash income of $8,532,567 unrelated to the Company’s operations, mainly consisting of change in fair value of warrants and impairment on investment were $13,363,953 and $4,831,386 respectively. Excluding this $8,532,567 non-cash income, the Company’s net income from operations for the nine months ended September 30, 2009 would have been $2,504,155, representing a decrease in net income of 60.98% between the nine months ended September 30, 2008 and the same period of 2009. The decrease was primarily attributable to decrease in sales and an increase in operating expenses.

Earnings Per Share

Basic and diluted earnings per share for the nine months ended September 30, 2009 were $0.60 and $0.36, compared to $0.46 and $0.22 for the same period of 2008. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 14,003,444 for the nine months ended September 30, 2009 and September 30, 2008, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 30,763,019 and 28,690,904 for the nine months ended September 30, 2009 and September 30, 2008, respectively.

Trade Receivables, net

Trade receivables, net increased 8.82% to $3,214,439 as of September 30, 2009, compared with $2,953,919 as of December 31, 2008. The increase in trade receivables was primarily attributable to change in our sales policy. In the three months ended September 30, 2009, we changed our trade receivables policy to require that the remaining 5 percent of the amount due under the purchase contract is received within one year after the acceptance test completed. Previously, we required receipt of the remaining 5 percent immediately after the acceptance test completed.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of September 30, 2009, the recorded value of our inventory increased 9.87% to $649,024 from $590,738 as of December 31, 2008. The increase is mainly due to (1) increase in raw material inventory from $183,435 as of December 31, 2008 to $487,044 as of September 30, 2009, an increase of 165.51%; (2) a decrease in work in progress inventory from $188,855 as of December 31, 2008 to $23,197 as of September 30, 2009, a decrease of 87.72%; and(3) a decrease in finished goods from $218,448 as of December 31, 2008 to $138,783 as of September 30, 2009, a decrease of 36.47%. The increase was primarily attributable to an expected increase in sales volume based upon market research and several confirmed purchase agreements for our products.

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

Item	September 30, 2009		December 31, 2008		Change
Finished goods	$	138,783	$	218,448		(36.47	)%
Work in progress	$	23,197	$	188,855		(87.72	)%
Raw material	$	487,044	$	183,435		165.51	%
Total	$	649,024	$	590,738		9.87	%

Accounts Payable

Accounts payable amounted to $109,007 at September 30, 2009, an increase of 81.95% as compared with $59,912 at December 31, 2008. The increase was primarily attributable to the increased volume of raw material purchased.

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:

	Nine months ended September 30,
	2009			2008			Change
Net cash provided by (used in) operating activities	$	3,426,817		$	5,675,935		$	(2,249,118	)
Net cash provided by (used in) investing activities	$	(13,897,125	)	$	(2,236,248	)	$	(11,660,877	)
Net cash provided by (used in) financing activities	$	-		$	6,530,000		$	(6,530,000	)
Effect of foreign currency translation on cash and cash equivalents	$	140,915		$	499,689		$	(358,774	)
Beginning cash and cash equivalent	$	15,189,941		$	5,820,100		$	9,369,841
Ending cash and cash equivalent	$	4,860,548		$	16,289,476		$	(11,428,928	)

Operating Activities

For the nine months ended September 30, 2009, net cash provided by operating activities was $3,426,817. This was primarily attributable to our net income of $11,036,722, adjusted by an add-back of non-cash expenses mainly consisting of depreciation, amortization, loss on disposal of fixed assets, impairment on investment and change in fair value of warrants of $7,048,757 offset by a $561,148 decrease in working capital. Specifically, the working capital increase was primarily due to (i) a $253,167 trade receivables increase driven by change in sales policy; (ii) a $56,811 inventories increase, comprised principally raw material and work in progress, due to in-house market research and the confirmation of several purchase agreements for our products; (iii) a $320,629 increase in advances to suppliers to buy raw materials; (iv) a $283,028 decrease in prepayments , travel advances to shareholders, other receivables, tender deposits and advances to employees, consisting primarily of prepayments for raw materials supplies in advance of shipment, working capital of sales employee and pay deposit for client; partially offset by a $213,569 decrease in accounts payable, tax payable, loans from unrelated parties, amount due from a director, customers deposits, accrued liabilities and other payables.

Investing Activities

For the nine months ended September 30, 2009, net cash used in investing activities was $13,897,125. This was primarily attributable to (i) a $4,287,278 capital expenditure to purchase new plant and equipment for our Qingdao factory and the manufacture of our new product, an advanced automatic dispensing system; (ii) a $7,027,411 capital expenditure to purchase new intangible assets for our new product and to improve our existing dispensary system; (iii) a $2,648,886 capital expenditure to purchase technology-based designs; and (iv) a $66,450 in restricted cash.

Cash and Cash Equivalents

Our cash and cash equivalents as at the beginning of December 31, 2008 were $15,189,941 and decreased to $4,860,548 at September 30, 2009.

In future periods, we believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under any revolving credit facility, we may establish, 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 September 30, 2009.

Critical Accounting Policies

Management's discussion and analysis of its financial condition and results of operations is based upon the Company’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 the Company’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 ASC 350. 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.

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.

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 September 30, 2009.

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 year ended December 31, 2009, our accounting staff found the following misstatements in our previously reported financial statements for the fiscal quarter ended September 30, 2009 that required correction, relating to changes in fair value of warrants and impairment on investment:

Changes in fair value of warrants is a non-cash income, which resulted from the change in fair values 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 an agreement with Vision Opportunity Master Fund, Ltd. to exchange the Series A, B, C and D warrants into 2,000,000 shares of 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.

Originally, Impairment on investment was listed on goodwill in the first quarter of 2009 and represented 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 extensive 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 have written them off as expenses at the time of acquisition.

In addition, 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, 2008 and the nine months ended September 30, 2009.

Based upon their evaluation as of the end of the period covered by this quarterly report, the Company’s chief executive officer and chief financial officer concluded that, due to the significant deficiencies in internal control over financial reporting described below, the Company’s disclosure controls and procedures are not effective as of September 30, 2009.

Our management identified that the misstatements identified above was 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.

We plan to take the following steps to remediate the deficiencies in disclosure controls and procedures that are identified above:

1. Hiring additional accounting and operations personnel, as needed, and reorganizing the accounting and finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions.

2. Requiring senior accounting personnel and the principal accounting officer to review complex, non-routine transactions to evaluate and approve the accounting treatment for such transactions.

3. Interviewing prospective new Directors for our Board, including a member who is appropriately credentialed as a financial expert with a goal to establish both an Audit and Compensation committee as well as sufficient independent Directors.

We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

Changes in internal controls

Our management, with the participation our CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the nine months ended September 30, 2009. Based on that evaluation, our CEO and CFO concluded that, other than as disclosed above, no change occurred in the Company's internal controls over financial reporting during the nine months ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls 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.

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 10, 2011	By:	/s/ Liu Bo
		Name: Liu Bo
		Title: Chief Executive Officer

Dated: May 10, 2011	By:	/s/ Samuel Sheng
		Name: Samuel Sheng
		Title: Chief Financial Officer

Sunway Global Inc. - FORM 10-Q/A - May 10, 2011

Attached files

Sunway Global Inc. Reports