UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
20-F





(Mark one)


 ̈
            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIESEXCHANGE
      ACT OF 1934





OR





þ
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the fiscal year endedDecember 31, 2009.





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the transition period
      from __________ to
      ___________





OR





 ̈
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934Date of event requiring this
      shell company report:
________________





Commission
file number:  001-34149




DJSP
      Enterprises, Inc.(Exact name of
      the Registrant as specified in its charter)British Virgin
      Islands(Jurisdiction of
      incorporation or organization)900
      South Pine Island Road, Suite 400
              Plantation,
      Florida 33324(Address of
      principal executive offices)




Kumar
Gursahaney; Tel: (954) 233-8000 ext. 2024; Fax: (954) 233-8570


900 South Pine Island Road,
Suite 400; Plantation, Florida 33324


(Name,
Telephone, E-mail and/or Facsimile Number and Address of Company Contact
Person)









Securities
registered or to be registered pursuant to Section 12(b) of the
Act:




Title
      of Each Class
            
            Name
      of each exchange on which registeredUNITS,
      EACH CONSISTING OF
              ONE
      ORDINARY SHARE
              AND
      ONE WARRANT
            
            The NASDAQ Stock Market
      LLCORDINARY
      SHARES
            
            The NASDAQ Stock Market
      LLCWARRANTS
      TO PURCHASE
              ONE
      ORDINARY SHARE
            
            The NASDAQ Stock Market
      LLC




Securities
registered or to be registered pursuant to Section 12(g) of the
Act:





None





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:





None





Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report
(December 31, 2009):  9,166,666 ordinary shares.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.





o
      Yes
            x
      No





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.





o
      Yes
            x
  No





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.





xYes
            o 
      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).


oYes
            o 
      No





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





o  Large
      Accelerated filer
            o  Accelerated
      filer
            x 
      Non-accelerated filer










Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





x  US
      GAAP
            o 
      International Financial Reporting Standards as issued by the International
      Accounting Standards Board
            o 
      Other


If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.





o Item
      17
            o Item
      18





If
this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).





o
      Yes
            x
      No













TABLE
OF CONTENTS





PART
    I
            
            PAGEITEM
      1.
            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
            
            
            1ITEM
      2.
            OFFER
      STATISTICS AND EXPECTED TIMETABLE
            
            
            1ITEM
      3.
            KEY
      INFORMATION
            
            
            1ITEM
      4.
            INFORMATION
      ON THE COMPANY
            
            
            9ITEM
      4A.
            UNRESOLVED
      STAFF COMMENTS
            
            
            28ITEM
      5.
            OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
            
            
            28ITEM
      6.
            DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
            
            
            45ITEM
      7.
            MAJOR
      SHAREHOLDERS AND RELATED TRANSACTIONS
            
            
            52ITEM
      8.
            FINANCIAL
      INFORMATION
            
            
            55ITEM
      9.
            THE
      OFFER AND LISTING
            
            
            55ITEM
      10.
            ADDITIONAL
      INFORMATION
            
            
            57ITEM
      11.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
            
            
            70ITEM
      12.
            DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
            
            
            70PART
      IIITEM
      13.
            DEFAULTS,
      DIVIDENDS ARREARAGES AND DELINQUENCIES
            
            
            71ITEM
      14.
            MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
            
            
            71ITEM
      15.
            CONTROLS
      AND PROCEDURES
            
            
            71ITEM
      16A.
            AUDIT
      COMMITTEE FINANCIAL EXPERT
            
            
            72ITEM
      16B.
            CODE
      OF ETHICS
            
            
            72ITEM
      16C.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            
            
            73ITEM
      16D.
            EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
            
            
            74ITEM
      16E.
            PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS
            
            
            74ITEM
      16F.
            CHANGE
      IN REGISTRANT’S CERTIFYING ACCOUNTANT
            
            
            74ITEM
      16G.
            CORPORATE
      GOVERNANCE
            
            
            74PART
      IIIITEM
      17.
            FINANCIAL
      STATEMENTS
            
            
            74ITEM
      18.
            FINANCIAL
      STATEMENTS
            
            
            F-1ITEM
      19
            EXHIBITS
            
            
            75Signatures
            
            
            
            81










CERTAIN
INFORMATION





In this
Annual Report on Form 20-F (the “Report”), except as otherwise indicated by the
context,




·
            “BVI”
      refers to the British Virgin
Islands;




·
            “Chardan
      2008” refers to Chardan 2008 China Acquisition Corp., the blank check
      company, prior to the consummation of the
  Transaction;




·
            “DAL”
      refers to DAL Group, LLC, a subsidiary of the Company and the entity
      through which the operating business is held, and its subsidiaries,
      including DJS Processing, LLC, Professional Title and Abstract Company of
      Florida, LLC, and Default Servicing,
LLC;




·
            “DJS”
      refers to Law Offices of David J. Stern, P.A., a professional association
      licensed to practice law in the state of Florida and our primary law firm
      customer;




·
            “DJS
      LLC” refers to DJS Processing, LLC, a limited liability company organized
      under the laws of the State of Delaware and an operating company
      subsidiary of DAL;




·
            “DJSP,”
      “we,” “us,” “our,” and “the Company” refer to DJSP Enterprises, Inc.
      (f/k/a Chardan 2008 China Acquisition Corp.), a British Virgin Islands
      company, and its subsidiaries subsequent to the Transaction referred to
      below;




·
            “DJS
      Processing Division” refers to a division of DJS which provided
      foreclosure, bankruptcy, eviction, litigation processing and other related
      services to customers;




·
            “DSI”
      refers to Stern Holding Company – DS, Inc. (f/k/a Default Servicing,
      Inc.), an S corporation, and an affiliate of DJS that provided real estate
      owned liquidation related services, including property inspection,
      valuation, eviction, broker assignment and closing, prior to the
      Transaction;




·
            “DSI
      LLC” refers to Default Servicing, LLC, a limited liability company
      organized under the laws of the State of Delaware and an operating company
      subsidiary of DAL;




·
            “Equity
      Incentive Plan” refers to the Company’s 2009 Equity Incentive Plan,
      effective January 11, 2010, as amended by the Company from time to
      time;




·
            “Exchange
      Act” refers to the Securities Exchange Act of 1934, as
      amended;




·
            “IPO”
      refers to the Company’s initial public offering of 6,875,000 units (each
      unit consisting of one ordinary share and one redeemable ordinary share
      purchase warrant), which was consummated on August 11,
    2008;




·
            “MBA”
      refers to the Mortgage Bankers
Association;




·
            “PTA”
      refers to Stern Holding Company – PT, Inc. (f/k/a Professional Title and
      Abstract Company of Florida, Inc.), an S corporation, and an affiliate of
      DJS that provided title searches and examinations related to services
      provided by DJS, and defendant location services to third party processor
      customers of DJS, prior to the
Transaction;




·
            “PTA
      LLC” refers to Professional Title and Abstract Company of Florida, LLC, a
      limited liability company organized under the laws of the State of
      Delaware and an operating company subsidiary of
  DAL;




·
            “Securities
      Act” refers to the Securities Act of 1933, as
  amended;




·
            “Stern”
      refers to David J. Stern, the founder and sole owner of DJS, PTA and
      DSI;




·
            “Transaction”
      refers to the acquisition by the Company of a controlling interest in DAL,
      which transaction was consummated on January 15, 2010;
  and




·
            “U.S.
      dollars,” “$” and “US$” refers to the legal currency of the United
      States.










CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





The
statements contained in this Report that are not purely historical are
forward-looking statements. Our forward-looking statements include, but are not
limited to, statements regarding our or our management’s expectations, hopes,
beliefs, intentions or strategies regarding the future. In addition, any
statements that refer to projections, forecasts or other characterizations of
future events or circumstances, including any underlying assumptions, are
forward-looking statements. The words “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,”
“potential,” “predict,” “project,” “should,” “would” and similar expressions may
identify forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking.





These
statements are necessarily subjective and involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from any
future results, performance or achievements described in or implied by such
statements. Actual results may differ materially from expected results described
in our forward-looking statements, including with respect to correct measurement
and identification of factors affecting our business or the extent of their
likely impact, the accuracy and completeness of the publicly available
information with respect to the factors upon which our business strategy is
based or the success of our business.





The
forward-looking statements contained in this Report are based on our current
expectations and beliefs concerning future developments and their potential
effects on us. There can be no assurance that future developments affecting us
will be those that we have anticipated. These forward-looking statements involve
a number of risks, uncertainties (some of which are beyond our control) or other
assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements.
These risks and uncertainties include, but are not limited to, those factors
described under the heading “Risk Factors” in this report. Should one or more of
these risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may vary in material respects from those projected in
these forward-looking statements. We do not undertake, and expressly disclaim,
any obligation to update or alter any statements, whether as a result of new
information, future events or otherwise, except as required by applicable
law.








PART I





ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS





Not
required.





ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE





Not
required.





ITEM
3. KEY INFORMATION




A.Selected
Financial Data





The following tables present selected
financial data regarding the business of the DJS Processing Division and its
combined affiliates.  The financial data below represent a “carve out”
of the DJS Processing Division from DJS combined with the accounts of PTA and
DSI as of and for the years ended December 31, 2009, 2008, 2007 and 2006 and
have been derived from audited financial statements.  The financial
data as of and for the year ended December 31, 2005 are not presented in the
tables below because there are no selected financial statements of DJS
Processing Division and its combined affiliates prior to 2006 and, therefore,
the financial data for 2005 cannot be provided without unreasonable effort or
expense.  The financial data below are only a summary and should be
read in conjunction with, and are qualified in their entirety by, “Item 5.
Operating and Financial Review and Prospects – DJS Processing And Combined
Affiliates – Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the combined financial statements and notes thereto,
included elsewhere in this Report.  The combined carve-out financial
statements are prepared and presented in accordance with U.S.
GAAP.  The financial statements contained elsewhere fully represent
the financial condition and operations of DJS Processing Division and its
combined affiliates; however, they are not necessarily indicative of our future
performance.





Prior to
January 15, 2010, the Company was a shell company, and therefore had only
nominal assets and no revenue.  There are significant differences
between the Company’s business prior to the Transaction, and the business of the
DJS Processing Division and its combined affiliated operating companies prior to
the Transaction.  Financial data for the operation of the DJS
Processing Division and its combined affiliates are presented below because,
after the Transaction, they represent all of our operations.








DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES





Selected Financial
Data





As
      of December 31,Combined Carve-Out Balance Sheets
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006Cash
      and cash equivalents
            
            $
            763,387
            
            
            $
            1,427,588
            
            
            $
            978,766
            
            
            $
            69,889Client
      reimbursed costs receivable
            
            
            6,046,760
            
            
            
            26,147,837
            
            
            
            15,585,345
            
            
            
            4,189,833Total
      current assets
            
            
            33,924,395
            
            
            
            50,640,222
            
            
            
            35,075,548
            
            
            
            7,307,063Total
      assets
            
            
            38,615,915
            
            
            
            53,794,845
            
            
            
            37,800,142
            
            
            
            8,726,110Total
      current liabilities
            
            
            24,236,337
            
            
            
            25,679,169
            
            
            
            12,399,408
            
            
            
            3,537,489Total
      liabilities
            
            
            25,595,763
            
            
            
            26,329,196
            
            
            
            12,655,383
            
            
            
            3,694,199Total
      shareholder's and member's equity
            
            
            13,020,152
            
            
            
            27,465,649
            
            
            
            25,144,759
            
            
            
            5,031,911




1




For
      the Years Ended December 31,Combined Carve-Out Statements of Income
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006Revenue
            
            $
            260,268,847
            
            
            $
            199,202,701
            
            
            $
            115,500,349
            
            
            $
            40,392,317Operating
      expenses:Client
      reimbursed costs
            
            
            139,059,336
            
            
            
            92,319,306
            
            
            
            47,613,198
            
            
            
            16,802,800Compensation
      related expenses
            
            
            50,085,039
            
            
            
            44,356,093
            
            
            
            20,268,283
            
            
            
            11,006,660Direct
      operating expenses and general and administrative expenses
            
            
            25,435,754
            
            
            
            19,078,472
            
            
            
            8,668,430
            
            
            
            3,811,153Depreciation
      expense
            
            
            1,123,564
            
            
            
            594,156
            
            
            
            277,926
            
            
            
            193,133Total
      operating expenses
            
            
            215,703,693
            
            
            
            156,348,027
            
            
            
            76,827,837
            
            
            
            31,813,746Operating
      Income
            
            
            44,565,154
            
            
            
            42,854,674
            
            
            
            38,672,512
            
            
            
            8,578,571Other
      Income
            
            
            312
            
            
            
            31,677
            
            
            
            16,328
            
            
            
            —Net income (1)
      (2)
            
            $
            44,565,466
            
            
            $
            42,886,351
            
            
            $
            38,688,840
            
            
            $
            8,578,571





(1)
            The
      DJS Processing Division and its combined affiliates have no discontinued
      operations; therefore, Net Income has been provided in lieu of income from
      continuing operations.





(2)
            Ordinary
      shares outstanding (actual and diluted) and per share data (basic and
      diluted) of the DJS Processing Division and its combined affiliates have
      been omitted because of differences in capital structure of those entities
      and the Company.  Presenting such data in this report is not
      particularly helpful and could be misleading to
  readers.





B.Capitalization
and Indebtedness





Not
required.





C .   Reasons
for the Offer and Use of Proceeds





Not
required.





D.       Risk
Factors





An
investment in our shares involves a high degree of risk. You should carefully
consider the risks described below, together with all of the other information
included in this Report, before making an investment decision. If any of the
following risks actually occurs, our business, financial condition or results of
operations could suffer. In that case, the trading price of our shares could
decline, and you may lose all or part of your investment.




Risks
Related to our Business




David
J. Stern, our President and Chief Executive Officer, is also the sole owner of
DJS, which is our primary law firm customer, and he may, under certain
circumstances, have interests that differ from or conflict with the interests of
our shareholders.





David J.
Stern, our President and Chief Executive Officer, is the sole shareholder of
DJS, which is our primary law firm client. As a result of this relationship with
both us and DJS, Mr. Stern may encounter conflicts of interest in the execution
of his duties on behalf of us. These conflicts may not be resolved in a manner
favorable to us. For example, he may be precluded by his ethical obligations as
an attorney or may otherwise be reluctant to take actions on our behalf that are
in our best interests but are not in the best interests of DJS or its clients.
Further, as a licensed attorney, he may be obligated to take actions on behalf
of DJS or its clients that are not in our best interests. Mr. Stern has other
direct and indirect relationships with us that could cause similar conflicts,
including as our largest creditor. See Note 2 to the combined financial
statements of the operating subsidiaries and “Item 7(B). Related Party
Transactions” in this Report for a description of these
relationships.




2





David
J. Stern plays a critical role in our success and the success of DJS. Should Mr.
Stern become incapacitated or die, it is likely that our business and results
would be adversely affected to a significant degree.





Although
we and DJS each have substantial management teams that are capable and
experienced, the majority of the client relationships of DJS and our customer
relationships were established and continue to be managed by Mr.
Stern.  If Mr. Stern becomes unable to perform his duties under his
employment agreement or dies, it is possible that the client relationships of
DJS, and therefore the volume of referrals that we receive from DJS, would
suffer, materially reducing our revenues and profitability.





Mr.
Stern received a significant amount of cash consideration in connection with the
Transaction, which may reduce his incentive to devote his full efforts to
continue to develop and expand our business and the business of
DJS.





Under the
terms of the Transaction, Mr. Stern and his affiliates received approximately
$58.5 million in initial cash in exchange for contributing their business
to DAL, plus another approximately $88 million in the Stern Deferral Note
(defined herein) and post-closing cash. Those amounts will be paid to the
contributors of the business acquired by DAL (DJS, PTA, DSI and David J. Stern
(“Stern,” together with DSI, PTA and DJS the “Stern
Contributors”)) regardless of how we perform. Although he also has a
substantial equity stake in DAL, which gives him an incentive to improve our
operations, there can be no assurance that he will do so, or that his efforts to
do so, however diligent, will succeed.





Mr.
Stern has recommended four members of our Board of Directors, which may make it
difficult or impossible to remove him as our CEO, even if that were considered
desirable.





We agreed
to have Mr. Stern propose four of seven directors for election by our
shareholders.  In the event that Mr. Stern does not diligently and
faithfully discharge his responsibilities as our CEO, the fact that he chose
four of our directors may make taking disciplinary action against him difficult,
if not impossible, notwithstanding that all of the directors will have fiduciary
duties to our shareholders to do so. In such a case, the only recourse available
to our shareholders may be to bring an action against the directors for breach
of their fiduciary duty, but as with any litigation, it can be costly,
time-consuming and drawn out, and there is no assurance that
it would succeed.





If
the number of case files referred to us by DJS, which is our principal
foreclosure processing service law firm client, do not increase, our operating
results and ability to execute our growth strategy could be adversely
affected.





We have
one law firm customer in Florida, DJS. Each foreclosure, bankruptcy, eviction,
litigation, and other mortgage default related case file referred to DJS will
typically have a fixed fee associated with it that is based on a schedule
established by government sponsored entities, such as Freddie Mac and Fannie
Mae. We are paid a fixed fee by DJS for the services we render to DJS.
Therefore, the success of our mortgage default processing services business is
tied to the number of these case files that DJS receives from its mortgage
lending and mortgage loan servicing firm clients and our ability to control
costs. There is little or no opportunity for us to increase revenues on a per
file basis unless the fee schedule that DJS has with its clients is adjusted
upward. Such upward adjustments may or may not keep pace with increases in our
costs. Because DJS receives a fixed fee from its clients, it has limited
financial ability to pay increased fees to us. As a result, if the number of
referrals that we receive through DJS decreases, it would likely result in a
decrease in our revenues and profits.





The
majority of file referrals to DJS come from fewer than a dozen lenders and loan
servicing firms. If DJS were to lose any of these sources of business, in whole
or in part, it would adversely affect our financial performance.





In 2009,
the top ten clients for DJS, on an aggregate basis, accounted for 89.5% of case
files referred to DJS for mortgage default and other processing services, and
its largest single customer accounted for 30% of DJS’ total foreclosure file
volumes for the same period. Our operating results and ability to execute our
growth strategy could be adversely affected if (i) our current law firm
customer, DJS, loses business from these clients; (ii) these clients are
affected by changes in the market and industry or other factors that render them
unable to pay for the services we have rendered; or (iii) our law firm customer
is unable to attract additional business from current or new clients for any
reason, including any of the following: a decline in the quality of legal
services provided, the loss of key attorneys (such as David J. Stern, who has
developed and maintains a substantial amount of DJS’ client relationships), the
desire of the law firm’s clients to allocate files to other firms or among a
larger number of firms, decreasing the share received by DJS, or a decrease in
the number of residential mortgage foreclosure actions that customers initiate
in Florida, our principal market, whether due to business considerations or
governmental action impeding foreclosures. The reduction in work received from
DJS or the inability or failure of DJS to pay us as a result of any one or more
of these factors could materially reduce our cash flow, revenues and profits.
Please refer to the risk factors below for more information about governmental
or other voluntary action on the part of the clients of DJS that could
negatively affect us.




3





We
could lose our law firm customer if we materially breach the Services
Agreement.





Under the
terms of the Services Agreement between us and DJS, DJS has the right to
terminate the Services Agreement in the event we breach the terms of that
agreement. DJS may have an ethical duty to take such action if we do not provide
services of a quality necessary for DJS to properly serve its clients. In
addition, under the Services Agreement, if one of DJS’ clients requires DJS not
to use us to provide services for their accounts, DJS may provide those services
itself or use another party to do so. In the event of the occurrence of any of
these events, our revenues and earnings could be materially adversely
affected.





Regulation
of the legal profession may constrain our operations, and numerous issues
arising out of that regulation, its interpretation or evolution could impair
our ability to provide professional services to customers and reduce
revenues and profitability.





Each
state has laws, regulations and codes of professional responsibility that govern
the conduct and obligations of attorneys to their clients and the courts.
Adherence to those codes of professional responsibility is a requirement to
retaining a license to practice law in the licensing jurisdiction. The
boundaries of the “practice of law,” however, can be indistinct, vary from one
state to another and are the product of complex interactions among state law,
bar association standards and constitutional law as formulated by the U.S.
Supreme Court. Many states define the practice of law to include the giving of
advice and opinions regarding another person’s legal rights, the preparation of
legal documents or the preparation of court documents for another person.
Although we are not aware of any ruling or interpretation of laws, regulations
or other applicable standards that would result in the operations that we
perform being considered the practice of law, we cannot say with certainty that
no existing law, regulation or standard will be interpreted to produce that
result, or that a new law, regulation or standard leading to that result will
not be adopted in the future. In addition, all states and the American Bar
Association prohibit attorneys from sharing fees for legal services with
non-attorneys, so that if any aspect of our business is deemed to constitute the
practice of law, it would not be possible for us to continue performing those
services.





Our
principal business activity involves providing foreclosure processing services,
usually in connection with legal proceedings, such as foreclosure actions.
Current laws, regulations and codes of professional responsibility governing the
practice of law pose the following principal risks to our business:




·
            State
      or local bar associations, state or local prosecutors or other persons may
      claim that some portion of the services that we provide constitutes the
      unauthorized practice of law. Any such challenge could have a disruptive
      effect on our operations, including the diversion of significant time and
      attention of our senior management in order to respond. We may also incur
      significant expenses in connection with such a challenge, including
      substantial fees for attorneys and other professional advisors. If a
      challenge to the legitimacy of all or a portion of our operations were
      successful, such operations may need to be modified in a manner that could
      adversely affect our business, revenues and profitability, and we could be
      subject to a range of penalties and suffer damage to our
      reputation.




·
            The
      Services Agreement between us and DJS could be deemed to be unenforceable,
      in whole or in part, if a court were to determine that such agreements
      constitute an impermissible fee sharing arrangement between the law firm
      customer and us.





In
addition, applicable laws, regulations and codes of professional responsibility,
including their interpretation and enforcement, could change in a manner that
restricts our operations. Any such change in laws, policies or practices could
increase our cost of doing business or adversely affect our revenues and
profitability.





Failure
to customize the proprietary case management software system so that it can be
used to serve additional law firm customers both in Florida and in new
jurisdictions, could adversely affect the growth prospects of our mortgage
default processing service business.





We rely
heavily on a proprietary case management software system, which stores, manages
and reports on the large amount of data associated with each foreclosure,
bankruptcy, real estate owned liquidation or eviction case file we process,
to achieve a high level of efficiency, accuracy and customer service. The system
was initially developed for use in the state of Florida, and it is adapted
specifically to the procedural requirements of that jurisdiction. We intend to
expand our business beyond Florida, and in order to do so profitably, we will
need to modify our system to accommodate the specific procedural and legal
requirements associated with those additional jurisdictions. While the system we
use in foreclosures processed in Puerto Rico was modified, whether the system
can be modified to conform to other jurisdictions at an acceptable cost is
unknown. That will depend on how significant the needed changes are and whether
we can develop a volume of business in those jurisdictions that will justify the
cost of making them.





4





We may
decide to enter into a service agreement with customers in other jurisdictions
prior to modifying our software systems, based on a judgment that we can do so
in a timely, effective and efficient manner to fulfill our contractual
obligations. It is possible that our judgment will turn out to be incorrect,
notwithstanding that it was made in good faith, in which case we could find that
we are unable to provide the services that we agreed to provide or that we are
unable to do so profitably. If we are unable to provide the agreed upon services
in a timely and effective way, the harm to our business reputation may adversely
affect our business in Florida or in other markets that we seek to enter, both
reducing our revenues and profits from those other jurisdictions and making
future expansion more difficult.





In
addition, Florida is a “judicial” foreclosure state, which means that the
foreclosure process is overseen at each step by a judge in a court of law. The
processing services required, and the fees generated as a result, in a judicial
state are significantly greater than those in a non-judicial state, which has
minimal, if any, proceedings in a court of law in processing a foreclosure. If
we choose to market our services in a non-judicial state, the revenue per file
will be substantially less than we are currently generating in Florida, and that
decreased revenue per file may prove not to be sufficient to justify the expense
of modifying our software systems to expand our business into those
jurisdictions.





Claims,
even if not valid, that the case management software system or other proprietary
software products and information systems infringe on the intellectual property
rights of others could increase our expenses or inhibit our business from
offering certain services.





Other
persons could claim that they have patents and other intellectual property
rights that cover or affect our use of software products and other components of
information systems on which we rely to operate our business, including the
proprietary case management software system that we use to provide mortgage
default processing services. Litigation may be necessary to determine the
validity and scope of third-party rights or to defend against claims of
infringement. Any litigation, regardless of the outcome, could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business. If a court determines that one or more of the software
products or other components of information systems used infringe on
intellectual property owned by others or we agree to settle such a dispute, we
may be liable for money damages. In addition, we may be required to cease using
those products and components unless we obtain licenses from the owners of the
intellectual property or redesign those products and components in such a way as
to avoid infringement. In any event, such situations may increase our expenses
or adversely affect our ability to provide services.





We
are subject to risks relating to litigation due to the nature of our products
and service offerings.





We may,
from time to time, be subject to or be named as a party in legal proceedings in
the ordinary course of our mortgage default processing business. We could
incur significant legal expenses and management’s attention may be diverted from
operations in defending against and resolving lawsuits or claims. An adverse
resolution of any future lawsuits or claims against us could result in a
negative perception of our business and cause the market price of our ordinary
shares to decline or otherwise have an adverse effect on our operating
results and growth prospects.





The
Transaction may not be treated as a reverse recapitalization, resulting in
adverse consequences to our financial statements.





We have
accounted for the Transaction as a reverse recapitalization of the businesses
operated by DJS LLC, PTA LLC and DSI LLC. However, this accounting treatment is
dependent on a number of factors that we believe result in this transaction
being considered a reverse recapitalization, that may be subsequently determined
to have been improperly considered by management or outweighed by other factors.
If our auditors or the SEC determine that the Transaction was not a reverse
recapitalization, our financial results could be significantly impacted because
we would have increased future amortization and depreciation charges for certain
assets acquired in the Transaction with fair values in excess of their carrying
values, which could reduce our profits.





5





Risks
Relating to the Mortgage Foreclosure Industry





State
and federal regulation and limitation of lenders’ ability to pursue foreclosure
actions, along with voluntary foreclosure relief programs developed by lenders,
loan servicers and the Hope Now Alliance, a consortium that includes loan
servicers, may have an adverse effect on the volume of our mortgage default
processing services and public notice operations.





The
prevalence of sub-prime, Alternative A paper mortgage and other non-traditional
mortgage products, rising unemployment and the increasing number of defaults and
delinquencies in connection with those and other mortgages have led to the
adoption of governmental regulations that incentivize lenders and loan servicers
not to pursue, or restrict the ability of lenders and loan servicers to pursue,
foreclosure against defaulting mortgagors. While the effects of these
regulations to date have not been substantial, if new or more stringent
regulations are enacted, the clients of DJS would likely be subject to these
regulations, and it could adversely affect the number of mortgage default files
that DJS receives from its clients and can then refer to us for processing.
Similarly, these new or more stringent regulations could impose new requirements
on the processing of foreclosures, which could adversely affect when foreclosure
referrals are sent to us for processing. The federal government has enacted the
Housing and Economic Recovery Act of 2008, which contains reforms intended to
reduce the volume of mortgages in foreclosure, including the development of a
refinance program for homeowners with sub-prime loans. This refinance program
took effect on October 1, 2008. In September 2008, the federal government also
enacted the Economic Emergency Stabilization Act, which provides funding to
purchase troubled assets from financial institutions.





More
recently, the federal administration announced the Homeowner Affordability and
Stability Plan, an attempt to address the continuing rise in mortgage
delinquencies and mortgage defaults. Under this plan, the federal government set
forth detailed requirements for the “Making Home Affordable” program, which
offers qualified homeowners with a loan-to-value ratio above 80% the opportunity
to apply for mortgage refinancing at lower interest rates. The “Making Home
Affordable” program also provided loan modification guidelines that are expected
to become standard industry practice in pursuing affordable and sustainable
mortgage modifications. The loan modification program guidelines are expected to
work in tandem with an expanded Hope for Homeowners program. If this legislation
or any other bills being considered, including the proposed bankruptcy
legislation that would allow bankruptcy judges in Chapter 13 cases to revise the
terms of a mortgage on a primary residence, are successful, they will likely
reduce the number of mortgages going into default and, thus, the number of
mortgage default files that DJS or other customers refer to us for processing.
If either of these occurs, it could have a negative impact on our earnings and
growth.





Furthermore,
a number of lenders and loan servicers, including clients of DJS, are focusing
greater attention on loss mitigation, loan modifications and similar efforts
which may delay or prevent foreclosures. For example, programs have been
announced to manage certain delinquent loans that banks hold in a manner that
will attempt to avoid foreclosure. To the extent that lenders, loan servicers
and others over whom we have no control, voluntarily, or are required to,
continue these efforts, the number of files referred to DJS for mortgage default
processing, and the number of foreclosure files referred to us, could decline,
which would have a negative impact on our revenue and earnings. You should also
refer to “Item 5. Operating and Financial Review and Prospects – DJS Processing
Division and Combined Affiliates – Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Recent Developments – Regulatory
Environment” for more information about regulatory and similar changes that
could affect the volume of referrals we receive for our mortgage default
processing services.





Changes
in court practices or procedures may affect the filing and service requirements
for case filings or may reduce or eliminate the amount of case filings, either
of which could adversely affect our revenues, profitability and growth
opportunities or adversely restrict our operations.





Florida
and other jurisdictions are facing unprecedented levels of foreclosure activity
in recent years, which has led to a substantial burden on the court systems in
those states. It is possible that those jurisdictions, in order to relieve that
burden and eliminate what has become a growing backlog of cases, will adopt
modifications to their foreclosure proceedings to streamline them. Should they
do so, it could reduce the amount of fees that we receive per file, thus leading
to a reduction in our revenues and profits, even if foreclosure volumes remain
constant or even increase.





6





If
“judicial” foreclosure states adopted “non-judicial” procedures for filing
foreclosures, mortgage foreclosure processing firms operating in “judicial”
states would be materially and adversely affected. “Judicial” foreclosure states
require foreclosures to follow a set of rules, compliance with which is overseen
by a judge in a court of law. The level of processing fees associated with a
foreclosure in a judicial state is significantly greater than would be expected
in a non-judicial state. Should Florida (or another judicial state in which we
choose to operate) choose to adopt a non-judicial mortgage foreclosure process
in order to expedite the processing of foreclosures, it would result in a
substantial reduction in the revenues derived from that jurisdiction, with an
accompanying reduction in profits.





Risks
Related to Our Structure





Our
outstanding warrants could decrease our share price.





If our outstanding warrants are called
or exercised, the underlying ordinary shares will be eligible for future resale
in the public market. “Market overhang” from the warrants may cause investors to
assume that there will be additional ordinary shares outstanding that were
purchased at the warrant exercise price, which  will likely be below our
then current  share price. That possibility could reduce the market
price of our ordinary shares, even prior to a call of the warrants.





We have
11,166,666 warrants outstanding which were issued prior to and in connection
with our initial public offering, exercisable at a price of $5.00 per share.
Those warrants are now exercisable and 6,875,000 of them (the “Public Warrants”)
will be callable at a price of $0.01 per warrant and upon thirty (30) days’
notice if the closing price of our shares equals or exceeds $10 for 20 out of 30
consecutive trading days. The shares underlying these 6,875,000 warrants have
been registered pursuant to our registration statement filed in connection with
our IPO. In the event that the Public Warrants are called, all or nearly all of
them are likely to be exercised. Another 2,291,666 warrants issued prior to our
IPO are not subject to a call. If any of our warrants are exercised or called, a
substantial number of additional ordinary shares will be eligible for resale in
the public market. Those additional shares will have been purchased at a price
of $5.00, and as a result, the exercise or the prospect of the exercise or call
of these warrants may reduce the market price at which our ordinary shares
trade.





Immediately
prior to the consummation of our initial public offering, we issued 2,000,000
warrants at a price of $0.50 to our management and their affiliates (the
“Private Placement Warrants”). The Private Placement Warrants were issued on
terms equivalent to those of the Public Warrants, except that (i) the Private
Placement Warrants are not callable; and (ii) the Private Placement Warrants
contain a “cashless” or “net” exercise provision, which allows the holders of
the Private Placement Warrants to exercise them by receiving a reduced amount of
our shares compared to a “cash” exercise of the warrants, in exchange for not
having to pay the $5.00 exercise price. The exact terms of the cashless exercise
will depend on the share price of our shares. The Company filed a registration
statement on Form F-1 with the SEC on February 12, 2010 to register both the
Private Placement Warrants and the shares underlying the Private Placement
Warrants.  This registration statement is not yet effective. The
prospect that those warrants may be exercised for $5.00 may reduce the market
price at which our ordinary shares trade.





In order
to generate additional cash for payment of the note issued in connection with
the Transaction, certain of the holders of the Private Placement Warrants have
agreed to exercise or sell those warrants to third parties who agree to exercise
them beginning on the later of six months following the closing of the
transaction or the date that the warrants and the shares underlying them are
covered by an effective resale registration statement and provided that our
ordinary shares are trading at or above $9.00. In exchange for their agreement
to do so, the holders of those warrants will receive, in the aggregate, 233,010
ordinary shares. As a result of this agreement, the time at which the Private
Placement Warrants will be exercised may be accelerated, thus causing the
increase in the number of our issued and outstanding shares to occur at an
earlier time than might otherwise have happened.





The
2,291,666 of our units purchased prior to our initial public offering (the
“Insider Units”), each consisting of one ordinary share and one warrant to
purchase one of our ordinary shares for $5.00, along with the Private Placement
Warrants, are currently held in escrow. The Insider Units will be released from
escrow on January 15, 2011 (i.e., one year after the closing of the
Transaction). If the Public Warrants have not been called or exercised prior to
that time, the release of these shares from escrow will increase our public
“float” by approximately 33%, which may cause a decrease in our share
price.




7





Exchange
rights held by the holders of DAL’s membership interests could reduce the market
price of our ordinary shares.





The
members of DAL, other than the Company, do not hold a direct ownership
interest in the Company. However, the 2,700,000 DAL Common Units and
1,666,667 DAL Series A Preferred Units that they hold are exchangeable into
our shares commencing one year after the Transaction was consummated (i.e.,
January 15, 2011).  In addition, they hold DAL Series B Preferred
Units, which automatically convert into 3,900,000 additional DAL Common Units,
which in turn are exchangeable for 3,900,000 ordinary shares of the Company, if
the market value of the company’s ordinary shares exceeds set prices between
$10.00 and $20.00 per share prior to January 15, 2015.  The exchange
of the DAL Units for our shares will increase our public “float,” which may
cause a decrease in our share price.





Risks
to Our Shareholders





If
our outstanding warrants are exercised, the underlying ordinary shares will be
eligible for future resale in the public market.  “Market overhang”
from the warrants as a result of that potential dilution could reduce the market
price of the ordinary shares.





Outstanding warrants and unit purchase
options to purchase an aggregate of 11,441,000 ordinary shares issued in
connection with our initial public offering and the private placement that took
place immediately prior to the initial public offering became exercisable after
the Transaction on January 15, 2010.  If they are exercised, a
substantial additional number of our ordinary shares will be eligible for resale
in the public market, which may reduce the market price.





Because
we do not intend to pay dividends on our ordinary shares, shareholders will
benefit from an investment in our ordinary shares only if they appreciate in
value.





We have
never declared or paid any cash dividends on our ordinary shares. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of the business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our Board
of Directors and will depend on factors the Board of Directors deems relevant,
including among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and
other financing arrangements. Accordingly, realization of a gain on
shareholders’ investments will depend on the appreciation of the price of our
ordinary shares. There is no guarantee that our ordinary shares will appreciate
in value.





We
may choose to redeem our outstanding warrants at a time that is disadvantageous
to our warrant holders.





Subject
to there being a current prospectus under the Securities Act of 1933, as
amended, with respect to the ordinary shares issuable upon exercise of our
warrants, we may redeem our warrants issued as a part of our units at any time
after such warrants become exercisable, in whole and not in part, at a price of
$.01 per warrant, upon a minimum of 30 days’ prior written notice of redemption,
if and only if, the last sales price of our ordinary shares equals or exceeds
$10.00 per ordinary share for any 20 trading days within a 30 trading day period
ending three business days before we send the notice of redemption. In addition,
we may not redeem the warrants unless the warrants and the ordinary shares
underlying those warrants are covered by an effective registration statement
from the beginning of the measurement period through the date fixed for the
redemption. In order to accelerate the payment of the receiving cash
owed to the Stern Contributors, we have agreed to call our warrants as soon as
the conditions for doing so are met.





Redemption
of the warrants could force the warrant holders: (i) to exercise the warrants
and pay the exercise price at a time when it may be disadvantageous for the
holders to do so, (ii) to sell the warrants at the then-current market price
when they might otherwise wish to hold the warrants, or (iii) to accept the
nominal redemption price which, at the time the warrants are called for
redemption, is likely to be substantially less than the market value of the
warrants. We expect most purchasers of our warrants will hold their securities
through one or more intermediaries and consequently holders of warrants are
unlikely to receive notice directly from us that the warrants are being
redeemed. Holders who fail to receive notice of redemption from a third party,
and whose warrants are redeemed for nominal value, will not have recourse to
us.





8





Risks
Related to Our Corporate Structure





Prior
to the Transaction, Chardan 2008 had not had operations, and DAL had not
operated as a public company.  Fulfilling DAL’s obligations incident
to being a public company will be expensive and time consuming.





Prior to
Chardan 2008’s acquisition of DAL on January 15, 2010, Chardan 2008 had not
had operations, and DAL had not operated as a public company. Each of Chardan
2008 and DAL have maintained relatively small finance and accounting
staffs. Neither Chardan 2008 nor DAL currently has an internal audit group.
Although Chardan 2008 has maintained disclosure controls and procedures and
internal control over financial reporting as required under the federal
securities laws with respect to its very limited activities, it has not been
required to maintain and establish these disclosure controls and procedures and
internal control as will be required with respect to businesses such as DAL with
substantial operations. Under the Sarbanes-Oxley Act of 2002 and the related
rules and regulations of the U.S. Securities and Exchange Commission (“SEC”),
the Company will need to implement additional corporate governance practices and
adhere to a variety of reporting requirements and complex accounting rules.
Compliance with these obligations will require significant management time,
place significant additional demands on our finance and accounting staffs and on
our financial, accounting and information systems, and increase our insurance,
legal and financial compliance costs. We may also need to hire additional
accounting and financial staff with appropriate public company experience and
technical accounting knowledge.





We
may qualify as a passive foreign investment company, or “PFIC,” which could
result in adverse U.S. federal income tax consequences to U.S.
investors.





In
general, we will be treated as a PFIC for any taxable year in which either (1)
at least 75% of our gross income (looking through certain 25% or more-owned
corporate subsidiaries) is passive income or (2) at least 50% of the average
value of our assets (looking through certain 25% or more-owned corporate
subsidiaries) is attributable to assets that produce, or are held for the
production of, passive income. Passive income generally includes, without
limitation, dividends, interest, rents, royalties, and gains from the
disposition of passive assets. If we are determined to be a PFIC for any taxable
year (or portion thereof) that is included in the holding period of a U.S.
Holder (as defined in the section of this Report in Item 10(E) captioned
“Taxation – United States Federal Income Taxation – General”) of our ordinary
shares or warrants, the U.S. Holder may be subject to increased U.S. federal
income tax liability and may be subject to additional reporting requirements.
Based on the expected composition of our assets and income for the 2010 taxable
year, we do not expect to be treated as a PFIC for our 2010 taxable year.
However, our actual PFIC status for our 2010 taxable year or any subsequent
taxable year will not be determinable until after the end of such taxable year.
Accordingly, there can be no assurance as to our status as a PFIC for our 2010
taxable year or any future taxable year. U.S. Holders of our ordinary shares or
warrants are urged to consult their own tax advisors regarding the possible
application of the PFIC rules. See the discussion in Item 10(E) entitled
“Taxation – United States Federal Income Taxation – Passive Foreign Investment
Company Rules.”




ITEM
4.    INFORMATION ON THE COMPANY




History
and Business Plans





Overview





DJSP
Enterprises, Inc. is a British Virgin Islands company limited by shares, that
was incorporated on February 19, 2008, under the name “Chardan 2008 China
Acquisition Corp.” as a blank check company for the purpose of acquiring,
engaging in a merger or share exchange with, purchasing all or substantially all
of the assets of, or engaging in a contractual control arrangement or any other
similar business combination with an unidentified operating business which has
its principal business and/or material operations in China.  When the
global financial crisis occurred soon after the completion of Chardan 2008’s
initial public offering in August 2008, Chardan 2008’s management believed that
US equity markets would be less receptive to a business combination with a
Chinese company. For that reason, when the opportunity to engage in a
transaction with DAL arose in early 2009, management considered it to be the
best of the opportunities it had identified to that point and decided to pursue
it.





Effective
as of the Transaction, we are now a holding company whose primary business
operations are conducted through three wholly owned subsidiaries of DAL, a
company in which we hold a controlling interest.  The three
subsidiaries are DJS LLC, PTA LLC, and DSI LLC.   DAL, through
its operating subsidiaries, provides non-legal services supporting residential
real estate foreclosure, other related legal actions and lender real estate
owned (“REO”) services, primarily in Florida.




9





Our
registered agent in the British Virgin Islands is Maples Corporate Services
(BVI) Limited of Kingston Chambers, which can be reached at 284-852-3000 or PO
Box 173, Road Town, Tortola.  Our registered office in the British
Virgin Islands is at Kingston Chambers, PO Box 173, Road Town,
Tortola.  Our principal offices are located at 900 South Pine Island
Road, Suite 400, Plantation, Florida 33324.  Our phone number is (954)
233-8000.





The
description of the Company as set forth in this Item 4 is a description of the
Company following the Transaction, unless otherwise
noted.  Information in this Item 4 dealing with periods prior to
January 15, 2010, describe Chardan 2008’s activities where so noted, and
otherwise describe the activities of the predecessors to DJS LLC, PTA LLC and
DSI LLC.





Pre-IPO
Sale of Securities





Prior to
the consummation of Chardan 2008’s IPO, certain of the officers, directors and
existing shareholders of Chardan 2008 purchased (i) 2,000,000 Private Placement
Warrants at a price of $0.50 per warrant in a private placement, generating
gross proceeds of $1,000,000 and (ii) 2,291,666 Insider Units, each consisting
of one ordinary share and one warrant, at a price of $0.01091 per unit,
generating gross proceeds of $25,000.





Initial
Public Offering





On August
11, 2008, Chardan 2008 consummated its initial public offering of 6,875,000
units (“IPO Units”). Each IPO Unit consisted of one ordinary share and one
redeemable ordinary share purchase warrant. Each warrant entitles the holder to
purchase from Chardan 2008 one ordinary share at an exercise price of $5.00. The
IPO Units were sold at an offering price of $8.00 per unit, generating gross
proceeds of $55,000,000. The warrants are currently exercisable, and will expire
on August 11, 2012, or earlier upon redemption or our liquidation.





Trust
Account





The sale
of the Insider Units, the Private Placement Warrants and the IPO Units generated
gross proceeds of $56,025,000. The net proceeds (together with deferred offering
expenses) were deposited into a trust account at JPMorgan Chase, London branch,
maintained by Continental Stock Transfer & Trust Company acting as
trustee.  At the consummation of the Transaction, the proceeds of the
trust account were released.





The
Transaction





On
January 15, 2010, Chardan 2008 acquired a controlling interest in DAL in
exchange for $64.8 million in cash and the assumption by DAL of approximately
$4.1 million in Chardan 2008 expenses.  In particular, Chardan 2008
acquired 10,663,866 DAL Common Units, and warrants to acquire 11,441,666 Common
Units (the “DAL Warrants”).





Concurrently
with the Transaction, the Stern Contributors transferred all of the non-legal
business and assets of DJS, PTA and DSI to DJS LLC, PTA LLC and DSI LLC,
respectively.  The Stern Contributors then transferred all of their
ownership interests in DJS LLC, PTA LLC and DSI LLC to DAL.  In
consideration for their contribution of their ownership interests in DJS LLC,
PTA LLC and DSI LLC to DAL, the Stern Contributors received from DAL the
following: (i) $58,500,080 in cash; (ii) $52,469,000 in a promissory note issued
by DAL to DJS (the “Stern Deferral Note”); (iii) 1,200,000 DAL Common Units;
(iv) 1,666,667 DAL Series A Preferred Units; (v) 3,133,333 DAL Series B
Preferred Units; and (vi) the right to receive $35 million in post-closing
cash.





Concurrently
with the Transaction, DAL acquired membership interests in the three limited
liability companies (DJS LLC, PTA LLC and DSI LLC) that together constitute a
provider of non-legal residential mortgage foreclosure processing and other
services, principally in the state of Florida. DAL did not acquire any portion
of such companies that involves the provision of legal services.




Following
the Transaction, the existing members of DAL, FlatWorld DAL LLC (“FlatWorld”)
and Fortuna Capital Partners LP (“Fortuna”), held (i) an aggregate of 1,500,000
Common Units of DAL and (ii) an aggregate of 766,667 Series B Preferred Units in
DAL. Immediately following the closing of the Transaction, Fortuna transferred
its membership interest in DAL to FlatWorld; FlatWorld then immediately
transferred its resulting membership interest, 60% to Nagina Partners LLC
(“Nagina”) and 40% to Jeffrey A. Valenty (“Valenty”).




The
Transaction followed the favorable vote of the public shareholders of the
Company in accordance with the SPAC business combination approval procedures
established at the time of the Company’s initial public offering. In connection
with the Transaction, the Company changed its name from “Chardan 2008 China
Acquisition Corp.” to “DJSP Enterprises, Inc.”





10





Concurrently
with the Transaction, the Company consummated a private placement of 1,500,000
ordinary shares of the Company for aggregate proceeds of $10,500,000, which
proceeds formed a part of the Transaction consideration. As a result, following
the Transaction and private placement, the Company had a total of 10,663,866
ordinary shares outstanding.





Company
History and Current Business





DJS was
founded by Stern in 1994 and provides its clients with legal services and
related non-legal support in connection with residential foreclosures,
bankruptcy, complex litigation, evictions and the sale of REO properties by
foreclosing lenders in connection with legal matters handled by DJS.
Contemporaneously with the consummation of the Transaction, DJS and DJS LLC
entered into a long-term Services Agreement, pursuant to which DJS engaged DJS
LLC to provide substantially all non-legal support required for the legal
matters handled by DJS. For example, when DJS receives legal referrals from its
clients, it will use DJS LLC to, among other things, prepare drafts of pleadings
and documentation for such clients. At the time of closing of the Transaction,
DJS was DJS LLC’s sole customer.





Large-scale
foreclosure processing services require both a large skilled staff and a
substantial investment in the information technology (“IT”) systems needed to
manage the large volume of data involved in tracking each of the cases.
Currently, DJS receives over 5,000 new foreclosure files each month on average,
with each taking an average time to process, except for those cases that are
fully litigated, ranging from 220 to 240 days. As a result, there is a need to
track and manage activity in approximately 100,000 distinct legal proceedings at
a time. The scale and complexity of the foreclosure process, as described below,
makes the IT solutions difficult and expensive to develop, requiring both
considerable investment and substantive knowledge. Adding to the complexity is
the fact that each county’s courts have “local” rules of procedure that need to
be complied with. The differences between counties and judges present a special
challenge to achieving a quick and efficient resolution of a foreclosure action.
As a result of significant investments in technology, processes and staff, we
are able to meet the requirements for foreclosure actions throughout
Florida. This efficient process provides benefits to both the defaulting
borrowers, who ultimately bear the costs, as they have fewer expenses to bear,
and the foreclosing lenders, by allowing them to retain a higher level of
liquidity while processing the large volume of defaulted loans.





The
majority of our growth has been fueled by the increase in the number of mortgage
foreclosures taking place in our principal market of Florida. Through
extensive investment in leading-edge IT, development of scalable proprietary
processes as a centralized facility, and hiring and training of the staff needed
to conduct operations at a large scale, we are well positioned to maintain a
competitive advantage in an industry generally populated by
smaller firms.





Our IT
systems allow us to interact efficiently with clients and reduce processing
time while minimizing human error in handling the over 5,000 new files
that we receive for processing on average in a month.





In
addition, our processing facility in Florida is supported by a scalable,
low-cost operation in Manila, Philippines, that provides data entry and document
preparation support. We have successfully adapted its processing operations
from an average of 1,300 foreclosure files per month in 2006 to 5,865 per month
in 2009.





Subsidiary
Development and History





DAL





DAL was
formed on March 20, 2007. Prior to May 1, 2009, DAL did not conduct any
operations. As part of the consummation of the Transaction, DAL acquired the
membership interests of DJS LLC, DSI LLC and PTA LLC. DAL conducts, through such
operating subsidiaries, the operations relating to our business.





In
connection with the Transaction, we acquired 10,663,866 DAL Common Units, PTA
acquired 1,200,000 DAL Common Units, 1,666,667 DAL Series A Preferred Units and
3,133,333 DAL Series B Preferred Units, Nagina acquired 900,000 DAL Common Units
and 460,000 DAL Series B Preferred Units and Valenty acquired 600,000 DAL Common
Units and 306,667 DAL Series B Preferred Units.  Currently, we own 71%
of the outstanding voting units of DAL.




11




DJS
LLC





DJS LLC
was formed in Delaware on September 15, 2009, for the specific purpose of
receiving the contribution of the assets used in providing non-legal services
from DJS. Immediately prior to the closing of the Transaction, DJS contributed
the assets used in providing non-legal services to DJS LLC, which was owned by
DJS. DJS, in turn, contributed and sold the membership interests in DJS LLC to
DAL in exchange for membership interests in DAL, among other
consideration.





DJS LLC
has entered into a long-term exclusive Services Agreement with DJS under which
it will have the right to perform all non-legal services required to process
foreclosure files and perform ancillary services. Pursuant to a facilities
sharing agreement, DJS LLC will furnish corporate and back-office services to
DJS, such as finance, accounting, IT and other administrative
functions.  DJS LLC is the exclusive processing firm for all business
undertaken by DJS, and DJS will be precluded from pursuing any material business
not requiring the use of DJS LLC’s processing capabilities. However, DJS LLC
will not be restricted from pursuing business with other law firms, whether in
Florida or other jurisdictions.





The
information regarding the operations of DJS LLC presented in these materials
relates to periods during which those services were being performed or provided
by DJS.





PTA
LLC





PTA LLC
was formed in Delaware on September 15, 2009, for the specific purpose of
receiving the contribution of PTA’s assets. Immediately prior to the closing of
the Transaction, PTA contributed its assets to PTA LLC, which was owned by PTA.
PTA, in turn, contributed and sold the membership interests in PTA LLC to DAL in
exchange for membership interests in DAL, among other
consideration.





DSI
LLC





DSI LLC
was formed in Delaware on September 15, 2009, for the specific purpose of
receiving the contribution of DSI’s assets. Immediately prior to the closing of
the Transaction, DSI contributed its assets to DSI LLC, which was owned by DSI.
DSI, in turn, contributed and sold the membership interests in DSI LLC to DAL in
exchange for membership interests in DAL, among other
consideration.





Business
Strategy





Overview





Ourbusiness
strategy for the short and medium term is to furnish cost-efficient processing
services that benefit mortgage lenders and servicers who must manage the
unprecedented volumes of foreclosures that are expected to continue in Florida.
Our timely and cost-efficient processing capabilities allow mortgage lenders to
preserve capital and liquidity while reducing the cost and economic loss
associated with residential mortgage foreclosures.





Growth
Strategy





Substantially
all of our revenues are generated from services in Florida. Our growth
strategy includes broadening our geographic markets and the services we
offer, as well as seeking a larger share of our current markets of Florida and
Puerto Rico.  We believe there are opportunities for continued growth
of our business through:




·
            continuing
      increases in mortgage foreclosure and bankruptcies due to the rapid
      decline in home values, high unemployment rates and the reset of
      adjustable rate mortgages to higher
rates;




·
            increasing
      market share in our current markets of Florida and Puerto
      Rico;




·
            geographic
      expansion beyond those two markets;
and




·
            the
      extension of our services to build counter-cyclical business in mortgage
      origination, mortgage servicing processing, other consumer lending
      processing and other legal process outsourcing
  services.





In the
long-term, our strategy is to position ourselves as a non-cyclical mortgage
processing company with a low-cost, highly scalable delivery platform and
predictable, diversified revenue streams. In the future, we plan to build
counter-cyclical business lines through organic growth and selective
acquisitions.





12








Foreclosure
Services





Overview





Foreclosure
is the process through which a lender repossesses mortgaged property when a
borrower defaults on his or her mortgage. The foreclosure process is complete
once a lender has acquired title to a property through a foreclosure auction or
sale, or a third party purchases the foreclosed property. If the property
reverts to the lender, it may require REO closing services thereafter. Our
primary business involves non-legal services related to mortgage foreclosures on
residential properties. In the United States, foreclosure processes generally
follow one of two general models: judicial or non-judicial, with variations on a
state-by-state basis within each of these groups. As described more fully below,
judicial states tend to be more protective of the borrower’s rights, which
results in a more complicated, costly and time-consuming process. Florida and
Puerto Rico, where all of the current business takes place, are both judicial
jurisdictions. Having developed the specialized IT, processes and trained
employees required to support operations in the more complicated judicial states
of Florida and Puerto Rico, we benefit by being able to expand into other
jurisdictions with the same or similar systems without having to invest the cost
and time to develop such specialized systems. We also have the ability to apply
our current systems and processes to less complicated non-judicial
markets.





Foreclosures
in Judicial States





As noted,
Florida is a “judicial” foreclosure state. “Judicial” means that each
foreclosure results in the entry of final judgment by a judge in a court of law
and a sale set thereafter by the clerk of the court.





In
non-judicial states, foreclosure occurs through a relatively simple process that
typically involves giving notice to the debtor by mailing a default letter. If
the debtor does not cure the default, a “notice of sale” will then be delivered
to the debtor, posted publicly, recorded at the county recorder’s office and
published locally. After waiting the legally required amount of time, the
foreclosing lender can then auction the property publicly without judicial
involvement. Auctions of foreclosed property in non-judicial states generally
require settlement in cash at the time of the sale. Procedures vary state to
state, with some not even requiring direct owner notification.





The
judicial jurisdictions in which we operate involve a significantly higher level
of processing activities, and therefore produce higher per case revenues for us.
Foreclosures in a judicial state can be handled on a small scale on a
case-by-case basis; but the inefficiencies inherent in these small scale
operations can increase the cost of the process, which are often eventually born
by the borrower if the loan is modified or the property sold, as well as slow
the process down, which negatively affects the foreclosing lender. In addition,
lenders and servicers begin incurring costs as soon as a borrower stops making
timely mortgage payments. Many of these are time-dependent costs that continue
to grow as long as the loan is delinquent, in foreclosure, or in the REO sale
process. These costs include lost principal and interest payments (including in
some cases continuing to fund the monthly payments required to be made by
servicers to mortgage investors on securitized loan pools), tax and insurance
payments, maintaining any vacant properties, and the costs of collection
efforts. Additionally, there are several one-time transaction costs that occur
once foreclosure has been initiated, including legal costs for handling the
foreclosure and administrative fees such as court filing fees, service of
process fees and publishing fees. For those lenders or servicers who have a
large number of loans in default, the cumulative cost of inefficiency can be
immense.





Florida





Florida,
our principal market, is a judicial state. Under Florida law, the actual
prosecution of a foreclosure action in court must be done by a lawyer. Our
operations do not include the law firm operations of DJS, as unauthorized
practice of law regulations prohibit non-law firm entities from owning or
operating a firm practicing law. However, a substantial portion of the
processing services that support DJS’ actions can be done by non-lawyers. These
non-legal processing services are our principal business.





In
Florida, an average foreclosure case takes over twelve months from the time the
lender refers it to a law firm to the court’s confirmation of the sale. Although
reliable statistics are difficult to find, anecdotal evidence suggests that the
rapid growth in foreclosure volumes statewide has increased the average process
time meaningfully, as backlogs force courts to delay hearings.





13





We are
directly involved in every step of the foreclosure process following the initial
referral of the case to the law firm, through and up to the final conveyance of
the property to the lender as a result of the foreclosure and to the ultimate
purchaser from the foreclosing lender, providing the non-legal processing
services required by the law firm.





Florida
Process Overview





The
following discussion provides further detail on each of the steps involved in
the Florida foreclosure process.




·
            Referral.  A
      foreclosure action begins when a lender or servicer servicing a mortgage
      in default determines that there are no viable loss mitigation
      alternatives, leaving the lender with foreclosure as the only alternative.
      The law firms receiving these referrals from lenders and servicers are our
      customers and potential customers. To date, nearly all of work we have
      performed has been done for DJS.  We intend to market our
      services more broadly, both within Florida and to law firms in other
      markets, allowing law firms to benefit from our efficient processing
      operations and economies of scale.




·
            Instituting the
      Action.  Once a law firm receives a referral of a
      foreclosure action from a lender, it obtains a title search. The title
      search identifies the necessary defendants (which can include not just the
      homeowner/mortgagor, but also second mortgagees, lienors, etc., whose
      interests may also be affected by the foreclosure action). The title
      search also reveals any title defects. While a law firm may do this on its
      own, it is more efficiently performed by a third-party service provider,
      like us.  The law firm representing the lender uses the title
      search to draft and file the complaint. A lis pendens is recorded in the
      public records and it puts all third parties that may have an interest in
      the property on notice of the pending foreclosure action. We update our
      title search so that any parties that may have recorded claims in the
      period after the initial title search was conducted can be included in an
      amended complaint as defendants.




·
            Service of the Summons &
      Complaint.  After the filing of the complaint and lis
      pendens, the law firm delivers a copy of the complaint for service, as it
      is not permitted to serve process itself. Service of process of Florida
      residents may be accomplished by personal service or by substituted
      service. If attempts at service fail, service may be made by publication.
      Effective service by publication (constructive service) must be supported
      by an affidavit of due diligence and inquiry regarding the initial
      attempts to serve. Proceeding based on constructive service of process may
      require that the plaintiff petition the court to appoint an attorney ad
      litem to protect the interest of the non-appearing
    defendants.




·
            Entry of Judgment/Summary
      Judgment.  The defendants (depending on whether the
      defendant is an entity or an individual) have a fixed number of days to
      appear and file an answer or other responsive pleading to the
      complaint/amended complaint. If any defendant does not do so timely, the
      plaintiff’s lawyer will file a motion for entry of a default. If all
      defendants fail to appear and respond, the plaintiff may move for a final
      default judgment on the basis of affidavits from the plaintiff.  If
      any defendant files a responsive pleading, the next step is usually a
      motion for summary judgment, asserting that there are no material factual
      issues or valid defenses to a foreclosure action. Most mortgage
      foreclosure actions that reach this stage are resolved with this motion,
      thereby avoiding a trial and the attendant
  costs.




·
            Sale.  Most
      often, the mortgagee/plaintiff in a foreclosure action obtains repayment
      of the debt, wholly or partially, by selling the foreclosed property.
      Following entry of final judgment, a notice of sale is prepared and
      published once a week for two consecutive weeks prior to the sale in a
      newspaper of general circulation in the city where the property is
      situated. This is intended to make prospective purchasers aware of the
      impending sale. Unless otherwise ordered by the court, the sale must be
      set for a date no sooner than twenty days and no later than thirty-five
      days after the entry of the final judgment. The clerk of the court
      conducts the sale.




·
            Right of
      Redemption.  Until the time that a sale is final, any
      defendant has the right to redeem its interest in the foreclosed property.
      That means it can agree to pay the mortgagee the amount owed to it and
      become the legal owner. This might occur if a second mortgagee believes
      that the value of the property is greater than the amount of the first
      mortgage if marketed other than through a foreclosure sale. The right of
      redemption expires on the later of the filing of the certificate of sale
      by the clerk of the court or the time specified in the
      judgment.




14




·
            Certificates of Title,
      Conveyances & Final Title.  The clerk of the court
      will issue a certificate of title upon the expiration of the objection
      period. A final title search is ordered and policy issued where
      appropriate, and all final title evidence is forwarded to the client and
      the homeowner’s insurance carrier.




·
            Deficiency
      Judgments.  If the proceeds from the sale are
      insufficient to satisfy the entire amount due the plaintiff, it may seek a
      deficiency judgment for the shortfall. The ability to pursue a deficiency
      may be preserved in the foreclosure complaint. A motion for deficiency
      judgment may be filed after sale, when the deficiency is established, or a
      suit may be filed based on the obligations arising under the promissory
      note related to the mortgage.




·
            Eviction.  The
      final judgment of foreclosure directs the clerk of the court to issue a
      writ of possession. If, after issuance of the certificate of title, the
      property remains occupied, the writ is delivered to the sheriff for
      execution. The timing and manner of execution of the writ of possession
      varies from county to county. More and more courts are requiring a motion,
      order and established hearing date before issuing a
  writ.





Case
Volume





Since
late 2005, lenders have experienced historically high mortgage delinquency
rates. As a result, DJS’ foreclosure case volume reached 70,382 file referrals
in Florida during 2009, or more than 5,865 file referrals per month, which
represented a growth of 0.08% over 2008.  DJS’ case volume grew by 57%
in 2008 to 70,328 foreclosure files from 44,733 in 2007, which itself
represented a growth of 192% from 15,332 foreclosure files in 2006.





Direct
Source Program





Historically,
the majority of lenders relied on “aggregator” firms, which received large
numbers of foreclosure files and directed them to select law firms to be
processed. Recently, due to the need to cut costs and the increasing number of
case files that need to be processed, lenders are shifting to a model in which
they specify the firms to be used in their foreclosure actions. Called the
“direct source” program, this is an initiative where certain major mortgage
lenders and servicers utilize the best service vendors in the foreclosure
process and refer certain file volumes directly to them, bypassing the
aggregator firms and their associated “packaging” fees. As a result, in addition
to reduced costs for the lender, ancillary services often sent to other firms
(e.g., title searches or disposition of the REO) are now handled by the same
firm involved in the foreclosure file, resulting in higher revenues per case
file.





Although
we do not participate in the direct source program, the law firms for which
we process files may participate in such programs.  As a result of
DJS’ position as a leading residential foreclosure law firm, it now participates
in two “direct source” programs and seeks to increase that number in the future.
These programs permit DJS to capture more file referrals and ancillary services
from its clients.  The quality of our work processing files for law
firms may increase the likelihood of a firm receiving direct source
relationships, which will indirectly benefit us.





Fees





Each of
the services involved in processing a foreclosure, both legal and non-legal, is
generally ascribed a fixed value that is set forth in the retention agreement
between the law firm and the client. These fees generally follow the guidelines
set by the government sponsored entities (“GSEs”) such as the Federal Home Loan
Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage
Association (“Fannie Mae”).





Historically,
these fees have been increased from time to time, and management expects that
this practice will continue, though it has no way of knowing how often or by how
much the fees will be increased. The Services Agreement between us and DJS will
entitle us to receive payment of fees for the services that we perform for DJS.
Under the Services Agreement, we are able to increase our fees periodically as a
result of increases in our costs or changes in the services we provide. We
generally will receive our fee within a reasonable amount of time after the law
firm is paid by its client.





Variations
on the Process





While
most foreclosures proceed from complaint to judgment, loss mitigation and
reinstatement occur in some cases. Loss mitigation includes short sales, loan
modifications, forbearance plans and deeds-in-lieu of foreclosure, also known
generally as “work-outs.” In sum, reinstatement reverses obligations due under
any acceleration clause and returns the debtor to the original payment schedule.
We are entitled to receive additional fees for assisting our law firm
client with these supplemental services.





15





Puerto
Rico





Puerto
Rico, our second largest market representing approximately 1% of DJS’
foreclosure referral volume, is also a judicial jurisdiction. Compared to
Florida, Puerto Rico’s foreclosure processes are more complex and more lengthy.
The complex and lengthy process in Puerto Rico, in addition to its geographic
location, are expected to discourage entry by new market
participants.





Process
Overview





The
following discussion describes the various actions taken during the foreclosure
process in Puerto Rico, contrasting it, where appropriate, with
Florida’s.




·
            Title
      Search.  As with Florida, in Puerto Rico the starting
      point of a foreclosure action is a title search to determine the potential
      defendants in the action, including the current owner and other
      lienors.




·
            The
      Complaint.  The complaint must be filed in the Superior
      Court in Puerto Rico having jurisdiction over the property. Several
      documents must be affixed to the complaint, including a copy of the
      mortgage note, status of the debt and a brief property registry
      certification.




·
            Service of the
      Complaint.  The plaintiff has six months from filing the
      complaint to serve the summons and complaint on the mortgagor. Service of
      the complaint must be made directly to the mortgagor. The mortgagor then
      has 20 days to answer the complaint. If the server cannot locate the
      mortgagor, or it is determined after utilizing reasonable sources of
      information on the mortgagor’s whereabouts (mayor’s office, police
      headquarters, post office, etc.) that the mortgagor does not reside in
      Puerto Rico, then the server must execute a sworn statement requesting a
      court order authorizing service by publication. The mortgagor has 30 days
      to answer the complaint after the date of
  publication.




·
            Answering the
      Complaint.  If the mortgagor answers the complaint, the
      case proceeds through the courts in any of various ways, depending on the
      nature of the answer and defenses alleged, if any. If the mortgagor fails
      to answer the complaint, the plaintiff may move for a default
      judgment.




·
            Entry of Judgment By
      Default.  Ordinarily, the court will issue the default
      judgment without a hearing if the mortgagor failed to appear or
      answer.




·
            Execution on the
      Judgment.  Thirty days after the date of the judgment,
      the plaintiff must file a motion requesting an order for execution. In
      response, the court will issue a writ of execution, which gives the
      marshal of the court the authority to sell the property to the highest
      bidder at public auction.




·
            Sale.  Three
      public sales are held at different dates. A notice of each sale must be
      published at least once a week in at least one newspaper for a period of
      two weeks. The highest bidder from among all three public sales is awarded
      the property.





Fees





DJS began
generating income from foreclosures in Puerto Rico in early 2006. In most cases,
law firms in Puerto Rico receive a referral of a foreclosure action through DJS
from lenders and servicers for which it handles foreclosures in Florida.
Although it is not licensed to practice law in Puerto Rico, DJS oversees the
activities of the law firms to which it has referred the foreclosure cases. We
provide title services to local counsel in Puerto Rico. We generate fees for
these files through a packaging fee received from the local firm for monitoring
the file for the lender.





Case
Volume





In Puerto
Rico, DJS received 603 foreclosure referrals during 2009, all from the same
client. The Puerto Rico market represents a solid growth opportunity, as DJS has
received numerous inquiries from potential clients to handle their foreclosure
activities, but to date no additional clients have been secured.





16





Title
Services





Title
Exam & Abstract





Almost
every foreclosure referral to DJS requires a title exam and abstract (a written
history of all deeds, liens and encumbrances affecting a specific property) in
order to identify the defendants to be included in the complaint. A title exam
will also discover any defects in title or claims against or other burdens on
the property. A title exam will answer many questions, such as the existence
of:




·
            judgments
      against the owners;




·
            liens
      filed against the property by city, county, state or federal authorities
      for taxes or otherwise; and




·
            lawsuits
      against the owners which could affect ownership of the
      property.





While a
title exam is an important step in any foreclosure action, it is particularly
important in a judicial state, where all persons with an interest in the
property (including lien holders) must be joined in the foreclosure action. The
ability to execute the title search quickly and accurately is essential to
prompt commencement of the action. For 55 of 67 Florida counties, we use the
ATIDS electronic title record database, which affords us real time, on-line
access to public land records. With ATIDS, title searches can be performed in as
little as one hour. For the remaining 12 counties, we use third-party vendors to
obtain title searches, with a typical turnaround time of 24 hours to 48
hours.





Fees





We receive
a set fee from our customers for each title abstract and exam and an additional
fee for each title update. With the exception of files where the loan has been
reinstated prior to entry of judgment, we usually update title exams at least
once over the course of a foreclosure case. In addition, we provide ancillary
services on a fee per service basis.





Bankruptcy
Services





When a
borrower files for bankruptcy during the foreclosure process, the file is
transferred to DJS’ bankruptcy department and we continue to provide non-legal
support services when needed. Two of the most typical actions taken when a
debtor is in bankruptcy are filing a proof of claim (“POC”) and drafting a
motion for relief from a stay. A POC is filed after the lender receives notice
that the debtor has filed a bankruptcy petition (usually Chapter 13). The POC
states the amount and type of the debt owed and the arrearage on the
debt.





All
litigation involving the petitioner, including but not limited to foreclosure
proceedings, is automatically stayed upon the filing of a bankruptcy petition.
As the mortgagee is a secured creditor with senior rights to the proceeds from
the sale of the mortgaged property, a Motion for Relief (“MFR”) from the
automatic stay is generally filed to avoid delay in getting to judgment. The MFR
is typically granted, as the rights of other creditors are generally not at
issue in the foreclosure proceeding or, if they are, are dealt with in that
action. A MFR will typically be heard within 25 to 30 days of notice
of the bankruptcy filing. The average time for the court to grant an MFR is
5 to 7 days after the hearing date.





Other
bankruptcy actions include seeking comfort orders to confirm termination of an
automatic stay and filing and defending objections to confirmation of the
bankruptcy plan or motions seeking re-imposition of the stay.





We
conduct processing services for DJS’ bankruptcy referrals in both Florida and
Puerto Rico. DJS’ bankruptcy business increased in 2009, with 10,313 total
referrals during the year, an increase of 27% over 2008.  Bankruptcy
referrals grew by 48% in 2008 to 8,116 bankruptcy files from 5,483 files in
2007, which in itself represented a growth rate of 95% from 2,814 files in
2006.





17




The
following chart shows the increase in the number of bankruptcy referrals that
DJS has received from 2006 through 2009.











Eviction
Services





Once the
foreclosure process is complete, if the residence is not already vacant,
occupants need to be evicted from the property. In such cases, we will prepare
the eviction documents for DJS. Evictions in Florida typically require 20 to 45
days from the date of foreclosure sale.  Although DJS’ eviction
referrals decreased in 2009 by 13%, with 5,325 total referrals during the year,
DJS experienced a significant increase in eviction volumes in 2008 due to rising
foreclosure rates, continuing upward trends in lender-owned properties and
increasing direct source volumes. Eviction referrals grew by 141% in 2008 to
6,134 files from 2,546 files in 2007, which in itself represented a growth of
398% from 511 files in 2006.





The
following chart shows the increase in the number of eviction referrals that DJS
has received from 2006 through 2009.











Real
Estate Owned (“REO”) Closing Services





When a
lender sells a property that it has recently acquired through foreclosure, there
is a need for REO closing services. For REO closings we prepare the closing
documents for DJS and assist DJS in the coordination of the document execution
and management of the disbursement of funds, including wire transfers and escrow
arrangements, as necessary. Because DJS is already familiar with the file, the
seller of the REO property (the client), will typically utilize DJS for REO
closing services as well. We are best positioned to provide DJS the additional
services required for it to conduct REO closings, because we have already
examined the title and identified and resolved any issues. This reduces the
amount of work necessary in the REO closing process and reduces costs for the
client by closing the transactions sooner.





18





DJS’ REO
closing business increased in 2009, with 5,803 total referrals during the year,
an increase of 47% over 2008.  REO closings file volume grew by 439%
in 2008 to 3,949 files from 732 files in 2007, which itself represented a growth
of 130% from 318 files in 2006. In addition to the overall increase in
foreclosure volumes, the increasing trend of foreclosed properties reverting
back to the foreclosing lender, as opposed to being reinstated or sold to third
parties at the foreclosure sale, has continued, fueling the growth of this
aspect of our operations. This growth continued for 2008 and 2009 and is
expected to do so through 2010, as foreclosure rates remain high and the
potential for a stabilization of real estate prices has led many lenders to
choose to hold the foreclosed assets rather than to sell them at a loss. These
trends, in addition to customers gained by DJS through direct source programs,
are expected to drive continuing growth in our REO closing services over the
next several years.





The
following table depicts DJS’ REO closing referral volumes by year from 2006
through 2009.











REO
Liquidation Services





We assist
DJS and its client in all phases of the REO liquidation process, including
property inspection, valuation, eviction, broker assignment and liquidation. We
currently provide REO liquidation related services for properties nationwide for
a single customer.  DJS’ volume of REO liquidation files increased in
2009, growing to 4,211 files, an increase of 25.2% over 2008.  DJS’
volume of REO liquidation files grew by 146% in 2008 to 3,362 files from 1,366
in 2007, which itself represented growth of 12% from 1,219 files in
2006.





The
following chart shows the increase in the number of REO liquidation referrals
that DJS has received from 2006 through 2009.











As
refinance options for borrowers in foreclosure decrease, our management
anticipates more REO properties in the near future, which is expected to
contribute to an increase in overall REO services demand.





19





Loss
Mitigation





In
October 2008, DJS began to offer loss mitigation services to its clients, and
dedicated staff to execute this service offering. These services provide DJS’
clients with alternatives to foreclosure, such as loan modification or
forbearance, which allow a borrower to continue to own his or her property, and
short sales and deeds-in-lieu of foreclosure, which transfer property ownership
to a third party or the lender. Management believes that it is likely that DJS
will often receive a foreclosure referral from a loan modification matter it
handled, because it will already have familiarity with the file. Once the client
decides to pursue loss mitigation rather than foreclosure, we prepare the
required documentation, the cost of which varies depending on the type of loss
mitigation service that the client chooses.





While
loss mitigation may appear on its face to reduce foreclosures, modified loans
may still fall delinquent. Delinquent loans, in turn, are more likely to go into
foreclosure. A substantial percentage of modified loans fall delinquent because
many loan modifications consist of temporarily lowering the borrower’s interest
rate while increasing the total amount owed on the home by adding fees and late
payments to the principal balance. In some instances, where the loan
modification includes an increase in the principal amount of the loan, a
borrower’s monthly payment may actually increase, making it even more difficult
for the borrower to pay.





Monitoring
Services





DJS also
offers “monitoring services” to junior lienors of property that is in
foreclosure. DJS follows the foreclosure process through the sale and represents
the junior lienor in the sale process. Under parameters established by the
customer, DJS will actively participate in the foreclosure auction process on
behalf of the customer in order to maximize the probability that the junior
lienor will receive some proceeds from the foreclosure. We prepare the necessary
documentation required by DJS to handle these monitoring services. DJS handled
1,782 monitoring cases in 2009, an increase of 23% over 2008, after handling
1,447 monitoring cases in 2008, a decline of 37% from 2,295 monitoring cases in
2007.  DJS’ monitoring business in 2007 was up over 112% from the
1,081 monitoring cases in 2006.  The past growth in this service area
derives from both the overall increase in foreclosure volume and the increase in
second mortgages over the last five to seven years, when rising real estate
values enabled owners to take second mortgages against the equity appreciation
in their homes. The recent decline in this service area stems from the dramatic
decline in home valuations over the past several years, which has driven the
continuing growth of foreclosures but has also resulted in significantly reduced
prospects for any recoveries for junior lien holders from the foreclosure
process.





The
following chart illustrates DJS’ monitoring referral volumes by year from 2006
through 2009.










20





Litigation
Services





Litigation
can arise in the course of foreclosure, and even after the foreclosure process
concludes. DJS’ standard fees are based on the typical case, in which the
foreclosure is not contested. If the homeowner challenges the foreclosure, the
breadth of DJS’ services, and the fees generated, increase
significantly.





We assign
a team, consisting of a paralegal and a processor, to each litigation matter.
The team prepares documentation for the DJS attorney to use in the
litigation.





DJS
Customers





Through
our relationship with DJS, we indirectly service a strong and diverse customer
base that includes many major mortgage lenders and servicers in the United
States. Our Services Agreement with DJS provides us with the opportunity to
continue to indirectly service those existing customers, which include some of
the largest financial institutions in the United States. DJS has long-term
relationships with each key customer, the average length of the relationships
being more than ten years.  Four of DJS’ top ten clients have referred
foreclosure files to DJS since it commenced operations in 1994. Those
relationships are strengthened by the need for substantial interaction between
the customers’, DJS’ and our staffs at all levels on a regular basis. DJS’ top
ten clients accounted for approximately 89.5% of DJS’ total foreclosure file
volumes in 2009, with the largest accounting for approximately 30%. DJS
experienced very rapid growth over the last 24 months, as it was able to
increase its volume with existing clients and establish new
relationships.





DJS has
successfully established and distinguished itself as a provider of choice for
major lenders and servicers and has provided us with tools for our success. A
key factor in DJS’ and our success is the ongoing implementation of cutting edge
IT solutions that optimize interface and data transfer activities with clients,
and improve processing time while reducing human error. We also deliver
effective staff training to ensure efficient and effective processing of all
referrals.  Our use of Client Relationship Managers for large
customers implementing direct source initiatives promotes regular and effective
communication to make sure that we are aware of the needs of each of DJS’
clients and can meet them.





Based on its lengthy track
record, customers trust DJS and us to perform each job in a correct and timely
manner. This trust and dependence has been the key to securing and retaining
customers. Given the specialized services we provide and our high degree of
interaction with and customization for each customer, it is difficult for
customers to shift business to a new service provider or to perform these
services themselves.





Technology





We have
developed an integrated technology infrastructure that consists of proprietary
and licensed software. We continually upgrade our infrastructure to provide
enhanced functionality. The core of this platform is a proprietary case
management system that we have integrated with a proprietary file storage
system, various proprietary departmental workflow applications and a third party
licensed financial accounting system. This fully interconnected set of
applications makes reliable management of a large volume of complex processes
possible. Reports can be generated to specification, allowing our management to
oversee any and all stages and timelines in the process.





We are in
the process of implementing a paperless environment, utilizing electronic
imaging and document management tools. Our management expects a further
reduction in human error and time required for document retrieval once these
systems are on line. It will also enable us to streamline processing functions,
increasing efficiency by enabling each staff member to handle a higher volume of
files, reducing overhead and improving profitability through increased file per
staff member ratios, and, in turn, higher overall profits.





Our case
management system currently serves as a workflow engine and operational
reporting system. It is being modified to assist staff to do their tasks on a
timely basis, using system-generated documents to guide staff through each
processing step. It will also maintain targeted timelines that it tracks against
actual progress for each process step, notifying staff and vendors of tasks to
be completed.





Our
technology platform is integrated with universal translator software licensed
from a third party that interfaces with systems maintained by DJS’ clients to
enable data exchange, notifications/status updates and electronic billing by
DJS. DJS receives referrals from clients electronically, and data fields
automatically populate with information regarding the property, borrower,
mortgage terms and other relevant data. Vendor services, such as service of
process, are ordered through the system as needed through electronic interfaces
between the system and our vendors.





21





This
system also delivers the referral summary into our proprietary tracking system,
which serves as the hub of information regarding the status of every file.
Processing staff populate the tracking system through data entry, and the
tracking system then sends updated information back to the universal translator
system. The system provides DJS’ client or the appropriate packaging firm with
status updates on each file, which allows DJS’ clients greater insight into the
status of their foreclosure files. Electronic access also reduces the
requirement of human capital in interfacing with the client, while maintaining
high customer service levels.





Our
disaster recovery plan consists of two redundant servers. One server is located
on site at our Plantation, Florida headquarters, and the other server is housed
off-site in Fort Lauderdale, Florida, at a hurricane-proof location. In
Louisville, Kentucky, daily back-ups are performed and stored on an on-site
back-up server, and back-up tapes are stored off-site. Pursuant to a contract
with a third party vendor, our Plantation facility has available to it, as
needed, a generator truck that would power a portion of the facility and provide
limited air conditioning. This system will provide us with an increased
capability to operate in the wake of a natural disaster, mitigating to the
extent possible the risks associated with Florida’s hurricane
season.





Our investment
in technology infrastructure has allowed us to increase referral volume rapidly
while improving productivity and quality, reducing costs, elevating levels of
customer service and maintaining strong profit margins. Additionally, our
paperless document environment initiative and further automation will continue
to reduce labor costs by eliminating manual processes.





Competition





Mortgage
lenders and loan servicers typically have a limited in-house mortgage default
processing service department that generally focuses on servicing non-performing
loans before a foreclosure referral. When the decision is made to foreclose on a
mortgage in default, lenders generally refer the matter to a law firm (at least
in judicial foreclosure states), which provides the legal and non-legal
processing services needed or outsources the non-legal work to third-party
providers. Each of these law firms and third-party service providers represents
a competitor of ours, as we begin to expand our geographic market beyond
Florida and Puerto Rico.





It is
estimated that the high volume mortgage default processing services industry in
the United States consists of hundreds of local and regional law firms. Based on
industry association listings, about 35 of them operate in Florida. Most of the
law firms that deal with residential foreclosure are quite small (under 10
attorneys per firm). Only recently have a few larger law firms like DJS arisen
to meet the larger lenders’ and loan servicers’ desire to better manage the
foreclosure process through vendor consolidation. Clients demand high levels of
service from the firms handling the mortgage foreclosure process, with a
particular emphasis on process rigor, efficiency and accuracy with which the
firms complete the foreclosure process. All the major lenders have a
well-defined process for foreclosure filings, and they expect their law firm
vendors to conform to the bank foreclosure process to facilitate monitoring
progress and minimizing losses throughout the process. This process efficiency
is critical, as faster foreclosures mean fewer missed payments by borrowers and
fewer delinquency payments made by loan servicers to investors on behalf of
delinquent borrowers. Accuracy is also critical, as any resubmission of
paperwork or additional court hearings extend the foreclosure process and impose
additional cost. Law firm reputation and partner tenure are additional client
considerations.





We have
developed rigorous processes tailored to the needs of each of DJS’ clients as a
result of having processed a significant percentage of DJS’ case volume over
many years of service. We have also invested in proprietary technology to
achieve high efficiency and minimal foreclosure processing time.  We
believe that, in combination with the increasing case volumes, rising client
expectations, and high barriers to entry with respect to the substantial minimum
technological requirements to achieve efficiency, we are uniquely positioned to
capitalize on opportunities for further growth in current and future markets. In
addition, there is a higher degree of consolidation among DJS’ clients due to
recent acquisitions as many look to simplify their foreclosure management and
consolidate their vendors. This is a beneficial industry trend, as DJS has a
higher share of foreclosure volume amongst the larger banks that require the
services of law firms that have the scale and capabilities to manage their large
foreclosure volumes successfully. There is also potential for geographic
expansion through providing foreclosure processing services for DJS’ existing
larger bank and loan servicing clients across multiple geographies.




22





Our
management believes that DJS is the market leader in Florida.  Florida
is one of the most active states for foreclosures, with only California having
more foreclosures in 2009, according to the MBA.  As a result of DJS’
leadership in a large core market, we are also likely one of the largest
foreclosure processing companies in the U.S.





We
compete with several small and large law firms in Florida. Although providing
similar services, most of the law firms that deal with residential foreclosure
are located in a single city, are smaller, possess limited resources and are
unable to generate the economies of scale that we derive from our high-volume
and efficient processing operations.





As a
judicial foreclosure state, which requires that the court system process most
foreclosure actions, Florida is recognized as being among the more complex
states for foreclosure processing. In addition to mastering this complex
processing function, new competitors would need to develop a close working
relationship with a law firm (such as our relationship with DJS) to be
successful.





Long-Term
Corporate Strategy





We have a
strong track record of achieving consistent and profitable growth. Marketing
efforts by DJS have resulted in new clients and increased share with existing
accounts. This includes DJS’ selection as the primary vendor in a number of
recently launched “direct source” programs, through which major lenders and loan
servicers bypass service aggregators and refer foreclosure work to specified law
firms, such as DJS. DJS intends to continue its efforts to secure direct-source
business from its current customers.  We also intend to seek
additional law firm customers independent of DJS.





Our
management believes that a number of factors indicate that the high rate of
mortgage foreclosures will continue through and beyond 2010. Our management
believes that the combination of macroeconomic factors favorable to the industry
(persistently high unemployment, upward ARM resets, depressed real estate values
compared with recent levels that either continue to decline or stagnate, tighter
credit standards and the unavailability of home equity loans), company specific
growth attributes (the direct source program and geographic expansion) and our
proven infrastructure capabilities, positions the Company for sustained
growth.





Several
near- and long-term growth drivers for the Company’s business are discussed
below.





Overview





Initially,
we believe our opportunities for future growth will come from increases in
foreclosure volumes in Florida and an increase in files referred to our primary
client, DJS, by its clients. Because the average cycle time on a foreclosure is
approximately twelve months, with a significant portion of the revenue earned
within the first month after the referral, and the remainder near the end of the
process, the number of current referrals is an indicator of revenue levels for
the following year, with high levels of file referrals indicative of strong
revenues. We are currently forecasting foreclosure volumes and file referrals to
increase for at least the next few years. As a result of DJS’ position as a
leading residential foreclosure law firm, it now participates in two “direct
source” programs and seeks to increase that number in the future. These programs
permit DJS to capture more file referrals and ancillary services from its
clients. We also believe there are opportunities for the growth of our business
in Puerto Rico as a result of increased referrals to DJS from its existing
clients and increases in our file volumes and the capacity of DJS’ referral law
firm in Puerto Rico to handle significant additional volume. In addition, we
intend to offer our REO liquidation services to additional customers, who are
already using DJS for their foreclosures. We do not believe that pursuing these
opportunities will require significant additional investments by
us.





We look
to adapt our infrastructure platform to support foreclosure servicing in other
states and expand our business into those states. The cost to do so will vary
from state to state, and we have not yet developed specific estimates of such
costs. We may enter new states through acquisitions of existing processing
businesses operating in those states. These activities may require significant
investments by us, although initially we believe we can fund those from our
operating cash and, in the case of acquisitions, through issuances of our
equity.





On a
longer-term basis, we also see opportunities for growth by expanding the
services we offer to include others related to the foreclosure industry, such as
publication, document retrieval, lien searches, automotive default services and
foreclosure services for commercial real estate mortgages. A possible long-term
challenge we face is to expand into counter-cyclical markets before there is a
cyclical decline in foreclosure volumes. Accordingly, our long-term plans could
include plans to enter the counter-cyclical markets, such as providing mortgage
origination services. We are currently reviewing the development of a national
title insurance platform, which could allow us to expand our service offerings
in that area beyond those supporting our foreclosure processing services and
into new counter-cyclical markets like mortgage origination. Each of these
activities would likely represent new service offerings for us, requiring us to
develop new processes and procedures to provide these services or to acquire
businesses already providing them. Such activities could require significant
investments by us.




23





Because
of the preliminary nature of our consideration of these growth initiatives, the
amount of such investments is not known, nor do we know whether we can fund
these investments from our operating cash flows or would have to seek debt
financing from third parties. Any such debt financing, if available to us on
reasonable terms, would have to be approved by our existing
lenders.





Increase
in Foreclosures/Industry Dynamics





Because
the average cycle time on a foreclosure referral, except for those cases that
are fully litigated, ranges between 220 to 240 days, our performance in the
immediate term will be a function of the number of referrals we receive from
DJS.  Roughly half of the revenue associated with a file is recognized
at the time that a foreclosure complaint is filed, which occurs within the first
month of the referral. As a result, the number of referrals that occur in a
given period is indicative of revenues and earnings for the ensuing
periods.





Our
management expects foreclosure volumes to continue to increase. The rise in
sub-prime mortgage originations and other high-risk loans approximately
3 to 5 years ago, combined with higher U.S. consumer debt, stagnant
home prices, rising and sustained high unemployment and upward interest rate
resets, has burst the sub-prime bubble, leading to a sustained high level of
foreclosures. The recent stabilization in the real estate market in some areas
is not expected to result in a change in foreclosure rates.  A change
in foreclosure rates would likely require a significant increase in home values,
which is not forecasted in the near term.





Increase
in Florida Market Share





Our
management believes that DJS is already a leading residential foreclosure law
firm in Florida.  Volume growth and market share gains in Florida are
anticipated to result from further penetration of existing client referral
volumes. DJS’ share of referrals from eight of its top ten clients averages less
than 60%. While that is a high figure, it points to the fact that DJS and the
Company are well regarded by those clients, and there is considerable room for
growth in referrals from the current client base. DJS has also capitalized on
the growth opportunities associated with “direct source” programs, which allow
DJS and the Company to be more integrated with DJS’ clients and capture both
foreclosure processing and substantially all ancillary services revenues while
eliminating the packaging fees from third-party service aggregators. DJS has
secured two major direct source programs, representing approximately 33% of its
business, and its objective is to expand this program to other existing and new
customers as a way to achieve significant increases in both foreclosure and
ancillary services volumes.





Further
Development and Penetration in the Puerto Rico Market





DJS
currently serves the foreclosure processing market in Puerto Rico through its
sub-contracting relationship with a local law firm. The Puerto Rico market
represents a solid growth opportunity, as DJS has received numerous inquiries
from existing customers to handle Puerto Rico matters.  To date, DJS
has not taken additional work due to concerns about its ability to work
effectively and profitably with law firms in Puerto Rico not familiar with our
methods. DJS and the Company are developing a program to take advantage of these
opportunities.





The
Company also believes that it can secure additional processing work by adding
customers. The third party local law firm to which DJS refers files has the
capacity to handle significant additional foreclosure referral volumes in Puerto
Rico, and the Company will seek processing work on additional matters referred
to us from existing and new clients of that firm and from other law firms in
Puerto Rico.





Geographic
Expansion





Although
our infrastructure platform is currently focused on Florida, we believe it is
readily adaptable to support servicing of foreclosure actions in other states.
Adding states to our geographic footprint is not only a way for us to broaden
our customer base, but also creates the opportunity for us to represent a
consistent point of contact for a lender throughout an entire region. Our
management believes this is a high-value feature of the Company as the mortgage
industry continues to consolidate. The strategy to achieve this geographic
expansion includes the following elements:




24




·
            a
      greenfields effort, whereby our relationships in Florida with the
      country’s leading mortgage lenders and servicers can be leveraged to gain
      an immediate market presence in neighboring states;
  and




·
            acquisition
      of an existing processing firm, whereby significant cost savings could be
      realized by implementing our scalable IT infrastructure and centralized
      processing operations to improve efficiencies and
    performance.





Our
management believes our scalable IT system can be tailored to the specific
processing requirements of other states with little difficulty. We believe the
system is capable of supporting geographic expansion in both judicial and
non-judicial states, the latter having a lower level of process complexity that
simplifies customization. There are approximately 20 states that follow judicial
foreclosure process requirements.  Our management team is familiar
with the foreclosure process in many states, and has experience structuring and
growing foreclosure operations in multiple states. By focusing its expansion on
the Southeast (to take advantage of the opportunity presented by regional
mortgage lenders operating there), we have an opportunity to become a
significant player in additional jurisdictions that would roughly double the
size of our current market in terms of foreclosure activity.





Expansion
of Ancillary/Additional Service Offerings





Foreclosure
referrals also drive ancillary services, such as title, bankruptcy, eviction,
monitoring and REO closings, that are very profitable business lines. Once DJS
obtains a foreclosure referral, it has a clear advantage in competing for the
processing services that follow a foreclosure. Our management believes there is
ample opportunity to increase this portion of the business. For example, in
connection with recent “direct source” initiatives mentioned above, clients have
indicated that substantially all follow-on ancillary services in certain
categories will be processed by the same firm that performs the foreclosure
processing services on properties.





In
addition, there is an opportunity for significant growth associated with our
ability to offer additional services to DJS clients, including publication, loss
mitigation, document retrieval, lien searches, automotive default services,
foreclosure services for commercial real estate mortgages, loan origination
services and loan subservicing services. The following is a brief description of
select potential additional service offerings, and growth of services currently
provided.





Publication.The Florida foreclosure process can require public notice two or more
times during the foreclosure process. The first is to effect service of the
complaint when the mortgagor cannot be served personally. The second is to
publish notice of sale. This is a potentially profitable service offering, which
would be captured by creating a publication for general circulation in counties
or states where we process large volumes of foreclosures, thus capturing the
publication revenue now paid to third parties.





Loss
Mitigation.As discussed in the “Business Strategy – Loss
Mitigation” section of this Report, this service involves engaging debtors in
workout discussions on loans that are 30 days to 90 days past due, in an effort
to avoid a foreclosure. Although often handled in-house by larger lenders and
loan servicers, there is increasing demand for this service to be handled by an
outside vendor, given the potential large volume requirements (particularly
those imposed by recent government mandates). Our management believes that
growth of this service offering represents a large growth opportunity for us.
Although a successful workout may detract from the foreclosure volume that we
would otherwise handle, our management believes that such potential decrease
would be offset by exposure to files that we may not otherwise deal with. It
would also present the opportunity to provide the foreclosure servicing on those
files for which the workout efforts did not succeed. As set forth in the section
of this Report entitled “Business Strategy – Loss Mitigation,” many borrowers
who have their mortgages modified end up in foreclosure.





Document
Retrieval.The foreclosure process in a judicial state such as
Florida requires obtaining significant documentation for attachment to pleadings
or introduction into evidence, including copies of promissory notes, mortgages,
deeds and other voluminous documents. In many cases, document retrieval fees are
calculated on a per-page basis, which may result in document retrieval being an
expensive but unavoidable aspect of the foreclosure process for the mortgage
servicer. Our management believes that the establishment of a document retrieval
operation, which would locate and provide copies of all documentation necessary
for the foreclosure process, represents a meaningful growth opportunity for
us.





Lien
Searches.  This service would involve performing lien searches
on properties that are the subject of a foreclosure referral. We currently
outsource this service to third party vendors on a flat fee per search, with the
size of the fee depending on property location and depth of search. This service
includes identifying unrecorded liens, such as utilities and association
dues.  Our management believes that the Company could expand its lien
search offering to include searches for new mortgages and applications for
credit card and home equity lines of credit.




25





Automotive
Default.  Our management believes that service offerings to the
automotive finance market, as well as marine, recreational vehicle and other
similar markets, represent another growth opportunity. These include
repossession and bankruptcy services. DJS has several existing clients who make
loans in the automotive market and, as with real estate loans, many of these are
in default and require resolution.





Commercial
Foreclosure.  We may consider expanding our service
offerings to other real estate markets, such as the commercial real estate
mortgage market. The prospective customer base for commercial mortgage default
processing and closings would mirror that of DJS’ residential mortgage lender
and servicer customer base. Commercial foreclosures are fewer in number, higher
in value and less formulaic in how they are processed. However, as an addition
to our current service offering, they represent a meaningful potential increase
in our revenue stream, with potentially higher margins than those associated
with residential foreclosures.





Loan Origination
Services.  Although foreclosure rates are expected to remain
high through 2010 and perhaps last through 2012 before they begin to decline
meaningfully, there is a cyclical aspect to that phenomenon. To protect against
a decrease in foreclosure activities when it occurs, our long-term plan is to
enter the counter-cyclical market of providing mortgage origination services,
such as closing services, lien recording/release and title searches, in
connection with home purchases. Mortgage loan origination and processing
represent the front end of the mortgage process, while our current focus,
foreclosures, represents the back-end.





Loan
origination services have significant synergies with the Company’s current
business, as origination services include the same title search, appraisal and
closing services that we currently provides as part of our foreclosure
processing services offerings. DJS’ top 10 clients are also the largest loan
originators, and there exists the potential to market origination services
directly to this existing client base as market demand shifts from foreclosures
to originations. As we have increased our foreclosure processing operations in
recent years, we were able to hire experienced staff from the origination
support industry because of the similarities between the two businesses. Our REO
services already place us in this market to some degree, and plans are in
development to market these services more broadly.  Our management
believes that existing customers will want to avoid past mistakes made at
origination which have caused millions of dollars of losses and title
claims.  Accordingly, our backend expertise will be a selling point
for us.





Falling
home sale volumes have forced a significant amount of mortgage loan processing
capacity out of the market in the past several years, and the DJS management
believes that DJS’ and our services offering could allow us to
capture a significant share of this market as the residential real estate market
rebounds.





Loan Subservicing
Services.  Our management believes that we have the ability
expand into other processing services supporting DJS’ mortgage servicing
company clients (sub-servicing business). These services offerings would address
cost pressures, particularly among smaller loan originators struggling in the
current market. These subservice loan fulfillment services include loan
boarding, payment processing, credit bureau reporting, and year-end tax
reporting, among other administrative services.





Acquisition
of Competitors





Our
management believes that there are a number of opportunities to acquire the
processing operations of other firms in the industry. For example, we could
further expand our Florida presence by acquiring the processing operations of
one or several of our competitors. The acquisition of one or more of our
competitors could generate significant cost savings by leveraging the value of
our scalable IT infrastructure and centralized processing operations and
reducing overhead.





Organizational
Structure





DJSP was
incorporated in the British Virgin Islands on February 19, 2008 under the name
“Chardan 2008 China Acquisition Corp.” as a blank check company for the purpose
of acquiring, engaging in a merger or share exchange with, purchasing all or
substantially all of the assets of, or engaging in a contractual control
arrangement or any other similar business combination with an unidentified
operating business which has its principal business and/or material operations
in China.  We are now a holding company whose primary business
operations are conducted through three wholly owned subsidiaries of DAL, a
company in which DJSP holds a controlling interest.  The three
subsidiaries are DJS LLC, PTA LLC, and DSI LLC.   Through its
operating subsidiaries, DAL provides non-legal services supporting residential
real estate foreclosure, other related legal actions and REO services, primarily
in Florida.




26










Property, Plants and
Equipment





Operations
& Facilities





The DJS
LLC and PTA LLC executive offices are located in Plantation, Florida. Certain
additional processing services personnel are located in a second office in
Plantation, Florida, where DJS LLC also has a right of first refusal on
additional second floor office space, and in an office in Miami,
Florida.  The DSI LLC offices are located in Louisville,
Kentucky.  The Plantation offices handle the majority of processing
services, while the Louisville office performs REO liquidation services. In
addition, our processing facility in Florida is supported by a scalable,
low-cost operation in Manila, Philippines through a vendor relationship that
provides data entry and document preparation support.





The lease
for the primary Plantation headquarters covers approximately 127,000 square
feet. Our operations utilize approximately 90% of such leased space, and
approximately 10% of such space is leased to DJS. We are in the process of
building out approximately 27,000 square feet of that space.  The
Company also leases approximately 48,000 square feet in another office building
in Plantation, Florida.  DSI LLC has leased 3,000 square feet of space
previously occupied by DSI in Louisville.





Operations





To
facilitate the processing of files, we are organized in a “team-based”
structure. Departments are organized by DJS’ clients, rather than by functional
role. Staffing teams that are dedicated to specific DJS clients allows for a
single reference point of contact for a client with respect to a file,
regardless of the file’s stage in the process. Additionally, we benefit from
having various team members maintain daily contact with DJS client personnel at
various levels. This team based environment, featuring staff trained on multiple
steps in the process, also provides significant staffing flexibility to adjust
to volume fluctuations.




27


ITEM
4A.   UNRESOLVED STAFF COMMENTS




Not
applicable.





ITEM
5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS




DJS Processing Division and
Combined Affiliates - Management’s Discussion and Analysis of Financial
Condition and Results of Operations





Overview





DJSP
Enterprises, Inc. (f/k/a Chardan 2008 China Acquisition Corp.) is a British
Virgin Islands company limited by shares, that was incorporated on February 19,
2008, organized as a blank check company for the purpose of acquiring, engaging
in a merger or share exchange with, purchasing all or substantially all of the
assets of, or engaging in a contractual control arrangement or any other similar
business combination with an unidentified operating business.





On August
11, 2008, we consummated our initial public offering, generating gross proceeds
of $55,000,000.  The net proceeds were deposited into a trust
account.





On
January 15, 2010, we acquired a controlling interest in DAL Group, LLC
(“DAL”).  Concurrently with the Transaction, we consummated a private
placement of 1,500,000 ordinary shares of the Company for aggregate gross
proceeds of $10,500,000, which proceeds, together with the cash in the trust
account, were used to pay a portion of the Transaction consideration and related
expenses.





DAL’s
business is comprised of DJS Processing, LLC, a limited liability company
organized under the laws of the State of Delaware (“DJS LLC”), Professional
Title & Abstract Company of Florida, LLC, a limited liability company
organized under the laws of the State of Delaware (“PTA LLC”) and Default
Servicing, LLC, a limited liability company organized under the laws of the
State of Delaware (“DSI LLC”), each of which is engaged in providing non-legal
services supporting residential real estate foreclosure, other related legal
actions and lender real estate owned (“REO”) services.  Each of DJS
LLC, PTA LLC and DSI LLC were formed in Delaware on September 15, 2009 for the
specific purpose of receiving the contribution of the assets used in providing
non-legal services from businesses founded by David J. Stern (i.e., Stern
Holding Company – PT, Inc. (f/k/a Professional Title and Abstract Company of
Florida, Inc.) (“PTA”), Stern Holding Company – DS, Inc. (f/k/a Default
Servicing, Inc.) (“DSI”) and Law Offices of David J. Stern, P.A.
(“DJS”)).





In
connection with the Transaction, DJS, PTA and DSI contributed DJS LLC, PTA LLC
and DSI LLC, respectively, to DAL in exchange for cash, a promissory note, an
obligation for a post-closing cash payment and a minority interest in
DAL.  The members of DAL prior to the Transaction also retained a
minority interest in DAL.





In
connection with the Transaction, DJS LLC entered into a long-term exclusive
Services Agreement with DJS under which it will have the right to perform all
non-legal services required to process foreclosure files and perform ancillary
services. Pursuant to a facilities sharing agreement, DJS LLC will furnish
corporate and back-office services to DJS, such as finance, accounting, IT and
other administrative functions. DJS LLC will be the exclusive processing firm
for all business undertaken by DJS, and DJS will be precluded from pursuing any
material business not requiring the use of DJS LLC’s processing capabilities,
subject to limited exceptions. However, DJS LLC will not be restricted from
pursuing business with other law firms, whether in Florida or other
jurisdictions. All of our revenues from foreclosure services are derived from
this Services Agreement. PTA LLC provides title searches and examinations
related to services provided by DJS and defendant location services to third
party processors engaged by DJS. DSI LLC provides REO liquidation related
services directly to customers. Currently, DSI LLC provides such services
nationwide for a single customer.





We
generate revenue by charging for the services performed by our three operating
subsidiaries as described above. The revenues generated from our foreclosure
services are directly related to the volume of mortgage foreclosures being
referred to DJS which, in turn, is directly related to the number of
foreclosures occurring in our principal market of Florida. This volume varies
based on a number of factors, including general economic conditions and
government sponsored programs to reduce mortgage foreclosures, which are
discussed below. Virtually all of our title-related services are performed in
connection with the foreclosure files we process; therefore, the revenues we
receive for title-related services are also directly related to the volume of
mortgage foreclosures in our principal market. The revenues generated by our REO
liquidation services are related to the volume of REO business referred to us by
our sole customer. As with the other services we provide, this volume is
directly related to the volume of real estate foreclosures in our primary market
as well as real estate foreclosures nationwide as our REO liquidation business
also handles transactions related to real estate foreclosures outside of our
primary market.





28





Initially,
we believe our opportunities for future growth will come from increases in
foreclosure volumes in Florida and an increase in files referred to our primary
client, DJS, by its clients. Because the average cycle time on a foreclosure is
approximately twelve months, with a significant portion of the revenue earned
within the first month after the referral, and the remainder near the end of the
process, the number of current referrals is an indicator of revenue levels for
the following year, with high levels of file referrals indicative of strong
revenues. We are currently forecasting foreclosure volumes and file referrals to
increase for at least the next few years. As a result of DJS’ position as a
leading residential foreclosure law firm, it now participates in two “direct
source” programs and seeks to increase that number in the future. These programs
permit DJS to capture more file referrals and ancillary services from its
clients. We also believe there are opportunities for the growth of our business
in Puerto Rico as a result of increased referrals to DJS from its existing
clients and increase our file volumes and the capacity of DJS’ referral law firm
in Puerto Rico to handle significant additional volume. In addition, we intend
to offer our REO liquidation services to additional customers, who are already
using DJS for their foreclosures. We do not believe that pursuing these
opportunities will require significant additional investments by
us.





We look
to adapt our infrastructure platform to support foreclosure servicing in other
states and expand our business into those states. The cost to do so will vary
from state to state and we have not yet developed specific estimates of such
costs. We may enter new states through acquisitions of existing processing
businesses operating in those states. These activities may require significant
investments by us, although initially we believe we can fund those from our
operating cash and, in the case of acquisitions, through issuances of our
equity.





On a
longer-term basis, we also see opportunities for growth by expanding the
services we offer to include others related to the foreclosure industry, such as
publication, document retrieval, lien searches, automotive default services and
foreclosure services for commercial real estate mortgages. A possible long-term
challenge we face is to expand into counter-cyclical markets before there is a
cyclical decline in foreclosure volumes. Accordingly, our long-term plans could
include plans to enter the counter-cyclical markets, such as providing mortgage
origination services. We are currently reviewing the development of a national
title insurance platform, which could allow us to expand our service offerings
in that area beyond those supporting our foreclosure processing services and
into new counter-cyclical markets like mortgage origination. Each of these
activities would likely represent new service offerings for us, requiring us to
develop new processes and procedures to provide these services or to acquire
businesses already providing them. Such activities could require significant
investments by us.





Because
of the preliminary nature of our consideration of these growth initiatives, the
amount of such investments is not known, nor do we know whether we can fund
these investments from our operating cash flows or would have to seek debt
financing from third parties. Any such debt financing, if available to us on
reasonable terms, would have to be approved by our existing
lenders.





The
following discussion and financial information reflects the combined carve-out
performance of the DJS Processing Division, PTA and DSI for the periods
presented, each of which ended prior to the Transaction. For 2009, total
revenues increased $61.1 million, or 30.7%, from $199.2 million for 2008. The
total revenues of $260.3 million for 2009 primarily resulted from an increase in
the number of mortgage foreclosures taking place in the principal market of the
business, Florida, and as a result of the expansion of REO activities of
DSI.





Regulatory
Environment




Federal,
state and local governments have recently proposed, and in some cases enacted,
legislation, or have taken other action that may have an adverse impact on the
number of mortgage defaults that go into foreclosure, and therefore on the
number of case files referred to DJS for processing. The federal government
enacted the Hope for Homeowners Act of 2008 and the Emergency Economic
Stabilization Act to bring relief to distressed homeowners and provide funds to
troubled financial institutions, respectively. The Federal Housing Finance
Agency, Fannie Mae and Freddie Mac announced the Streamlined Modification
Program, which is designed to make mortgage payments more affordable, and Fannie
Mae announced the temporary suspension of foreclosure sales. Further, various
lender and mortgage servicers have voluntarily focused their attention on loss
mitigation, loan modification and similar efforts, including moratoria on
certain foreclosure sales, in an attempt to reduce the number of mortgage
defaults and resulting foreclosures.





29





These
programs have met with limited success to date, based on, among other things,
the fact that they reduce only the interest to be paid by borrowers, not
principal owed. While addressing affordability in the near-term, they do not
address willingness to continue to pay a mortgage on a property that has
negative equity, nor do they deal with inability to pay as a result of
unemployment or other factors.





The Obama
administration also proposed a $75 billion Mortgage Modification Plan in March
2009 for borrowers facing foreclosure. The Home Affordable Refinance Program
(“HARP”) is meant to help homeowners who have an existing mortgage owned by
Fannie Mae or Freddie Mac to refinance to a lower rate or to a fixed rate
mortgage to improve the affordability of the loan. The program is mainly aimed
at borrowers who are under water. Borrowers owing up to 125% of their home’s
value are eligible for refinancing /assistance, and the borrowers must not be
more than 30 days delinquent on payments. The Home Affordable Modification
Program (“HAMP”), which is scheduled to end on December 31, 2012, is meant to
help homeowners who are at risk of foreclosure modify their loan to reduce their
monthly mortgage payments.





In
October 2008, we created a team dedicated to the offering of loss mitigation
services to our clients. These services provide our clients with alternatives to
foreclosure such as loan modification or forbearance, which allow the borrower
to continue to own the property and short sales and deeds-in-lieu of foreclosure
which transfer the ownership of the property to the lender outside of the
foreclosure process. Management believes that in addition to capturing revenues
from this service offering, we are well positioned to receive foreclosure
referrals stemming from re-default of the modified loans and thus capture
additional revenues, as we will have familiarity with the file.





In
February 2010, President Obama announced an additional $1.5 billion for five
state housing finance agencies to come up with new programs to address the
foreclosure problem locally. The funds will be directed to states such as
Florida and California, which the MBA data show have the majority of the
troubled loans.





2009
Compared to 2008





Revenues
increased by $61.1 million, or 30.7%, for 2009, as compared to 2008, as a result
of the increase in mortgage foreclosures in our principal market, Florida, and
as a result of the expansion of our REO business. For 2009, we received 70,382
foreclosure files, compared to 70,328 foreclosure files received in 2008. The
number of foreclosure files received in 2009 was impacted by the slowdown in
foreclosure files while banks work through the programs discussed in the “Recent
Developments Regulatory Environment” section above. The programs mentioned
above, however, result in additional fee revenues for us in areas of loan
modifications and loss mitigations. Additionally, unless the real estate market
and unemployment improve, many of the loans that are in the modification process
will likely result in re-default, thus increasing our foreclosure
volume.  According to the MBA’s National Delinquency Survey, the
percentage of loans in the foreclosure process at the end of the fourth quarter
was 4.58%, an increase of 11 basis points from the third quarter of 2009 and 128
basis points from one year prior. The combined percentage of loans in
foreclosure or with at least one payment past due nationally was 15.02 % on a
non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency
survey.  According to RealtyTrac, between 3.0 and 3.5 million homes
are expected to enter some phase of foreclosure nationally this
year.  Florida continues to be the worst state in terms of
delinquencies.  Approximately 20.4% of Florida mortgages are 90 days
or more past due or already in the process of foreclosure according to MBA’s
chief economist.





During
2009, revenues from mortgage foreclosure related services, net of revenue from
client reimbursements, increased by $14.3 million, or 13.4%, to $121.2 million,
compared to $106.9 million for 2008.





During
2009, our REO liquidation business became an increasingly significant source of
revenue, generating approximately 9.4% of our total revenue excluding client
costs during that period, and it was a leading cause of the increase in revenues
during that period. In 2009, we produced revenues of $11.2 million compared to
revenue of $4.1 for 2008, representing a 175% growth from the previous period.
We intend to offer DSI LLC services to additional customers as a means of
increasing its contribution to revenues and profits.  As an added
benefit resulting from the increase in the share of the revenues produced by DSI
LLC, because these REO services follow the completion of the foreclosure
process, they will have the effect of helping to sustain our revenues even if
foreclosure volumes stabilize or begin what is expected to be a slow decline
following 2012.





30





The
remainder of the increase in revenues during 2009, as compared with 2008,
reflected increased amounts due for client-reimbursed costs.




The
principal operating expenses of the operating subsidiaries consist of the
following:




·
            Court
      filing fees and other client-reimbursed
costs;




·
            Compensation
      related expense, which consists primarily of the salaries, related
      benefits and payroll taxes paid to or on behalf of our employees that are
      engaged in operations;




·
            Depreciation
      expense, which represents the cost of fixed assets and software allocated
      over the estimated useful lives of these assets, ranging from one to
      thirty years;




·
            Direct
      operating expense, which consists primarily of direct cost such as freight
      and postage;




·
            Other
      general and administrative expenses which consist primarily of rent and
      other facilities-related expenses, as well as office supplies and other
      administrative expenses; and




·
            Interest
      expense.





Client
reimbursed costs, as a percentage of revenues, increased to 53.4% in 2009, as
compared to 46.3% during 2008. In dollar terms, the client reimbursed costs
increased by $46.7 million to $139.1 million from $92.3 million in 2008. We
experienced an increase in client reimbursed costs directly as a result of
increases in the underlying cost on a per file basis. Because these costs are
reimbursed by DJS clients, they do not impact our profitability.




Compensation
related expense decreased to 19.2% of revenues in 2009, as compared to 22.3% in
2008. In dollar terms, the compensation related expense increased by $5.7
million, from $44.4 million in 2008 to $50.1 million in 2009. These increases
primarily occurred due to an increase in headcount needed to process the growth
in foreclosure volume. We had 950 employees on December 31, 2009, compared to
860 on December 31, 2008. We are in the process of examining our processes and
implementing strategies to improve our efficiency, including upgrades to our
technology infrastructure.




Direct
operating and general and administrative expenses, as a percentage of revenues,
increased to 9.8% in the twelve months ended December 31, 2009, as compared to
9.6% in the same period in 2008. In dollar terms, the direct operating expense
increased by $6.4 million.  We experienced an increase in direct
operating expense and other general and administrative expenses primarily as a
result of increase costs for liability insurance and loss claims, outside
professional fees, and freight and postage charges.  The increased
costs were attributable in part to the increased volume of files
handled.  In addition, as the time to complete an average case file
has extended, there is a higher frequency of certain direct operating charges
such as freight and postage.





Total
operating expenses as a percentage of revenues increased to 82.9% in the twelve
months ended December 31, 2009, as compared to 78.5% in the same period in 2008,
primarily due to increases in client reimbursed costs. Total operating expenses
(excluding client reimbursed costs) as a percentage of fee revenues increased to
63.2% in the twelve months ended December 31, 2009, as compared to 59.9% in the
same period in 2008.





Adjusted
EBITDA, which is a non-GAAP financial measure discussed in more detail below,
increased by $10.1 million, or 16.9%, to $69.9 million in 2009, as compared to
$59.8 million in 2008.





Net
income increased by $1.7 million, or 3.9%, to $44.5 million in 2009, as compared
to $42.9 million in 2008.  Adjusted net income, which is a non-GAAP
financial measure discussed in more detail below, increased by $6.1 million or
15.9% to $44.6 million in 2009, as compared to $38.5 million in
2008.





Adjusted
EBITDA and adjusted net income adjust EBITDA and net income, respectively to
eliminate income and/or expense items that are not expected to be incurred in
periods following the Transaction, primarily relating to payments made in
periods prior to the Transaction to an affiliate of the former shareholders of
the acquired companies.




2008
Compared to 2007




For the
year ended December 31, 2008, revenues increased by $83.7 million, or 72.5%, as
compared to 2007, primarily as a result of the increase in mortgage foreclosures
taking place in our principal market, Florida.  For the year ended
December 31, 2008, we received 70,328 foreclosure files, an increase of 57% from
44,733 foreclosure files received in 2007.





31





Client
reimbursed costs, as a percentage of revenues, increased to 46.3% in 2008, as
compared to 41.2% in 2007. In dollar terms, the client reimbursed costs
increased by $44.7 million. We experienced an increase in client reimbursed
costs principally as a result of continuing growth in foreclosure case volume,
as well as variances in the underlying expenses themselves.




Compensation
related expense, as a percentage of revenues, increased to 22.3% in 2008, as
compared to 17.5% in 2007. In dollar terms, the compensation related expense
increased by $24.1 million. The increase in compensation related expense is as a
result of an increase in headcount to handle the increased volume of
foreclosures, and the related recruiting and training costs incurred to support
the growth of our operations. Between 2007 and 2008, we built capacity both to
meet growing demand and in anticipation of continued growth in foreclosure
volume.  As stated above, we are now implementing strategies to
improve efficiency and reduce costs as a percentage of revenues.




Direct
operating and other expenses, as a percentage of revenues, increased to 9.6% in
2008, as compared to 7.5% in 2007.  In dollar terms, the direct
operating and other expenses increased by $10.4 million. This increase was
primarily attributable to the higher rent and relocation costs associated with
our new facilities in Plantation, Florida, as well as increased marketing
expenses.  We also experienced an increase in direct operating and
other expenses as a result of increased freight and postage charges primarily
attributable to increases in the underlying expenses. As the time to complete an
average case file has extended, there is a higher frequency of incurring certain
direct operating charges such as freight and postage.





Total
operating expense as a percentage of revenues increased to 78.5% in fiscal 2008,
as compared to 66.5% in 2007. Total operating expense (excluding client
reimbursed costs) as a percentage of fee revenues increased to 59.0% in 2008, as
compared to 44% in 2007. The increase in total operating expense primarily was
due to a ramp-up in staff in order to continue to deliver a level of customer
service to clients in light of continued strong demand for foreclosure related
services. In addition, we incurred larger fixed costs associated with rent and
facilities as we moved our headquarters into a larger facility.





Adjusted
EBITDA, which is a non-GAAP financial measure discussed in more detail below,
increased by $16.1 million, or 36.8%, to $59.8 million in 2008, as compared to
$43.7 million in 2007, primarily as a result of the increase in revenues
discussed above.





Net
income increased by $6.2 million or 10.8%, to $42.9 million in 2008, as compared
to $36.7 million in 2007.





Adjusted
net income, which is a non-GAAP financial measure discussed in more detail
below, increased by $10.2 million or 36.3% to $38.5 million in 2008, as compared
to $28.2 million in 2007.





Adjusted
EBITDA and adjusted net income adjust EBITDA and net income, respectively, to
eliminate income and/or expense items that are not expected to be incurred in
periods following the Transaction, primarily relating to payments made, in
periods prior to the Transaction, to the former shareholders of the acquired
companies and their affiliates.





Financial
Condition




The following table sets forth the
major balance sheet accounts at December 31, 2009 and 2008 (in
thousands):





December
      31,2009
            
            
            2008Assets:Cash and cash
    equivalents
            
            $
            763
            
            
            $
            1,428Accounts receivable
            
            
            33,074
            
            
            
            49,166Property, equipment and improvement,
      net
            
            
            4,692
            
            
            
            3,155Liabilities:Accounts payable – client reimbursed
      costs
            
            $
            6,047
            
            
            $
            20,425Line of credit
            
            
            10,656
            
            
            
            —




32




Cash and
Cash Equivalents decreased to $0.8 million at December 31, 2009 compared to $1.4
million at December 31, 2008.




Accounts
receivable decreased by $16.1 million, or 32.7%, to $33.1 million as of December
31, 2009, compared with $49.2 million as of December 31, 2008. The decrease in
accounts receivables is as a result of strong efforts to collect from
clients.




Property,
equipment and improvement, net increased at December 31, 2009 to $4.7 million
from $3.2 million at December 31, 2008, or 48.7%, as a result of new office
space leased and office furniture being purchased for the new
offices.




Accounts
payable – client reimbursed costs decreased by $14.4 million to $6.0 million at
December 31, 2009 from $20.4 million at December 31, 2008, as a result of the
implementation of new billing practices which allow for the reimbursement of
client related costs more rapidly, thereby allowing for faster payment of such
costs to our vendors, and the use of line of credit borrowings to fund the
payments of these accounts payable.





Line of
credit borrowings were obtained from a bank and were secured by customer
receivables.  The line of credit was drawn primarily due to the
increase in filing fees per case file.  DJS LLC pays the initial
filing fee and bills the customer for the amount.  Eventually, DJS LLC
is reimbursed for the filing fee, but in periods of high growth, an increase of
available cash is necessary to cover the initial filing fees.  At the
time of the closing of the Transaction, the line of credit was repaid in full
using the proceeds of Senior Financing Notes that were issued simultaneously
with the closing.  On March 23, 2010, we obtained a new $15 million
line of credit from a bank that is secured by customer
receivables.  Approximately $12.6 million of the line was immediately
drawn.  Simultaneously, the principal and interest outstanding on all
but three of the Senior Financing Notes were repaid, leaving an aggregate
outstanding principal balance for the Senior Financing Notes of $3
million.  The new line of credit will be used for the same purposes as
the one paid in full at the closing of the Transaction, as well as for other
working capital needs.




Our
working capital needs will fluctuate primarily based upon a number of factors,
including (i) revenues, (ii) account and notes receivables changes and (iii)
case files started. Historically, income from continuing operations has funded
the account receivables growth, but with the recent increase in filing fees, the
Company may need to borrow funds from third parties from time to time to fund
its cash requirements, such as from the new line of credit described
above.




Liquidity
and Capital Resources




The following table sets forth certain
historical information with respect to our statements of cash flows (in
thousands):





Year
      Ended December 31,2009
            
            
            2008
            
            
            2007Net
      cash provided by operating activities
            
            $
            48,345
            
            
            $
            43,363
            
            
            $
            20,897Net
      cash used in investing activities
            
            
            (2,652
            )
            
            
            (2,274
            )
            
            
            (1,302
            )Net
      cash used for financing activities
            
            
            (46,357
            )
            
            
            (40,640
            )
            
            
            (18,686
            )Net
      increase (decrease) in cash and cash equivalents
            
            $
            (664
            )
            
            $
            449
            
            
            $
            909





During
2009, we generated positive operating cash flows of $48.3 million. These cash
flows related primarily to net income of $45 million, adjusted for non-cash
charges for depreciation of $1.1 million. These operating cash inflows are
partially offset by an aggregate decrease in cash flow from our operating assets
and liabilities of $2.7 million. Our investing activities used $2.7 million of
cash, consisting primarily of the expenditure of $2.7 million for the purchase
of property and equipment required to support our expanded file volumes and
related personnel.  Our financing activities used cash of $46.4
million, which was primarily used to pay profit and tax distributions to our
pre-Transaction sole shareholder partially offset by advances on our line of
credit of $9.5 million.





During
2008, we generated positive operating cash flows of $43.4 million. These cash
flows related primarily to net income of $42.9 million, adjusted for, among
other things, non-cash charges for depreciation and disposal of leasehold
improvements of $2.3 million. These operating cash inflows are partially offset
by an aggregate decrease in cash flow from our operating assets and liabilities
of $1.8 million. Our investing activities used $2.3 million of cash, consisting
primarily of the expenditure of $2.3 million for the purchase of property and
equipment required to support our expanded file volumes and related personnel.
Our financing activities used cash of $40.7 million, which was primarily used to
pay profit and tax distributions to our pre-Transaction sole
shareholder.





33





During
2007, we generated positive operating cash flows of $20.9 million. These cash
flows related primarily to net income of $38.7 million, adjusted for
depreciation of $278 thousand. These operating cash inflows are partially offset
by an aggregate decrease in cash flow from our operating assets and liabilities
of $18.1 million. Our investing activities used $1.3 million of cash, consisting
primarily of the expenditure of $1.3 million for the purchase of property and
equipment required to support our expanded file volumes and related personnel.
Our financing activities used cash of $18.7 million, which was primarily used to
pay profit and tax distributions to our pre-Transaction sole
shareholder.





In
connection with the Transaction, we issued the following notes on January 15,
2010:




·
            A
      note in the amount of $52,469,000 issued to DJS (the “Stern Deferral
      Note”) which has an interest rate of 3.0% per annum and a maturity date of
      36 months after January 15, 2010;




·
            Notes
      in the aggregate amount of $1,100,000 relating to deferred compensation
      issued to the underwriters of the Company’s initial public offering, which
      have an interest rate of 5% per annum and are payable upon the earlier of
      (i) the one year anniversary of the repayment of the Stern Deferral Note,
      or (ii) January 15, 2012;




·
            A
      note in the aggregate amount of $500,000 relating to certain deferred
      compensation owing by the Company to Rodman & Renshaw, LLC which has
      an interest rate of 5% per annum and is payable upon the earlier of (i)
      the one year anniversary of the repayment of the Stern Deferral Note, or
      (ii) January 15, 2012;




·
            A
      note in the amount of $250,000 relating to deferred compensation owing by
      the Company to Chardan Capital Markets, LLC which has an interest rate of
      5% per annum and is payable upon the earlier of (i) the one year
      anniversary of the repayment of the Stern Deferral Note, or (ii) January
      15, 2012; and




·
            Notes
      in the aggregate amount of $15,188,736 relating to a senior financing
      facility (the “Senior Financing Notes”) entered into in connection with
      the Transaction and which have interest rates of 15% per annum and are
      payable by January 15, 2011.





In March
2010, we obtained a new $15 million line of credit from Bank of
America.  Approximately $12.6 million of the line was immediately
drawn.  Simultaneously, the principal and interest outstanding on all
but three of the Senior Financing Notes were repaid, leaving an aggregate
outstanding principal balance for the Senior Financing Notes of $3
million.  The new line of credit will be used for the same purposes as
the one paid in full at the closing of the Transaction, as well as for other
working capital needs.  See the section of this Report titled, “Item
10(C). Additional Information – Material Contracts – Contracts Related to
Company Operations – Line of Credit Loan Agreement” for more information about
the terms of the new line of credit.





We
anticipate that we will have adequate sources of working capital in the
foreseeable future, although, as indicated above, we may need to borrow funds
from time to time to fund those needs, in addition to the new line of credit
described above.  We may elect in the future to obtain additional
funding to expand and grow our operations, which may include borrowings from
financial institutions and/or the sale of equity.




34





Adjusted
EBITDA/Adjusted Net Income




The
adjusted EBITDA measure presented consists of income (loss) from continuing
operations before (a) interest expense; (b) income tax expense; (c) depreciation
and amortization; and (d) income and/or expense items that are expected to be at
reduced levels in future periods. The adjusted EBITDA margin is the ratio of
adjusted EBITDA to total revenues. We are providing adjusted EBITDA, a non-GAAP
financial measure, along with GAAP measures, as a measure of profitability
because adjusted EBITDA helps us to evaluate and compare our performance on a
consistent basis with the lower operating cost structure that will be in place
after consummation of the Transaction, reflecting the effects of that lower cost
structure on profitability. In the calculation of adjusted EBITDA, we exclude
from expenses the compensation paid to Stern that exceeds the base compensation
that he is entitled to receive after completion of the Transaction, since after
such time the Company does not have any arrangement with Stern that would
require any payments to him at a comparable level. Stern does not have an
incentive plan arrangement providing for pay above base compensation. In
addition, we excluded the payroll taxes associated with such compensation, as
well as travel expenses incurred on behalf of Stern in prior periods that are
not being provided after the Transaction.





In the
calculation of adjusted net income measure presented, the Company deducts the
depreciation and amortization amounts from adjusted EBITDA calculation and then
subtracts assumed income tax expense, calculated at the expected going forward
tax rate of 35%.  For periods prior to the Transaction, we were not
subject to income tax and so did not record income tax expense.  We
are providing adjusted net income, a non-GAAP financial measure, along with GAAP
measures, as a measure of profitability because adjusted net income helps us to
evaluate and compare our past performance on a consistent basis with the taxable
structure in place after consummation of the Transaction, reflecting the effects
of that taxable structure on profitability.





The
following table provides reconciliations of net income (US GAAP) to Adjusted
EBITDA (Non-GAAP) and adjusted net income (Non-GAAP).





Reconciliations
Of Net Income (US GAAP) To Adjusted EBITDA (Non-GAAP)


and
Adjusted Net Income (Non-GAAP)




Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Net
      Income
            
            $
            44,565
            
            
            $
            42,886
            
            
            $
            38,689AdjustmentsCompensation related
            
            
            12,262
            
            
            
            15,887
            
            
            
            4,710Non-recurring travel
            
            
            6,372
            
            
            
            385
            
            
            
            —Adj. to fee to
    processing
            
            
            3,631
            
            
            
            —
            
            
            
            —Transaction related
            
            
            260
            
            
            
            —
            
            
            
            —Interest, depreciation &
      amortization
            
            
            1,297
            
            
            
            594
            
            
            
            278Other
            
            
            1,486
            
            
            
            —
            
            
            
            —Total
      adjustments
            
            
            25,308
            
            
            
            16,866
            
            
            
            4,988Adjusted
      EBITDA
            
            $
            69,873
            
            
            $
            59,752
            
            
            $
            43,677Interest, depreciation &
      amortization
            
            
            1,297
            
            
            
            594
            
            
            
            278Income taxes estimate at
      35%
            
            
            24,002
            
            
            
            20,705
            
            
            
            15,189Adjusted
      Net Income
            
            $
            44,574
            
            
            $
            38,453
            
            
            $
            28,210





Adjusted
EBITDA and adjusted net income are non-GAAP financial measures that have
limitations because they do not include all items of income and expense that
affect our operations. These non-GAAP financial measures are not prepared in
accordance with, and should not be considered an alternative to, measurements
required by GAAP, such as operating income, net income (loss), net income (loss)
per share, cash flow from continuing operating activities or any other measure
of performance or liquidity derived in accordance with GAAP. The presentation of
this additional information is not meant to be considered in isolation or as a
substitute for the most directly comparable GAAP measures. In addition, it
should be noted that companies calculate adjusted EBITDA and adjusted net income
differently and, therefore, adjusted EBITDA and adjusted net income as presented
for us may not be comparable to the calculations of adjusted EBITDA and adjusted
net income reported by other companies.





35





Contractual
Payment Obligations





The following is a summary of our known
contractual obligations as of December 31, 2009.





Payments
      due by periodContractual
      Obligations
            
            Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            4-5
      years
            
            
            More
      than 5 yearsOperating
      lease obligations (1)
            
            $
            17,251
            
            
            $
            2,711
            
            
            $
            5,895
            
            
            $
            6,137
            
            
            $
            2,508Capital  lease
      obligations
            
            
            566
            
            
            
            191
            
            
            
            303
            
            
            
            70
            
            
            
            -Total
            
            $
            17,817
            
            
            $
            2,902
            
            
            $
            6,198
            
            
            $
            6,207
            
            
            $
            2,508





(1)
            We
      are obligated for leases of office space under non-cancellable operating
      lease agreements which expire at times ranging from September 2012 through
      October 2018. Rent expense is recognized on a straight line basis over the
      terms of the leases based on the aggregate amount of payments due over the
      lease terms.




Critical
Accounting Policies and Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect both the reported amounts of assets,
liabilities, revenue and expenses during the reporting period, and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.




Revenue
Recognition




Substantially
all of DJS LLC’s and PTA LLC’s revenues are generated from services rendered
ultimately to the clients of DJS. A substantial portion of the accounts
receivable are generated from DJS, DJS LLC’s only customer for foreclosure and
related services, at the time DJS bills its clients. DSI LLC has independent
relationships with its clients for REO liquidation services and does not receive
file referrals directly from DJS.




The
estimated average file processing time for all foreclosure files, except cases
that are fully litigated, ranges from 220 to 240 days. The fee income for
foreclosure processing is recognized utilizing the proportional performance
method during the file processing period based on the achievement of various
processing milestones. DJS LLC bills DJS for services performed and recognizes
revenue for services performed but not yet billed, reporting them as unbilled
receivables at the end of each reporting period.




Revenue
related to all types of services other than foreclosure is recognized using the
completed performance method. Revenue is recognized once the services are
performed and the Company has no further fulfillment responsibilities related to
these services. Accounts receivable for title services is presented net of an
allowance for estimated uncollectible accounts based on management’s experience
and expectations.




The
per-file fee negotiated between DJS LLC and DJS is based on negotiations between
related parties. There can be no assurances that the per file fees or the level
of profitability achieved would be the same if the fees had been negotiated
between unrelated entities.





Expense
Allocation




Management
has allocated certain expenses of DJS to the operating subsidiaries based on its
estimate of expenses the operating subsidiaries would have incurred on a
stand-alone basis during the periods reported; however, there can be no
assurance that these expenses represent the expenses of the operating
subsidiaries on a stand-alone basis, or that the allocations are fully inclusive
of the functions necessary to operate the operating subsidiaries on a
stand-alone basis. The following is a summary of the methodology used to
allocate expenses in some major categories.




36




·
            Certain
      executive officers of DJS are substantially involved with the operating
      subsidiaries’ operations. Their salaries, bonuses, payroll taxes and
      related auto, travel, meals, entertainment and professional expenses are
      allocated to the operating subsidiaries based on the estimated percentage
      of time the executive officers spent on the activities of the operating
      subsidiaries.




·
            Employee
      benefits, including health insurance, pension/profit sharing, workers’
      compensation, incentives and training, are allocated based on the number
      of employees specifically assigned to the operating subsidiaries in
      relation to the total number of employees of DJS (“the employee ratio
      method”).




·
            Equipment
      lease expense is allocated based on the employee ratio
    method.




·
            Certain
      facilities lease expenses are allocated based on the employee ratio
      method.




·
            Depreciation
      is computed based on the equipment and leasehold improvements utilized by
      the operating subsidiaries as determined by the above allocation
      methods.




·
            Postage
      and delivery is allocated based on the employee ratio
    method.




·
            Advertising,
      marketing and professional fees are allocated based on the estimated
      percentages that apply to our business
  activities.




·
            All
      other general and administrative expenses were allocated based on the
      employee ratio method.





In the
opinion of management, the proceeding expense allocations are a reasonable basis
for determining the costs associated with the carve-out processing
division.




Income
Taxes




Because
DJS LLC, PTA LLC and DSI LLC are limited liability companies, they will not be
subject to income taxes. Because they are pass-through entities, the taxable
income of these three entities will be passed through to each company’s sole
member, DAL. DAL will pass through this taxable income to its members, including
the Company.  Prior to the Transaction, DJS, PTA and DSI were not
subject to income taxes under federal or state tax laws. Instead, the taxable
income of these entities was passed through to the owner of the companies and
was taxable to the owner on an individual level. Therefore, the financial
statements presented through December 31, 2009 do not reflect an allocation of
federal and state income taxes.




Recently
Issued Accounting Pronouncements





See the
section entitled “Nature of Business and Significant Accounting Policies” in
Note 1 to the combined financial statements of the operating subsidiaries, which
is incorporated herein by reference.





Market
Risk





As of
December 31, 2009, the Company did not have instruments subject to market risk.
After the Transaction, our functional currency is the U.S. dollar and so are
virtually all of our revenues and operating costs; therefore, we do not expect
to be exposed to any significant extent to the impact of changes in foreign
currency exchange rates. Furthermore, most of our debt carries a fixed rate of
interest, so we do not expect to be exposed to any significant extent to the
impact of changes in market interest rates.





Seasonality




Seasonality
has not historically impacted our operating results.




Impact
of Inflation




Inflation
has not historically been a significant factor impacting our operating
results.




37





Chardan 2008 Financial
Condition and Results of Operations




The
following discussion and financial information reflects the performance of
Chardan 2008 for periods prior to the Transaction.





Critical
Accounting Policies and Estimates




The preparation of financial statements
and related disclosures in conformity with generally accepted accounting
principles in the United States requires management to make estimates and
assumptions that both the reported amounts of assets, liabilities, revenue and
expenses during the reporting period, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could
materially differ from those estimates. We have identified the following as our
critical accounting policies:




Cash and cash
equivalents.  We consider all highly liquid investments,
including short-term money market instruments with original maturities of three
months or less when purchased, to be cash equivalents.





Results
of Operations




2009.  For the
period from January 1, 2009 to December 31, 2009, we had net income/(loss)
of  $(446,904), which consisted of interest income of $47,286 earned
on the Trust Account investment of approximately $54,300,000, offset by filing
and listing fees of $54,043,  management fees of $90,000 and $259,721
for travel-related expenses, and other miscellaneous administrative
fees.




2008.  For the
period from February 19, 2008 (inception) to December 31, 2008, we had net
income/(loss) of ($59,789), which consisted of interest income of $484,894
earned on the trust account investment of $54,564,894, offset by filing fees of
$87,471, $65,000 for D&O insurance, $172,616 for travel-related expenses and
other miscellaneous administrative fees.





Liquidity
and Capital Resources




The funds
held in the trust account were available for use only to: (i) engage in an
acquisition transaction; (ii) redeem up to one ordinary share less than 35% of
the shares voted against an extension of the period of time to consummate an
acquisition if an extended period was approved by the shareholders; (iii) redeem
up to one ordinary share less than 35% of the shares owned by the public
shareholders that voted against an acquisition transaction if the transaction
was approved and completed; or (iv) distribute to the public shareholders in the
event Chardan 2008 had failed to complete an acquisition transaction within the
time available to it and liquidated and dissolved, subject to certain
exceptions.




At
December 31, 2009, Chardan 2008 had approximately $54,302,000 held in the trust
account, and cash outside of the trust account of approximately
$24,000.  Chardan 2008 has since used these funds to cover expenses
incurred in identifying, evaluating and performing due diligence with respect to
the Transaction, as well as for legal, accounting and other expenses associated
with structuring, negotiating and documenting the Transaction. Prior to the
Transaction, Chardan 2008 also incurred regular expenses to meet its obligations
under applicable securities laws, to maintain directors’ and officers’ insurance
coverage and to pay a monthly $7,500 administrative expense to Chardan Capital,
LLC, an affiliate of Li Zhang, former chairman of Chardan 2008’s board of
directors.




Off-Balance
Sheet Arrangements




Prior to
its acquisition of a controlling interest in DAL on January 15, 2010, Chardan
2008 never entered into any off-balance sheet financing arrangements, never
established any special purpose entities, and had not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.





Contractual
Obligations




Prior to
its acquisition of a controlling interest in DAL on January 15, 2010, Chardan
2008 did not have any long-term debt, capital lease obligations, operating lease
obligations, purchase obligations or other long-term liabilities. However, as
discussed above, Chardan 2008 paid Chardan Capital, LLC a monthly rental of
approximately $7,500, for office space and administrative services up until the
acquisition of DAL.




38





Inflation




Inflation
has not impacted the results of Chardan 2008.





Unaudited Pro Forma
Condensed Combined Financial Statements





The
following unaudited pro forma condensed combined financial information has been
prepared assuming that the Transaction, including the acquisition by the Company
of a controlling interest in DAL, DAL’s acquisition of the membership interests
of DJS LLC, PTA LLC and DSI LLC and the Stern Contributors transfer of non-legal
business, assets and liabilities to DJS LLC, PTA LLC and DSI LLC, all of which
occurred concurrently with the closing of the Transaction on January 15, 2010,
occurred (i) at the beginning of each of the applicable periods for the pro
forma statements of operations and (ii) at December 31, 2009 for the pro forma
balance sheet.




The
unaudited pro forma condensed combined financial information is provided for
illustrative purposes only. The historical financial information has been
adjusted to give effect to pro forma events that are directly attributable to
the Transaction, are factually supportable, and are expected to have a
continuing impact on the combined results.




You
should not rely on the unaudited pro forma condensed combined balance sheet as
being indicative of the historical financial position that would have been
achieved had the transactions contemplated by the Transaction been consummated
as of December 31, 2009, or the unaudited pro forma condensed combined
statements of operations as being indicative of the historical financial results
of operations that would have been achieved had the Transaction been consummated
on the first day of each of the respective operating periods. See “Item 3(D).
Risk Factors” for further details.




We are
providing the following information to aid in the analysis of the operations of
the Company after the Transaction. The historical financial information of the
operating subsidiaries was derived from the audited combined financial
statements of DJS Processing Division and Affiliates for the year ended December
31, 2009 and the notes thereto included elsewhere in this Report. The historical
financial information of Chardan 2008 was derived from the audited financial
statements of Chardan 2008 for the year ending December 31, 2009 and the notes
thereto included elsewhere herein. This information should be read together with
such financial statements and related notes, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for DJS Processing
Division and Affiliates and Chardan 2008, and other financial information
included elsewhere in this Report.




Actual
results could differ from the pro forma information presented and depend on
several variables, including the actual timeline of the conversion of the DAL
Series B Preferred Units.




The
Transaction was accounted for as a reverse capitalization, due to, among other
things, the fact that the owner of DJS, PTA and DSI will have significant
representation on the Board of Directors (initially four out of seven members),
and the management of the acquired business became the management of DAL and the
Company. This treatment also disregards DAL for accounting purposes for the
reason that it serves principally to issue equity interests in connection with
the Transaction, and it did not have significant operations prior to its role in
the Transaction, along with the fact that the equity interests in DAL held by
the Stern Contributors and the then existing members of DAL and their assignees
are exchangeable for comparable securities in the Company.




39








DJSP
ENTERPRISES, INC. (FORMERLY KNOWN AS CHARDAN 2008 ACQUISITION
CORP.)


AND
DJS PROCESSING DIVISION AND COMBINED AFFILIATES


Unaudited
Pro Forma Condensed Combined Balance Sheet


Year
Ended December 31, 2009


(In
thousands of U.S. Dollars, except share and per share amounts)





DJSP
      Enterprises, Inc.
                (formerly
      known as Chardan 2008 China Acquisition
              
              
              DJSP
      Processing Division and
              
              
              Pro
      Forma
                Adjusting
      and Eliminating Entries
              
              
              Pro
      Forma CombinedCorp.)
              
              
              Combined
      Affiliates
              
              
              Debit
              
              
              Credit
              
              
              CompaniesAssetsCurrent
      assets:Cash
              
              $
              23
              
              
              $
              763
              
              
              
              10,500
              (4)
              
              
              3,568
              (7)
              
              $
              3,36015,589
              (11)
              
              
              4,198
              (9)15,750
              (11)Funds
      held in trust
              
              
              54,302
              
              
              
              -
              
              
              
              
              
              
              
              54,302
              (1)(9)
              
              
              -Accounts
      receivable
              
              
              -
              
              
              
              33,074
              
              
              
              
              
              
              
              -
              
              
              
              33,074Prepaid
      expenses and other current assets
              
              
              1,364
              
              
              
              87
              
              
              
              
              
              
              
              -
              
              
              
              1,451Total
      current assets
              
              
              55,689
              
              
              
              33,924
              
              
              
              
              
              
              
              
              
              
              
              37,884Equipment
      and Leasehold Improvements, net
              
              
              
              
              
              
              4,692
              
              
              
              
              
              
              
              
              
              
              
              4,692Total
      assets
              
              $
              55,689
              
              
              $
              38,616
              
              
              
              
              
              
              
              
              
              
              $
              42,576LiabilitiesCurrent
      liabilities:Accounts
      payable - reimbursed client costs
              
              $
              -
              
              
              $
              6,047
              
              
              
              
              
              
              
              
              
              
              $
              6,047Accounts
      payable
              
              
              1,401
              
              
              
              1,506
              
              
              
              
              
              
              
              
              
              
              
              2,907Current
      portion of capital lease
              
              
              -
              
              
              
              192
              
              
              
              
              
              
              
              
              
              
              
              192Deferred
      revenue
              
              
              -
              
              
              
              225
              
              
              
              
              
              
              
              
              
              
              
              225Due
      to related party
              
              
              125
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              125Accrued
      expenses
              
              
              -
              
              
              
              1,201
              
              
              
              3,568
              (7)
              
              
              8,838
              (8)
              
              
              6,470Accrued
      compensation
              
              
              -
              
              
              
              1,863
              
              
              
              
              
              
              
              
              
              
              
              1,863Current
      portion of deferred rent
              
              
              -
              
              
              
              1,020
              
              
              
              
              
              
              
              
              
              
              
              1,020Deferred
      underwriting fees
              
              
              1,430
              
              
              
              -
              
              
              
              1,430
              (3)
              
              
              
              
              
              
              -Notes
      Payable & Client Trust Account - Current
              
              
              -
              
              
              
              13,203
              
              
              
              15,750
              (11)
              
              
              2,547
              (2)
              
              
              -Total
      current liabilities
              
              
              2,957
              
              
              
              25,256
              
              
              
              
              
              
              
              
              
              
              
              18,849Deferred
      rent, less current portion
              
              
              
              
              
              
              78
              
              
              
              
              
              
              
              
              
              
              
              78Capital
      lease obligation, less current portion
              
              
              
              
              
              
              262
              
              
              
              
              
              
              
              
              
              
              
              262Senior
      Secured Notes
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              15,589
              (11)
              
              
              15,589Stern
      Notes
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              87,469
              (9)
              
              
              87,469Total
      liabilities
              
              
              2,957
              
              
              
              25,596
              
              
              
              
              
              
              
              
              
              
              
              122,247Ordinary
      shares, subject to possible redemption
              
              
              18,985
              
              
              
              -
              
              
              
              18,985
              (5)
              
              
              
              
              
              
              --Shareholder's
      equity
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Preferred
      shares Series A, $0.0001 par value
              
              
              -
              
              
              
              0
              
              
              
              
              
              
              
              
              
              
              
              0Preferred
      shares Series B, $0.0001 par value
              
              
              -
              
              
              
              0
              
              
              
              
              
              
              
              0
              (12)
              
              
              0Ordinary
      shares, $0.0001 par value
              
              
              1
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              2Additional
      paid-in capital
              
              
              34,253
              
              
              
              8,671
              
              
              
              
              
              
              
              
              
              
              
              (87,902
              )145,969
              (9)
              
              
              18,985
              (5)3,881
              (6)
              
              
              1,430
              (3)8,838
              (8)
              
              
              10,500
              (4)507
              (10)
              
              
              -2,547
              (2)Retained
      earnings
              
              
              (507
              )
              
              
              4,348
              
              
              
              -
              
              
              
              507
              (10)
              
              
              4,348Total
      DJSP Enterprises,
                Inc.’s
      equity
              
              
              33,747
              
              
              
              13,020
              
              
              
              
              
              
              
              
              
              
              
              (83,552
              )Noncontrolling
      interest
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              3,881
              (6)
              
              
              3,881Total
      Equity
              
              
              33,747
              
              
              
              13,020
              
              
              
              
              
              
              
              
              
              
              
              (79,671
              )Total
      liabilities and shareholder's equity
              
              $
              55,689
              
              
              $
              38,616
              
              
              
              
              
              
              
              
              
              
              $
              42,576





40





Pro
Forma Adjustments and Eliminations (In thousands of U.S. Dollars, except for
share and per share data, unless otherwise noted):







(1)
            To
      liquidate investments held in
trust.




(2)
            To
      adjust actual closing payments on line of credit to amount outstanding at
      balance sheet date and to eliminate client trust accounts which were not
      transferred in the Transaction.




(3)
            To
      record payment of deferred underwriting fees of $1,430 as part of Footnote
      (8).




(4)
            To
      record $10,500 gross proceeds of a simultaneous to close Private Placement
      equity investment in DJSP Enterprises, Inc. of 1,500 shares at $7.00 per
      share.




(5)
            To
      eliminate ordinary shares subject to redemption and related deferred
      interest on the assumption that all shareholders approve of the proposed
      acquisition.




(6)
            Net
      assets attributable to noncontrolling interests of
  29.05%.




(7)
            To
      record payment of costs related to the
  Transaction.




(8)
            To
      accrue balance of estimated costs of raising capital based upon engagement
      letters, actual invoices and/or currently updated fee estimates as
      follows:





Investment
      banking fees
            
            $
            4,800Financial
      due diligence
            
            
            115Legal
      fees
            
            
            3,220Accounting
      fees
            
            
            296Out
      of pocket fees
            
            
            134Other
      fees
            
            
            271Total
      estimated costs
            
            
            8,838Less
      costs incurred to-date
            
            
            -Balance
      to accrue
            
            $
            8,838





Total
estimated costs includes contingent underwriters fees of approximately $2,200
that are payable upon consummation of the Transaction. These costs were
originally incurred in connection with DJSP Enterprises, Inc.’s initial public
offering and were recorded in Additional Paid-In Capital but will be
subsequently recorded as an expense.





(9)
            To
      record payment of Initial Cash to the Stern Contributors in the
      Transaction, calculated as follows:




Cash
      Consideration Purchase Price
            $
            145,969Less:
      Stern Note
            
            
            52,469Less:
      Post-Closing Cash
            
            
            35,000Initial
      Cash
            
            $
            58,500Deferred
      consideration - Stern Notes
            
            
            87,469





(10)
            To
      eliminate historical retained earnings of accounting
    acquiree.


(11)
            To
      reflect a senior secured round of private financing at 15% to replace the
      existing line of credit until a new line of credit could be established at
      DJS Processing, LLC.




41




(12)
            To
      record the issuance of Series B units by DAL to the Stern Contributors and
      Existing Members which will expire unless the below share price targets
      for the Company's ordinary shares are met for at least 10 out of 30
      trading days:




Subclass
            
            Conversion Price
            
            
            Number of UnitsSeries
      B Preferred 1
            
            $
            10.00
            
            
            
            750,000Series
      B Preferred 2
            
            $
            12.50
            
            
            
            750,000Series
      B Preferred 3
            
            $
            15.00
            
            
            
            800,000Series
      B Preferred 4
            
            $
            17.50
            
            
            
            800,000Series
      B Preferred 5
            
            $
            20.00
            
            
            
            800,000





Upon
meeting the share price target, the Series B units will automatically be exchanged
for common units of DAL and will subsequently be convertible into Chardan 2008
ordinary shares on a 1:1 basis. If after 60 months following the closing of the
Transaction any portion of the Series B units have not been exchanged for DAL
common units, DAL will have the right to redeem the unconverted Series B units
by paying the holders $0.001 per unit.




42




Pro
Forma Notes (In thousands of U.S. Dollars, except for share and per share data,
unless otherwise noted):





(A)
            Pro
      forma entries are recorded to the extent they are a direct result of the
      Transaction, are factually supportable, and are expected to have a
      continuing impact on the combined
results.




DJSP
ENTERPRISES, INC. (FORMERLY KNOWN AS CHARDAN 2008 ACQUISITION
CORP.)


AND
DJS PROCESSING DIVISION AND COMBINED AFFILIATES


Unaudited
Pro Forma Condensed Combined Statement of Operations


Year
Ended December 31, 2009


(In
thousands of U.S. Dollars, except share and per share amounts)





DJSP
      Enterprises, Inc.
              (formerly
      known as Chardan 2008 China Acquisition
            
            
            DJSP
      Processing Division and Related
            
            
            Pro
      Forma
                Adjustments
      and Eliminations
            
            Pro
      Forma CombinedCorp.)
            
            
            Entities
            
            
            Debit
            
            
            CreditNet
      sales
            
            $
            -
            
            
            $
            260,269
            
            
            
            
            
            
            
            
            $
            260,269Cost
      of sales
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            -Gross
      profit
            
            
            -
            
            
            
            260,269
            
            
            
            
            
            
            
            
            
            260,269Operating
      expensesGeneral
      and administrative
            
            
            489
            
            
            
            215,704
            
            
            
            
            
            
            23,751
            (2)
            
            
            192,442Total
      operating expenses
            
            
            489
            
            
            
            215,704
            
            
            
            
            
            
            
            
            
            
            192,442Income
      (loss) from operations
            
            
            (489
            )
            
            
            44,565
            
            
            
            
            
            
            
            
            
            
            67,827-Other
      income (expense)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Interest
      income (expense)
            
            
            47
            
            
            
            -
            
            
            
            4,485
            (1)(5)
            
            
            
            
            
            
            (4,437
            )Other
      Income (expense)
            
            
            (5
            )
            
            
            0
            
            
            
            
            
            
            
            
            
            
            
            (5
            )Income
      before income taxes
            
            
            (447
            )
            
            
            44,565
            
            
            
            
            
            
            
            
            
            
            
            63,384Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            22,185
            (4)
            
            
            
            
            
            
            22,185Income
      from continuing operations
            
            
            (447
            )
            
            
            44,565
            
            
            
            
            
            
            
            
            
            
            
            41,200Net
      income
            
            
            (447
            )
            
            
            44,565
            
            
            
            
            
            
            
            
            
            
            
            41,200Less
      net income attributable to non
      controlling  interests
            
            
            -
            
            
            
            -
            
            
            
            12,062
            (3)
            
            
            
            
            
            
            12,062Net
      income attributable to  DJSP Enterprises
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            29,138Preferred
      share dividends declared
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Net
      income available to the ordinary shareholder
            
            $
            (447
            )
            
            $
            44,565
            
            
            
            
            
            
            
            
            
            
            $
            29,138Net
      income per ordinary share -Basic
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2.73Diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1.40Weighted
      average number of ordinary shares outstanding (Note B) -Basic
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,666,666Diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,817,108




43




Pro
Forma Adjustments and Eliminations (In thousands of U.S. Dollars, except for
share and per share data, unless otherwise noted):







(1)
            To
      eliminate interest income earned on funds held in trust and related income
      tax expense, as DJSP Enterprises, Inc. used all funds from the trust
      account for the transaction.




(2)
            To
      record lower officer’s salaries per the Stern Employment Agreement and
      other costs not expected to be incurred post-Transaction resulting in a
      reduction in operating expenses by $23,751 in fiscal year
      2009.




(3)
            To
      provide for the noncontrolling interest associated with the post-
      Transaction capital structure of
29.05%




(4)
            To
      account for the incremental expense of DJSP Enterprises, Inc. being taxed
      at the corporate level at an estimated tax rate of
  35%.




(5)
            To
      account for the increased interest expense associated with the Transaction
      financing composed of a seller’s note of $87,469 using an assumed interest
      rate of 3% for the first 18 months on the $52,469 note and 0% for the
      first six months and 3% for the months six through 18 on the $35,000 note
      as well as 15% on a senior secured note of
  $15,589.




Pro
Forma Notes (In thousands of U.S. Dollars, except for share and per share data,
unless otherwise noted):




(A)
            Pro
      forma entries are recorded to the extent they are a direct result of the
      Transaction, are factually supportable, and are expected to have a
      continuing impact on the combined
results.




(B)
            As
      the transaction is being accounted for as a reverse acquisition, the
      calculation of weighted average shares outstanding for basic and diluted
      earnings per share assumes that the shares issued in conjunction with the
      Transaction have been outstanding for the entire period.  Basic
      and diluted weighted average number of ordinary shares outstanding is
      calculated as follows:




Pro forma
      Balance Sheet
              Entry
      No.
            
            
            SharesActual
      number of ordinary shares outstanding
            
            
            
            
            
            9,166,666Pro
      forma shares to be issued:Shares
      issued in connection with Private Placement financing
            
            
            (4
            )
            
            
            1,500,000Pro
      forma weighted average number of ordinary shares outstanding -
      Basic
            
            
            
            
            
            
            10,666,666Common
      stock equivalents:Shares
      retained by noncontrolling interest and convertible to DJSP Enterprises,
      Inc. shares
            
            
            
            4,366,667Shares
      issued to warrantholders upon exercise of private placement
      warrants
            
            
            
            233,010Shares
      issuable from actual “in the money” warrants outstandingFrom
      Public Offering warrants
            
            
            
            
            
            
            6,875,000From
      Founder’s units
            
            
            
            
            
            
            2,291,666From
      Private Placement warrants
            
            
            
            
            
            
            2,000,000From
      UPO
            
            
            
            
            
            
            275,000Less
      number of shares available “on the market” pursuant to the treasury stock
      method
            
            
            
            
            
            
            (5,890,901
            )Number
      of “new” shares to be issued pursuant to the treasury shares
      method
            
            
            
            
            
            
            10,150,442Pro
      forma weighted average number of ordinary shares outstanding -
      Diluted
            
            
            
            
            
            
            20,817,108




(C)
            The
      current market prices of DJSP Enterprises, Inc. ordinary shares and
      ordinary share purchase warrants utilized in above calculations were as
      follows as of March 10, 2010:




Market
      price per share of ordinary shares (DJSP)
            
            $
            9.80Market
      price per ordinary share warrant (DJSPW)
            
            $
            4.80




44




(D)
            Does
      not include DAL Series B Preferred Units held by the holders of the
      noncontrolling interest due to not being exchangeable for DJSP Enterprises
      Inc. ordinary shares until certain share price targets between $10 and $20
      are achieved.




ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES




Directors and Officers of
the Company





Except as
noted below in the descriptions of their business experience, each director and
executive officer took office as of the date of the Transaction.  The
Board of Directors and executive officers of the Company are as
follows:





Name
            
            Age
            
            PositionDavid
      J. Stern
            
            49
            
            Director,
      Chairman, President and Chief Executive OfficerKumar
      Gursahaney
            
            53
            
            Executive
      Vice President, Chief Financial Officer, Treasurer and
      SecretaryMatthew
      S. Kayton
            
            41
            
            Director,
      Executive Vice President and Chief Strategy OfficerNicholas
      H. Adler
            
            34
            
            DirectorStephen
      J. Bernstein
            
            43
            
            DirectorMark
      P. Harmon
            
            64
            
            DirectorJerry
      L. Hutter
            
            66
            
            DirectorJuan
      V. Ruiz
            
            40
            
            Director





David J. Sternis the founder
of DJS, PTA and DSI, the first of which was formed in 1994. In addition to
serving as Chairman, President and Chief Executive Officer of the Company, he
serves as President and Chief Executive Officer of DJS LLC, PTA LLC and DSI LLC,
and as Chairman, President and Chief Executive Officer of DAL. He has over 20
years of industry experience. Prior to the founding of DJS, Mr. Stern served as
National Quality Control Attorney for a nationwide law firm specializing in
mortgage lender representation. He has earned several industry achievement
awards, including being named Fannie Mae’s Attorney of the Year in 1998 and
1999. Mr. Stern is an attorney and member of the Florida Bar
Association.  He earned his Juris Doctorate from South Texas College
of Law in Houston, Texas in 1986.





Kumar Gursahaney serves as
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
the Company, and as Vice President and Chief Financial Officer of DAL, DJS LLC,
PTA LLC and DSI LLC.  He is responsible for all financial aspects of
the Company. He also served as an interim director of the Company from the date
of the Transaction until March 2, 2010.  Mr. Gursahaney initially
provided services to the Company through The Mergis Group as a consultant from
September, 2009 to February, 2010. He is now employed directly by the Company.
Prior to his work for the Company, he worked for AmComp Incorporated, where he
served as assistant vice president, finance from 2003 to 2004, and as senior
vice president, chief financial officer and treasurer from 2004 to 2008. From
2002 to 2003, Mr. Gursahaney served as vice president and chief financial
officer for the insurance operations at Transportation Financial Group. Mr.
Gursahaney was a vice president and comptroller for the Domestic Brokerage Group
of American International Group, Inc. between 1986 and 1998. Prior to his tenure
at AIG, Mr. Gursahaney was an Audit Senior in the New York offices of
PricewaterhouseCoopers.





Matthew S. Kayton serves as
Executive Vice President and Chief Strategy Officer of the Company, and as a
Vice President of DAL, DJS LLC, PTA LLC and DSI LLC.  Prior to joining
the Company in March, 2010, Mr. Kayton was employed by MSK Consulting LLC, which
provides business management consulting across multiple sectors, including real
estate, mortgage foreclosure, health care and legal services.  Prior
to forming MSK, in 2007, he was a consultant for Eurotrade Capital, LLC, an
investment firm focused on the acquisition of non-performing mortgage debt,
where he was responsible for formulating business strategies, creating operating
platforms, establishing key vendor relationships and raising capital. From 1997
to 2007, Mr. Kayton was a principal and director of Field Asset Services, Inc.,
a $100,000,000 national property, preservation and maintenance firm that
specializes in the maintenance of non-performing real estate assets for national
lending institutions and loan services. From 2004 to 2007, Mr. Kayton
was a principal and managing director of Consumer Select Insurance of America,
LLC, a company that he founded. Consumer Select Insurance of America, LLC was a
$6,000,000 general lines insurance agency created to serve the settlement
services industry by proactively sourcing homebuyers hazard insurance. From 1993
to 2004, Mr. Kayton was a principal and Chief Executive Officer of First
Southwestern/First Financial Title Group, where he was responsible for the
turnaround of underperforming entities in California, Vermont, Maryland, New
Jersey, Florida and New York, and guided regulatory affairs, accounting, sales
and operations. Additionally, from 1993 to 2004, Mr. Kayton was president and a
principal of First Financial Surveyors, Inc., a $6,000,000 regional land
surveying firm focused on residential real estate transactions. From 1991 to
1996, Mr. Kayton acted as president and was a principal of First Financial
Associates, Inc., a $5,000,000 foreclosure auction firm focused on residential
mortgage foreclosures in New England, that he founded.   Mr.
Kayton received his Bachelor of Arts degree from the University of Miami in
1990.





45





Nicholas H. Adler is the
managing attorney for Zwicker & Associates PC in Brentwood, Tennessee, a
suburb of Nashville. Mr. Adler’s recent legal experience is focused on the
practice of creditor rights litigation, which complements our principal
business.  Prior to focusing on that area of practice, Mr. Adler also
practiced in SEC compliance matters and debt and equity structured financings
for real estate investment trusts. Mr. Adler is a 1997 graduate of Vanderbilt
University (B.A., political science) and a 2001 graduate of The Washington &
Lee University School of Law. He is licensed to practice law in both New York
and Tennessee. Prior to his role as managing attorney for Zwicker &
Associates PC, Mr. Adler was with the law firm of Mann Bracken LLP in Nashville,
Tennessee from 2005 to 2009, practicing in the area of creditor rights
litigation. From 2003 to 2005, he practiced law with the Dunning Law Group in
Brentwood, Tennessee, with an emphasis on corporate bankruptcy and
reorganizations, and prior to that he was an associate at Sidley Austin Brown
& Wood in New York, where he practiced in the areas of SEC compliance,
structured financial products and offerings of both debt and equity for real
estate investment trusts.





Stephen J. Bernstein was
appointed to the Company’s Board of Directors on March 2, 2010.  Mr.
Bernstein has managed his own real estate firm, Benchmark Group of Florida,
since 2002.  Through his real estate firm, he has acquired, managed,
repositioned, leased, developed, and sold property, both as a principal and for
third parties.  Property types have included office, industrial,
retail and residential.  In addition, he has served as an advisor to
private equity companies, investment funds and individual
investors.  From 1998 to 2002, Mr. Bernstein served as a mergers and
acquisitions and business development executive for AutoNation, Inc. and
Cisneros Television Group, respectively.  From 1996 to 1998, Mr.
Bernstein was an Associate and Vice President at Genesis Merchant Group and
Latin American Trade Finance, respectively.  In those positions, he
worked on public offerings, private placements and mergers and acquisitions
transactions for high tech, biotech, media and energy companies. Before graduate
school, Mr. Bernstein worked for PKF Consulting and Ernst and Young in their
real estate groups, where he advised developers, owners and lenders, and later
for Bechtel Investments as an asset manager in the real estate
division.  Mr. Bernstein received his Bachelors of Science from
Cornell University in 1989, and an MBA with high distinction from the University
of Michigan in 1996.





Mark P. Harmonis an attorney
employed by and is the president of Harmon Law Offices, P.C., which specializes
in providing legal services to mortgage servicers.  Mr. Harmon has
been with that firm and its predecessor, The Law Offices of Mark P. Harmon, for
26 years.  Mr. Harmon also has served as the president of Northeast
Abstract Company, Inc., a company that performs real estate title searches,
since its founding in 2002, and of Commonwealth Auction Associates, Inc, a
company that performs real estate auctions, since its founding in
1995.





Jerry L. Hutter is the Chief
Executive Officer of CFO Strategies, Inc., a consulting company which he
co-founded in 2005. Mr. Hutter also serves as a director of Heng Xin Compliance
Associates, Inc. which primarily operates in China. Mr. Hutter has over forty
years of experience as an auditor, controller, and management consultant for
firms ranging from Fortune 500 companies to smaller private sector corporations
and not-for-profit organizations. From 2001 to 2005, he was employed by CBIZ/San
Diego, most recently as a senior manager. He acquired experience in all phases
of the mortgage division of Home Savings of America before its acquisition by
Washington Mutual, and also served as Home Savings of America’s corporate
financial controller. Mr. Hutter has also held positions on the corporate staff
at KB Homes, and has audited several savings and loan companies and banks with
substantial portfolios in residential and commercial loans. In the past five
years, Mr. Hutter has worked with numerous public companies as an advisor to the
board of directors and the audit committee regarding issues of risk assessment,
compliance, and financial statement disclosures.  Mr. Hutter is a
former certified public accountant with PricewaterhouseCoopers, where he was
certified with both the American Institute of Certified Public Accountants
(“AICPA”) and the California Society of Certified Public
Accountants.





Juan V. Ruiz is Executive Vice
President and Chief Investment Officer of Federal One Holdings LLC, a financial
institution building a retail depository and asset acquisition regional bank
with a focus on deposit products and consumer/small business financing,
including residential mortgage and small balance commercial real estate loans.
From January 2007 to June 2008, Mr. Ruiz was Senior Vice President at Lehman
Brothers’ Strategy & Corporate Development group, where he was responsible
for the acquisition and integration of depository and mortgage/specialty finance
acquisitions. In this role, he led multi-functional teams through all relevant
acquisition/integration matters, including financial analysis, accounting,
legal, credit, operations, human resources, and information technology. From
2003 to December 2006, Mr. Ruiz held a senior position at Keefe Bruyette &
Woods’ (KBW) Balance Sheet Management group. In this role, he worked closely
with bank chief financial officers and treasurers throughout the U.S. to provide
balance sheet restructuring advisory services and funding optimization
strategies to their banking institutions. Mr. Ruiz also worked at ABN AMRO NV
from 2000 to 2002, where he helped execute the Bank’s acquisition/divestiture
strategy in the Americas; at Salomon Smith Barney from 1997 to 2000, where he
specialized in depository and mortgage/specialty finance mergers and
acquisitions; and at Goldman Sachs & Co. from 1991 to 1993, where he focused
on credit ratings advisory for financial intuitions and bank funding programs.
Mr. Ruiz has a B.A. in Economics and International Relations from Brown
University, and an MBA in Finance & Management cum laude from Indiana
University’s Kelley School of Business.





46





In
connection with the Transaction, the Company and certain other parties entered
into a Voting Agreement (the “Voting Agreement”), pursuant to which the parties
(other than us) agree to vote all of the ordinary shares held by them in favor
of specified nominees to our Board of Directors.   The Voting
Agreement also allows certain parties (other than us), to designate, after
January 15, 2011, by majority vote, a number of nominees to our Board of
Directors.  See “Item 10(C). Material Contracts – Contracts Related to
the Transaction – Voting Agreement” for a further discussion of the Voting
Agreement.





Management of
DAL





The Board
of Managers and management of DAL are as follows:





Name
            
            Age
            
            PositionDavid
      J. Stern
            
            49
            
            Board
      of Managers Member, Chairman, President and Chief Executive
      OfficerKumar
      Gursahaney
            
            53
            
            Chief
      Financial OfficerMatthew
      S. Kayton
            
            41
            
            Vice
      President and Board of Managers MemberMiriam
      Mendieta
            
            47
            
            Vice
      President — Foreclosure Services of DJS LLCCheryl
      Samons
            
            42
            
            Operations
      Manager of DJS LLCRaj
      Gupta
            
            38
            
            Board
      of Managers MemberMark
      P. Harmon
            
            64
            
            Board
      of Managers MemberJerry
      L. Hutter
            
            66
            
            Board
      of Managers Member





Messrs.
Stern, Gursahaney, Kayton, Harmon and Hutter’s business experiences are
described above under “Directors and Senior Management – The
Company.”





Miriam L. Mendietaserves as
Vice President of Foreclosure Services for DJS LLC and oversees DJS LLC’s
foreclosure and bankruptcy processing services.   Ms. Mendieta
also serves as Lead Attorney for DJS.  As Lead Attorney, she is
responsible for the oversight of all aspects of foreclosure and bankruptcy
related legal services, and for supervising the lawyers at DJS providing
foreclosure and bankruptcy legal services. Prior to joining DJS in 1995, Ms.
Mendieta practiced foreclosure and bankruptcy law, where her duties included
supervision and review of files, representation of debtors in bankruptcy
proceedings and handling adversary pleadings in Chapter 11 and Chapter 13 cases.
Ms. Mendieta earned a Juris Doctorate from the University of Miami School of Law
and is a member of the Florida Bar Association.





Cheryl L. Samonsserved as
Operations Manager for DJS prior to the Transaction, and now serves as
Operations Manager of DJS LLC. She is responsible for the oversight of all
processing and administrative operations at the operating companies. She has
extensive experience in the foreclosure industry, having worked at several law
firms providing foreclosure processing services. Prior to joining DJS in 1994,
she served as the Manager of Eastern Region Reorganization for a nationwide law
firm specializing in mortgage lender representation. Ms. Samons holds a Bachelor
of Science in Legal Administration and Criminal Justice from Ball State
University.





Raj K. Gupta is a Partner of
FlatWorld Capital LLC and is responsible for its Indian and international
transactions. Mr. Gupta has extensive experience as an advisor, principal
investor, and entrepreneur in private equity funded global transactions. Mr.
Gupta utilizes his information technology and business process outsourcing and
offshoring experience and India-based team to assist private and public equity
portfolio companies with utilizing low cost global resources to become highly
efficient. Mr. Gupta was the founder of YadaYada Inc., and served as its CEO
from 1999 to 2002.  YadaYada Inc., an organization with venture
backing of more than $25 million, became the third largest independent wireless
internet service provider in 2001. Prior to YadaYada, Mr. Gupta was a member of
the Merchant Banking and High Yield Group at CIBC World Markets from 1996 to
1999, and Acquisition Finance at Chase Securities from 1993 to 1996. Mr. Gupta
graduated from Trinity College as the President’s Scholar with a Bachelor of
Arts in Computer Engineering and Economics.  Mr. Gupta is also the
owner of Nagina, one of the minority members of DAL.





None of
the executive officers, directors, or board of manager members of the Company,
DAL or their respective subsidiaries are related.





47





Compensation





On
February 4, 2010, the Company’s Board of Directors approved the following cash
compensation arrangement for its non-employee directors:  a retainer
for Board service of $2,000 per month, for service as Audit Committee Chairman
of $3,000 per month, as Compensation Committee Chairman of $2,000 per month and
for service on any committee or chairman of any other committee of $1,000 per
month.  Directors are also reimbursed for reasonable out of pocket
expenses incurred by them in the performance of their duties.





In the
first quarter of calendar year 2010, the Compensation Committee granted share
options under the Equity Incentive Plan to (i) its then non-employee directors
to acquire an aggregate of 46,000 ordinary shares of the Company (7,000 to each
of Messrs. Hutter, Ruiz, Harmon and Adler and 9,000 to each of Messrs. Bernstein
and Kayton) and (ii) certain employees of DAL, DJS LLC, PTA LLC and DSI LLC to
acquire an aggregate of 837,300 ordinary shares of the Company. The exercise
price for the share options ranged from $8.85 to $9.72, the closing price of the
Company’s ordinary shares on the trading day prior to the date of
grant.  The non-employee director share options become exercisable one
year after the date of grant or, if earlier, upon their removal as a director or
failure to be re-nominated or reelected as a director. The employee share
options become exercisable in three equal annual installments. The share options
are nonqualified stock options, become exercisable upon certain changes in
control of the Company and DAL, and will terminate 10 years after the date of
grant or, if earlier, three months after termination of employment (one year if
termination is due to death or disability).





The
members of DAL’s Board of Managers are not separately compensated for their
services on that Board.





Employment
Agreements





Stern Employment
Agreement.  The Company and Mr. Stern have entered into an
employment agreement (the “Stern Employment Agreement”) pursuant to which Stern
will serve as President and Chairman of the Board of each of DAL, DJS LLC and
the Company, and as Chief Executive Officer of DAL and the Company.





The Stern
Employment Agreement expires on the fifth anniversary of the closing of the
Transaction (the “Employment Term”). If Stern terminates the Stern Employment
Agreement prior to expiration of the Employment Term without good reason and
during a period when a majority of the members of the Company’s Board of
Directors consist of person designed or nominated by Stern or his affiliates,
except for a termination due to Stern’s death, disability or as required by
applicable law, including but not limited to the Rules Regulating the Florida
Bar, then Stern is liable for any resulting damages incurred by the Company, DAL
or DJS LLC up to an amount equal to the greater of (i) the value (as of the date
of the Stern Employment Agreement) of one half of (A) the DAL Common Units
acquired by Stern or his affiliates and (B) the DAL Common Units received upon
conversion of each tranche of the Series B Preferred Units acquired by Stern or
his affiliates and (ii) $13,500,000.





Stern’s
base salary is $431,500 per annum. Stern is eligible to receive bonuses as
determined by the Board of Directors of the Company in its sole discretion and
may participate in the Equity Incentive Plan as determined by the Company’s
Board of Directors and DAL’s Board of Managers.





If Stern
terminates his employment for good reason or is terminated by the Company, DAL
and DJS LLC for any reason other than death, disability or cause, upon execution
of a release, Stern shall receive from DJS LLC his earned but unpaid base salary
through the termination date, continuation of his base salary for three years
following the termination date, payment of any bonus amount earned prior to
termination, payment of all accrued, but unused, vacation days, and any benefit
due under an employee benefit plan.





If Stern
terminates his employment without good reason or is terminated by the Company,
DAL and DJS LLC for cause, Stern shall receive from DJS LLC his earned but
unpaid base salary through the termination date, payment of all accrued, but
unused, vacation days, and any benefit due under an employee benefit
plan.





If
Stern’s employment is terminated due to his death or as a result of disability,
Stern or his heirs shall be entitled to receive his earned but unpaid base
salary through the termination date, payment of all accrued, but unused,
vacation days, and any benefit due under an employee benefit plan.




48





Gursahaney Employment
Agreement.  The Company and Mr. Gursahaney have entered into an
employment agreement (the “Gursahaney Employment Agreement”) pursuant to which
Gursahaney will serve as Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, and as Chief Financial Officer of DAL
and DJS LLC.





Mr.
Gursahaney’s base salary is $375,000 per annum, with a $100,000 signing bonus,
which must be repaid if he voluntarily terminates employment or is terminated
for cause on or before July 31, 2010.  Mr. Gursahaney is eligible to
receive bonuses as determined by our Board of Directors in its sole discretion
of up to 50% of his base salary, and may participate in the Equity Incentive
Plan as determined by the Company’s Board of Directors and DAL’s Board of
Managers.  On February 4, 2010, he also received a grant of a share
option to purchase 75,000 ordinary shares of the Company under the Equity
Incentive Plan.  The share options (i) are non-qualified stock
options, (ii) will vest in equal annual installments over three years, (iii)
become immediately exercisable upon a Change in Control (as defined in the
Plan), (iv) have an exercise price of $8.85 per share and (v) have a term of 10
years.  Mr. Gursahaney will participate in DJS LLC’s standard employee
benefits for management level employees.





The
Gursahaney Employment Agreement will expire on February 15, 2011, subject to a
12-month post-employment non-competition/non-solicitation
agreement.  If Mr. Gursahaney terminates his employment for good
reason or is terminated by the Company, DAL and DJS LLC for any reason other
than death, disability or cause, upon execution of a release, Mr. Gursahaney
shall receive from DJS LLC his earned but unpaid base salary through the
termination date, continuation of his base salary and reimbursement for a
percentage of COBRA costs for one year following the termination date, payment
of any bonus amount earned prior to termination and any benefit due under an
employee benefit plan.





If Mr.
Gursahaney terminates his employment without good reason or is terminated by the
Company, DAL and DJS LLC for cause, Mr. Gursahaney shall receive from DJS LLC
his earned but unpaid base salary through the termination date and any benefit
due under an employee benefit plan.





If Mr.
Gursahaney’s employment is terminated due to his death or as a result of
disability, Mr. Gursahaney or his heirs shall be entitled to receive his earned
but unpaid base salary through the termination date and any benefit due under an
employee benefit plan.





Mr.
Gursahaney will also receive accrued, but unused, vacation days if he terminates
employment after July 31, 2010.





Kayton Employment
Agreement.  The Company and Mr. Kayton have entered into an
employment agreement (the “Kayton Employment Agreement”) pursuant to which
Kayton will serve as Executive Vice President and Chief Strategy Officer of the
Company, and Vice President of each of DAL, DJS LLC, PTA LLC and DSI
LLC.





Mr.
Kayton’s base salary is $300,000 per annum.  Mr. Kayton is eligible to
receive target incentive bonuses as determined by our Board of Directors in its
sole discretion of up to 50% of base salary, and may participate in the Equity
Incentive Plan as determined by the Company’s Board of Directors and DAL’s Board
of Managers.  On March 2, 2010, he received a grant of a share option
to purchase 120,000 ordinary shares of the Company under the Equity Incentive
Plan.  The share options (i) are non-qualified stock options, (ii)
will vest in equal annual installments over three years, (iii) become
immediately exercisable upon a Change in Control (as defined in the Plan), (iv)
have an exercise price of $9.72 per share and (v) have a term of 10
years.  Mr. Kayton will participate in DJS LLC’s standard employee
benefits for management level employees.





The
Kayton Employment Agreement will expire on March 2, 2011, subject to a 12-month
post-employment non-competition/non-solicitation agreement.  If Mr.
Kayton terminates his employment for good reason or is terminated by the
Company, DAL and DJS LLC for any reason other than death, disability or cause,
upon execution of a release, Mr. Kayton shall receive from DJS LLC his earned
but unpaid base salary through the termination date, continuation of his base
salary and reimbursement for a percentage of COBRA costs for one year following
the termination date, payment of any bonus amount earned prior to termination
and any benefit due under an employee benefit plan.





If Mr.
Kayton terminates his employment without good reason or is terminated by the
Company, DAL and DJS LLC for cause, Mr. Kayton shall receive from DJS LLC his
earned but unpaid base salary through the termination date and any benefit due
under an employee benefit plan.





49





If Mr.
Kayton’s employment is terminated due to his death or as a result of disability,
Mr. Kayton or his heirs shall be entitled to receive his earned but unpaid base
salary through the termination date and any benefit due under an employee
benefit plan.  Mr. Kayton will also receive accrued, but unused,
vacation days if he terminates employment after July 31, 2010.





Board
Practices





Terms
of Directors and Executive Officers





Our Board
of Directors consists of seven members, who were elected as our directors in
connection with the Transaction on January 15, 2010.  Our Board of
Directors is a classified board consisting of three classes of
directors.  The Class A directors were elected for an initial term of
one year, the Class B directors were elected for an initial term of two years,
and the Class C directors were elected for an initial term of three
years.  Subsequent terms for all three classes of directors shall be
three years.  The current board members are classified as
follows:




·
            in
      the class to stand for reelection in 2011: Nicholas H. Adler and Stephen
      J. Bernstein;




·
            in
      the class to stand for reelection in 2012: Mark P. Harmon and Juan V.
      Ruiz; and




·
            in
      the class to stand for reelection in 2013: Jerry L. Hutter, Matthew S.
      Kayton and David J. Stern.





At a
general meeting in each year, successors to the class of directors whose term
expires in that year shall be elected for a three year term.  A
majority of votes cast shall be sufficient to elect directors.  The
directors may appoint one or more directors to fill a vacancy on the
Board.





Our
executive officers are appointed by our Board of Directors.  The
executive officers shall hold office until their successors are duly elected and
qualified, but any officer elected or appointed by the directors may be removed
at any time, with or without cause, by resolution of directors.  Any
vacancy occurring in any office may be filled by resolution of
directors.





Two of
our directors, Messrs. Stern and Kayton, are also executive officers of the
Company and have employment agreements with us. Both employment agreements
provide for benefits payable to the executive upon termination of employment.
See the section of this Report entitled “ – Employment Agreement” for a summary
of the applicable terms.  Other than these two persons, no director of
the Company has a contract with the Company or any of its subsidiaries providing
for benefits upon termination of employment or pursuant to the terms of the
share options granted to our non-employee directors.





Director
Independence





Management
believes that Messrs. Adler, Bernstein, Harmon, Hutter, and Ruiz qualify as
independent directors under the relevant rules of The NASDAQ Stock Market
(“NASDAQ”) and the SEC.





Board
Committees





Our Board
of Directors has an audit committee, governance and nominating committee, and
compensation committee, and has adopted a charter for each committee. Each
committee consists of three independent directors. Jerry L. Hutter has been
designated as the “Audit Committee Financial Expert” under the SEC rules and the
current listing standards of the NASDAQ Marketplace Rules.





Audit
Committee





The audit
committee, currently consisting of Messrs. Hutter (Chair and audit committee
financial expert), Bernstein and Ruiz, oversees our financial reporting
process on behalf of the Board of Directors.  The committee’s
responsibilities include the following functions:




50




·
            appointing
      and replacing the independent auditors to conduct the annual audit of our
      books and records;




·
            reviewing
      the proposed scope and results of the
audit;




·
            reviewing
      and pre-approving the independent auditors’ audit and non-audited services
      rendered;




·
            approving
      the audit fees to be paid;




·
            reviewing
      accounting and financial controls with the independent auditors and our
      internal auditors and financial and accounting
  staff;




·
            reviewing
      and approving related party transactions;
and




·
            meeting
      separately and periodically with management and our internal auditor and
      independent auditors.





Governance
and Nominating Committee





The
governance and nominating committee, currently consisting of
Messrs. Bernstein (Chair), Harmon and Adler, is responsible for identifying
potential candidates to serve on our Board of Directors and its
committees.  The committee’s responsibilities include the following
functions:




·
            developing
      the criteria and qualifications for membership on the
    Board;




·
            recruiting,
      reviewing and nominating candidates for election to the Board or to fill
      vacancies on the Board;




·
            reviewing
      candidates for election to the Board proposed by shareholders, and
      conducting appropriate inquiries into the background and qualifications of
      any such candidates;




·
            establishing
      subcommittees for the purpose of evaluating special or unique
      matters;




·
            monitoring
      and making recommendations regarding board committee functions,
      contributions and composition; and




·
            evaluating,
      on an annual basis, the governance and nominating committee’s
      performance.





The
governance and nominating committee will consider director candidates
recommended by shareholders. Shareholders who wish to recommend to the
governance and nominating committee a candidate for election to the Board of
Directors should send their letters to the Company, 900 South Pine Island Road,
Suite 400, Plantation, Florida 33324 Attention: Governance and Nominating
Committee. The corporate secretary will promptly forward all such letters to the
members of the governance and nominating committee. Shareholders must follow
certain procedures to recommend to the governance and nominating committee
candidates for election as directors. In general, in order to provide sufficient
time to enable the governance and nominating committee to evaluate candidates
recommended by shareholders in connection with selecting candidates for
nomination in connection with our annual meeting of shareholders, the corporate
secretary must receive the shareholder’s recommendation no later than thirty
(30) days after the end of our fiscal year. For a list of information required
to be submitted with a recommendation, please contact our secretary at the
address listed above.





Compensation
Committee





The
compensation committee, currently consisting of Messrs. Harmon (Chair),
Adler and Bernstein, is responsible for, among other things, reviewing our
compensation programs and policies, establishing salaries and incentive
compensation for our officers, and administering our Equity Incentive
Plan.  The committee’s responsibilities include the following
functions:




·
            reviewing
      and making recommendations to revise our compensation programs and
      policies including cash compensation, incentive, profit-sharing and bonus
      plans, share-based compensation plan, retirement plans and other employee
      benefits;




·
            reviewing
      and approving corporate goals and objectives relevant to the compensation
      of our officers and evaluating their performance in light
      thereof;




51




·
            reviewing
      and approving the compensation of our Chief Executive Officer and other
      officers;




·
            reviewing
      and making recommendations to the Board of Directors with respect to
      director compensation;




·
            administering
      our incentive-compensation plans and equity-based plans, insofar as
      provided therein;




·
            making
      recommendations to the Board regarding approval, disapproval,
      modification, or termination of existing or proposed employee benefit
      plans;




·
            approving
      any stock option award or any other type of award under any share-based
      compensation plans; and




·
            preparing
      an annual report on executive compensation for inclusion in the annual
      proxy statement, if required.





Compensation
Committee Interlocks And Insider Participation





No member
of our compensation committee has at any time been an officer or employee of
ours, or our subsidiaries. No interlocking relationship exists between our Board
of Directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past.





Employees





On
December 31, 2009, we had a total of 952 employees, 925 of which were located in
South Florida, and 27 in Louisville, Kentucky.  This is an increase
from 860 total employees as of December 31, 2008 (839 in South Florida and 21 in
Louisville, Kentucky), which was an increase from 547 total employees as of
December 31, 2007 (536 in South Florida and 11 in Louisville,
Kentucky).





We have
no contracts or collective bargaining agreements with labor unions and have
never experienced work stoppages. We consider our relations with our
employees to be good.





Share
Ownership





See “Item 7(A). Major Shareholders” for
information regarding beneficial ownership of share of our ordinary shares by
our directors and executive officers.





Equity Incentive
Plan





The
Equity Incentive Plan was approved by our Board of Directors on December 22,
2009, and by our shareholders on January 11, 2010.  Under the terms of
the Equity Incentive Plan, up to 1,570,000 of our ordinary shares are reserved
for issuance in accordance with its terms.  The purpose of the Equity
Incentive Plan is to assist us in attracting, retaining and providing incentives
to our employees, directors and consultants, and/or the employees, directors and
consultants of our subsidiaries whose contributions to us are important to our
success, and to align the interests of such persons with our shareholders. It is
also designed to motivate employees and to significantly contribute toward
growth and profitability, to provide incentives to our directors, employees and
consultants who, by their position, ability and diligence are able to make
important contributions to our growth and profitability. The various types of
incentive awards that may be issued under the Equity Incentive Plan will enable
us to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of our business.  All awards
will be subject to the approval of the Compensation Committee of our Board of
Directors.





ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.Major
Shareholders





The
following table sets forth, as of March 26, 2010, except as otherwise provided
in the footnotes to the table, certain information regarding beneficial
ownership of the Company’s ordinary shares by each person who is known by the
Company to beneficially own more than 5% of the Company’s ordinary shares. The
table also identifies the share ownership of each of the Company’s directors,
each of the Company’s executive officers, and all directors and officers as a
group. Except as otherwise indicated, the shareholders listed in the table have
sole voting and investment powers with respect to the shares indicated. The
Company’s major shareholders do not have different voting rights than any other
holder of the Company’s ordinary shares.





52





Ordinary
shares which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.





Name and Address of Beneficial Owner (1)
            
            Amount and
              Nature of
              Beneficial
              Ownership
            
            
            Approximate
              Percentage of
              Outstanding
              Ordinary
              shares (2)David
      J. Stern
            
            
            4,151,666
            (3)
            
            
            33.15
            %Kumar
      Gursahaney
            
            
            0
            
            
            
            0Matthew
      S. Kayton
            
            
            0
            
            
            
            0Nicholas
      H. Adler
            
            
            0
            
            
            
            0Mark
      P. Harmon
            
            
            0
            
            
            
            0Stephen
      J. Bernstein
            
            
            0
            
            
            
            0Jerry
      Hutter
            
            
            0
            
            
            
            0Juan
      V. Ruiz
            
            
            0
            
            
            
            0All
      Directors and Officers as a Group (8 persons)
            
            
            4,151,666
            (3)
            
            
            33.15
            %Kerry
      Propper (4)
            
            
            4,151,666
            (3)
            
            
            33.15
            %Royale
      Holdings (5)
            
            
            4,151,666
            (3)
            
            
            33.15
            %Craig
      Samuels (6)
            
            
            1,068,600
            
            
            
            9.6
            %South
      Ferry #2, LP (7)
            
            
            657,143
            
            
            
            6.16
            %





(1)         Unless
otherwise indicated, the business address of each of the individuals is 900
South Pine Island Road, Suite 400, Plantation, Florida 33324.




(2)         Based
on 10,663,866 ordinary shares of the Company issued and outstanding as of March
26, 2010.




(3)         Consists
of ordinary shares and ordinary shares underlying warrants that are currently
exercisable (exercisable at $5.00 per share and which expire at 5:00 p.m., New
York City time, on August 11, 2012) owned by parties to the Voting Agreement as
follows:




·
            Kerry
      Propper: 302,907 ordinary shares, and 377,968 ordinary shares underlying
      warrants;




·
            Steve
      Urbach: 136,713 ordinary shares and 170,590 ordinary shares underlying the
      warrants;




·
            Jonas
      Grossman: 81,296 ordinary shares and 101,442 ordinary shares underlying
      the warrants;




·
            George
      Kaufman: 27,708 ordinary shares and 0 ordinary shares underlying the
      warrants;




·
            Todd
      Gold: 5,542 ordinary shares and 0 ordinary shares underlying the
      warrants;




·
            Jiangnan
      Huang: 261,427 ordinary shares and 220,000 ordinary shares underlying the
      warrants;




·
            Royale
      Holdings: 661,693 ordinary shares;




·
            Dr.
      Richard D. Propper: 186,528 ordinary shares and 400,000 ordinary shares
      underlying the warrants;




·
            Paula
      Beharry:  130,713 ordinary shares and 30,000 ordinary shares
      underlying the warrants;




·
            Daniel
      Beharry: 130,713 ordinary shares and 70,000 ordinary shares underlying the
      warrants;




·
            Li
      Zhang: 130,713 ordinary shares and 400,000
  warrants;




·
            Li
      Ping He: 130,713 ordinary shares and 0 ordinary shares underlying the
      warrants;




·
            Li
      Gong: 25,000 ordinary shares and 30,000 ordinary shares underlying the
      warrants;




53




·
            Dr.
      Jianjun Shi: 25,000 ordinary shares and 30,000 ordinary shares underlying
      the warrants;




·
            Xiaosong
      Zhong: 25,000 ordinary shares and 30,000 ordinary shares underlying the
      warrants;




·
            Carman
      Ramirez:  20,000 ordinary shares and 0 ordinary shares
      underlying the warrants;




·
            Edward
      Carter: 5,000 ordinary shares and 0 ordinary shares underlying the
      warrants; and




·
            Ida
      Carter: 5,000 ordinary shares and 0 ordinary shares underlying the
      warrants.




Other
parties to the Voting Agreement include the Stern Contributors, FlatWorld,
Valenty and Nagina, none of whom own ordinary shares or securities that are
exercisable or convertible into ordinary shares within 60 days. They own DAL
Common Units and DAL Series A Preferred Units that are exchangeable for ordinary
shares beginning January 15, 2011. The parties to the Voting Agreement share
voting power over these shares, but not investment power over these
shares.





(4)        Kerry
Propper’s business address is c/o Chardan Capital Markets, LLC; 17 State Street;
Suite 1600; New York, NY 10004.




(5)        Michael
Walas has voting and investment control over the ordinary shares owned by Royale
Holdings. Royale Holdings’ address is c/o Chardan Capital, LLC, 402 W. Broadway,
Suite 2600, San Diego, CA.




(6)        The
information relating to Craig Samuels is derived from a Schedule 13G/A dated
February 1, 2010, filed by Mr. Samuels with the SEC.  Mr. Samuel’s
business address is 13990 Rancho Dorado Bend, San Diego, California
92130.





(7)        This
information is based on the Schedule 13G jointly filed with the SEC on January
25, 2010 by South Ferry #2, L.P., a Delaware limited partnership, Aaron Wolfson,
Abraham Wolfson and Morris Wolfson  (collectively, the “South Ferry
Filers”).  The business address of the South Ferry Filers is One State
Street Plaza, 29th Floor, New York, New York 10004.  Aaron Wolfson and
Abraham Wolfson are the general partners of South Ferry #2, L.P., and Morris
Wolfson is the portfolio manager of South Ferry #2, L.P.





B.Related
Party Transactions





Since
January 1, 2009, we have entered into a number of transactions with parties
related to us in connection with the Transaction, as well as employment
agreements with certain of our executive officers and other
contracts.





For a description of the transactions
related to the Transaction, see the section of this Report titled “Item 4.
Information on the Company – History and Business Plans – Transaction,” which is
incorporated herein by reference.  For summaries of the material
contracts entered into with related parties in connection with the Transaction,
see the section of this Report titled “Item 10(C). Material Contracts –
Contracts Related to the Transaction” which is incorporated herein by
reference.





For summaries of the employment
agreements entered into with certain of our executive officers, see the section
of this Report titled “Item 6. Directors, Senior Management and Employees –
Employment Agreements,” which is incorporated herein by reference.





Summaries of the other contracts we
entered into with related parties since January 1, 2009 are described below and
in the section of this Report titled, “Item 10(C). Material Contracts –
Contracts Related to Company Operations,” which is incorporated herein by
reference.





DJS LLC
contracts with JMT Management Corp. for foreclosure sales services, and with
Target Surveying, Inc. for surveys required in connection with closing services.
Robert Samons, the husband of Cheryl Samons, Operations Manager of DJS LLC, is a
one-third owner of JMT Management Corp. and enjoys a profit sharing arrangement
with Target Surveying, Inc. whereby one-third of Target Surveying, Inc.’s
profits flow to him. During the calendar year ended December 31, 2009, the Stern
Contributors paid an aggregate of $938,490 to JMT and $512,356 to Target for
such services.





54





C.Interests
of Experts and Counsel





Not
Applicable.




ITEM 8. FINANCIAL INFORMATION





A.  Consolidated Statements and
Other Financial Information





See Item 18.





Dividends





We have
never declared or paid any cash dividends on our ordinary shares.  We
currently intend to retain all future earnings, if any, for use in the
operations and expansion of the business.  As a result, we do not
anticipate paying cash dividends in the foreseeable future.  Any
future determination as to the declaration and payment of cash dividends will be
at the discretion of our Board of Directors and will depend on factors the Board
of Directors deems relevant, including among others, our results of operations,
financial condition and cash requirements, business prospects, and the terms of
our credit facilities and other financing arrangements.




B.  Significant
Changes





See the
disclosure regarding our Transaction on January 15, 2010, under “Item 4.
Information on the Company – History and Business Plans.”





ITEM 9. THE OFFER AND
LISTING




A.Offer
and Listing Details





Our
ordinary shares, units and warrants are quoted on the NASDAQ Global Market under
the symbols DJSP, DJSPU, and DJSPW respectively.  Each of the
Company’s units consists of one ordinary share and one warrant to purchase an
additional ordinary share.  The ordinary shares, units and warrants
have been quoted since August 25, 2008, previously on the NASDAQ Capital
Market.  Our
securities did not trade on any market or exchange prior to August 25, 2008.





The table
below sets forth, for the periods indicated, the high and low bid closing prices
for our ordinary shares, warrants and units.




Ordinary
      Shares
            
            
            Warrants
            
            
            UnitsHigh
            
            
            Low
            
            
            High
            
            
            Low
            
            
            High
            
            
            LowAnnual Market PricesYear
      2008 (from August 25, 2008)
            
            $
            7.28
            
            
            $
            6.11
            
            
            $
            1.54
            
            
            $
            1.05
            
            
            $
            8.90
            
            
            $
            6.35Year
      2009
            
            $
            9.50
            
            
            $
            6.60
            
            
            $
            3.80
            
            
            $
            0.06
            
            
            $
            12.54
            
            
            $
            6.79Year
      2010 (through March 31, 2010)
            
            $
            12.66
            
            
            $
            8.00
            
            
            $
            7.20
            
            
            $
            2.94
            
            
            $
            19.50
            
            
            $
            11.25Quarterly Market PricesThird
      Quarter 2008 (from August 25, 2008)
            
            $
            7.28
            
            
            $
            6.60
            
            
            $
            1.54
            
            
            $
            1.05
            
            
            $
            8.90
            
            
            $
            8.00Fourth
      Quarter 2008
            
            $
            7.04
            
            
            $
            6.11
            
            
            $
            1.05
            
            
            $
            0.09
            
            
            $
            7.80
            
            
            $
            6.35First
      Quarter 2009
            
            $
            7.15
            
            
            $
            6.60
            
            
            $
            0.35
            
            
            $
            0.06
            
            
            $
            7.15
            
            
            $
            6.79Second
      Quarter 2009
            
            $
            7.45
            
            
            $
            6.90
            
            
            $
            0.90
            
            
            $
            0.24
            
            
            $
            8.10
            
            
            $
            7.11Third
      Quarter 2009
            
            $
            7.79
            
            
            $
            7.36
            
            
            $
            0.97
            
            
            $
            0.34
            
            
            $
            8.54
            
            
            $
            7.50Fourth
      Quarter 2009
            
            $
            9.50
            
            
            $
            7.60
            
            
            $
            3.80
            
            
            $
            1.00
            
            
            $
            12.54
            
            
            $
            8.00First
      Quarter 2010 (through March 31, 2010)
            
            $
            12.66
            
            
            $
            8.00
            
            
            $
            7.20
            
            
            $
            2.94
            
            
            $
            19.50
            
            
            $
            11.25Monthly Market PricesOctober
      2009
            
            $
            7.85
            
            
            $
            7.58
            
            
            $
            1.56
            
            
            $
            0.92
            
            
            $
            10.50
            
            
            $
            8.16November
      2009
            
            $
            7.87
            
            
            $
            7.72
            
            
            $
            1.45
            
            
            $
            1.00
            
            
            $
            8.51
            
            
            $
            8.00December
      2009
            
            $
            9.50
            
            
            $
            7.75
            
            
            $
            4.25
            
            
            $
            1.00
            
            
            $
            13.41
            
            
            $
            8.27January
      2010
            
            $
            10.00
            
            
            $
            8.20
            
            
            $
            5.00
            
            
            $
            3.30
            
            
            $
            14.70
            
            
            $
            11.75February
      2010
            
            $
            9.50
            
            
            $
            8.00
            
            
            $
            4.45
            
            
            $
            2.94
            
            
            $
            13.30
            
            
            $
            11.25March
      2010 (through March 31, 2010)
            
            $
            12.66
            
            
            $
            9.45
            
            
            $
            7.20
            
            
            $
            4.43
            
            
            $
            19.50
            
            
            $
            13.80




55




B.Plan of
Distribution





Not
Applicable.





C.Markets





Our
ordinary shares, units and warrants are quoted on the NASDAQ Global Market under
the symbols DJSP, DJSPU and DJSPW, respectively.  Prior to the
Transaction, our ordinary shares, units and warrants were quoted on the NASDAQ
Capital Market under the symbols CACA, CACAU and CACAW,
respectively.





D.Selling
Shareholders





Not
Applicable.





E.Dilution





Not
Applicable.





F.Expenses
of the Issue





Not
Applicable.




56





ITEM
10. ADDITIONAL INFORMATION




A.Share
Capital





Not
Applicable.





B.Memorandum
and Articles of Association





Our Second Amended and Restated
Memorandum and Articles of Association are described in our Registration
Statement on Form F-1, filed with the SEC on February 12, 2010 (File No.
333-164907) in the sections entitled “Description of Securities – Memorandum and
Articles of Association,” “Description of Securities – Preferred Shares,” and
“Directors, Senior Management and Employees – Employees,” which descriptions are
incorporated herein by reference.





C.Material
Contracts





Contracts
Related to the Capitalization of Chardan 2008





Pre-IPO





In July
2008, prior to the IPO, Chardan 2008 issued 2,291,666 ordinary units (the
“Insider Units”) to the individuals set forth below, each consisting of one
ordinary share and one warrant, for $25,000 in cash, at a purchase price of
approximately $0.011 per unit, as follows:





Name
            
            No.
      of SharesKerry
      Propper
            
            
            302,907Steve
      Urbach
            
            
            136,713Jonas
      Grossman
            
            
            81,296George
      Kaufman
            
            
            27,708Todd
      Gold
            
            
            5,542Jiangnan
      Huang
            
            
            261,427Royale
      Holdings
            
            
            661,693Dr.
      Richard D. Propper
            
            
            186,528Paula
      Beharry
            
            
            130,713Daniel
      Beharry
            
            
            130,713Li
      Zhang
            
            
            130,713LiLi
      Ping He, as custodian
            
            
            130,713Li
      Gong
            
            
            25,000Dr.
      Jianjun Shi
            
            
            25,000Xiaosong
      Zhong
            
            
            25,000Carman
      Ramirez
            
            
            20,000Edward
      Carter
            
            
            5,000Ida
      Carter
            
            
            5,000





Immediately
prior to the consummation of the IPO, Chardan 2008 issued 2,000,000 warrants at
a price of $0.50 to certain of the officers, directors and existing shareholders
of Chardan 2008 (the “Private Placement Warrants”).  The Private
Placement Warrants were issued on terms equivalent to those of the warrants sold
to the public shareholders, except that (i) the Private Placement Warrants are
not callable; and (ii) the Private Placement Warrants contain a “cashless” or
“net” exercise provision, which allows the holders of the Private Placement
Warrants to exercise them by receiving a reduced amount of our shares compared
to a “cash” exercise of the warrants, in exchange for not having to pay the
$5.00 exercise price.  See the section of this Report titled, “Item
10(C). Material Contracts – Contracts Related to the Transaction – Warrant Sale
Agreement” for a description of certain amendments to the terms of the Private
Placement Warrants, in particular in connection with the cashless exercise
terms.




57


The
Private Placement Warrants were issued to the individuals set forth below, as
follows:


Name
            
            No.
      of WarrantsRichard
      Propper
            
            
            400,000Li
      Zhang
            
            
            400,000Kerry
      Propper
            
            
            377,968Jiangnan
      Huang
            
            
            220,000Steve
      Urbach
            
            
            170,590Jonas
      Grossman
            
            
            101,442Daniel
      Beharry
            
            
            70,000Michael
      Walas
            
            
            69,000Mark
      Brewer
            
            
            69,000Paula
      Beharry
            
            
            30,000Li
      Gong
            
            
            30,000Dr.
      JianJun Shi
            
            
            30,000Xiaosong
      Zhong
            
            
            30,000Ryan
      Hallman
            
            
            2,000





Registration
Rights Agreement





The holders of a majority of all of:
(i) the holders of the 2,291,666 ordinary shares and insider warrants
included in the Insider Units; and (ii) the holders of the 2,000,000
ordinary shares issuable upon exercise of the 2,000,000 Private Placement
Warrants will be entitled to make up to two demands that we register these
securities, pursuant to a registration rights agreement, dated August 11, 2008
(the “Registration Rights Agreement”).  Such holders may elect to
exercise these registration rights at any time commencing on or after the date
on which these securities are released from escrow, which will occur on January
15, 2011.  In addition, these holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to
the date on which these securities are released from escrow.  We will
bear the expenses incurred in connection with the filing of any such
registration statements.  Pursuant to an amendment, dated January 15,
2010, to the Registration Rights Agreement, the registration rights granted
under the Registration Rights Agreement were extended to include the Additional
Shares issued pursuant to the Warrant Sale Agreement.





Contracts
Related to the Transaction





The
Stern Deferral Note and Post-Closing Cash





DAL
issued a promissory note to DJS at the closing of the Transaction (the “Stern
Deferral Note”).  The Stern Deferral Note was issued in the amount of
$52,469,000, with a maturity date of January 15, 2013.  The Stern
Deferral Note has an interest rate of 3.0% per annum, payable monthly, with a
default rate equal to the lesser of (a) the current interest rate plus 10% or
(b) the highest lawful rate.  All assets of DAL and its subsidiaries
have been pledged to secure repayment of the Stern Deferral Note, the security
interest to be junior to obligations owed by DAL to its commercial
lender.





DAL will
make monthly payments under the Stern Deferral Note in the amount of 90% of its
free positive cash flow (equal to EBITDA, plus accrued taxes, less debt service,
cash taxes, capital expenditures and net changes in working capital)
(“Designated Free Cash Flow”).  In addition, all proceeds from the
exercise by DJSP of the warrants for 11,441,666 DAL common units received by
DJSP from DAL in connection with the Transaction (the “DAL Warrants”) will be
used to repay the Stern Deferral Note, with any proceeds not required for that
purpose to be used to pay $35,000,000 in post-closing cash (defined below) plus
a late fee, if applicable.  The Stern Deferral Note contains customary
events of default including, without limitation, breaches of covenants or
representations, material adverse change or any merger or other change in
control transaction; and customary affirmative and negative covenants including,
without limitation, liens, restricted payments, sales of assets and business
combination transactions.





58





As part
of the Transaction, the Stern Contributors are entitled to be paid another
$35,000,000 in cash after the closing (the “Post-Closing Cash”).  The
Post-Closing Cash must be paid in full no later than the fifth anniversary of
the closing of the Transaction.  The principal source of the funds to
pay the Post-Closing Cash will be approximately 90% of the proceeds from the
required exercise of the DAL Warrants not used to satisfy the Stern Deferral
Note with the balance of such proceeds being used to meet obligations owed to
FlatWorld and Chardan Capital, LLC.  To the extent that there are not
sufficient proceeds from that source to pay in full the Post-Closing Cash within
180 days of the closing of the Transaction, a late fee of 0.25% per month will
be added to the outstanding balance of Post-Closing Cash due until paid in
full.  In that event, we will also utilize approximately 90% of our
Designated Free Cash Flow, together with any remaining proceeds from the
exercise of the warrants issued in the IPO (the “Chardan Warrants”), to pay the
Post-Closing Cash, until it is paid in full.  Payments from our
Designated Free Cash Flow will be made quarterly (or sooner at our option) until
such payments, together with the proceeds from exercise of the DAL Warrants that
are used to pay the Post-Closing Cash, result in the Post-Closing Cash, plus any
late fees, being paid in full.  To the extent that the Post-Closing
Cash has not been paid in full by the eighteen month “anniversary” of the
closing of the Transaction, 0.67% per month will be added to the outstanding
balance of the Post-Closing Cash due until paid in full.





The payment of the Stern Deferral Note
and the Post-Closing Cash is guaranteed by each of DJS LLC, PTA LLC and DSI LLC
and secured by all of the assets of DAL, DJS LLC, PTA LLC and DSI
LLC.





Senior
Financing Notes





Concurrent with the closing of the
Transaction, DJSP issued notes to lenders (both individuals and entities) with
the aggregate principal amount of $15,188,735.97 relating to a senior financing
facility entered into in connection with the Transaction (the “Senior Financing
Notes”).  The terms of the Senior Financing Notes are set forth in a
Senior Loan, Security and Pledge Agreement.  The Senior Financing
Notes have interest rates of 15% per annum and are payable by January 15,
2011.  In March 2010, we paid in full all but three of the Senior
Financing Notes leaving an aggregate outstanding principal balance of $3
million.  All of the currently outstanding Senior Financing Notes were
issued to lenders who are affiliates of our former CEO, Kerry S.
Propper.





Line
of Credit





Effective
March 18, 2010, we obtained a new $15 million revolving line of credit from Bank
of America that is secured by substantially all of our
assets.  Approximately, $12.6 million of the line was immediately
drawn upon.  The new line of credit will be used for the same purposes
as the one paid in full at the closing of the Transaction as well as for other
working capital needs.





The terms
of the line of credit are set forth in a Loan Agreement.  The amount
available to us under the line of credit is the lesser of $15 million or the
amount determined using a borrowing base formula based on a percentage of
eligible accounts receivable and eligible unbilled revenue.  The line
of credit has an initial term of one year with interest only payments due
monthly until the expiration of the initial term, at which time all outstanding
principal and interest balances are due.  The new line of credit has
an interest rate of 175 basis points over the British Bankers Association LIBOR
Daily Floating Rate.  DAL, as the borrower under the new line of
credit, granted Bank of America a lien on all of its assets, and its three
operating subsidiaries have executed security agreements and guarantees to
secure DAL’s obligations under the loan.  As additional security for
the loan, DJS LLC has collaterally assigned to Bank of America a security
agreement that it entered into with DJS, pursuant to which DJS granted to DJS
LLC a security interest in its accounts receivable and work in process to secure
DJS’s obligations under the Services Agreement.





Chardan
Capital Markets Note





Chardan
Capital Markets, LLC, an affiliate of our former CEO, Kerry S. Propper, acted as
placement agent for the private placement of 10,663,886 of our ordinary shares
that was consummated in conjunction with the Transaction.  Chardan
Capital Markets, LLC received a placement fee of $500,000 in connection with the
financing, of which $250,000 was deferred and will be paid pursuant to a
promissory note made by DAL in favor of Chardan Capital Markets, LLC (the
“Chardan Capital Markets Note”).  The Chardan Capital Markets Note
provides for a 5% interest rate and is due in full on the earlier of the one
year anniversary of the payment in full of the Stern Deferral Note, or
twenty-four (24) months after the closing of the Transaction.  Chardan
Capital Markets, LLC will be entitled to receive amortizing payments equal to
the remaining unpaid principal balance divided by 12, beginning on the first day
of each month following the date that the Stern Deferral Note is paid in
full.





59




Chardan Capital
Fees





Chardan
Capital, LLC, an affiliate of our former chairman, Zhang Li, received a
$2,000,000 fee when the Transaction closed.  Beginning in January
2011, Chardan Capital, LLC will also receive $40,000 per month under a
management consulting agreement with us.  Mr. Zhang will derive a
direct benefit from the payment of those fees.





FlatWorld
Warrant Proceeds and FlatWorld Additional Warrant Proceeds





In
connection with the Transaction, we agreed to pay to FlatWorld $2,000,000 (the
“FlatWorld Warrant Proceeds”), and another $1,000,000 upon the earlier of the
first anniversary after the Stern Deferral Note has been paid in full or 24
months after the closing of the Transaction (the “FlatWorld Additional Warrant
Proceeds”).





The
principal source of the funds to pay the FlatWorld Warrant Proceeds will be
approximately 5% of the proceeds from the required exercise of the DAL Warrants
not used to satisfy the Stern Deferral Note.  If the FlatWorld Warrant
Proceeds are not paid in full by the six month anniversary of the closing of the
Transaction, FlatWorld is also entitled to receive approximately 5% of our
Designated Free Cash Flow until the FlatWorld Warrant Proceeds are paid in
full.   If the Post-Closing Cash is paid in full prior to the
time that the FlatWorld Warrant Proceeds are paid in full, then FlatWorld will
be entitled to receive 50% of the remaining proceeds from the exercise of the
DAL Warrants not used to satisfy the Stern Deferral Note and 50% of the
Designated Free Cash Flow until the FlatWorld Warrant Proceeds are paid in
full.





Commencing
as of closing of the Transaction, a finance charge of 5% per annum on the unpaid
principal balance of the FlatWorld Additional Warrant Proceeds will be added to
the additional outstanding unpaid balance until such amount is paid in
full.  If any amount to be paid to FlatWorld for the FlatWorld
Additional Warrant Proceeds is paid more than three days late, the finance
charge will increase to 8% per annum.  The finance charge is payable
quarterly, in arrears, commencing on April 1, 2010.  If the FlatWorld
Additional Warrant Proceeds are not paid in full by the time that the Stern
Deferral Note is paid in full, then FlatWorld will be entitled to receive the
remaining amount of FlatWorld Additional Warrant Proceeds from (i) the remaining
proceeds from the exercise of the DAL Warrants not used to satisfy the Stern
Deferral Note and (ii) our cash flow in monthly installments equal to the
remaining unpaid amount of the FlatWorld Additional Warrant Proceeds, at the
time the Stern Deferral Note is paid in full, divided by twelve.





Voting
Agreement





In
connection with the closing of the Transaction, we and the Stern Contributors,
FlatWorld, Valenty, Nagina and the Principals (defined below) entered into the
Voting Agreement dated as of January 15, 2010.  Pursuant to its terms,
the parties to the Voting Agreement other than us agree to vote all of the
ordinary shares held by them in favor of four nominees to our Board of Directors
designated by Stern (each a “Stern Designee”), two nominees designated by the
Principals (each a “Principal Designee”) and Juan V. Ruiz (the “DAL
Nominee”).  The Voting Agreement also allows the holders of the DAL
Common Units and the DAL Series A Preferred Units (other than us), to designate,
after January 15, 2011, by majority vote, a number of nominees to our Board of
Directors based on their ownership percentage of our ordinary shares, assuming
their DAL Common Units and DAL Series A Preferred Units were exchanged for
ordinary shares.  The Principals are able to nominate one independent
Board nominee as long as they still hold ordinary shares representing 5% of our
outstanding shares.  The term of the Voting Agreement is five years
from the closing of the Transaction, or shorter in certain other events,
including: a liquidation (as defined by our Second Amended and Restated
Memorandum and Articles of Association); the occurrence of a merger or similar
transaction in which we are not the surviving entity; after the Post-Closing
Cash has been paid in full, termination of Stern’s employment by us and all of
its affiliates; or the termination of the Services Agreement between DJS and DJS
LLC or any agreement succeeding it.





The
following persons comprise the “Principals”:  Kerry Propper, Steve
Urbach, Jonas Grossman, George Kaufman, Todd Gold, Jiangnan Huang, Royale
Holdings, Dr. Richard D. Propper, Paula Beharry, Daniel Beharry, Li Zhang, Li
Ping He, Li Gong, Dr. Jianjun Shi, Xiaosong Zhong, Carman Ramirez, Edward
Carter, and Ida Carter.  The other parties to the Voting Agreement,
FlatWorld, Valenty and Nagina, do not own ordinary shares or securities that are
exercisable or convertible into ordinary shares within 60 days.  They
own DAL Common Units that are exchangeable for ordinary shares beginning January
15, 2011.





60




Warrant
Sale Agreement





In order
to make available to us a greater amount of cash to satisfy DAL’s obligations
pursuant to the Stern Deferral Note and to pay the Post-Closing Cash, holders of
1,910,000 of the 2,000,000 outstanding Private Placement Warrants agreed to
modify the terms of those warrants pursuant to a Warrant Sale Agreement (the
“Warrant Sale Agreement”).  The Private Placement Warrants had a
“cashless exercise” provision, which allowed the holders to exercise the
warrants without paying cash by exchanging them for a reduced number of our
ordinary shares.  Pursuant to the Warrant Sale Agreement, those
holders of the Private Placement Warrants agreed either to exercise their
warrants for cash or to sell the warrants to a third party on the condition that
the third party will exercise them for cash.





The
obligation to sell or exercise the Private Placement Warrants under the Warrant
Sale Agreement arises on the later of six months following the closing of the
Transaction or upon the effectiveness of the resale registration statement
covering the Private Placement Warrants and the shares underlying
them.  In addition, the obligation to sell or exercise the warrants
exists only if the closing price of our ordinary shares is $9.00 or higher on a
trading day.  There is also a daily volume commitment that is equal to
the greater of 50,000 warrants or 10% of the average daily trading volume of our
ordinary shares on any trading day on which the $9.00 threshold is
satisfied.





In
consideration of the agreement of such holders of the Private Placement Warrants
to forgo their cashless exercise rights, we will issue to them up to, in the
aggregate, 233,010 additional ordinary shares (the “Additional
Shares”).





Registration
Rights Agreement





Under the
terms of the various agreements governing the Transaction, the Stern
Contributors, Nagina and Valenty have the right to convert their DAL Common
Units (including those issued upon the conversion of the DAL Series B Preferred
Units) and any DAL Series A Preferred Units into corresponding securities of the
Company at any time after the first anniversary of the closing of the
Transaction.  Under the Registration Rights Agreement dated January
15, 2010 (the “Transaction Registration Rights Agreement”), we have agreed to
register the ordinary shares of the Company that are issuable upon the
conversion of the DAL Common Units and DAL Series A Preferred Units on the
earlier of the first anniversary date of the Transaction Registration Rights
Agreement or the date the DAL Common Units and DAL Series A Preferred Units are
first exchangeable for our ordinary shares.  In addition, the holders
of those securities may demand that we file up to two registration statements
registering their ordinary shares for resale.  The Transaction
Registration Rights Agreement also contains other customary provisions for such
types of agreements, including piggy-back registration rights, underwriter’s
cutback provisions and short-form registration of ordinary shares for
resale.





Tax
Indemnification Agreements





The structure of the Transaction is
designed to provide FlatWorld and the Stern Contributors with certain tax
benefits.  As a result of the adopted structure, we may, under certain
circumstances, incur adverse tax consequences.  In consideration for
our willingness to utilize the structure used in the Transaction, the Stern
Contributors, FlatWorld, Gupta and Valenty have agreed to indemnify and protect
us against certain adverse tax consequences, should they occur, under three
separate tax indemnification agreements (collectively, the “Tax Indemnification
Agreements”).  The Tax Indemnification Agreements pertain only to
specified circumstances and are subject to a limit of $8,500,000 in the case of
the Stern Contributors and $1,750,000 in the case of FlatWorld, Gupta and
Valenty.





Limited
Liability Company Agreement





Concurrently with the closing of the
Transaction, each of the Company, DAL, DJS, FlatWorld and Fortuna (collectively,
the “Members”) executed the Amended and Restated Limited Liability Company
Agreement of DAL Group, LLC (the “LLC Agreement”).





The business and affairs of DAL are
governed by a board of managers that consists of five
managers.  Stern, Raj Gupta, Mark Harmon, Matthew Kayton and Jerry
Hutter comprise the initial board of managers.  Managers may only be
removed for certain reasons enumerated in the LLC Agreement and will hold office
until removal or until their resignation or death.  Vacancies will be
filled by such manager’s alternative manager as set forth in the LLC Agreement.
For so long as the Stern Contributors beneficially own DAL membership interests
comprising of at least five percent of the outstanding DAL membership interests,
the Stern Contributors shall have the right to appoint one manager to the board
of managers.  For so long as FlatWorld beneficially owns DAL
membership interests comprising of at least five percent of the outstanding DAL
membership interests, FlatWorld shall have the right to appoint one manager to
the board of managers.





61





During
any period when the Stern Contributors, FlatWorld and their transferees
beneficially own DAL membership interests comprising at least ten percent of the
DAL outstanding membership interest, there are certain actions enumerated in the
LLC Agreement that the board of managers cannot take without the prior written
consent of the Stern Contributors and FlatWorld, including, but not limited to,
taking any actions in contravention of the LLC Agreement or entering into,
amending or waiving any contract with a member of DAL or its affiliate with any
party that its not at arm’s length.





During any period when we beneficially
own any DAL membership interests comprising more than fifty percent of the
outstanding DAL membership interests, there are certain actions enumerated in
the LLC Agreement that the board of managers cannot take without DJSP’s prior
written consent, including, but not limited to, taking any actions in
contravention of the LLC Agreement or entering into, amending or waiving any
contract with a member of DAL or its affiliate with any party that its not at
arm’s length.





At any time when a Stern Contributor
beneficially owns any membership interest in DAL, the board of managers on
behalf of DAL shall not, directly or indirectly, sell, transfer or dispose of
any of the membership interests of DJS LLC, PTA LLC or DSI LLC, without the
consent of the Stern Contributors.





Commencing on the date of the LLC
Agreement, DJSP is prohibited from taking certain actions specified in the LLC
Agreement, which include, but are not limited to, issuing any shares or other
convertible securities, unless such securities are DJSP securities convertible
into or exchangeable for DJSP ordinary shares, without the prior consent of
members of the board of managers not nominated by the Stern Contributors or the
Members, other than DJSP, holding more than 50% of the DAL membership
interests.  Additionally, there are certain actions set forth in the
LLC Agreement that DJSP must take, such as calling the DJSP public warrants at
the earliest permitted time.  Finally, DJSP has agreed to, among other
things, devote all of its time and business efforts to promoting the business
and the interests of DAL.





Employment
Related Contracts





For summaries of the employment
agreements with certain of our executive officers see the section of this Report
titled, “Item 6. Directors, Senior Management and Employees – Employment
Agreements,” which is incorporated herein by reference.





Contracts
Related to Company Operations





401(k)
Plan





For
administrative convenience, each of DJS LLC, PTA LLC and DSI LLC will
participate in the 401(k) plan currently sponsored by DJS. Under the Law Offices
of David J. Stern, P.A., 401(k) Plan Cost Sharing Agreement, the administrative
costs for such 401(k) plan will be shared by DJS, DJS LLC, PTA LLC and DSI LLC
in proportion to the number of employees for the applicable employer. The fees
for administration of the 401(k) plan will be billed to DJS and DJS will seek
reimbursement from each of the three LLC’s.





Consulting
Agreements





Miriam
Mendieta and certain other employees of DJS have begun to perform direct
services for us. These DJS employees will enter into consulting agreements with
DJS LLC or PTA LLC pursuant to which DJS LLC and PTA LLC will agree to reimburse
DJS for an agreed upon percentage of their annual compensation, based upon the
percentage of their working time spent in performing direct services for
us.





Services
Agreement





DJS has
entered into a 25-year services agreement (the “Services Agreement”) with DJS
LLC, pursuant to which, among other things, DJS generally will be obligated to
utilize DJS LLC as the provider for substantially all non-legal services
required by DJS, to the extent that DJS LLC provides those services or comes to
provide the services in exchange for fees agreed upon by the parties to the
Services Agreement. Under the terms of the Services Agreement, DJS LLC will be
obligated to make payments to DJS for the first four years of the term of the
Services Agreement, in the event that DJS does not earn at least $2 million of
EBITDA during each year, subject to certain adjustments and conditions in
exchange for supervisory services performed by DJS personnel for DJS LLC. The
amount of the payments made by DJS to DJS LLC and by DJS LLC to DJS under the
Services Agreement, if any, are not yet known and are expected to
vary.  DJS granted to DJS LLC a security interest in its accounts
receivable and work in process to secure DJS’s obligations under the Services
Agreement.




62





Transferred
Employees Payroll and Benefits Transition and Reimbursement
Agreement





On the date of the closing of the
Transaction, we entered into an agreement with the Stern Contributors pursuant
to which the Stern Contributors would provide to us certain payroll services and
would permit our employees to continue participating in certain of their
employee benefit plans until we could provide such services and
plans.  In exchange, we agreed to reimburse the Stern Contributors for
expenses incurred by them in connection with such services and plans that relate
to our employees.





Facilities
Sharing Agreement





Following the closing of the
Transaction, DJS LLC became the lessee of the premises used for our operations
located at 900 S. Pine Island Rd., Plantation, Florida.  DJS and DJS
LLC entered into an agreement pursuant to which DJS will be entitled to occupy a
portion of those premises for conducting its operations, in exchange for which
DJS will pay rent to DJS LLC.  In addition, the facilities sharing
agreement establishes the terms on which DJS will be entitled to utilize certain
office equipment located at the premises and on which DJS LLC will furnish
certain back-office services to DJS.





FlatWorld and Chardan Capital
Markets, LLC Consulting Agreement





FlatWorld
entered into an agreement with DAL, pursuant to which FlatWorld will provide
ongoing consulting services to DAL for three years, commencing on the first
anniversary after the closing of the Transaction (the “Management Services
Term”).  FlatWorld will be paid a monthly amount of $111,111.11 during
the Management Services Term. In addition, DAL will pay FlatWorld a 2%
acquisition fee based on the total enterprise value of any acquisition made by
DAL post-closing for which FlatWorld has acted as a financial
intermediary.





D.Exchange
Controls





Under
British Virgin Islands law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls or restrictions that
affect the remittance of dividends, interest or other payments to nonresident
holders of our shares.





E. Taxation





The following is a general summary
of certain material BVI andU.S. federal income tax
considerations for U.S. holders of our securities.  The discussion is not
intended to be,nor
should it be construed as, legal or tax advice to any particularcurrent or prospective shareholder.
 The discussion is based on laws and relevantinterpretations thereof in effect as
of the date hereof, all of which are  subject to change or different
interpretations, possibly with retroactive effect.





BVI
Taxation





The BVI does not impose a withholding
tax on dividends paid by us to holders of our ordinary or preferred shares, nor
does the BVI levy any capital gains or income taxes on us.  Further, a
holder of our ordinary or preferred shares who is not a resident of the BVI is
exempt from the BVI income tax on dividends paid with respect to the ordinary or
preferred shares.  Holders of ordinary or preferred shares are not subject
to the BVI income tax on gains realized on the sale or disposition of the
ordinary or preferred shares.





Our ordinary and preferred shares are
not subject to transfer taxes, stamp duties or similar charges in the BVI. 
However, as a business company, we are required to pay the BVI government an
annual license fee based on the number of shares we are authorized to
issue.





There is no income tax treaty or
convention currently in effect between the United States and the BVI; however, a
Tax Information Exchange Agreement (“TIEA”) is in place.  The TIEA
allows the BVI and US governments to enforce their own tax laws by exchanging,
on request, information relating to the tax matters covered by the
TIEA.  The parties to the TIEA have agreed to provide assistance
through the exchange of information relating to the administration and
enforcement of the domestic laws of the parties concerning the taxes and the tax
matters covered by the TIEA, including information that may be relevant to the
determination, assessment, verification, enforcement, or collection of tax
claims with respect to persons subject to such taxes, or to the investigation or
prosecution of criminal tax evasion in relation to such persons.





63





United
States Federal Income Taxation





General





The following is a summary of the
material U.S. federal income tax consequences to holders of our ordinary shares
and warrants, sometimes referred to collectively as our securities, and of
owning and disposing of our securities.  Because the components of a
unit are separable at the option of the holder, the holder of a unit should be
treated, for U.S. federal income tax purposes, as the owner of the underlying
ordinary share and warrant components of the unit, as the case may
be.  As a result, the discussion below of the U.S. federal income tax
consequences with respect to actual holders of ordinary shares and warrants
should also apply to the holder of a unit (as the deemed owner of the underlying
ordinary share and warrant components of the unit).  The discussion
below of the U.S. federal income tax consequences to “U.S. Holders” will apply
to a beneficial owner of our securities that is for U.S. federal income tax
purposes:




·
            an
      individual citizen or resident of the United
  States;




·
            a
      corporation (or other entity treated as a corporation) that is created or
      organized (or treated as created or organized) in or under the laws of the
      United States, any state thereof or the District of
    Columbia;




·
            an
      estate whose income is includible in gross income for U.S. federal income
      tax purposes regardless of its source;
or




·
            a
      trust if (i) a U.S. court can exercise primary supervision over the
      trust’s administration and one or more U.S. persons are authorized to
      control all substantial decisions of the trust, or (ii) it has a valid
      election in effect under applicable U.S. Treasury regulations to be
      treated as a U.S. person.





If a beneficial owner of our securities
is not described as a U.S. Holder and is not an entity treated as a partnership
or other pass-through entity for U.S. federal income tax purposes, such owner
will be considered a “Non-U.S. Holder” for purposes of this
discussion.





This summary is based on the Internal
Revenue Code of 1986, as amended, or the “Code,” its legislative history,
Treasury regulations promulgated thereunder, published rulings and court
decisions, all as currently in effect. These authorities are subject to change
or differing interpretations, possibly on a retroactive basis.





This discussion does not address all
aspects of U.S. federal income taxation that may be relevant to us or to any
particular holder based on such holder’s individual circumstances.  In
particular, this discussion considers only holders that own our securities as
capital assets within the meaning of Section 1221 of the Code, and does not
address the potential application of the alternative minimum tax or the U.S.
federal income tax consequences to holders that are subject to special rules,
including:




·
            financial
      institutions or financial services
entities;




·
            broker-dealers;




·
            taxpayers
      who have elected mark-to-market
accounting;




·
            tax-exempt
      entities;




·
            governments
      or agencies or instrumentalities
thereof;




·
            insurance
      companies;




·
            regulated
      investment companies;




64




·
            real
      estate investment trusts;




·
            certain
      expatriates or former long-term residents of the United
      States;




·
            persons
      that actually or constructively own 5% or more of our voting
      shares;




·
            persons
      that acquired our securities pursuant to an exercise of employee stock
      options, in connection with employee stock incentive plans or otherwise as
      compensation;




·
            persons
      that hold our securities as part of a straddle, constructive sale,
      hedging, conversion or other integrated transaction;
  or




·
            persons
      whose functional currency is not the U.S.
  dollar.





This
discussion does not address any aspect of U.S. federal non-income tax laws, such
as gift or estate tax laws, or state, local or non-U.S. tax
laws.  This discussion assumes that any distributions made (or deemed
made) by us on our ordinary shares and any consideration received by a holder in
consideration for the sale or other disposition of our securities will be in
United States dollars.  Additionally, the discussion does not consider
the tax treatment of partnerships or other pass-through entities or persons who
hold our securities through such entities.  If a partnership (or other
entity classified as a partnership for U.S. federal income tax purposes) is the
beneficial owner of our securities, the U.S. federal income tax treatment of a
partner in the partnership will generally depend on the status of the partner
and the activities of the partnership.  In addition, this discussion
does not address the U.S. federal income tax treatment to holders of our
securities that may bring a successful claim for rescission or damages in
respect of the purchase of their securities.





We have
not sought, and will not seek, a ruling from the Internal Revenue Service or IRS
or an opinion of counsel as to any U.S. federal income tax consequence described
herein.  The IRS may disagree with the description herein, and its
determination may be upheld by a court.  Moreover, there can be no
assurance that future legislation, regulations, administrative rulings or court
decisions will not adversely affect the accuracy of the statements in this
discussion.





BECAUSE
OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO US OR TO
ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH HIS, HER OR ITS
TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS.





Taxation
of Distributions Paid on Ordinary Shares




Subject
to the passive foreign investment company, or “PFIC,” rules discussed below, a
U.S. Holder will be required to include in gross income as ordinary income the
amount of any dividend paid on our ordinary shares.  A distribution on
such ordinary shares will be treated as a dividend for U.S. federal income tax
purposes to the extent the distribution is paid out of current or accumulated
earnings and profits (as determined for U.S. federal income tax
purposes).  Such dividend will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations.  Distributions in
excess of such earnings and profits will be applied against and reduce the U.S.
Holder’s basis in its ordinary shares and, to the extent in excess of such
basis, will be treated as gain from the sale or exchange of such ordinary
shares.





With
respect to non-corporate U.S. Holders for taxable years beginning before January
1, 2011, dividends may be taxed at the lower applicable long-term capital gains
rate (see “— Taxation on the Disposition of Ordinary Shares and Warrants” below)
provided that (1) our ordinary shares are readily tradable on an established
securities market in the United States, (2) we are not a PFIC, as discussed
below, for either the taxable year in which the dividend was paid or the
preceding taxable year, and (3) certain holding period requirements are
met.  It is not entirely clear, however, whether a U.S. Holder’s
holding period for our ordinary shares would be suspended for purposes of clause
(3) above for the period that such holder had a right to have such ordinary
shares redeemed for cash by us.  In addition, under published IRS
authority, shares are considered for purposes of clause (1) above to be readily
tradable on an established securities market in the United States only if they
are listed on certain exchanges, which presently include NASDAQ. Although our
ordinary shares are currently listed and traded on NASDAQ, U.S. Holders
nevertheless should consult their own tax advisors regarding the availability of
the lower rate for any dividends paid with respect to our ordinary
shares.




65





Taxation
on the Disposition of Ordinary Shares and Warrants





Upon a
sale or other taxable disposition of our ordinary shares or warrants (which, in
general, should include a redemption of ordinary shares pursuant to the exercise
by a U.S. Holder of its redemption rights or the receipt of cash by a U.S.
Holder pursuant to the exercise of appraisal rights), and subject to the PFIC
rules discussed below, a U.S. Holder should recognize capital gain or loss in an
amount equal to the difference between the amount realized and the U.S. Holder’s
adjusted tax basis in the ordinary shares or warrants. See “— Exercise or Lapse
of a Warrant” below for a discussion regarding a U.S. Holder’s basis in the
ordinary shares acquired pursuant to the exercise of a warrant.





Capital
gains recognized by U.S. Holders generally are subject to U.S. federal income
tax at the same rate as ordinary income, except that long-term capital gains
recognized by non-corporate U.S. Holders are generally subject to U.S. federal
income tax at a maximum rate of 15% for taxable years beginning before January
1, 2011 (and 20% thereafter). Capital gain or loss will constitute long-term
capital gain or loss if the U.S. Holder’s holding period for the ordinary shares
or warrants exceeds one year. The deductibility of capital losses is subject to
various limitations.





Exercise
or Lapse of a Warrant





Subject
to the discussion of the PFIC rules below, a U.S. Holder generally will not
recognize gain or loss upon the exercise for cash of a warrant to acquire our
ordinary shares.  Ordinary shares acquired pursuant to the exercise of
a warrant for cash generally will have a tax basis equal to the U.S. Holder’s
tax basis in the warrant, increased by the amount paid to exercise the
warrant.  The holding period of such ordinary shares generally would
begin on the day after the date of exercise of the warrant.  If the
terms of a warrant provide for an adjustment to the number of shares of ordinary
shares for which the warrant may be exercised or to the exercise price of the
warrant, such adjustment may, under certain circumstances, result in a
constructive distribution that could be taxable to the U.S. Holder of the
warrants.  Conversely, the absence of an appropriate adjustment
similarly may result in a constructive distribution that could be taxable to the
U.S. Holders of the ordinary shares. See “— Taxation of Distributions Paid on
Ordinary Shares,” above.  If a warrant is allowed to lapse
unexercised, a U.S. Holder generally will recognize a capital loss equal to such
holder’s tax basis in the warrant.





Passive
Foreign Investment Company Rules





A foreign
corporation will be a PFIC if at least 75% of its gross income in a taxable year
of the foreign corporation, including its pro rata share of the gross income of
any corporation in which it is considered to own at least 25% of the shares by
value, is passive income.  Alternatively, a foreign corporation will
be a PFIC if at least 50% of its assets in a taxable year of the foreign
corporation, ordinarily determined based on fair market value and averaged
quarterly over the year, including its pro rata share of the assets of any
corporation in which it is considered to own at least 25% of the shares by
value, are held for the production of, or produce, passive
income.  Passive income generally includes dividends, interest, rents
and royalties (other than certain rents or royalties derived from the active
conduct of a trade or business) and gains from the disposition of passive
assets.





For
purposes of applying the PFIC rules to a foreign corporation holding an interest
in an entity classified as a partnership for U.S. tax purposes, the IRS has not
issued guidance on the proper treatment of income earned through a partnership,
gain on the sale of partnership interests, and the characterization of interest
in a partnership. In the absence of guidance, it would appear that the treatment
of such items should be determined in a manner based upon the Subpart F rules,
which generally provide that income earned through a partnership should be
treated as if such income was received by the foreign corporation
directly.





Based on
the expected composition of our assets and income, we do not anticipate that we
will be treated as a PFIC following the Transaction.  Our actual PFIC
status for our current taxable year or any subsequent taxable year, however,
will not be determinable until after the end of such taxable
year.  Accordingly, there can be no assurance with respect to our
status of as a PFIC for our current taxable year or any future taxable
year.





If we are
determined to be a PFIC and a U.S. Holder did not make either a timely qualified
electing fund, or QEF, election for our first taxable year as a PFIC in which
the U.S. Holder held (or was deemed to hold) ordinary shares, or a
mark-to-market election, as described below, such holder generally will be
subject to special rules with respect to:




66




·
            any
      gain recognized by the U.S. Holder on the sale or other disposition of its
      ordinary shares or warrants; and




·
            any
      “excess distribution” made to the U.S. Holder (generally, any
      distributions to such U.S. Holder during a taxable year of the U.S. Holder
      that are greater than 125% of the average annual distributions received by
      such U.S. Holder in respect of our ordinary shares during the three
      preceding taxable years of such U.S. Holder or, if shorter, such U.S.
      Holder’s holding period for the ordinary
  shares).





Under
these rules:




·
            the
      U.S. Holder’s gain or excess distribution will be allocated ratably over
      the U.S. Holder’s holding period for the ordinary shares or
      warrants;




·
            the
      amount allocated to the U.S. Holder’s taxable year in which the U.S.
      Holder recognized the gain or received the excess distribution or to the
      period in the U.S. Holder’s holding period before the first day of our
      first taxable year in which we are a PFIC will be taxed as ordinary
      income;




·
            the
      amount allocated to other taxable years of the U.S. Holder and included in
      its holding period will be taxed at the highest tax rate in effect for
      that year and applicable to the U.S. Holder;
and




·
            the
      interest charge generally applicable to underpayments of tax will be
      imposed in respect of the tax attributable to each such other taxable year
      of the U.S. Holder.





In
general, a U.S. Holder may avoid the PFIC tax consequences described above in
respect to our ordinary shares of by making a timely QEF election to include in
income its pro rata share of our net capital gains (as long-term capital gain)
and other earnings and profits (as ordinary income), on a current basis, in each
case whether or not distributed, in the taxable year of the U.S. Holder in which
or with which our taxable year ends.  A U.S. Holder may make a
separate election to defer the payment of taxes on undistributed income
inclusions under the QEF rules, but if deferred, any such taxes will be subject
to an interest charge.





A U.S.
Holder may not make a QEF election with respect to its warrants.  As a
result, if a U.S. Holder sells or otherwise disposes of a warrant to purchase
our ordinary shares (other than upon exercise of a warrant), any gain recognized
generally will be subject to the special tax and interest charge rules treating
the gain as an excess distribution, as described above, if we were a PFIC at any
time during the period the U.S. Holder held the warrants.  If a U.S.
Holder that exercises such warrants properly makes a QEF election with respect
to newly acquired ordinary shares in us (or has previously made a QEF election
with respect to its ordinary shares in us), the QEF election will apply to the
newly acquired ordinary shares, but the adverse tax consequences relating to
PFIC shares, adjusted to take into account the current income inclusions
resulting from the QEF election, will continue to apply with respect to such
newly acquired ordinary shares (which generally will be deemed to have a holding
period for the purposes of the PFIC rules that includes the period the U.S.
Holder held the warrants), unless the U.S. Holder makes a purging
election.  The purging election creates a deemed sale of such shares
at their fair market value. The gain recognized by the purging election
generally will be subject to the special tax and interest charge rules treating
the gain as an excess distribution, as described above. As a result of the
purging election, the U.S. Holder will have a new basis and holding period in
the ordinary shares acquired upon the exercise of the warrants for purposes of
the PFIC rules.





The QEF
election is made on a shareholder-by-shareholder basis and, once made, can be
revoked only with the consent of the IRS.  A U.S. Holder generally
makes a QEF election by attaching a completed IRS Form 8621 (Return by a
Shareholder of a Passive Foreign Investment Company or QEF), including the
information provided in a PFIC annual information statement, to a timely filed
U.S. federal income tax return for the tax year to which the election
relates.  Retroactive QEF elections generally may be made only by
filing a protective statement with such return and if certain other conditions
are met or with the consent of the IRS.





In order
to comply with the requirements of a QEF election, a U.S. Holder must receive
certain information from us. Upon request from a U.S. Holder, we will endeavor
to provide to the U.S. Holder, no later than 90 days after the request, such
information as the IRS may require, including a PFIC annual information
statement, in order to enable the U.S. Holder to make and maintain a QEF
election.  However, there is no assurance that we will have timely
knowledge of its status as a PFIC in the future or of the required information
to be provided.





67





If a U.S.
Holder has elected the application of the QEF rules to our ordinary shares, and
the special tax and interest charge rules do not apply to such shares (because
of a timely QEF election for our first taxable year as a PFIC in which the U.S.
Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint
pursuant to a purging election), any gain recognized on the appreciation of such
shares should be taxable as capital gain and no interest charge will be
imposed.  As discussed above, U.S. Holders of a QEF are currently
taxed on their pro rata shares of the QEF’s earnings and profits, whether or not
distributed. In such case, a subsequent distribution of such earnings and
profits that were previously included in income should not be taxable as a
dividend to those U.S. Holders who made a QEF election.  The tax basis
of a U.S. Holder’s shares in a QEF will be increased by amounts that are
included in income, and decreased by amounts distributed but not taxed as
dividends, under the above rules. Similar basis adjustments apply to property if
by reason of holding such property the U.S. Holder is treated under the
applicable attribution rules as owning shares in a QEF.





Although
a determination as to our PFIC status will be made annually, an initial
determination that we are a PFIC generally will apply for subsequent years to a
U.S. Holder who held our ordinary shares or warrants while we were a PFIC,
whether or not we met the test for PFIC status in those years.  A U.S.
Holder who makes the QEF election discussed above for our first taxable year as
a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinary
shares, however, will not be subject to the PFIC tax and interest charge rules
discussed above in respect to such shares. In addition, such U.S. Holder will
not be subject to the QEF inclusion regime with respect to such shares for any
taxable year of ours that ends within or with a taxable year of the U.S. Holder
and in which we are not a PFIC.  On the other hand, if the QEF
election is not effective for each of the taxable years of ours in which we are
a PFIC and during which the U.S. Holder holds (or is deemed to hold) of our
ordinary shares, the PFIC rules discussed above will continue to apply to such
shares unless the U.S. Holder makes a purging election and pays the tax and
interest charge with respect to the gain inherent in such shares attributable to
the pre-QEF election period.





Alternatively,
if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that
are treated as marketable stock (as described below), the U.S. Holder may make a
mark-to-market election with respect to such shares for such taxable year. If
the U.S. Holder makes a valid mark-to-market election for the first taxable year
of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) our
ordinary shares and for which we are determined to be a PFIC, such holder
generally will not be subject to the PFIC rules described above in respect to
its ordinary shares. Instead, in general, the U.S. Holder will include as
ordinary income each year the excess, if any, of the fair market value of its
ordinary shares at the end of its taxable year over the adjusted basis in its
ordinary shares.  The U.S. Holder also will be allowed to take an
ordinary loss in respect of the excess, if any, of the adjusted basis of its
ordinary shares over the fair market value of its ordinary shares at the end of
its taxable year (but only to the extent of the net amount of previously
included income as a result of the mark-to-market election). The U.S. Holder’s
basis in its ordinary shares will be adjusted to reflect any such income or loss
amounts, and any further gain recognized on a sale or other taxable disposition
of the ordinary shares will be treated as ordinary income. Currently, a
mark-to-market election may not be made with respect to warrants.





The
mark-to-market election is available only for stock that is regularly traded on
a national securities exchange that is registered with the SEC, including
NASDAQ, or on a foreign exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents a legitimate and sound
fair market value. Although our ordinary shares currently trade on NASDAQ, U.S.
Holders nevertheless should consult their own tax advisors regarding the
availability and tax consequences of a mark-to-market election in respect to our
ordinary shares under their particular circumstances.





If we are
a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC,
U.S. Holders generally would be deemed to own a portion of the shares of such
lower-tier PFIC, and generally could incur liability for the deferred tax and
interest charge described above we receive a distribution from, or disposes of
all or part of its interest in, the lower-tier PFIC.  Upon request, we
will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later
than 90 days after the request the information that may be required to make or
maintain a QEF election with respect to the lower-tier PFIC.  However,
there is no assurance that we will have timely knowledge of the status of any
such lower-tier PFIC or of the required information to be provided. U.S. Holders
are urged to consult their own tax advisors regarding the tax issues raised by
lower-tier PFICs.





If a U.S.
Holder owns (or is deemed to own) shares in a PFIC during any taxable year of
the U.S. Holder, such holder may have to file an IRS Form 8621 (whether or not a
QEF or mark-to-market election is made).





The rules
dealing with PFICs and with the QEF and mark-to-market elections are very
complex and are affected by various factors in addition to those described
above.  Accordingly, U.S. Holders of our ordinary shares and warrants
should consult their own tax advisors concerning the application of the PFIC
rules to such ordinary shares and warrants under their particular
circumstances.





68




Backup
Withholding and Information Reporting





In
general, information reporting for U.S. federal income tax purposes will apply
to distributions made on our ordinary shares within the United States to a
non-corporate U.S. Holder and to the proceeds from sales and other dispositions
of our ordinary shares or warrants by a non-corporate U.S. Holder to or through
a U.S. office of a broker.  Payments made (and sales and other
dispositions effected at an office) outside the United States will be subject to
information reporting in limited circumstances.





In
addition, backup withholding of United States federal income tax, currently at a
rate of 28%, generally will apply to dividends paid on our ordinary shares to a
non-corporate U.S. Holder and the proceeds from sales and other dispositions of
our shares or warrants by a non-corporate U.S. Holder, in each case
who:




·
            fails
      to provide an accurate taxpayer identification
  number;




·
            is
      notified by the IRS that backup withholding is required;
  or




·
            in
      certain circumstances, fails to comply with applicable certification
      requirements.





Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding will be allowed as a credit against a U.S. Holder’s U.S. federal
income tax liability and may entitle such holder to a refund, provided that
certain required information is timely furnished to the IRS.





F.
Dividends and Paying
Agents





Not
applicable.





G.
Statement by
Experts





Not applicable.





H.Documents
on Display





Documents
concerning us that are referred to in this document may be inspected at our
principal executive offices at 900 South Pine Island Road, Suite 400,
Plantation, Florida 33324.





In
addition, we will file annual reports and other information with the SEC.
 Since we are currently a foreign private issuer, we will file annual
reports on Form 20-F and submit other information under cover of
Form 6-K. As a foreign private issuer, we are exempt from the proxy
requirements of Section 14 of the Exchange Act and our officers, directors
and principal shareholders will be exempt from the insider short-swing
disclosure and profit recovery rules of Section 16 of the Exchange
Act.  However, we expect our status as a foreign private issuer to
terminate as of December 31, 2010 and will thereafter file domestic company
reports with the SEC.  Annual reports and other information we file
with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
offices upon payment of the prescribed fees.  You may call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms and you can request copies of the documents upon payment of a
duplicating fee, by writing to the Commission. In addition, the Commission
maintains a web site that contains reports and other information regarding
registrants (including us) that file electronically with the Commission which
can be assessed at http://www.sec.gov.





I.Subsidiary
Information





Not
applicable.




69





ITEM 11. QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK





As of December 31, 2009, the
Company did not have instruments subject to market risk.  After the
Transaction, our functional currency is the U.S. dollar and so are virtually all
of our revenues and operating costs; therefore, we do not expect to be exposed
to any significant extent to the impact of changes in foreign currency exchange
rates.  Furthermore, most of our debt carries a fixed rate of
interest, so we do not expect to be exposed to any significant extent to the
impact of changes in market interest rates.





ITEM
12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
applicable.




70





PART
II


ITEM
13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES




Not
applicable.





ITEM
14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS




On August
11, 2008, we consummated our initial public offering of 6,875,000 IPO
Units.  Each IPO Unit consisted of one ordinary share and one
redeemable ordinary share purchase warrant.  Each warrant entitles the
holder to purchase from us one ordinary share at an exercise price of
$5.00.  The IPO Units were sold at an offering price of $8.00 per
unit, generating gross proceeds of $55,000,000.  In addition to the
IPO, we also raised capital by the issuance of the Insider Units (generating
$25,000 of gross proceeds) and the Private Placement Warrants (generating
$1,000,000 of gross proceeds).  (See the section of this Report
entitled “Item 4. Information on the Company – History and Business Plans” for
more information on the Insider Units and the Private Placement
Warrants.)





The sale
of the Insider Units, the Private Placement Warrants and the IPO Units generated
gross proceeds of $56,025,000.  A  portion of the proceeds
from these transactions, including the IPO, were used to pay expenses incurred
in connection with the offerings, including underwriting discounts, legal fees
and expenses, printing and engraving expenses, accounting fees and expenses, and
registration and listing fees.  The net proceeds (together with
deferred offering expenses) of $52,200,000 were deposited into a trust account
at JPMorgan Chase, London branch, maintained by Continental Stock Transfer &
Trust Company acting as trustee.  On January 15, 2010, upon
consummation of the Transaction, the proceeds of the trust account were released
and used to pay part of the purchase price for our acquisition of a controlling
interest in DAL and to redeem the shares of our ordinary shares owned by persons
who voted against the Transaction.





ITEM
15.  CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures





Disclosure
Controls and Procedures





Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, within the
90-day period preceding the filing date of this Report.  Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of
December 31, 2009, the end of the period covered by this Report, at a reasonable
assurance level and, accordingly, provide reasonable assurance that the
information required to be disclosed by us in reports filed under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.





Management’s
Annual Report on Internal Control over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial
reporting.  Internal control over financial reporting is defined in
Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process
designed by, or under the supervision of, our principal executive and principal
financial officers and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:




·
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transaction and dispositions of the assets of the
      company;




·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and




·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use of disposition of the company’s assets that
      could have a material effect on the financial
  statements.





71





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





This
Report does not contain a report by management on internal control over
financial reporting or an attestation report of our registered public accounting
firm.  Under normal circumstances, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), we would be required to furnish a
report by management on internal control over financial reporting, which must
contain, among other things, an assessment of the effectiveness of our internal
control over financial reporting as of the end of the year, including a
statement as to whether or not our internal control over financial reporting is
effective.  However, in Compliance and Disclosure Interpretation No.
215.02 (the “CD&I”), dated April 24, 2009, the staff of the SEC (the
“Staff”) acknowledged that in a the case of a reverse merger between an issuer
and a private operating company, it might not always be possible to conduct an
assessment of the private operating company’s (or for accounting purposes, the
acquirer’s) internal control over financial reporting in the period between the
consummation date of the reverse acquisition and the date of management’s
assessment of internal control over financial reporting.  The Staff
also recognized that in many of these transactions, such as those in which the
legal acquiror is a non-operating public shell company, the internal controls of
the legal acquiror may no longer exist as of the assessment date or its assets,
liabilities, and operations may be insignificant when compared to the
consolidated entity.  The Staff states that in such situations, it
would not object if the surviving issuer were to exclude management’s assessment
of internal control over financial reporting in the annual report covering the
fiscal year in which the transaction was consummated.




Prior to the Transaction, Chardan 2008
was a blank check company formed for the purpose of acquiring an unidentified
operating business and it had limited operations and no assets other than
cash.  Following the Transaction, we now own DAL and its operating
company subsidiaries.  Prior to the Transaction, none of DAL and its
operating subsidiaries were required to file any periodic or other reports with
the SEC, nor were they subject to the reporting requirements of
Section 15(d) of the Exchange Act.  While the CD&I
specifically states that management’s assessment of internal control over
financial reporting is not required in the annual report covering the fiscal
year in which the transaction is consummated, the same reasoning should apply in
our case in which the Transaction occurred soon after the end of the fiscal
year.





Management
acknowledges its responsibility for establishing and maintaining adequate
internal controls over financial reporting.  In order to comply with
Section 404 of Sarbanes Oxley, management has begun the necessary system
and process documentation and evaluation and will include its report on internal
control over financial reporting in its future annual reports beginning with its
annual report for the fiscal year ending December 31, 2010.





Changes
in Internal Control over Financial Reporting





Other than changes in our internal
control over financial reporting associated with the acquisition of DAL and its
operating subsidiaries in connection with the Transaction, there has been no
change in our internal control over financial reporting during the year ended
December 31, 2009, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
16A.  AUDIT COMMITTEE FINANCIAL EXPERT




Our Board
of Directors has determined that Mr. Jerry L. Hutter, the Chair of the Audit
Committee, is an “audit committee financial expert” as defined by the SEC’s
rules.





ITEM
16B.  CODE OF ETHICS




We have
adopted a Code of Conduct and Ethics for all employees and directors. This
document is available in the Investor Relations – Corporate Governance section
of our website (http://www.djspenterprises.com/), and was filed as an Exhibit to
Amendment No. 1 to the Company’s Registration Statement on Form F-1, as filed
with the SEC on August 4, 2008.  We also intend to disclose any
waivers to or amendments of our Code of Conduct and Ethics for the benefit of
our directors and executive officers on our website. We will provide a hard copy
of our Code of Conduct and Ethics free of charge upon written request of a
shareholder addressed to Secretary, DJSP Enterprises, Inc., 900 South Pine
Island Road, Suite 400, Plantation, Florida 33324.




72





ITEM
16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES




Chardan 2008’s principal independent
accountant for 2009 and 2008 was Jewett, Schwartz, Wolfe &
Associates.  DJS Processing Division and its combined affiliates’
principal independent accountant for 2009 and 2008 was McGladrey & Pullen,
LLP, an independent registered public accounting firm.




Fees
Incurred for Accountant Services – Chardan 2008




In 2008 and 2009, the fees billed by
Jewett, Schwartz, Wolfe & Associates, Chardan 2008’s principal
independent accountants were as follows:




2009
            
            
            2008Audit
      Fees
            
            $
            30,000
            
            
            $
            15,000Audit-Related
      Fees
            
            
            15,000
            
            
            
            17,500Tax
      Fees
            
            
            0
            
            
            
            0All
      Other Fees
            
            
            0
            
            
            
            0$
            45,000
            
            
            $
            32,500





Audit fees represent fees for
professional services related to the audit of Chardan 2008’s financial
statements for the years ended December 31, 2008 and December 31, 2009 including
review of certain reports on Form 20-F.





Audit-related fees for 2008 represent
fees for professional services related to the filing of Chardan 2008’s
registration statement with the SEC.   Audit-related fees for
2009 represent fees for professional services related to the filing of Chardan
2008’s proxy statement and other filings.




Fees
Incurred for Accountant Services – DJS Processing Division




In 2008 and 2009, the fees billed by
McGladrey & Pullen, LLP, DJS Processing Division and its combined
affiliates’ principal independent accountants were as follows:




2009
            
            
            2008Audit
      Fees
            
            $
            190,000
            
            
            $
            165,000Audit-Related
      Fees
            
            
            57,000
            
            
            
            0Tax
      Fees
            
            
            0
            
            
            
            0All
      Other Fees
            
            
            0
            
            
            
            0$
            247,000
            
            
            $
            165,000





Audit
Fees represent professional services rendered for the audit of DJS Processing
Division and its combined affiliates’ combined carve-out financial statements,
the quarterly reviews and services provided by DJS Processing Division and
its combined affiliates' principal independent accountant in connection
with statutory and regulatory filings. Audit- Related Fees consist
of services provided in connection with the Transaction.





Audit
Committee Pre-Approval Policies and Procedures





The audit committee of our Board of
Directors has adopted a policy regarding audit and non-audit services that may
be provided by our independent accountants.  The policy sets forth the
procedures and conditions pursuant to which services proposed to be performed by
the independent accountants must be pre-approved.  The policy provides
that the audit committee will consider whether services to be performed by the
independent accountant are consistent with the SEC’s rules on auditor
independence.  In particular, the policy expressly names all services
the independent accountant may not perform and, in the case of other services,
requires the audit committee to consider whether the independent auditor is the
best positioned to provide the most effective and efficient
service.





73





The
policy provides that the audit committee will review and pre-approve annually,
and periodically thereafter as required, the services proposed to be provided by
the independent accountant in the categories of audit services, audit related
services, tax services and all other services. In addition, the Audit Committee
is to determine the appropriate ratio of audit, audit related and tax services
to all other services. The Audit Committee has delegated to the chairman of the
audit committee and, if he or she is unavailable, another member of the audit
committee, authority to pre-approve audit and non-audit services proposed to be
performed by the independent registered public accounting firm not previously
approved by the audit committee.  Under the policy, the audit
committee is to be informed on a timely basis of services actually rendered by
the independent accountant, including those pre-approved by a member of the
audit committee. Our Chief Financial Officer is to immediately report to the
Chairman of the audit committee any breach of the policy.





The audit committee has pre-approved
all engagements and fees paid to our independent accountants after the
Transaction.





ITEM
16D.  EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES





Not
applicable.





ITEM
16E.  PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS




Each
public shareholder who purchased shares of Chardan 2008 prior to the Transaction
(except for the initial shareholders) was given the right to vote against the
Transaction and elect to redeem his, her or its shares for their pro rata
portion of the trust account.  The holders of 2,800 of the Company’s
ordinary shares voted against the Transaction and redeemed their shares for a
pro rata portion of the Company’s trust account, at an aggregate amount of
$22,092.00.





ITEM
16F.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT




Not
applicable.





ITEM
16G.  CORPORATE GOVERNANCE




Pursuant
to Rule 5615(3) of the NASDAQ Marketplace Rules, because the Company was a
Foreign Private Issuer, as defined in Exchange Act Rule 3b-4, the Company was
permitted to follow its home country practice in lieu of certain NASDAQ
Marketplace Rule requirements, to the extent not contrary to federal securities
law.  However, as of the date of the closing of the Transaction, the
Company is no longer considered a Foreign Private Issuer by
NASDAQ.  Accordingly, the Company’s corporate governance practices do
not materially differ from those followed by domestic companies under NASDAQ
listing standards.





PART
III




ITEM
17. FINANCIAL STATEMENTS




See Item
18.




74




ITEM
18. FINANCIAL STATEMENTS






INDEX
TO FINANCIAL STATEMENTS







DJS
Processing Division and its Combined Affiliates


Audited
Combined Carve-Out Financial Statements as of December 31, 2009 and 2008 and for
the Years Ended December 31, 2009, December 31, 2008 and December 31,
2007






PageReport of
      Independent Registered Public Accounting Firm
            
            
            F-2Combined
      Carve-Out Balance Sheets
            
            
            F-3Combined
      Carve-Out Statements of Income
            
            
            F-4Combined
      Carve-Out Statements of Changes in Shareholder's and Member's
      Equity
            
            
            F-5Combined
      Carve-Out Statements of Cash Flow
            
            
            F-6Notes to the
      Combined Carve-Out Financial Statements
            
            
            F-7




Chardan
2008 China Acquisition Corp.


Audited
Financial Statements as of December 31, 2009 and 2008 and for the Year Ended
December 31, 2009 and the period from February 19, 2008 (inception) to December
31, 2008




PageReport of
      Independent Registered Public Accounting Firm
            
            
            F-13Balance
      Sheets
            
            
            F-14Statements of
      Operations
            
            
            F-15Statements of
      Changes in Shareholders’ Equity
            
            
            F-16Statements of
      Cash Flows
            
            
            F-17Notes to
      Audited Financial Statements
            
            
            F-18




F-1




Report
of Independent Registered Public Accounting Firm
 
 To the
Member and Shareholder
 DJS
Processing Division and its Combined Affiliates
 
 We have
audited the accompanying combined carve-out balance sheets of DJS Processing
Division and its Combined Affiliates (the “Company”) as of December 31, 2009 and
2008, and the related combined carve-out statements of income, changes in
shareholder’s and member’s equity, and cash flows for each of the three years in
the period ended December 31, 2009.  These financial statements are
the responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the combined carve-out financial statements referred to above present
fairly, in all material respects, the financial position of DJS Processing
Division and its Combined Affiliates as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
 
 The
combined carve-out financial statements include the accounts of a division of an
entity and the amounts included therein are based on significant estimates and
judgments made by management. See Note 1 for further discussion.
 
 
 /s/
McGladrey & Pullen, LLP
 
 Orlando,
Florida
 April 1,
2010


F-2




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES


(A
Division of The Law Offices of David J. Stern, P.A.)


COMBINED
CARVE-OUT BALANCE SHEETS


December
31, 2009 and 2008







2009
            
            
            2008ASSETSCurrent AssetsCash and cash equivalents
            
            $
            763,387
            
            
            $
            1,427,588Accounts receivableRelated partyClient reimbursed costs
            
            
            6,046,760
            
            
            
            26,147,837Fee income, net
            
            
            15,636,734
            
            
            
            9,604,603Unbilled receivables
            
            
            10,591,850
            
            
            
            11,210,565Total related party accounts
      receivable
            
            
            32,275,344
            
            
            
            46,963,005Fee income receivable, net
            
            
            798,350
            
            
            
            2,202,690Total accounts receivable
            
            
            33,073,694
            
            
            
            49,165,695Prepaid expenses
            
            
            87,314
            
            
            
            46,939Total current assets
            
            
            33,924,395
            
            
            
            50,640,222Equipment and leasehold improvements, net (Note
      3)
            
            
            4,691,520
            
            
            
            3,154,623Total assets
            
            $
            38,615,915
            
            
            $
            53,794,845LIABILITIES AND SHAREHOLDER'S AND MEMBER'S
      EQUITYCurrent LiabilitiesAccounts payable – client
      reimbursed costs
            
            $
            6,046,760
            
            
            $
            20,425,337Accounts
      payable
            
            
            1,505,861
            
            
            
            742,601Accrued
      compensation
            
            
            1,863,436
            
            
            
            2,207,094Accrued
      expenses
            
            
            1,200,650
            
            
            
            976,643Current portion of
      capital lease obligations(Notes 3 and 4)
            
            
            191,786
            
            
            
            217,095Deferred
      revenue
            
            
            225,063
            
            
            
            263,900Due to related
      party
            
            
            —
            
            
            
            25,035Client trust
      account
            
            
            239,310
            
            
            
            —Notes
      payable
            
            
            2,307,221
            
            
            
            —Line of
      credit
            
            
            10,656,250
            
            
            
            —Total current
      liabilities
            
            
            24,236,337
            
            
            
            24,857,705Deferred Rent (Note 5)
            
            
            1,097,726
            
            
            
            959,323Capital Lease Obligations, less current
      portion
              (Notes 3, and
      4)
            
            
            261,700
            
            
            
            512,168Total
      liabilities
            
            
            25,595,763
            
            
            
            26,329,196Commitments and Contingencies (Notes 4, 5 and
      7)Shareholder's and Member's EquityCommon
      stock
            
            
            1,000
            
            
            
            1,000Retained earnings
            
            
            4,348,342
            
            
            
            7,608,920Member's equity
            
            
            8,670,810
            
            
            
            19,855,729Total shareholder's and
      member's equity
            
            
            13,020,152
            
            
            
            27,465,649Total liabilities and
      shareholder's and member's equity
            
            $
            38,615,915
            
            
            $
            53,794,845




The
accompanying notes are an integral part of these combined carve-out financial
statements.




F-3






DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES


(A
Division of The Law Offices of David J. Stern, P.A.)


COMBINED
CARVE-OUT STATEMENTS OF INCOME


Years
Ended December 31, 2009, 2008 and 2007




2009
            
            
            2008
            
            
            2007Revenue:Foreclosure and related services, related
      party
            
            $
            243,938,523
            
            
            $
            192,271,667
            
            
            $
            112,823,033Foreclosure and related services, third
      parties
            
            
            5,109,500
            
            
            
            2,857,800
            
            
            
            987,075Real estate owned liquidation
      services
            
            
            11,220,824
            
            
            
            4,073,234
            
            
            
            1,690,241Total Revenue:
            
            
            260,268,847
            
            
            
            199,202,701
            
            
            
            115,500,349Operating
      expenses:Client reimbursed costs
            
            
            139,059,336
            
            
            
            92,319,306
            
            
            
            47,613,198Compensation related
      expenses
            
            
            50,085,039
            
            
            
            44,356,093
            
            
            
            20,268,283Direct operating and general and
      administrative expenses
            
            
            25,435,754
            
            
            
            19,078,472
            
            
            
            8,668,430Depreciation expense
            
            
            1,123,564
            
            
            
            594,156
            
            
            
            277,926Total operating
expenses
            
            
            215,703,693
            
            
            
            156,348,027
            
            
            
            76,827,837Operating
      Income
            
            
            44,565,154
            
            
            
            42,854,674
            
            
            
            38,672,512Other
      Income
            
            
            312
            
            
            
            31,677
            
            
            
            16,328Net Income
            
            $
            44,565,466
            
            
            $
            42,886,351
            
            
            $
            38,688,840





The  accompanying
notes are an integral part of these combined carve-out financial
statements




F-4





DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES


(A
Division of the Law Offices of David J. Stern, P.A.)


COMBINED
CARVE-OUT STATEMENTS OF CHANGES IN SHAREHOLDERS'S


AND
MEMBER'S EQUITY


Years
Ended December 31, 2009, 2008 and 2007




Default
      Services, Inc.
            
            
            Professional
      Title and Abstract Company of Florida, Inc.
            
            
            DJS
      Processing Division
            
            
            Combined2007Common
      stock, $1 par value
              Authorized and issued:
              Beginning and ending,
              500 shares
            
            $
            500
            
            
            $
            500
            
            
            $
            —
            
            
            $
            1,000Retained
      earnings (deficit)Balance, beginning
            
            
            (27,779
            )
            
            
            1,680,395
            
            
            
            —
            
            
            
            1,652,616Net income
            
            
            1,160,100
            
            
            
            5,893,796
            
            
            
            —
            
            
            
            7,053,896Dividends
            
            
            (1,075,000
            )
            
            
            (1,557,827
            )
            
            
            —
            
            
            
            (2,632,827
            )Balance, ending
            
            
            57,321
            
            
            
            6,016,364
            
            
            
            —
            
            
            
            6,073,685Shareholder's
      and member's equityBalance, beginning
            
            
            —
            
            
            
            —
            
            
            
            3,378,295
            
            
            
            3,378,295Net income
            
            
            —
            
            
            
            —
            
            
            
            31,634,944
            
            
            
            31,634,944Dividends
            
            
            —
            
            
            
            —
            
            
            
            (15,943,165
            )
            
            
            (15,943,165
            )Balance, ending
            
            
            —
            
            
            
            —
            
            
            
            19,070,074
            
            
            
            19,070,074$
            57,821
            
            
            $
            6,016,864
            
            
            $
            19,070,074
            
            
            $
            25,144,7592008Common
      stock, $1 par value
              Authorized and issued:
              Beginning and ending,
              500 shares
            
            $
            500
            
            
            $
            500
            
            
            $
            —
            
            
            $
            1,000Retained
      earnings (deficit)Balance, beginning
            
            
            57,321
            
            
            
            6,016,364
            
            
            
            —
            
            
            
            6,073,685Net income
            
            
            2,594,180
            
            
            
            4,643,198
            
            
            
            —
            
            
            
            7,237,378Dividends
            
            
            (2,665,023
            )
            
            
            (3,037,120
            )
            
            
            —
            
            
            
            (5,702,143
            )Balance, ending
            
            
            (13,522
            )
            
            
            7,622,442
            
            
            
            —
            
            
            
            7,608,920Shareholder's
      and member's equityBalance, beginning
            
            
            —
            
            
            
            —
            
            
            
            19,070,074
            
            
            
            19,070,074Net income
            
            
            —
            
            
            
            —
            
            
            
            35,648,973
            
            
            
            35,648,973Dividends
            
            
            —
            
            
            
            —
            
            
            
            (34,863,318
            )
            
            
            (34,863,318
            )Balance, ending
            
            
            —
            
            
            
            —
            
            
            
            19,855,729
            
            
            
            19,855,729$
            (13,022
            )
            
            $
            7,622,942
            
            
            $
            19,855,729
            
            
            $
            27,465,6492009Common
      stock, $1 par value
              Authorized and issued:
              Beginning and ending,
              500 shares
            
            $
            500
            
            
            $
            500
            
            
            $
            —
            
            
            $
            1,000Retained
      earnings (deficit)Balance, beginning
            
            
            (13,522
            )
            
            
            7,622,442
            
            
            
            —
            
            
            
            7,608,920Net income
            
            
            9,817,232
            
            
            
            7,130,910
            
            
            
            —
            
            
            
            16,948,142Dividends
            
            
            (9,728,495
            )
            
            
            (10,480,225
            )
            
            
            —
            
            
            
            (20,208,720
            )Balance, ending
            
            
            75,215
            
            
            
            4,273,127
            
            
            
            —
            
            
            
            4,348,342Shareholder's
      and member's equityBalance, beginning
            
            
            —
            
            
            
            —
            
            
            
            19,855,729
            
            
            
            19,855,729Net income
            
            
            —
            
            
            
            —
            
            
            
            27,617,324
            
            
            
            27,617,324Dividends
            
            
            —
            
            
            
            —
            
            
            
            (38,802,243
            )
            
            
            (38,802,243
            )Balance, ending
            
            
            —
            
            
            
            —
            
            
            
            8,670,810
            
            
            
            8,670,810$
            75,715
            
            
            $
            4,273,627
            
            
            $
            8,670,810
            
            
            $
            13,020,152




The
accompanying notes are an integral part of these combined carve-out financial
statements.




F-5




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES


(A
Division of The Law Offices of David J. Stern, P.A.)


COMBINED
CARVE-OUT STATEMENTS OF CASH FLOWS


Years
Ended December 31, 2009, 2008 and 2007





2009
            
            
            2008
            
            
            2007Cash
      Flows from Operating ActivitiesNet Income
            
            $
            44,565,466
            
            
            $
            42,886,351
            
            
            $
            38,688,840Adjustments to reconcile net income to net
      cash provided by operating activities:Depreciation
            
            
            1,123,564
            
            
            
            594,156
            
            
            
            277,926Loss on disposal of leasehold
      improvements
            
            
            —
            
            
            
            1,698,303
            
            
            
            —Changes in operating assets and
      liabilities:(Increase) decrease in:Accounts receivable – client reimbursed
      costs
            
            
            20,101,077
            
            
            
            (10,562,492
            )
            
            
            (11,395,512
            )Fee income receivable,
    net
            
            
            (4,627,791
            )
            
            
            (1,825,505
            )
            
            
            (6,975,205
            )Unbilled receivables
            
            
            618,715
            
            
            
            (2,983,101
            )
            
            
            (8,227,464
            )Prepaid expenses
            
            
            (40,375
            )
            
            
            255,246
            
            
            
            (261,427
            )Accounts payable – client reimbursed
      cost
            
            
            (14,378,577
            )
            
            
            10,100,142
            
            
            
            8,208,412Accounts payable
            
            
            763,260
            
            
            
            584,490
            
            
            
            108,645Accrued expenses
            
            
            224,007
            
            
            
            450,030
            
            
            
            163,463Accrued compensation
            
            
            (343,658
            )
            
            
            1,206,537
            
            
            
            475,601Client trust account
            
            
            239,310
            
            
            
            —
            
            
            
            —Deferred revenue
            
            
            (38,837
            )
            
            
            —
            
            
            
            (166,703
            )Deferred rent
            
            
            138,403
            
            
            
            959,323
            
            
            
            —Net cash provided by operating
      activities
            
            
            48,344,564
            
            
            
            43,363,480
            
            
            
            20,896,576Cash
      Flows from Investing ActivitiesPurchase of equipment and leasehold
      improvements
            
            
            (2,652,098
            )
            
            
            (2,274,184
            )
            
            
            (1,301,523
            )Net cash flow used for investing
      activities
            
            
            (2,652,098
            )
            
            
            (2,274,184
            )
            
            
            (1,301,523
            )Cash
      Flows from Financing ActivitiesNet advances from related
      party
            
            
            (25,035
            )
            
            
            12,152
            
            
            
            6,305Proceeds from line of
      credit
            
            
            10,656,250
            
            
            
            —
            
            
            
            —Proceeds from note
    payable
            
            
            2,448,000
            
            
            
            —
            
            
            
            —Principal payments on note
      payable
            
            
            (140,779
            )Principal payments on capital lease
      obligations
            
            
            (284,140
            )
            
            
            (87,165
            )
            
            
            (116,489
            )Distributions and
    dividends
            
            
            (59,010,963
            )
            
            
            (40,565,461
            )
            
            
            (18,575,992
            )Net cash flow used for financing
      activities
            
            
            (46,356,667
            )
            
            
            (40,640,474
            )
            
            
            (18,686,176
            )Net change in cash and cash
      equivalents
            
            
            (664,201
            )
            
            
            448,822
            
            
            
            908,877Cash
      and cash equivalents, beginning of year
            
            
            1,427,588
            
            
            
            978,766
            
            
            
            69,889Cash
      and cash equivalents, end of year
            
            $
            763,387
            
            
            $
            1,427,588
            
            
            $
            978,766Supplemental
      Disclosures of Cash Flow InformationCash payments for
    interest
            
            $
            174,005
            
            
            $
            55,952
            
            
            $
            39,138Supplemental
      Schedule of Noncash Investing ActivitiesAcquisition of property and equipment through
      capital lease obligations
            
            $
            —
            
            
            $
            448,304
            
            
            $
            281,950





The
accompanying notes are an integral part of these combined carve-out financial
statements.




F-6


DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL
STATEMENTS




Note
1. Nature of Business and Significant Accounting Policies




Nature of Business: DJS
Processing Division (“the Processing Division”) is a division of The Law Offices
of David J. Stern, P.A. (“the Law Firm”), which provides foreclosure,
bankruptcy, eviction, litigation processing, and other related services to
mortgage bankers, mortgage servicers, regional property owners and investor
groups involved with real property in the state of Florida. Professional Title
and Abstract Company of Florida, Inc. (“PTA”), an S corporation, provides title
searches and examinations related to services provided by the Law Firm and
defendant location services to third party processors engaged by the Law Firm.
Default Servicing, Inc. (“DSI”), an S corporation, provides real estate owned
(“REO”) liquidation related services including property inspection, valuation,
eviction, broker assignment, and closing. The Processing Division, PTA and DSI
perform real estate related services, are all 100% owned by one individual and
are collectively referred to as “the Company.”




Basis of Financial Statement
Presentation: These combined financial statements represent a “carve out”
of the Processing Division of the Law Firm, and the accounts of PTA and DSI as
of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008
and 2007. These financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. All material
intercompany balances and activity are eliminated upon combination. In addition,
assets and liabilities directly relating to the Company have been included in
these combined carve-out financial statements.




Reclassifications: Certain
reclassifications of 2008 and 2007 balances have been made to conform with
classifications used in 2009.  These reclassifications had no effect
on shareholder's and member's equity or reported net income.




Use of Estimates: The
preparation of financial statements in conformity with accounting principles
generally accepted 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 revenue and expenses during
the reporting period. Actual results could differ from those
estimates.




Fee Income Recognition:
Substantially all of the Processing Division’s and PTA’s revenues are generated
from services rendered to the clients of the Law Firm. Receivables are generated
from the Law Firm, the Processing Division’s only customer for foreclosure and
related services, at the time the Law Firm bills its clients. DSI has additional
clients for REO liquidation services.




The
estimated average file processing time for all foreclosure files, except for
those cases that are fully litigated, ranges from 220 to 240 days. The fee
income for foreclosure processing is recognized utilizing the proportional
performance method during the file processing period based on the achievement of
various processing milestones. The Processing Division bills the Law Firm for
services performed and recognizes revenue for services performed but not yet
billed as unbilled receivables at the end of each reporting period.




Revenue
related to all other types of services, other than foreclosure, is recognized
using the completed performance method. Revenue is recognized once the services
are performed and the Company has no further fulfillment responsibilities
related to these services. Accounts receivable for title services is presented
net of an allowance for estimated uncollectible accounts based on management’s
experience and expectations.  The amount estimated as uncollectible is
insignificant.




The
per-file fee negotiated between the Processing Division and the Law Firm is
based on negotiations between related parties. There can be no assurances that
the per file fees or the level of profitability achieved would be the same if
the fees had been negotiated between unrelated entities. See the discussion
regarding expense allocations later in this Note 1.




Equipment and Leasehold
Improvements: Equipment and leasehold improvements are recorded at cost
less accumulated depreciation. Leasehold improvements are depreciated over the
shorter of the estimated useful lives of the assets or the remaining lease term.
Depreciation for equipment is provided using the straight-line method over the
following estimated useful lives of the individual assets:




YearsOffice
      equipment
            
            
            3-5Furniture
      and fixtures
            
            
            5-7




F-7




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL
STATEMENTS




Note
1. Nature of Business and Significant Accounting Policies –
(continued)




Client Reimbursed Costs:
Certain costs incurred on behalf of clients are billed to and reimbursed by
clients. The Company’s incurrence of these costs is included in operating
expenses and reimbursements from clients are included in total revenue, in equal
amounts, in the accompanying statements of income.




Cash and Cash Equivalents:
The Company maintains its cash and cash equivalents in bank depository accounts
which, at times, exceed federally-insured limits. The Company has not
experienced any losses in such accounts. Cash and cash equivalents include
short-term investments with original maturities of three months or
less.




Basis for Expense
Allocations: Management
has allocated certain expenses of the Law Firm to the Company based on its
estimate of expenses the Company would have incurred on a stand-alone basis;
however, there can be no assurance that these expenses represent the expenses of
the Company on a stand-alone basis or that the allocations are fully inclusive
of the functions necessary to operate the Company on a stand-alone
basis.  The amount of operating expenses allocated on a direct basis
were approximately $34,500,000, $39,297,000, and $15,780,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.  The following is a
summary of the major expense categories not allocated on a direct basis totaling
approximately $41,532,000, $27,732,000, and $13,435,000 for the years ended
December 31, 2009, 2008 and 2007, respectively, and the methodology used to
allocate such expenses.


·
            Certain
      management personnel of the Law Firm are substantially involved with the
      Company’s operations. Their salaries, bonuses, payroll taxes and related
      auto, travel, meals, entertainment and professional expenses are allocated
      to the Company based on the estimated percentage of time the executive
      officers spend on the Company’s business
  activities.




·
            Employee
      benefits, including health insurance, pension/profit sharing, workers’
      compensation, incentives and training, are allocated based on the number
      of employees specifically assigned to the Company in relation to the total
      employees of the Law Firm (“the employee ratio
  method”).




·
            Equipment
      lease expense is allocated based on the employee ratio
    method.




·
            Certain
      facilities lease expenses are allocated based on the ratio of the
      Company’s employees utilizing such space to the total employees of the Law
      Firm.




·
            Depreciation
      is the computed amount based on the equipment and leasehold improvements
      utilized by the Company.




·
            Postage
      and delivery is allocated based on the employee ratio
    method.




·
            Advertising,
      marketing and professional fees are allocated based on the estimated
      percentages that apply to the Company’s business
    activities.




·
            All
      other general and administrative expenses were allocated based on the
      employee ratio method.




In the
opinion of management, the preceding expense allocations are a reasonable basis
for determining the costs associated with the carve-out Processing
Division.




Income Taxes: The Law Firm,
PTA and DSI are not subject to income taxes under the federal and state tax
laws. Instead, the taxable income of these entities is passed through to the
owner of the companies and is taxable to the owner on an individual level.
Therefore, these financial statements do not reflect an allocation of federal
and state income taxes. The Company adopted accounting standards relating to
accounting for uncertainty in income taxes for the year ended December 31,
2009.  As a result of this adoption, management assessed whether there
were any uncertain tax positions which may give rise to income tax liabilities
and determined that there were no such matters requiring recognition in the
accompanying financial statements.  The Processing Division is
included in the tax returns of the Law Firm while PTA and DSI are S Corporations
whereby income is passed through to the shareholder for tax return purposes and
is therefore not directly subject to income taxes.  With few
exceptions, the Company is not subject to U.S. federal and state income tax
examinations by tax authorities for years before December 31, 2006.




Fair Value:The Company has
identified its cash and cash equivalents, accounts receivable, accounts payable,
note payable, and line of credit balances as financial
instruments.  Because of the short term nature of these financial
instruments, the Company believes the carrying values approximate fair
values.




F-8




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS


Note
1. Nature of Business and Significant Accounting Policies –
(continued)




FASB Accounting Standards
Codification: In June 2009, the Financial Accounting Standards Board
(“FASB”) issued new guidance concerning the organization of authoritative
guidance under U.S. Generally Accepted Accounting Principles (“GAAP”). This new
guidance created the FASB Accounting Standards Codification
(“Codification”).  The Codification has become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
The Codification became effective for the Company in its quarter ended September
30, 2009. As the Codification is not intended to change or alter existing U.S.
GAAP, it did not have any impact on the Company’s combined financial statements.
On its effective date, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification became
nonauthoritative.




Recently Issued Accounting
Pronouncements:  In December 2007, FASB issued authoritative
guidance on Business Combinations. This guidance, among other things,
establishes principles and requirements for how the acquirer in a business
combination (a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquired business,
(b) recognizes and measures the goodwill acquired in the business combination or
a gain from a bargain purchase, and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This guidance is effective for fiscal years
beginning on or after December 15, 2008, with early adoption prohibited. The
Company is required to adopt the provisions of this guidance for all business
combinations for which the
acquisition date is on or after January 1, 2009. This standard changed the
accounting treatment for business combinations on a prospective
basis.




In September 2006, the FASB issued
guidance on Accounting for Uncertainty in Income Taxes. This guidance clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with guidance on Accounting for Income Taxes.
The guidance on Accounting for Uncertainty in Income Taxes prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken on a
tax return. It also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in
interim periods, disclosure and transition.




In December 2008, the FASB provided for
a deferral of the effective date of Accounting for Uncertainty in Income Taxes
for certain nonpublic enterprises to annual financial statements for fiscal
years beginning after December 15, 2008. The Company elected this deferral and
accordingly adopted the provisions of this guidance in its 2009 annual financial
statements. Prior to adoption of this guidance, the Company continued to
evaluate its uncertain tax positions and related income tax contingencies under
guidance on Accounting for Contingencies, which requires the Company to accrue
for losses it believes are probable and can be reasonably estimated. The
adoption of Accounting for Uncertainty in Income Taxes did not have a material
impact on the Company’s combined carve-out financial
statements.




In May 2009, the FASB updated its
guidance on Subsequent Events. In particular, this guidance sets forth the
period after the balance sheet date during which management shall evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity shall
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity shall make about events
or transactions that occurred after the balance sheet date. This guidance was
effective for interim periods ending after June 15, 2009. In February, 2010, the
FASB amended the guidance to remove the requirement for an SEC filer to disclose
a date through which subsequent events have been evaluated in both issued and
revised financial statements.  Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of U.S. GAAP.  The FASB believes these
amendments remove potential conflicts with the SEC’s literature.  The
Company has applied the provisions of this statement in the current reporting
period. See Note 10 for information relating to any subsequent
events.




Note
2. Related Party Transactions and Concentrations




The Company’s primary source of revenue
is from a per-file fee arrangement with the Law Firm. Revenues from this
arrangement account for approximately 81%, 79%, and 65% of total fee income for
the years ended December 31, 2009, 2008 and 2007, respectively. Amounts due from
the Law Firm for fees amounted to approximately $20,769,000 and $21,010,000,
including amounts earned and unbilled of approximately $10,592,000 and
$11,211,000 as of December 31, 2009 and 2008, respectively.




F-9




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS




Note
2.   Related Party Transactions and Concentrations –
(continued)




A significant percentage of files
referred by the Law Firm came from a few customers, as follows:




2009
            
            
            2008
            
            
            2007Client
      A
            
            
            30
            %
            
            
            21
            %
            
            
            14
            %Client
      B
            
            
            11
            %
            
            
            18
            %
            
            
            26
            %Client
      C
            
            
            10
            %
            
            
            15
            %
            
            
            18
            %Client
      D
            
            
            9
            %
            
            
            11
            %
            
            
            2
            %Client
      E
            
            
            7
            %
            
            
            11
            %
            
            
            8
            %Total
            
            
            67
            %
            
            
            76
            %
            
            
            68
            %





Note
3.   Equipment and Leasehold Improvements




Equipment
and leasehold improvements as of December 31, 2009 and 2008 consist of the
following:




2009
              
              
              2008Office
      equipment
              
              $
              2,863,827
              
              
              $
              2,153,170Furniture
      and fixtures
              
              
              2,590,869
              
              
              
              1,745,010Leasehold
      improvements
              
              
              545,875
              
              
              
              354,8136,000,571
              
              
              
              4,252,993Accumulated
      depreciation
              
              
              (1,309,051
              )
              
              
              (1,098,370
              )$
              4,691,520
              
              
              $
              3,154,623




The
following equipment included in equipment and leasehold improvements was
acquired under capital leases:





2009
            
            
            2008Office
      equipment
            
            $
            1,134,588
            
            
            $
            1,134,588Less
      accumulated amortization
            
            
            (687,699
            )
            
            
            (412,553
            )Office
      equipment under capital leases, net
            
            $
            446,889
            
            
            $
            722,035





Office
equipment includes equipment and leasehold improvements that were acquired under
capital leases. Amortization of equipment acquired under capital leases is
included in depreciation expense. The equipment and the related liability under
the capital leases were recorded based on the present value of future payments
due under the leases, at implied discount rates based on the fair market value
of the related office equipment.




Certain
obligations of the Law Firm were secured by the Company’s equipment at December
31, 2009.




F-10




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS


Note
4. Capital Lease Obligations




The
following is a schedule by years of the future minimum lease payments the
Company is obligated under, through the Law Firm, of capital leases together
with the present value of the net minimum lease payments as of December 31,
2009:





Years
      Ending December 31,
            
            Amount2010
            
            $
            191,7862011
            
            
            181,7012012
            
            
            122,0992013
            
            
            70,518Total
      minimum lease payments
            
            
            566,104Less
      amount representing interest (effective rates from 5.8% to
      13.5%)
            
            
            112,618Present
      value of the net minimum lease payments
            
            
            453,486Current
      portion of capital lease obligations
            
            
            191,786Capital
      lease obligations, net of current portion
            
            $
            261,700





Note
5.  Operating Lease Commitments




The
Company is obligated, through the Law Firm, for leases of office space under
noncancellable operating lease agreements which expire at times ranging from
September 2012 through October 2018.




The total
minimum rental commitments as of December 31, 2009, under the leases are as
follows:




Years
      Ending December 31,
            
            Amount2010
            
            $
            2,711,2282011
            
            
            2,913,6272012
            
            
            2,981,4832013
            
            
            3,023,0252014
            
            
            3,113,865Thereafter
            
            
            2,507,525$
            17,250,753





Rent
expense is recognized on a straight line basis over the terms of the leases
based on the aggregate amount of payments due over the lease terms. Amounts
expensed in excess of actual payments due to rent holidays and acceleration
clauses are presented as deferred rent on the accompanying combined balance
sheets. The total rental expense included in the combined carve-out statements
of income for the years ended December 31, 2009, 2008 and 2007, is approximately
$2,113,000, $2,145,000 and $1,019,000, respectively.





Note
6. Employee Benefit Plan




The Law
Firm offers a 401k plan for its employees, who become eligible to participate
after three months of employment and can enroll at the beginning of the first
calendar quarter thereafter. Employees may contribute up to 100% of their
eligible pay, subject to statutory limits. After one year of employment and at
the beginning of the first calendar quarter thereafter, employees are eligible
to receive discretionary matching contributions of up to 4% of eligible
compensation, and, if the employee has also completed 1,000 hours of service for
the applicable plan year, discretionary profit sharing contributions. Employees
vest in employer matching and profit-sharing contributions over six years.
Included in the combined carve-out financial statements are contributions to the
plan of approximately $50,000, $53,000 and $19,000 during the years ended
December 31, 2009, 2008 and 2007, respectively.




F-11




DJS
PROCESSING DIVISION AND ITS COMBINED AFFILIATES
 (A
Division of The Law Offices of David J. Stern, P.A.)
 NOTES
TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS


Note
7. Contingencies




The
Company is subject to legal claims in the ordinary course of business. In the
opinion of management, the amount of potential liability, if any, is not likely
to have a material adverse effect on the Company’s business, financial
condition, results of operations or liquidity. However, as the outcome of any
pending or threatened litigation or other legal claims is difficult to predict,
significant changes in the Company’s exposure could occur.





Note
8. Notes Payable




The
Company, through the Law Firm, has notes payable to a financial institution
in the amount of $2,307,221, which are collateralized by personal property with
a net book value of approximately $3.6 million as of December 31, 2009. The
terms of the notes call for monthly installment payments of $56,283, including
interest at an annual fixed rate from 5.46% to 5.98%.  The notes were
repaid in full on January 15, 2010.





Note
9. Line of Credit




·  The Company, through the Law Firm,
 has a line of credit from a bank with maximum available borrowings in the
amount of $20,000,000.  The line bears interest equal to the BBA LIBOR
Rate (adjusted periodically) (0.23% per annum at December 31, 2009) plus one
hundred seventy-five (175) basis points as of December 31, 2009.  As
of December 31, 2009, there was $10,656,250 outstanding under the line of credit
with a maturity date of June 30, 2010.  This agreement is a continuing
agreement and remains in full force and effect until such time as the bank
specifically consents to its revocation in writing, notwithstanding the full
repayment of the indebtedness under the line of credit and, should an obligation
constituting indebtedness due to the bank under the line of credit arise after
any full repayment, the line of credit agreement shall immediately, in all
respects, become effective with respect to any such new indebtedness, without
the necessity of any further acts of writing between the Company and the
bank.





Note
10. Subsequent Event




On January 15, 2010, the Company
completed a business combination with DJSP Enterprises, Inc. (formerly known as
Chardan 2008 China Acquisition Corp.).  As a result of this
transaction, DJSP Enterprises, Inc. obtained a controlling interest in the
Company, and the combined company is traded on the NASDAQ under the symbols
DJSP, DJSPU and DJSPW. The notes payable to a financial institution in the
amount of $2,307,221 and the line of credit of $10,656,250 as of December 31,
2009 were repaid in full on January 15, 2010.




F-12




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors and Shareholders of


Chardan
2008 China Acquisition Corp.





We have
audited the accompanying balance sheets of Chardan 2008 China Acquisition
Corp.  as of December 31, 2009 and 2008 and the related statements of
operations, changes in shareholders' equity, and cash flows for the year ended
December 31, 2009 and for the period from February 19, 2008 (inception) through
December 31, 2008.  These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Chardan 2008 China Acquisition
Corp. as of December 31, 2009 and December 31, 2008 and the results of its
operations and its cash flows for the year ended December 31, 2009 and for the
period from February 19, 2008 (inception) through December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.








/s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES





Hollywood,
Florida


March 16,
2010




F-13





CHARDAN
2008 CHINA ACQUISITION CORP.


(A
Development Stage Company)


BALANCE
SHEETS


December
31, 2009 and 2008





ASSETSDecember
      31,
            
            
            December
      31,2009
            
            
            2008(Audited)
            
            
            (Audited)Current
      assets:Cash
            
            $
            23,474
            
            
            $
            45,413Deferred
      acquisition costs
            
            
            1,363,702
            
            
            
            -Total
      current assets
            
            
            1,387,176
            
            
            
            45,413Restricted
      cash equivalents held in trust account
            
            
            54,302,189
            
            
            
            54,564,894Total
      assets
            
            $
            55,689,365
            
            
            $
            54,610,307LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilities:Accounts
      Payable
            
            $
            1,401,302
            
            
            $
            -Loans
      from related parties
            
            
            125,399
            
            
            
            9,854Total
      current liabilities
            
            
            1,526,701
            
            
            
            9,854Long
      term liabilities:Deferred
      underwriting discounts, net of $770,000 subject toforfeiture
      in the event of possible conversion
            
            
            1,430,000
            
            
            
            1,430,000Total
      liabilities
            
            
            2,956,701
            
            
            
            1,439,854Commitments
      and contingenciesOrdinary
      shares, subject to conversion (2,406,249 shares atconversion
      value of $7.89 per share)
            
            
            18,985,305
            
            
            
            18,985,305Stockholders'
      equity:Preferred  stock,
      $0.0001 par value, 5,000,000 shares
      authorized,  noneissued
      and outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.0001 par value, 60,000,000 shares authorized,9,166,666  shares
      issued and outstanding, respectively
            
            
            917
            
            
            
            917Additional
      paid in capital
            
            
            34,253,135
            
            
            
            34,244,020Accumulated
      deficit
            
            
            (506,693
            )
            
            
            (59,789
            )Total
      stockholders’ equity
            
            
            33,747,359
            
            
            
            34,185,148TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            55,689,365
            
            
            $
            54,610,307





See
accompanying notes to financial statements




F-14





CHARDAN
2008 CHINA ACQUISITION CORP.


(A
Development Stage Company)


STATEMENTS
OF OPERATIONS


For
the Year Ended December 31, 2009 and the Period from February 18, 2008
(Inception) to December 31, 2008








Period
      February 19,For
      the Year
              Ended
            
            
            2008
      (Date of Inception) ThroughDecember
      31, 2009
            
            
            December
      31, 2008REVENUE
            
            $
            -
            
            
            $
            -COST
      OF SALES
            
            
            -
            
            
            
            -GROSS
      PROFIT
            
            
            -
            
            
            
            -OPERATING
      EXPENSES:Selling,
      general, and administrative
            
            
            489,199
            
            
            
            544,683Total
      operating expenses
            
            
            489,199
            
            
            
            544,683OTHER
      INCOME (EXPENSE):Other
      expense
            
            
            (4,990
            )
            
            
            -Interest
      income
            
            
            47,286
            
            
            
            484,894Net
      other income
            
            
            42,295
            
            
            
            484,894LOSS
      BEFORE INCOME TAXES
            
            
            (446,904
            )
            
            
            (59,789
            )PROVISION
      FOR INCOME TAXES
            
            
            -
            
            
            
            -NET
      LOSS
            
            $
            (446,904
            )
            
            $
            (59,789
            )NET
      LOSS PER SHARE:Basic
      and Diluted
            
            $
            (0.05
            )WEIGHTED-AVERAGE
      SHARESBasic
      and Diluted
            
            
            9,166,666





See
accompanying notes to financial statements




F-15





CHARDAN
2008 CHINA ACQUISITION CORP.


(A
Development Stage Company)


STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY


For
the Year Ended December 31, 2009 and the Period from February 18, 2008
(Inception) to December 31, 2008










Common
      Stock $.0001 par
              
              
              Additional
              
              
              Accumulated
              
              
              Shareholders'Shares
              
              
              Par
      Value
              
              
              Paid
      in Capital
              
              
              Deficit
              
              
              EquityBeginning
      Balance at February 18, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Initial
      Offering
              
              
              2,291,666
              
              
              
              229
              
              
              
              24,771
              
              
              
              -
              
              
              
              25,000Sale
      of common stock
              
              
              6,875,000
              
              
              
              688
              
              
              
              33,219,249
              
              
              
              
              
              
              
              33,219,937Purchase
      of warrants
              
              
              -
              
              
              
              -
              
              
              
              1,000,000
              
              
              
              -
              
              
              
              1,000,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (59,789
              )
              
              
              (59,789
              )Ending
      Balance at December 31, 2008
              
              
              9,166,666
              
              
              $
              917
              
              
              $
              34,244,020
              
              
              $
              (59,789
              )
              
              $
              34,185,148Common
      Stock $.0001 par
              
              
              Additional
              
              
              Accumulated
              
              
              Shareholders'Shares
              
              
              Par
      Value
              
              
              Paid
      in Capital
              
              
              Deficit
              
              
              EquityBeginning
      Balance at January 1, 2009
              
              
              9,166,666
              
              
              $
              917
              
              
              $
              34,244,020
              
              
              $
              (59,789
              )
              
              $
              34,185,148Additional
      capital
              
              
              -
              
              
              
              -
              
              
              
              9,115
              
              
              
              -
              
              
              
              9,115Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (446,904
              )
              
              
              (446,904
              )Ending
      Balance at December 31, 2009
              
              
              9,166,666
              
              
              $
              917
              
              
              $
              34,253,135
              
              
              $
              (506,693
              )
              
              $
              33,747,359
 
 See
accompanying notes to financial statements
  F-16





CHARDAN
2008 CHINA ACQUISITION CORP.


(A
Development Stage Company)


STATEMENTS
OF CASH FLOWS


For
the Year Ended December 31, 2009 and the Period from February 18, 2008
(Inception) to December 31, 2008





For
      the Period FromFebruary
      19, 2008(inception)
      toDecember
      31,
            
            
            December
      31,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (446,904
            )
            
            $
            (59,789
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Prepaid
      expenses
            
            
            (1,363,702
            )
            
            
            -Accounts
      payable
            
            
            1,397,988
            
            
            
            -Net
      cash used in operating activities
            
            
            (412,618
            )
            
            
            (59,789
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from T-Bills held in trust account
            
            
            262,705
            
            
            
            (54,564,894
            )Net
      cash provided by investing activities
            
            
            262,705
            
            
            
            (54,564,894
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of stock
            
            
            -
            
            
            
            53,230,242Proceeds
      from deferred financing costs
            
            
            -
            
            
            
            1,430,000Costs
      associated with issuance of stock
            
            
            12,429
            
            
            
            -Net
      proceeds from related parties
            
            
            115,545
            
            
            
            9,854Net
      cash provided by financing activities
            
            
            127,974
            
            
            
            54,670,096NET
      CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            (21,939
            )
            
            
            45,413BEGINNING
      OF PERIOD
            
            
            45,413
            
            
            
            -END
      OF PERIOD
            
            $
            23,474
            
            
            $
            45,413Supplementary
      disclosure of cash flow information:Cash
      paid for interest
            
            $
            -
            
            
            $
            -Cash
      paid for taxes
            
            $
            -
            
            
            $
            -





See
accompanying notes to financial statements.




F-17




CHARDAN
2008 CHINA ACQUISITION CORP.
 (A
Development Stage Company)
 
 NOTES
TO AUDITED FINANCIAL STATEMENTS




NOTE
1 –NATURE OF BUSINESS





Chardan
2008 China Acquisition Corp. (the Company) is a newly organized British Virgin
Islands (“BVI”) business company with limited liability.  The Company
is a blank check company formed for the purpose of acquiring, engaging in a
merger, share capital exchange or contractual control arrangement with,
purchasing all or substantially all of the assets of, or engaging in any other
similar business combination of an unidentified operating
business.  The Company intends to focus on identifying a prospective
target business having its primary operations in the People’s Republic of
China.  Efforts in identifying a prospective target business will not
be limited to a particular industry within China.  The Company engaged
in preliminary discussions with several potential targets, but it does not have
any specific merger, share capital exchange, contractual control arrangement,
asset acquisition or other business combination under
consideration.




At
December 31, 2009, the Company had not commenced any operations or generated
revenue. All activity through December 31, 2009 relates to the Company’s
inception, capital raising, the initial public offering described below and
efforts to complete a business combination with DJSP Acquisition LLC (“DAL”).
Following such initial public offering, the Company has not and will not
generate any operating revenues until after completion of its initial business
combination, at the earliest. The Company generates non-operating income in the
form of interest income on cash and cash equivalents, held in a trust account,
from the proceeds of such offering. At December 31, 2009, in preparation for the
closing of the transaction, the Company held $54,302,189 in cash. These funds
have been deposited in a trust account held by JP Morgan Chase’s London branch,
and maintained by Continental Stock Transfer & Trust Company, acting as
trustee.




Pursuant
to the Company’s amended and restated memorandum and articles of association and
applicable provisions of BVI law, the Company will promptly liquidate the trust
account and distribute to our public shareholders all of the funds (net of taxes
owed) held in it as of the date of  our voluntary liquidation if
we:





(a)
            Do
      not effect a business combination within 18 months after consummation of
      the offering, or


(b)
            Do
      not effect a business combination within 30 months from the consummation
      of the offering if a letter of intent, agreement in principle or
      definitive agreement has been executed within 18 months after consummation
      of the offering and the business combination has not yet been consummated
      within such 18 month period, or


(c)
            Do
      not effect a business combination within 36 months from the consummation
      of the offering if the extended period is approved by our
      shareholders.





NOTE
2 - BASIS OF PRESENTATION





The
accompanying financial statements are presented in U.S. dollars and has been
prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) and pursuant to the accounting rules and
disclosure regulations of the Securities and Exchange Commission
(SEC).





NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use
of estimates





In
preparing financial statements in conformity with accounting principles
generally accepted in the United States, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period.  Actual results will differ from those estimates.




Cash
and cash equivalents




The
Company considers all highly liquid debt securities purchased with original or
remaining maturities of three months or less to be cash equivalents. The
carrying value of cash equivalents approximates fair value.





Development
Stage Company





The
Company complies with the reporting requirements issued from FASB for Accounting
and Reporting by Development Stage Enterprises, and is subject to the risks
associated with activities of development stage companies.




F-18




CHARDAN
2008 CHINA ACQUISITION CORP.
 (A
Development Stage Company)
 
 NOTES
TO AUDITED FINANCIAL STATEMENTS


Restricted
cash




In
accordance with Accounting Review Board (ARB) No. 43, Chapter 3A “Current Assets
and Current Liabilities,” cash which is restricted as to withdrawal is
considered a noncurrent asset.  Restricted cash consists of funds held
in trust until provisions for release have been met.  As of December
31, 2009, the Company has approximately $54,302,000 held in cash that are
subject to such restrictions.





Deferred
acquisition costs




Costs
related to proposed acquisition costs are capitalized.  Should an
acquisition not occur, all related costs will be expensed.  As of
December 31, 2009, $1,363,702 of costs related to legal fees, accounting fees,
financial due diligence and other ancillary costs related to the closing of the
transaction have been incurred.





Accrued
Interest




As of
December 31, 2009, there is no accrued interest.




Income
taxes




The
Company accounts for income taxes under the liability
method.  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.  Valuation
allowances are established when it is more likely than not that the deferred tax
assets will not be realized.




Income
(loss) per share




The
Company complies with accounting and disclosure requirements as defined in the
FASB issued guidance for Earnings Per Share. Basic net income/loss per common
share is computed by dividing net income/loss applicable to common stock by the
weighted average number of common shares outstanding for the period. Income/loss
per share of common stock, assuming dilution, reflects the maximum potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and would then share in the net
income of the Company, except where the results would be antidilutive. The
Company uses the treasury stock method to calculate potentially dilutive shares,
as if they were converted into common stock at the beginning of the
period.




Concentration
of credit risks




The
Company is subject to concentrations of credit risk primarily from cash and cash
equivalents.  The Company maintains accounts with financial
institutions, which may exceed the insured Federal Deposit Insurance Corporation
limit of $250,000 in the future.  The Company minimizes its credit
risks associated with cash by periodically evaluating the credit quality of its
primary financial institutions.





Fair
value of financial instrument




The fair
value of the Company’s other current assets and accrued expenses, which qualify
as financial instruments under guidance by FASB for Disclosures About Fair Value
of Financial Instruments, approximates the carrying amounts represented in the
accompanying balance sheet.





Foreign currency
translation:




The
Company’s reporting currency is the U.S. dollar. Although the Company maintains
a cash account with a foreign bank, its expenditures to date have been and are
expected to continue to be denominated in U.S. dollars. Accordingly, the Company
has designated its functional currency as the U.S. dollar.




F-19




CHARDAN
2008 CHINA ACQUISITION CORP.
 (A
Development Stage Company)
 
 NOTES
TO AUDITED FINANCIAL STATEMENTS





As
defined in the FASB issued guidance for Foreign Currency Translation, foreign
currency balance sheets will be translated into U.S. dollars using the exchange
rate in effect rate in effect as of the balance sheet date and the statements of
operations will be translated at the average exchange rates for each period. The
resulting translation adjustments to the balance sheet will be recorded in
accumulated other comprehensive income (loss) within stockholder’s
equity.





Foreign
currency transaction gains and losses will be included in the statement of
operations as they occur.








Recent
accounting pronouncements




The
Financial Accounting Standards Board (the “FASB”) has codified a single source
of U.S. Generally Accepted Accounting Principles (GAAP), the Accounting
Standards CodificationTM. Unless needed to clarify a point to readers, we will
refrain from citing specific section references when discussing application of
accounting principles or addressing new or pending accounting rule changes.
There are no recently issued accounting standards that are expected to have a
material effect on our financial condition, results of operations or cash
flows.





A variety
of proposed or otherwise potential accounting standards are currently under
study by standard-setting organizations and various regulatory agencies. Because
of the tentative and preliminary nature of these proposed standards, management
has not determined whether implementation of such proposed standards would be
material to the Company’s financial statements.





NOTE
4 - UNITED STATES TREASURIES





Since the
closing of the Offering, an amount equal to approximately 98.7% of the gross
proceeds has been held in the Trust Account. The Trust Account may be invested
in U.S. “government securities,” defined as any Treasury Bill or equivalent
securities issued by the United States government having a maturity of one
hundred and eighty (180) days or less or money market funds meeting the
conditions specified in Rule 2a-7 under the Investment Company Act of 1940,
until the earlier of (i) the consummation of its first business combination
or (ii) the distribution of the Trust Account as described below. The
proceeds in the Trust Account includes $2,200,000 of the gross proceeds
representing deferred underwriting discounts and commissions that will be
released to the underwriters on completion of a business
combination.




Investment
securities in the Company’s Trust Account consist of direct U.S. Treasury Bills.
The Company classifies its U.S. Treasury bills as held-to-maturity as defined in
the FASB issued guidance for Accounting for Certain Investments in Debt and
Equity Securities. Held-to-maturity securities are those securities which the
Company has the ability and intent to hold until maturity. Held-to-maturity
treasury securities are recorded at amortized cost and adjusted for the
amortization or accretion of premiums or discounts. Any dividend and interest
income, including any amortization of the premium and discount arising at
acquisition shall continue to be included in earnings. Realized gains and losses
for securities classified as either held-to-maturity also shall continue to be
reported in earnings. The Company’s investment in the U.S. Treasury Bills is
recorded at cost.  There were no holdings as of December 31,
2009.





The
carrying amount, including accrued interest, gross unrealized holding gains, and
fair value of held-to-maturity securities at December 31, 2009 were as
follows:





Held-to-maturity:
            
            Carry
      Amount
            
            
            Gross
              unrealized
              holding
      gains
            
            
            Fair
      valueU.S.
      Treasury securities
            
            
            -
            
            
            
            -
            
            
            
            -





NOTE
5 - ACCOUNTS PAYABLE





As of
December 31, 2009, there was $1,401,302 of accounts payable primarily related to
invoices associated with the closing of the business combination as well as
on-going operational costs owed to third parties.




F-20




CHARDAN
2008 CHINA ACQUISITION CORP.
 (A
Development Stage Company)
 
 NOTES
TO AUDITED FINANCIAL STATEMENTS




NOTE
6 - EQUITY






On March
12, 2008, the Company entered into an agreement to issue 2,291,666 insider units
at a purchase price of $.01091 per unit, for total proceeds of
$25,000.  Each unit consists of one share of common stock and one
warrant.  These units have been issued and proceeds have been
received.  Accordingly, the Company presented these units as issued on
the Statement of Shareholders’ Equity and Balance Sheet as of December 31,
2009.




The
Company calculated the fair value of the warrants by using the Black-Scholes
option-pricing model with the following weighted average assumptions: no
dividend yield for all the years; expected volatility of 30.87%; risk-free
interest rate of 2.5% and an expected life of four years.  Based on
the assumptions above, no value was assigned to these warrants at the date of
issuance.




F-21





CHARDAN
2008 CHINA ACQUISITION CORP.
 (A
Development Stage Company)
 
 NOTES
TO AUDITED FINANCIAL STATEMENTS


NOTE
7 - AGREEMENTS





The
Company has entered into an agreement to pay a monthly fee of $7,500 to a
related entity for general and administrative services.  This
agreement commenced on August 11, 2008 and will continue until the consummation
of a business combination, 30 months from August 11, 2008, or the date on which
the Company ceases its corporate existence, whichever occurs first.





NOTE
8 – LOANS FROM RELATED PARTIES





As of
December 31, 2009, loans from related parties totaled $125,399 which represents
monies lent from Royale Holdings, Chardan Capital and Chardan Capital Markets.
This money was lent to cover operational costs of the Company that could not be
covered entirely by interest earned on the Trust Account.





NOTE
9 – SUBSEQUENT EVENTS





On
December 10, 2009, the Company entered into a material definitive agreement to
enter into a business combination with DAL Group, LLC (“DAL”), which, following
the closing, is one of the largest providers of mortgage processing services in
Florida. At the closing of the business combination with Chardan, DAL owned 100%
of the business and operations of Default Servicing, Inc. and Professional Title
& Abstract Company of Florida and the non-legal operations supporting the
foreclosure and other legal proceedings handled by the Law Offices of David J.
Stern, P.A.




On
January 11, 2010, the Company’s shareholders approved the acquisition of a
controlling interest in DAL at a meeting that took place that day at the offices
of Company’s lawyers in New York City and that the acquisition and all proposals
presented at the meeting were approved with fewer than 0.5% of outstanding
public shares electing to redeem their shares.




On
January 15, 2010, the Company completed the business combination between itself
and DAL.  As a result, the combined Company began trading on the NASDAQ
under the symbols DJSP, DJSPU, and DJSPW on Tuesday, January 19,
2010.  The transaction was recorded as a reverse
acquisition.




We
evaluated events occurring between the end of our fiscal year, December 31,
2009 and March 16, 2010 when the financial statements were issued.




F-22





ITEM
19. EXHIBITS




ExhibitNo.
            
            Description1.1
            
            Second
      Amended and Restated Memorandum and Articles of Association of DJSP
      Enterprises, Inc.  (incorporated herein by reference to Exhibit
      1.1 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).2.1
            
            Specimen
      Ordinary Share Certificate (incorporated herein by reference to Exhibit
      4.1 to Amendment No. 1 to the Company’s Registration Statement on Form F-1
      (File No. 333-164907), as filed with the Securities and Exchange
      Commission on March 26, 2010).2.2
            
            Specimen
      Unit Certificate (incorporated herein by reference to Exhibit 4.2 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-164907), as filed with the Securities and Exchange Commission on
      March 26, 2010).2.3
            
            Specimen
      Warrant Certificate (incorporated herein by reference to Exhibit 4.3 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-164907), as filed with the Securities and Exchange Commission on
      March 26, 2010).2.4
            
            Form
      of Warrant Agreement by and between the Company and Continental Stock
      Transfer & Trust Company (incorporated herein by reference to Exhibit
      4.5 to Amendment No. 1 to the Company’s Registration Statement on Form F-1
      (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.5
            
            Form
      of Registration Rights Agreement by and among the Company and the existing
      shareholders (incorporated herein by reference to Exhibit 10.5 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-152623), as filed with the Securities and Exchange Commission on
      August 4, 2008).2.6
            
            Amendment
      to Registration Rights Agreement, dated as of January 15, 2010, by and
      among the Company and certain existing shareholders signatory
      thereto.*2.7
            
            Private
      Placement Registration Rights Agreement, dated as of December 22, 2009, by
      and between the Company and certain investors signatory thereto
      (incorporated herein by reference to Exhibit 4.4 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.8
            
            Transaction
      Registration Rights Agreement, dated as of January 15, 2010, by and
      between the Company and certain investors signatory thereto (incorporated
      herein by reference to Exhibit 4.5 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).2.9
            
            Form
      of Unit Purchase Option to be granted to the underwriters (incorporated
      herein by reference to Exhibit 4.4 to Amendment No. 1 to the Company’s
      Registration Statement on Form F-1 (File No. 333-152623), as filed with
      the Securities and Exchange Commission on August 4,
  2008).2.10
            
            Form
      ofSecurities
      Escrow Agreement by and among Continental Stock Transfer & Trust
      Company, the Company, and existing shareholders signatory thereto
      (incorporated herein by reference to Exhibit 10.2 to Amendment No. 1 to
      the Company’s Registration Statement on Form F-1 (File No. 333-152623), as
      filed with the Securities and Exchange Commission on August 4,
      2008).2.11
            
            Form
      of Private Placement Warrant Escrow Agreement by and among Continental
      Stock Transfer & Trust Company, the Company, and the purchasers of the
      private placement warrants (incorporated herein by reference to Exhibit
      10.3 to Amendment No. 1 to the Company’s Registration Statement on Form
      F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).




75




ExhibitNo.
            
            Description2.12
            
            Amendment
      to Private Placement Warrant Escrow Agreement, dated as of January 15,
      2020, by and among Continental Stock Transfer & Trust Company, the
      Company, and certain purchasers of the private placement
      warrants.*2.13
            
            Escrow
      Agreement, dated January 15, 2010, by and among DAL Group, LLC, the Law
      Offices of David J. Stern, P.A., Professional Title and Abstract Company
      of Florida, Inc., Default Servicing, Inc., the Company, and U.S. Bank
      National Association (incorporated herein by reference to Exhibit 4.6 to
      the Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film
      No. 10542397), as filed with the Securities and Exchange Commission on
      January 22, 2010).2.14
            
            Form
      of Warrant Purchase Agreement by and between the Company and the
      purchasers of the private placement warrants (incorporated herein by
      reference to Exhibit 10.4 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.15
            
            Form
      of Warrant Sale Agreement, dated as of January 15, 2010, by and among the
      Company, certain of its existing shareholders signatory thereto, the agent
      for the existing shareholders, Law Offices of David J. Stern, P.A.,
      Professional Title and Abstract Company of Florida, Inc., and Default
      Servicing, Inc. (incorporated herein by reference to Exhibit 4.11 to the
      Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film No.
      10542397), as filed with the Securities and Exchange Commission on January
      22, 2010).2.16
            
            Form
      of Letter Agreement by and between the Company, Kerry Propper and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.17
            
            Form
      of Letter Agreement by and between the Company, Xiaosong Zhong and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.7 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.18
            
            Form
      of Letter Agreement by and between the Company, Li Gong and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.19
            
            Form
      of Letter Agreement by and between the Company, Li Zhang and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.9 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.20
            
            Form
      of Letter Agreement by and between the Company, Dr. Jianjun Shi and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.10 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.21
            
            Form
      of Letter Agreement by and between the Company, Steve Urbach and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.1 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.22
            
            Form
      of Letter Agreement by and between the Company, Jonas Grossman and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.2 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4,
2008).




76




ExhibitNo.
            
            Description2.23
            
            Form
      of Letter Agreement by and between the Company, George Kaufman and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.3 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.24
            
            Form
      of Letter Agreement by and between the Company, Todd Gold and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.4 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.25
            
            Form
      of Letter Agreement by and between the Company, Jiangnan Huang and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.5 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.26
            
            Form
      of Letter Agreement by and between the Company, Royale Holdings and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.6 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.27
            
            Form
      of Letter Agreement by and between the Company, Dr. Richard D. Propper and
      the representatives of the underwriters (incorporated herein by reference
      to Exhibit 10.11.7 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.28
            
            Form
      of Letter Agreement by and between the Company, Paula Beharry and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.8 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.29
            
            Form
      of Letter Agreement by and between the Company, Daniel Beharry and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.9 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.30
            
            Form
      of Letter Agreement by and between the Company, Li Ping He, as custodian
      for Tiffany He under the California Uniform Transfers to Minors Act and
      the representatives of the underwriters (incorporated herein by reference
      to Exhibit 10.11.10 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.31
            
            Form
      of Letter Agreement by and between the Company, Carman Ramirez and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.11 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.32
            
            Form
      of Letter Agreement by and between the Company, Edward Carter and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.12 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.33
            
            Form
      of Letter Agreement by and between the Company, Ida Carter and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.13 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.34
            
            Form
      of Senior Term Note (incorporated herein by reference to Exhibit 4.12 to
      the Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film
      No. 10542397), as filed with the Securities and Exchange Commission on
      January 22, 2010).2.35
            
            Senior
      Loan, Security and Pledge Agreement, dated as of January 15, 2010, by and
      among DAL Group, LLC and the lenders listed on Schedule 1 thereto
      (incorporated herein by reference to Exhibit 4.13 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).




77






ExhibitNo.
            
            Description2.36
            
            Subordination
      and Intercreditor Agreement, dated as of January 15, 2010, by and among
      Law Offices of David J. Stern, P.A., Professional Title and Abstract
      Company of Florida, Inc., Default Servicing, Inc., David J. Stern, and the
      lenders listed on Schedule 1 thereto (incorporated herein by reference to
      Exhibit 4.14 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).2.37
            
            Form
      of Senior Security Agreements of each of DJS Processing, LLC, Professional
      Title and Abstract Company of Florida, LLC, and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.15 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.38
            
            Form
      of Senior Guarantees of each of DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.16 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.39
            
            Form
      of Stern Deferral Note (incorporated herein by reference to Exhibit 4.17
      to the Company’s Shell Company Report on Form 20-F (File No. 001-34149,
      Film No. 10542397), as filed with the Securities and Exchange Commission
      on January 22, 2010).2.40
            
            Loan,
      Security, and Pledge Agreement, dated as of January 15, 2010, by and among
      DAL Group, LLC, Law Offices of David J. Stern, P.A., Professional Title
      and Abstract Company of Florida, Inc., and Default Servicing, Inc.
      (incorporated herein by reference to Exhibit 4.18 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.41
            
            Form
      of Security Agreements of each of DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.19 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.42
            
            Form
      of Guarantees of each of DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC and Default Servicing, LLC (incorporated
      herein by reference to Exhibit 4.20 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).2.43
            
            Loan
      Agreement, dated as of March 18, 2010, by and between Bank of America,
      N.A. and DAL Group, LLC.*2.44
            
            Security
      Agreement, dated as of March 18, 2010, by and between Bank of America,
      N.A. and DAL Group, LLC.*2.45
            
            General
      Subordination and Assignment, dated as of March 18, 2010, by and among DAL
      Group LLC, DJS Processing, LLC, Professional Title and Abstract Company of
      Florida, LLC, Default Servicing, LLC, Chardan Capital Markets, LLC, Kerry
      Propper, Chardan Capital LLC,  Law Offices of David J. Stern,
      P.A., Stern Holding Company - PT, Inc. and Stern Holding Company - DS,
      Inc.*2.46
            
            Form
      of Security Agreements by and between Bank of America, N. A. and each of
      DJS Processing, LLC, Professional Title and Abstract Company of Florida,
      LLC, and Default Servicing, LLC.*2.47
            
            Form
      of Guarantees of each of DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC and Default Servicing, LLC. To Bank of
      America, N. A.*  78
  ExhibitNo.
            
            Description3.1
            
            Voting
      Agreement, dated as of January 15, 2010, by and among David J. Stern, Law
      Offices of David J. Stern, P.A., Professional Title and Abstract Company
      of Florida, Inc., Default Servicing, Inc., FlatWorld DAL LLC, Jeffrey A.
      Valenty, Nagina Partners LLC, certain shareholders of the Company
      signatory thereto, and the Company (incorporated herein by reference to
      Exhibit 3.1 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).4.1
            
            Master
      Acquisition Agreement dated as of December 10, 2009, by and among David J.
      Stern, Law Offices of David J. Stern, P.A., Professional Title and
      Abstract Company of Florida, Inc., Default Servicing, Inc., Raj K. Gupta,
      Jeffrey A. Valenty, FlatWorld DAL LLC, Fortuna Capital Partners, LP, DJS
      Processing, LLC, Professional Title and Abstract Company of Florida, LLC,
      Default Servicing, LLC, DAL Group, LLC, and the Company (incorporated
      herein by reference to Annex C to the Company’s Proxy Statement, filed
      under cover of Form 6-K (File No. 001-34149, Film No. 091262797), as filed
      with the Securities and Exchange Commission on December 29,
      2009).4.2
            
            Contribution
      and Membership Interest Purchase Agreement by and among David J. Stern,
      Law Offices of David J. Stern, P.A., Professional Title and Abstract
      Company of Florida, Inc., Default Servicing, Inc., Raj K. Gupta, Jeffrey
      A. Valenty, FlatWorld DAL LLC, Fortuna Capital Partners, LP, DJS
      Processing, LLC, Professional Title and Abstract Company of Florida, LLC,
      Default Servicing, LLC, DAL Group, LLC, and the Company (incorporated
      herein by reference to Exhibit 4.2 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).4.3
            
            Employment
      Agreement of David J. Stern, dated as of January 15, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, the Company, and David J. Stern
      (incorporated herein by reference to Exhibit 4.7 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).4.4
            
            Stern
      Confidentiality and Noncompetition Agreement, dated as of January 15,
      2010, by and among  DAL Group, LLC, DJS Processing, LLC, the
      Company, and David J. Stern.*4.5
            
            Employment
      Agreement of Kumar Gursahaney, dated as of February 15, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC, Default Servicing, LLC, the Company and Kumar
      Gursahaney.*4.6
            
            Gursahaney
      Confidentiality and Noncompetition Agreement dated as of February 15,
      2010, by and among DAL Group, LLC, DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC, Default Servicing, LLC, the Company
      and Kumar Gursahaney.*4.7
            
            Employment
      Agreement of Matthew S. Kayton, dated as of March 2, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC, Default Servicing, LLC, the Company and Matthew
      S. Kayton.*4.8
            
            Kayton
      Confidentiality and Noncompetition Agreement, dated as of March 2, 2010,
      by and among DAL Group, LLC, DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC, Default Servicing, LLC, the Company and
      Matthew S. Kayton.*4.9
            
            2009
      Equity Incentive Plan, effective January 11, 2010 (incorporated herein by
      reference to Exhibit 4.8 to the Company’s Shell Company Report on Form
      20-F (File No. 001-34149, Film No. 10542397), as filed with the Securities
      and Exchange Commission on January 22, 2010).4.10
            
            Services
      Agreement, dated as of January 15, 2010, by and between Law Offices of
      David J. Stern, P.A. and DJS Processing, LLC.**4.11
            
            FlatWorld
      Services Agreement, dated as of January 15, 2010, by and between DAL
      Group, LLC and FlatWorld Consulting LLC (incorporated herein by reference
      to Exhibit 4.9 to the Company’s Shell Company Report on Form 20-F (File
      No. 001-34149, Film No. 10542397), as filed with the Securities and
      Exchange Commission on January 22, 2010).4.12
            
            Consulting
      Services Agreement, dated as of January 15, 2010, by and between DAL
      Group, LLC and the Company (incorporated herein by reference to Exhibit
      4.10 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).  79
  ExhibitNo.
            
            Description4.13
            
            DAL
      Group, LLC Tax Indemnification Agreement, dated as of January 15, 2010, by
      and between DAL Group, LLC and the Company.*4.14
            
            Stern
      Participants Tax Indemnification Agreement, dated as of January 15, 2010,
      by and among David J. Stern, Law Offices of David J. Stern, P.A.,
      Professional Title and Abstract Company of Florida, Inc., Default
      Servicing, Inc., DAL Group, LLC and the Company.*4.15
            
            FlatWorld
      Participants Tax Indemnification Agreement, dated as of January 15, 2010,
      by and among Raj Gupta, Jeffrey Valenty, FlatWorld DAL LLC, DAL Group, LLC
      and the Company.*4.16
            
            Transferred
      Employees Payroll and Benefits Transition and Reimbursement Agreement,
      dated as of January 15, 2010, by and among Law Offices of David J. Stern,
      P.A., Professional Title and Abstract Company of Florida, Inc., Default
      Servicing, Inc., DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC and Default Servicing, LLC.*4.17
            
            Law
      Offices of David J. Stern, P.A. 401(k) Plan Cost-Sharing Agreement, dated
      as of January 19, 2010, by and among Law Offices of David J. Stern, P.A.,
      DJS Processing, LLC, Professional Title and Abstract Company of Florida,
      LLC and Default Servicing, LLC.*4.18
            
            Facilities
      Sharing Agreement, dated as of January 15, 2010, by and between Law
      Offices of David J. Stern, P.A. and DJS Processing,
  LLC.*4.19
            
            Amended
      and Restated Limited Liability Company Agreement of DAL Group, LLC
      (incorporated herein by reference to Exhibit 4.21 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).4.20
            
            First
      Amendment to Amended and Restated Limited Liability Company Agreement of
      DAL Group, LLC, dated as of January 15, 2010.*4.21
            
            Form
      of Non-Employee Director Nonqualified Share Option Agreement (incorporated
      herein by reference to Exhibit 4.22 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).4.22
            
            Form
      of Nonqualified Share Option Agreement - Employees (incorporated herein by
      reference to Exhibit 4.23 to the Company’s Shell Company Report on Form
      20-F (File No. 001-34149, Film No. 10542397), as filed with the Securities
      and Exchange Commission on January 22, 2010).4.23
            
            Form
      of Nonqualified Share Option Agreement – Consultants.*4.24
            
            Form
      of Director Hold Harmless Indemnification Agreement.*4.25
            
            Form
      of Officer Hold Harmless Indemnification Agreement.*4.26
            
            Security
      Agreement, dated as of March 18, 2010, by and between Law Offices of David
      J. Stern, P.A. and DJS Processing, LLC.*8.1
            
            List
      of Subsidiaries.*11.1
            
            Code
      of Conduct and Ethics (incorporated herein by reference to Exhibit 14 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-152623), as filed with the Securities and Exchange Commission on
      August 4, 2008).12.1
            
            CEO
      Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) (17 CFR
      240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a)).12.2
            
            CFO
      Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule
      15d-1(a) (17 CFR 240.15d-14(a)).13.1
            
            CEO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.13.2
            
            CFO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





*
            Filed
      herewith.**
            Filed
      herewith.  Portions of this exhibit have been omitted pursuant
      to the Company’s request to the Secretary of the Securities and Exchange
      Commission for confidential treatment, pursuant to Rule 24b-2 under the
      Securities Exchange Act of 1934, as
amended.




80





The
Company will furnish, upon request, other long-term debt instruments, under
which the total amount of securities authorized does not exceed 10% of the
Company’s assets.




SIGNATURES







The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this shell company report on its behalf.




DJSP ENTERPRISES,
INC.Date :
      April 1, 2010
              By:
              /s/ Kumar GursahaneyName :
      Kumar GursahanTitle :
      Chief Financial Officer





81




EXHIBIT
INDEX




ExhibitNo.
              
              Description1.1
              
              Second
      Amended and Restated Memorandum and Articles of Association of DJSP
      Enterprises, Inc.  (incorporated herein by reference to Exhibit
      1.1 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).2.1
              
              Specimen
      Ordinary Share Certificate (incorporated herein by reference to Exhibit
      4.1 to Amendment No. 1 to the Company’s Registration Statement on Form F-1
      (File No. 333-164907), as filed with the Securities and Exchange
      Commission on March 26, 2010).2.2
              
              Specimen
      Unit Certificate (incorporated herein by reference to Exhibit 4.2 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-164907), as filed with the Securities and Exchange Commission on
      March 26, 2010).2.3
              
              Specimen
      Warrant Certificate (incorporated herein by reference to Exhibit 4.3 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-164907), as filed with the Securities and Exchange Commission on
      March 26, 2010).2.4
              
              Form
      of Warrant Agreement by and between the Company and Continental Stock
      Transfer & Trust Company (incorporated herein by reference to Exhibit
      4.5 to Amendment No. 1 to the Company’s Registration Statement on Form F-1
      (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.5
              
              Form
      of Registration Rights Agreement by and among the Company and the existing
      shareholders (incorporated herein by reference to Exhibit 10.5 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-152623), as filed with the Securities and Exchange Commission on
      August 4, 2008).2.6
              
              Amendment
      to Registration Rights Agreement, dated as of January 15, 2010, by and
      among the Company and certain existing shareholders signatory
      thereto.*2.7
              
              Private
      Placement Registration Rights Agreement, dated as of December 22, 2009, by
      and between the Company and certain investors signatory thereto
      (incorporated herein by reference to Exhibit 4.4 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.8
              
              Transaction
      Registration Rights Agreement, dated as of January 15, 2010, by and
      between the Company and certain investors signatory thereto (incorporated
      herein by reference to Exhibit 4.5 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).2.9
              
              Form
      of Unit Purchase Option to be granted to the underwriters (incorporated
      herein by reference to Exhibit 4.4 to Amendment No. 1 to the Company’s
      Registration Statement on Form F-1 (File No. 333-152623), as filed with
      the Securities and Exchange Commission on August 4,
  2008).2.10
              
              Form
      ofSecurities
      Escrow Agreement by and among Continental Stock Transfer & Trust
      Company, the Company, and existing shareholders signatory thereto
      (incorporated herein by reference to Exhibit 10.2 to Amendment No. 1 to
      the Company’s Registration Statement on Form F-1 (File No. 333-152623), as
      filed with the Securities and Exchange Commission on August 4,
      2008).2.11
              
              Form
      of Private Placement Warrant Escrow Agreement by and among Continental
      Stock Transfer & Trust Company, the Company, and the purchasers of the
      private placement warrants (incorporated herein by reference to Exhibit
      10.3 to Amendment No. 1 to the Company’s Registration Statement on Form
      F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).
  82
  ExhibitNo.
              
              Description2.12
              
              Amendment
      to Private Placement Warrant Escrow Agreement, dated as of January 15,
      2020, by and among Continental Stock Transfer & Trust Company, the
      Company, and certain purchasers of the private placement
      warrants.*2.13
              
              Escrow
      Agreement, dated January 15, 2010, by and among DAL Group, LLC, the Law
      Offices of David J. Stern, P.A., Professional Title and Abstract Company
      of Florida, Inc., Default Servicing, Inc., the Company, and U.S. Bank
      National Association (incorporated herein by reference to Exhibit 4.6 to
      the Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film
      No. 10542397), as filed with the Securities and Exchange Commission on
      January 22, 2010).2.14
              
              Form
      of Warrant Purchase Agreement by and between the Company and the
      purchasers of the private placement warrants (incorporated herein by
      reference to Exhibit 10.4 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.15
              
              Form
      of Warrant Sale Agreement, dated as of January 15, 2010, by and among the
      Company, certain of its existing shareholders signatory thereto, the agent
      for the existing shareholders, Law Offices of David J. Stern, P.A.,
      Professional Title and Abstract Company of Florida, Inc., and Default
      Servicing, Inc. (incorporated herein by reference to Exhibit 4.11 to the
      Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film No.
      10542397), as filed with the Securities and Exchange Commission on January
      22, 2010).2.16
              
              Form
      of Letter Agreement by and between the Company, Kerry Propper and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.17
              
              Form
      of Letter Agreement by and between the Company, Xiaosong Zhong and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.7 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.18
              
              Form
      of Letter Agreement by and between the Company, Li Gong and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.19
              
              Form
      of Letter Agreement by and between the Company, Li Zhang and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.9 to Amendment No. 1 to the Company’s Registration Statement on
      Form F-1 (File No. 333-152623), as filed with the Securities and Exchange
      Commission on August 4, 2008).2.20
              
              Form
      of Letter Agreement by and between the Company, Dr. Jianjun Shi and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.10 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.21
              
              Form
      of Letter Agreement by and between the Company, Steve Urbach and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.1 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.22
              
              Form
      of Letter Agreement by and between the Company, Jonas Grossman and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.2 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4,
2008).
  83
  ExhibitNo.
              
              Description2.23
              
              Form
      of Letter Agreement by and between the Company, George Kaufman and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.3 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.24
              
              Form
      of Letter Agreement by and between the Company, Todd Gold and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.4 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.25
              
              Form
      of Letter Agreement by and between the Company, Jiangnan Huang and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.5 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.26
              
              Form
      of Letter Agreement by and between the Company, Royale Holdings and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.6 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.27
              
              Form
      of Letter Agreement by and between the Company, Dr. Richard D. Propper and
      the representatives of the underwriters (incorporated herein by reference
      to Exhibit 10.11.7 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.28
              
              Form
      of Letter Agreement by and between the Company, Paula Beharry and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.8 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.29
              
              Form
      of Letter Agreement by and between the Company, Daniel Beharry and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.9 to Amendment No. 1 to the Company’s Registration Statement
      on Form F-1 (File No. 333-152623), as filed with the Securities and
      Exchange Commission on August 4, 2008).2.30
              
              Form
      of Letter Agreement by and between the Company, Li Ping He, as custodian
      for Tiffany He under the California Uniform Transfers to Minors Act and
      the representatives of the underwriters (incorporated herein by reference
      to Exhibit 10.11.10 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.31
              
              Form
      of Letter Agreement by and between the Company, Carman Ramirez and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.11 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.32
              
              Form
      of Letter Agreement by and between the Company, Edward Carter and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.12 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.33
              
              Form
      of Letter Agreement by and between the Company, Ida Carter and the
      representatives of the underwriters (incorporated herein by reference to
      Exhibit 10.11.13 to Amendment No. 1 to the Company’s Registration
      Statement on Form F-1 (File No. 333-152623), as filed with the Securities
      and Exchange Commission on August 4, 2008).2.34
              
              Form
      of Senior Term Note (incorporated herein by reference to Exhibit 4.12 to
      the Company’s Shell Company Report on Form 20-F (File No. 001-34149, Film
      No. 10542397), as filed with the Securities and Exchange Commission on
      January 22, 2010).2.35
              
              Senior
      Loan, Security and Pledge Agreement, dated as of January 15, 2010, by and
      among DAL Group, LLC and the lenders listed on Schedule 1 thereto
      (incorporated herein by reference to Exhibit 4.13 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).
  84
   ExhibitNo.
              
              Description2.36
              
              Subordination
      and Intercreditor Agreement, dated as of January 15, 2010, by and among
      Law Offices of David J. Stern, P.A., Professional Title and Abstract
      Company of Florida, Inc., Default Servicing, Inc., David J. Stern, and the
      lenders listed on Schedule 1 thereto (incorporated herein by reference to
      Exhibit 4.14 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).2.37
              
              Form
      of Senior Security Agreements of each of DJS Processing, LLC, Professional
      Title and Abstract Company of Florida, LLC, and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.15 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.38
              
              Form
      of Senior Guarantees of each of DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.16 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.39
              
              Form
      of Stern Deferral Note (incorporated herein by reference to Exhibit 4.17
      to the Company’s Shell Company Report on Form 20-F (File No. 001-34149,
      Film No. 10542397), as filed with the Securities and Exchange Commission
      on January 22, 2010).2.40
              
              Loan,
      Security, and Pledge Agreement, dated as of January 15, 2010, by and among
      DAL Group, LLC, Law Offices of David J. Stern, P.A., Professional Title
      and Abstract Company of Florida, Inc., and Default Servicing, Inc.
      (incorporated herein by reference to Exhibit 4.18 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.41
              
              Form
      of Security Agreements of each of DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC and Default Servicing, LLC
      (incorporated herein by reference to Exhibit 4.19 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).2.42
              
              Form
      of Guarantees of each of DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC and Default Servicing, LLC (incorporated
      herein by reference to Exhibit 4.20 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).2.43
              
              Loan
      Agreement, dated as of March 18, 2010, by and between Bank of America,
      N.A. and DAL Group, LLC.*2.44
              
              Security
      Agreement, dated as of March 18, 2010, by and between Bank of America,
      N.A. and DAL Group, LLC.*2.45
              
              General
      Subordination and Assignment, dated as of March 18, 2010, by and among DAL
      Group LLC, DJS Processing, LLC, Professional Title and Abstract Company of
      Florida, LLC, Default Servicing, LLC, Chardan Capital Markets, LLC, Kerry
      Propper, Chardan Capital LLC,  Law Offices of David J. Stern,
      P.A., Stern Holding Company - PT, Inc. and Stern Holding Company - DS,
      Inc.*2.46
              
              Form
      of Security Agreements by and between Bank of America, N. A. and each of
      DJS Processing, LLC, Professional Title and Abstract Company of Florida,
      LLC, and Default Servicing, LLC.*2.47
              
              Form
      of Guarantees of each of DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC and Default Servicing, LLC. To Bank of
      America, N. A.*  85
  ExhibitNo.
              
              Description3.1
              
              Voting
      Agreement, dated as of January 15, 2010, by and among David J. Stern, Law
      Offices of David J. Stern, P.A., Professional Title and Abstract Company
      of Florida, Inc., Default Servicing, Inc., FlatWorld DAL LLC, Jeffrey A.
      Valenty, Nagina Partners LLC, certain shareholders of the Company
      signatory thereto, and the Company (incorporated herein by reference to
      Exhibit 3.1 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).4.1
              
              Master
      Acquisition Agreement dated as of December 10, 2009, by and among David J.
      Stern, Law Offices of David J. Stern, P.A., Professional Title and
      Abstract Company of Florida, Inc., Default Servicing, Inc., Raj K. Gupta,
      Jeffrey A. Valenty, FlatWorld DAL LLC, Fortuna Capital Partners, LP, DJS
      Processing, LLC, Professional Title and Abstract Company of Florida, LLC,
      Default Servicing, LLC, DAL Group, LLC, and the Company (incorporated
      herein by reference to Annex C to the Company’s Proxy Statement, filed
      under cover of Form 6-K (File No. 001-34149, Film No. 091262797), as filed
      with the Securities and Exchange Commission on December 29,
      2009).4.2
              
              Contribution
      and Membership Interest Purchase Agreement by and among David J. Stern,
      Law Offices of David J. Stern, P.A., Professional Title and Abstract
      Company of Florida, Inc., Default Servicing, Inc., Raj K. Gupta, Jeffrey
      A. Valenty, FlatWorld DAL LLC, Fortuna Capital Partners, LP, DJS
      Processing, LLC, Professional Title and Abstract Company of Florida, LLC,
      Default Servicing, LLC, DAL Group, LLC, and the Company (incorporated
      herein by reference to Exhibit 4.2 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).4.3
              
              Employment
      Agreement of David J. Stern, dated as of January 15, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, the Company, and David J. Stern
      (incorporated herein by reference to Exhibit 4.7 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).4.4
              
              Stern
      Confidentiality and Noncompetition Agreement, dated as of January 15,
      2010, by and among  DAL Group, LLC, DJS Processing, LLC, the
      Company, and David J. Stern.*4.5
              
              Employment
      Agreement of Kumar Gursahaney, dated as of February 15, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC, Default Servicing, LLC, the Company and Kumar
      Gursahaney.*4.6
              
              Gursahaney
      Confidentiality and Noncompetition Agreement dated as of February 15,
      2010, by and among DAL Group, LLC, DJS Processing, LLC, Professional Title
      and Abstract Company of Florida, LLC, Default Servicing, LLC, the Company
      and Kumar Gursahaney.*4.7
              
              Employment
      Agreement of Matthew S. Kayton, dated as of March 2, 2010, by and among
      DAL Group, LLC, DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC, Default Servicing, LLC, the Company and Matthew
      S. Kayton.*4.8
              
              Kayton
      Confidentiality and Noncompetition Agreement, dated as of March 2, 2010,
      by and among DAL Group, LLC, DJS Processing, LLC, Professional Title and
      Abstract Company of Florida, LLC, Default Servicing, LLC, the Company and
      Matthew S. Kayton.*4.9
              
              2009
      Equity Incentive Plan, effective January 11, 2010 (incorporated herein by
      reference to Exhibit 4.8 to the Company’s Shell Company Report on Form
      20-F (File No. 001-34149, Film No. 10542397), as filed with the Securities
      and Exchange Commission on January 22, 2010).4.10
              
              Services
      Agreement, dated as of January 15, 2010, by and between Law Offices of
      David J. Stern, P.A. and DJS Processing, LLC.**4.11
              
              FlatWorld
      Services Agreement, dated as of January 15, 2010, by and between DAL
      Group, LLC and FlatWorld Consulting LLC (incorporated herein by reference
      to Exhibit 4.9 to the Company’s Shell Company Report on Form 20-F (File
      No. 001-34149, Film No. 10542397), as filed with the Securities and
      Exchange Commission on January 22, 2010).4.12
              
              Consulting
      Services Agreement, dated as of January 15, 2010, by and between DAL
      Group, LLC and the Company (incorporated herein by reference to Exhibit
      4.10 to the Company’s Shell Company Report on Form 20-F (File No.
      001-34149, Film No. 10542397), as filed with the Securities and Exchange
      Commission on January 22, 2010).  86
  ExhibitNo.
              
              Description4.13
              
              DAL
      Group, LLC Tax Indemnification Agreement, dated as of January 15, 2010, by
      and between DAL Group, LLC and the Company.*4.14
              
              Stern
      Participants Tax Indemnification Agreement, dated as of January 15, 2010,
      by and among David J. Stern, Law Offices of David J. Stern, P.A.,
      Professional Title and Abstract Company of Florida, Inc., Default
      Servicing, Inc., DAL Group, LLC and the Company.*4.15
              
              FlatWorld
      Participants Tax Indemnification Agreement, dated as of January 15, 2010,
      by and among Raj Gupta, Jeffrey Valenty, FlatWorld DAL LLC, DAL Group, LLC
      and the Company.*4.16
              
              Transferred
      Employees Payroll and Benefits Transition and Reimbursement Agreement,
      dated as of January 15, 2010, by and among Law Offices of David J. Stern,
      P.A., Professional Title and Abstract Company of Florida, Inc., Default
      Servicing, Inc., DJS Processing, LLC, Professional Title and Abstract
      Company of Florida, LLC and Default Servicing, LLC.*4.17
              
              Law
      Offices of David J. Stern, P.A. 401(k) Plan Cost-Sharing Agreement, dated
      as of January 19, 2010, by and among Law Offices of David J. Stern, P.A.,
      DJS Processing, LLC, Professional Title and Abstract Company of Florida,
      LLC and Default Servicing, LLC.*4.18
              
              Facilities
      Sharing Agreement, dated as of January 15, 2010, by and between Law
      Offices of David J. Stern, P.A. and DJS Processing,
  LLC.*4.19
              
              Amended
      and Restated Limited Liability Company Agreement of DAL Group, LLC
      (incorporated herein by reference to Exhibit 4.21 to the Company’s Shell
      Company Report on Form 20-F (File No. 001-34149, Film No. 10542397), as
      filed with the Securities and Exchange Commission on January 22,
      2010).4.20
              
              First
      Amendment to Amended and Restated Limited Liability Company Agreement of
      DAL Group, LLC, dated as of January 15, 2010.*4.21
              
              Form
      of Non-Employee Director Nonqualified Share Option Agreement (incorporated
      herein by reference to Exhibit 4.22 to the Company’s Shell Company Report
      on Form 20-F (File No. 001-34149, Film No. 10542397), as filed with the
      Securities and Exchange Commission on January 22,
2010).4.22
              
              Form
      of Nonqualified Share Option Agreement - Employees (incorporated herein by
      reference to Exhibit 4.23 to the Company’s Shell Company Report on Form
      20-F (File No. 001-34149, Film No. 10542397), as filed with the Securities
      and Exchange Commission on January 22, 2010).4.23
              
              Form
      of Nonqualified Share Option Agreement – Consultants.*4.24
              
              Form
      of Director Hold Harmless Indemnification Agreement.*4.25
              
              Form
      of Officer Hold Harmless Indemnification Agreement.*4.26
              
              Security
      Agreement, dated as of March 18, 2010, by and between Law Offices of David
      J. Stern, P.A. and DJS Processing, LLC.*8.1
              
              List
      of Subsidiaries.*11.1
              
              Code
      of Conduct and Ethics (incorporated herein by reference to Exhibit 14 to
      Amendment No. 1 to the Company’s Registration Statement on Form F-1 (File
      No. 333-152623), as filed with the Securities and Exchange Commission on
      August 4, 2008).12.1
              
              CEO
      Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) (17 CFR
      240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a)).12.2
              
              CFO
      Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule
      15d-1(a) (17 CFR 240.15d-14(a)).13.1
              
              CEO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.13.2
              
              CFO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 *
              Filed
      herewith.**
              Filed
      herewith.  Portions of this exhibit have been omitted pursuant
      to the Company’s request to the Secretary of the Securities and Exchange
      Commission for confidential treatment, pursuant to Rule 24b-2 under the
      Securities Exchange Act of 1934, as
amended.
  87