UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549




FORM
10-Q




(Mark
One)




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




FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2010




OR




oTRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




FOR
THE TRANSITION FROM _______ TO ________.




COMMISSION
FILE NUMBER 000-27159




SUNWAY GLOBAL
INC.


(Exact
Name of Registrant as Specified in its Charter)




Nevada
              
              26-1650042(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)





Daqing Hi-Tech Industry
Development Zone, Daqing, Heilongjiang, People’s Republic of China,
163316


(Address
of principal executive offices) (Zip Code)





Issuer's
telephone Number: 86-459-604-6043




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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes o  No  o




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




Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o
              Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  o No x




APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS


DURING
THE PRECEDING FIVE YEARS




Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes  o No o




APPLICABLE
ONLY TO CORPORATE ISSUERS




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of August 13, 2010, there were 18,499,736
outstanding shares of the Registrant's Common Stock, $0.0000001 par
value.










TABLE
OF CONTENTS





PagePART
      IItem
      1.
                      Financial
      Statements
                      
                      4Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                      
                      33Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      40Item
      4.
                      Controls
      and Procedures
                      
                      40PART
      IIItem
      1.
                      Legal
      Proceedings
                      
                      41Item
      1A.
                      Risk
      Factors
                      
                      41Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      41Item
      3.
                      Defaults
      Upon Senior Securities
                      
                      41Item
      4.
                      (Removed
      and Reserved)
                      
                      41Item
      5.
                      Other
      Information
                      
                      41Item
      6.
                      Exhibits
                      
                      41





2





PART I


FINANCIAL
INFORMATION




ITEM
1. FINANCIAL STATEMENTS





CONTENTS
                      
                      PAGESCONSOLIDATED
      BALANCE SHEETS
                      
                      4 –
      5CONSOLIDATED
      STATEMENTS OF INCOME ANDCOMPREHENSIVE
      INCOME
                      
                      6 –
      7CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY
                      
                      8CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                      
                      9 –
      10NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                      
                      11 –
      32




3




SUNWAY
GLOBAL INC.





CONSOLIDATED
BALANCE SHEETS


AS
AT JUNE 30, 2010 AND DECEMBER 31, 2009


(Stated
in US Dollars)


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





See
accompanying notes to consolidated financial statements




4




SUNWAY
GLOBAL INC.





CONSOLIDATED
BALANCE SHEETS (Continued)


AS
AT JUNE 30, 2010 AND DECEMBER 31, 2009


(Stated
in US Dollars)




Notes
                                                                        
                                                                        
                                                                        June 30, 2010
                                                                        
                                                                        
                                                                        December 31, 2009(Unaudited)
                                                                        
                                                                        
                                                                        (Audited)STOCKHOLDERS’
      EQUITYSeries
      B Convertible PreferredStock
      $0.0000001 par value; 400,000shares
      authorized; 160,494 shares issuedand
      outstanding at June 30, 2010and  December
      31, 2009
                                                                        
                                                                        
                                                                        14
                                                                        
                                                                        
                                                                        $
                                                                        1
                                                                        
                                                                        
                                                                        $
                                                                        1Common
      stock at $0.0000001 parvalue;
      100,000,000 shares authorized;18,499,736
      shares issued andoutstanding
      at June 30, 2010and
      December 31, 2009
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        2
                                                                        
                                                                        
                                                                        
                                                                        2Additional
      paid-in capital
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        18,689,023
                                                                        
                                                                        
                                                                        
                                                                        18,689,023Statutory
      reserves
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        3,033,855
                                                                        
                                                                        
                                                                        
                                                                        3,033,855Accumulated
      deficit
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (23,343,785
                                                                        )
                                                                        
                                                                        
                                                                        (26,590,859
                                                                        )Accumulated
      other comprehensive income
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        3,093,513
                                                                        
                                                                        
                                                                        
                                                                        2,915,737$
                                                                        1,472,609
                                                                        
                                                                        
                                                                        $
                                                                        (1,952,241
                                                                        )TOTAL
      LIABILITIES ANDSTOCKHOLDERS’
      EQUITY
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        44,943,246
                                                                        
                                                                        
                                                                        $
                                                                        40,545,104





See
accompanying notes to consolidated financial statements




5




SUNWAY
GLOBAL INC.





CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)




Notes
                          
                          
                          Six months ended June 302010
                          
                          
                          2009Net
      revenues
                          
                          18
                          
                          
                          $
                          10,651,461
                          
                          
                          $
                          5,668,342Cost
      of net revenues
                          
                          18
                          
                          
                          
                          (3,525,352
                          )
                          
                          
                          (1,981,286
                          )Gross
      profit
                          
                          
                          
                          
                          
                          $
                          7,126,109
                          
                          
                          $
                          3,687,056Selling
      expenses
                          
                          
                          
                          
                          
                          
                          (750,724
                          )
                          
                          
                          (361,302
                          )General
      and administrative expenses
                          
                          
                          
                          
                          
                          
                          (1,596,341
                          )
                          
                          
                          (1,394,473
                          )Income
      from operations
                          
                          
                          
                          
                          
                          $
                          4,779,044
                          
                          
                          $
                          1,931,281Interest
      expenses
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          (1,727
                          )Interest
      income
                          
                          
                          
                          
                          
                          
                          9,269
                          
                          
                          
                          42,240Impairment
      on investment
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          (4,831,386
                          )Changes
      in fair value of warrants
                          
                          
                          
                          
                          
                          
                          (803,396
                          )
                          
                          
                          10,934,559Income
      before income tax
                          
                          
                          
                          
                          
                          $
                          3,984,917
                          
                          
                          $
                          8,074,967Income
      tax expense
                          
                          15
                          
                          
                          
                          (737,843
                          )
                          
                          
                          (333,673
                          )Net
      income
                          
                          
                          
                          
                          
                          $
                          3,247,074
                          
                          
                          $
                          7,741,294Net
      income per share:-Basic
                          
                          
                          
                          
                          
                          $
                          0.18
                          
                          
                          $
                          0.42-Diluted
                          
                          
                          
                          
                          
                          $
                          0.12
                          
                          
                          $
                          0.25Weighted
      average number of common stock-Basic
                          
                          16
                          
                          
                          
                          18,499,736
                          
                          
                          
                          18,499,736-Diluted
                          
                          16
                          
                          
                          
                          27,631,984
                          
                          
                          
                          30,969,100





See
accompanying notes to consolidated financial statements




6




SUNWAY
GLOBAL INC.





CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008


(Stated
in US Dollars)(Unaudited)





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





See
accompanying notes to consolidated financial statements





7




SUNWAY
GLOBAL INC.





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR
THE YEAR ENDED DECEMBER 31, 2009 AND SIX MONTHS ENDED JUNE 30, 2010


(Stated
in US Dollars)(Unaudited)





Additional
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              AccumulatedPreferred
                                              
                                              
                                              No. of
                                              
                                              
                                              
                                              
                                              
                                              paid
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              otherSeries
                                              
                                              
                                              shares
                                              
                                              
                                              Common
                                              
                                              
                                              in
                                              
                                              
                                              Statutory
                                              
                                              
                                              Accumulated
                                              
                                              
                                              comprehensiveB
                                              
                                              
                                              outstanding
                                              
                                              
                                              stock
                                              
                                              
                                              capital
                                              
                                              
                                              reserves
                                              
                                              
                                              deficit
                                              
                                              
                                              income
                                              
                                              
                                              TotalBalance,
      January 1, 2009
                                              
                                              $
                                              1
                                              
                                              
                                              
                                              18,499,736
                                              
                                              
                                              $
                                              2
                                              
                                              
                                              $
                                              22,679,965
                                              
                                              
                                              $
                                              2,127,978
                                              
                                              
                                              $
                                              12,247,049
                                              
                                              
                                              $
                                              2,844,190
                                              
                                              
                                              $
                                              39,899,185Reclassification
      of warrants from equity to derivative liabilities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (3,990,942
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (65,910,931
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (69,901,873
                                              )Net
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              27,978,900
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              27,978,900Appropriations
      to statutoryreserves
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              905,877
                                              
                                              
                                              
                                              (905,877
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Foreign
      currency translationadjustment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              71,547
                                              
                                              
                                              
                                              71,547Balance,
      December 31, 2009
                                              
                                              $
                                              1
                                              
                                              
                                              
                                              18,499,736
                                              
                                              
                                              $
                                              2
                                              
                                              
                                              $
                                              18,689,023
                                              
                                              
                                              $
                                              3,033,855
                                              
                                              
                                              $
                                              (26,590,859
                                              )
                                              
                                              $
                                              2,915,737
                                              
                                              
                                              $
                                              (1,952,241
                                              )Balance,
      January 1, 2010
                                              
                                              $
                                              1
                                              
                                              
                                              
                                              18,499,736
                                              
                                              
                                              $
                                              2
                                              
                                              
                                              $
                                              18,689,023
                                              
                                              
                                              $
                                              3,033,855
                                              
                                              
                                              $
                                              (26,590,859
                                              )
                                              
                                              $
                                              2,915,737
                                              
                                              
                                              $
                                              (1,952,241
                                              )Net
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,247,074
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,247,074Foreign
      currency translationadjustment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              177,776
                                              
                                              
                                              
                                              177,776Balance,
      June 30, 2010
                                              
                                              $
                                              1
                                              
                                              
                                              
                                              18,499,736
                                              
                                              
                                              $
                                              2
                                              
                                              
                                              $
                                              18,689,023
                                              
                                              
                                              $
                                              3,033,855
                                              
                                              
                                              $
                                              (23,343,785
                                              )
                                              
                                              $
                                              3,093,513
                                              
                                              
                                              $
                                              1,472,609





See
accompanying notes to consolidated financial statements





8





SUNWAY
GLOBAL INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars) (Unaudited)





Six months ended June 302010
                                            
                                            
                                            2009Cash
      flows from operating activitiesNet
      income/(loss)
                                            
                                            $
                                            3,247,074
                                            
                                            
                                            $
                                            7,741,294Depreciation
                                            
                                            
                                            884,100
                                            
                                            
                                            
                                            474,148Amortization
                                            
                                            
                                            782,662
                                            
                                            
                                            
                                            407,773Loss
      on disposal of fixed assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            9,552Changes
      in fair value of warrants
                                            
                                            
                                            803,396
                                            
                                            
                                            
                                            (10,934,559
                                            )Impairment
      on investment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,831,386Adjustments
      to reconcile net incometo
      net cash provided by operating activities:Trade
      receivables, net
                                            
                                            
                                            (2,740,952
                                            )
                                            
                                            
                                            (114,774
                                            )Inventories
                                            
                                            
                                            (334,075
                                            )
                                            
                                            
                                            (245,971
                                            )Advances
      to suppliers
                                            
                                            
                                            466,488
                                            
                                            
                                            
                                            (496,537
                                            )Prepayments
                                            
                                            
                                            (100,774
                                            )
                                            
                                            
                                            (61,658
                                            )Tender
      deposits
                                            
                                            
                                            40,866
                                            
                                            
                                            
                                            85,880Travel
      advances to shareholders
                                            
                                            
                                            13,174
                                            
                                            
                                            
                                            (28,788
                                            )Advances
      to employees
                                            
                                            
                                            41,169
                                            
                                            
                                            
                                            136,417Other
      receivables
                                            
                                            
                                            -
                                            
                                            
                                            
                                            240,716Accounts
      payable
                                            
                                            
                                            (159,264
                                            )
                                            
                                            
                                            36,096Income
      tax payable
                                            
                                            
                                            122,332
                                            
                                            
                                            
                                            (504,951
                                            )Turnover
      and other taxes
                                            
                                            
                                            148,001
                                            
                                            
                                            
                                            (271,363
                                            )Customer
      deposits
                                            
                                            
                                            68,866
                                            
                                            
                                            
                                            247,580Accrued
      liabilities
                                            
                                            
                                            (17,739
                                            )
                                            
                                            
                                            230,102Net
      cash provided by operating activities
                                            
                                            $
                                            3,265,324
                                            
                                            
                                            $
                                            1,782,343Cash
      flows from investing activitiesUsed
      of restricted cash
                                            
                                            $
                                            99,255
                                            
                                            
                                            $
                                            57,601Purchase
      of plant and equipment
                                            
                                            
                                            (271,879
                                            )
                                            
                                            
                                            (253,601
                                            )Purchase
      of intangibles assets
                                            
                                            
                                            (1,216,391
                                            )
                                            
                                            
                                            (2,284,177
                                            )Deposit
      for technology assets designed
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (5,134,586
                                            )Deposit
      for property, plant and equipment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,906,605
                                            )Net
      cash used in investing activities
                                            
                                            $
                                            (1,389,015
                                            )
                                            
                                            $
                                            (9,521,635
                                            )Cash
      flows from financing activities
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Net
      cash provided by financing activities
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -




9




SUNWAY
GLOBAL INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)




Six months ended June 302010
                                  
                                  
                                  2009Net
      in cash and cash equivalents sourced/(used)
                                  
                                  $
                                  1,876,309
                                  
                                  
                                  $
                                  (7,739,292
                                  )Effect
      of foreign currency translation oncash
      and cash equivalents
                                  
                                  
                                  26,835
                                  
                                  
                                  
                                  134,178Cash
      and cash equivalents–beginning of period
                                  
                                  
                                  4,717,240
                                  
                                  
                                  
                                  15,189,941Cash
      and cash equivalents–end of period
                                  
                                  $
                                  6,620,384
                                  
                                  
                                  $
                                  7,584,827




Six months ended June 302010
                  
                  
                  2009Supplementary
      cash flow information:Tax
      paid
                  
                  $
                  615,394
                  
                  
                  $
                  838,625Interest
      received
                  
                  
                  9,269
                  
                  
                  
                  42,240Interest
      expenses
                  
                  
                  -
                  
                  
                  
                  1,727




SUPPLEMENTAL
NON-CASH DISCLOSURES:





1.
            During
      the six months ended June 30, 2010 and 2009, an amount of $3,700,045 and
      $1,750,751 were transferred from “deposit for technology-based designed”
      to “Purchase of intangibles assets”,
  respectively.





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





See
accompanying notes to consolidated financial statements




10




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES





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





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





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





On
January 16, 2009, World Through (BVI) acquired Qingdao Liheng Textiles Co Ltd
(“Liheng”) as its wholly-owned subsidiary. Liheng was incorporated in PRC on
June 6, 2003.





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





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





(a)
            Method
      of accounting





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




11




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





(b)
            Principles
      of consolidation





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





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





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





(c)
            Use
      of estimates





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





(d)
            Economic
      and political risks





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





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




12




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





(e)
            Intangibles





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





Land
      use rights
                  
                  over
      the lease termsTechnology-based
      design
                  
                  10
      years





(f)
              Property,
      plant and equipment





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





Buildings
                
                20
      yearsMachinery
      and equipment
                
                6
      yearsMouldings
                
                10
      yearsComputer
      software
                
                3 -
      10 yearsOffice
      equipment and motor vehicles
                
                6 -
      10 years





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





(g)
            Maintenance
      and repairs





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





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





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





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


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





(i)
              Inventories





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





(j)
              Trade
      receivables





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





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





(k)
            Cash
      and cash equivalents





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





June 30, 2010
                              
                              
                              December 31, 2009Bank
      of Communications, Branch of DaqingCity
      Economic Zone
                              
                              $
                              6,219,004
                              
                              
                              $
                              4,402,294China
      Construction Bank, Beijing Branch
                              
                              
                              293,792
                              
                              
                              
                              147,273Qingdao
      bank
                              
                              
                              44,781
                              
                              
                              
                              16,111Agricultural
      Bank of China
                              
                              
                              21,472
                              
                              
                              
                              100,025HSBC
                              
                              
                              34,775
                              
                              
                              
                              35,106Cash
      on hand
                              
                              
                              6,560
                              
                              
                              
                              16,431$
                              6,620,384
                              
                              
                              $
                              4,717,240


(l)
              Restricted
      cash





Restricted
cash are pledged deposits in an escrow account for investor relations
purpose.





(m)
            Revenue
      recognition





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


-
Persuasive evidence of an arrangement exists;


-
Delivery has occurred or services have been rendered;


- The
seller’s price to the buyer is fixed or determinable; and


-
Collection is reasonably assured.




14




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





(m)
            Revenue
      recognition (Continued)





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





(n)
            Expected
      warranty liabilities





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





(o)
            Cost
      of sales





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





(p)
            Leases





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





(q)
            Advertising





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





(r)
            Shipping
      and handling





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





(s)
            Research
      and development





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




15




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





(t)
              Retirement
      benefits





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




(u)
            Income
      taxes





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





(v)
            Foreign
      currency translation





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





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





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





June 30, 2010
                            
                            
                            December 31, 2009
                            
                            
                            June 30, 2009Twelve
      months endedRMB
      : USD exchange rate
                            
                            
                            -
                            
                            
                            
                            6.8372
                            
                            
                            
                            -Six
      months endedRMB
      : USD exchange rate
                            
                            
                            6.8086
                            
                            
                            
                            -
                            
                            
                            
                            6.8448Average
      six months endedRMB
      : USD exchange rate
                            
                            
                            6.8347
                            
                            
                            
                            -
                            
                            
                            
                            6.8432Average
      six months ended
                              RMB
      : USD exchange rate
                            
                            
                            6.8335
                            
                            
                            
                            -
                            
                            
                            
                            6.8399




The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.




16




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





(w)
            Statutory
      reserves





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





(i)
              Making
      up cumulative prior years’ losses, if
any;


(ii)
              Allocations
      to the “Statutory surplus reserve” of at least 10% of income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company's registered capital, which is restricted
      for set off against losses, expansion of production and operation or
      increase in registered
capital;


(iii)
              Allocations
      of 5-10% of income after tax, as determined under PRC accounting rules and
      regulations, to the Company's “Statutory common welfare fund”, which is
      restricted for capital expenditure for the collective benefits of the
      Company's employees; and


(iv)
              Allocations
      to the discretionary surplus reserve, if approved in the shareholders’
      general meeting.





(x)
            Comprehensive
      income





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





(y)
            Recent
      accounting pronouncements





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




17




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





(y)
            Recent
      accounting pronouncements
(Continued)





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





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





18





SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





(y)
            Recent
      accounting pronouncements
(Continued)





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





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





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





19





SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





(y)
            Recent
      accounting pronouncements
(Continued)





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





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





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





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





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





20





SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





3.
            CONCENTRATIONS
      OF CREDIT RISK AND MAJOR CUSTOMERS





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





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





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





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





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





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





For the six months ended June 302010
                  
                  
                  2009Customer
      A
                  
                  $
                  1,146,344
                  
                  
                  $
                  -Customer
      B
                  
                  $
                  837,910
                  
                  
                  $
                  659,506Customer
      D
                  
                  $
                  488,352
                  
                  
                  $
                  -Customer
      E
                  
                  $
                  1,089,798
                  
                  
                  $
                  -Customer
      F
                  
                  $
                  920,159
                  
                  
                  $
                  331,776Customer
      K
                  
                  $
                  -
                  
                  
                  $
                  552,099Customer
      L
                  
                  $
                  -
                  
                  
                  $
                  350,539





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





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




21




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





4.
            AMOUNT
      DUE FROM A RELATED COMPANY





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





5.
            TRADE
      RECEIVABLES, NET





Trade
receivables comprise the following:


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





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





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





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





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





22




SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





6.
            TRAVEL
      ADVANCES TO SHAREHOLDERS





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





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





The
following table provides the rollforward of the activity in thetravel advances to
shareholders:


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





7.
            ADVANCES
      TO EMPLOYEES





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





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





8.
            INVENTORIES





Inventories
comprise the followings:


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




23


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





9.
            PROPERTY,
      PLANT AND EQUIPMENT, NET





Property,
plant and equipment, net comprise the followings:





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





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





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





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




24


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





10.
            INTANGIBLES,
      NET





Details
of intangibles are as follows:


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





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





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





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


25


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





11.
            EXPECTED
      WARRANTY LIABILITIES





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





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





12.
            CUSTOMER
      DEPOSITS





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





13.
            WARRANTS
      LIABILITIES





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





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





14.
            SERIES
      B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED
  WARRANTS





On June
5, 2007, the Company entered into a purchase agreement, whereby the company
agreed to sell 165,432 shares of the Company’s Series B Preferred shares and
various stock purchase warrants to purchase up to 18,686,054 shares of the
Company’s common shares. The exercise price, expiration date and number of share
eligible to be purchased with the warrants is summary in the following
table:


Investment
                  Amount
                
                PreferredB
                
                A
                  Warrant
                
                B
                  Warrant
                
                J
                  Warrant
                
                C
                  Warrant
                
                D
                  WarrantVision
      Opportunity Master Fund, Ltd.
                
                
                6,500,000
                
                160,494
                
                
                4,814,815
                
                2,407,407
                
                
                4,362,416
                
                4,362,416
                
                
                2,181,208Columbia
      China Capital Group, Inc.
                
                
                200,000
                
                4,938
                
                
                148,148
                
                74,074
                
                
                134,228
                
                134,228
                
                
                67,114





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


26


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





14.  SERIES
B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS


(Continued)




The
Series B preferred stock has liquidation rights senior to common stock and
Series A preferred stock.  In the event of a liquidation of the
Company, holders of Series B preferred stock are entitled to receive a
distribution equal to $40.50 per share of Series B preferred stock prior to any
distribution to the holders of common stock and Series A preferred
stock.  The Series B preferred stock is entitled to non-cumulative
dividends only upon declaration of dividends by the Company.  To date,
no dividends have been declared or accrued.  The Series B preferred
stock will participate based on their respective as-if conversion rates if the
Company declares any dividends.  After the Amendment were filed effect
the Reverse Split, each share of Series B preferred stock would be convertible
into 30 shares of Common Stock for $1.35 each, which both may be adjusted from
time to time pursuant to the conversion rate.




The
holders of Series B preferred stock shall be entitled to voting rights by
applicable law and the right to vote together with the holders of Common and
Series A Preferred Stock.




The gross
proceeds of the transaction were $6.7 million. The proceeds from the transaction
were allocated to the Series B preferred stock, warrants and beneficial
conversion feature based on the relative fair value of the
securities.  The value of the Preferred Series B was determined by
reference to the market price of the common shares into which it converts, and
the gross value of the warrants was calculated using the Black –Scholes model
with the following assumptions:  expected life of 1 year, volatility
of 117% and an interest rate of 4.99%.




The
Company recognized a beneficial conversion feature discount on the Series B
preferred stock at its intrinsic value, which was the fair value of the common
stock at the commitment date for the Series B preferred stock investment, less
the effective conversion price but limited to the $6.7 million of proceeds
received from the sale. The Company recognized the $6.7 million beneficial
conversion feature as an increase in paid in capital in the accompanying
consolidated balance sheets on the date of issuance of the Series B preferred
shares since the Series B preferred shares were convertible at the issuance
date.




The
agreement, also provided that if a Registration Statement is not effective
within a certain period of time or the common shares are not listed on the
NASDAQ or American exchange by December 31, 2008, the Company will pay the
holders of the shares a penalty that can range from $67,000 to $670,000 and
certain principal shareholders would issue up to 1,000,000 additional shares to
the purchasers of the Preferred Series B shares.  The company is
accounting for these penalties in accordance with FAS 5 - Accounting for
Contingencies, whereby the penalty will not be recorded as a liability until and
if it is probable the penalty will be incurred. No penalty has been recorded in
the accompanying financial statements for this contingency.




Under the
agreement, Warrant J was expired on June 5, 2008. On that day, Vision
Opportunity Master Fund Ltd. converted all the Warrant J, totally 4,362,416
shares into 4,362,416 of common stock.




On
February 7, 2008, 12 shareholders of Preferred Series A converted 228,530 shares
into 13,711,831 shares of common stock, in which Rise Elite International
Limited, Vision Opportunity Master Fund, Ltd and Kuhns Brothers, Inc converted
210,886, 7,990 and 2,647 shares of Preferred Series A into 12,653,160, 479,400
and 158,820 shares of common stock respectively.




On June
18, 2008, Columbia China Capital Group, Inc. converted 4,938 shares of Preferred
Series B into 148,140 shares of common stock.


27


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





14.  SERIES
B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS


(Continued)





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





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





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





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





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





15.
            INCOME
      TAXES





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





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


28





SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





15.
            INCOME
      TAXES (Continued)





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





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





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





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





The
provision for income taxes consists of the following:





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





Reconciliation
of these items is as follows:





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


29


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





16.
            EARNINGS
      PER SHARE





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





For the six months ended June 302010
                                              
                                              
                                              2009Income:Income
      for the purpose of basicearnings per share
                                              
                                              $
                                              3,247,074
                                              
                                              
                                              $
                                              7,741,294Effect
      of dilutive potential commonStock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Income
      for the purpose ofdilutive earnings per
share
                                              
                                              $
                                              3,247,074
                                              
                                              
                                              $
                                              7,741,294Number
      of shares:Weighted
      average number ofcommon stock for the purpose of basic earnings
      per share
                                              
                                              
                                              18,499,736
                                              
                                              
                                              
                                              18,499,736Effect
      of dilutive potential common stock-conversion
      of Series Aconvertible preferred stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              --conversion
      of Series Bconvertible preferred stock
                                              
                                              
                                              4,814,820
                                              
                                              
                                              
                                              4,814,820-conversion
      of Warrant Series A
                                              
                                              
                                              1,984,393
                                              
                                              
                                              
                                              3,003,740-conversion
      of Warrant Series B
                                              
                                              
                                              535,257
                                              
                                              
                                              
                                              1,201,307-conversion
      of Warrant Series C
                                              
                                              
                                              1,494,677
                                              
                                              
                                              
                                              2,494,470-conversion
      of Warrant Series D
                                              
                                              
                                              303,101
                                              
                                              
                                              
                                              955,027Weighted
      average number of commonstock for the purpose of dilutive earnings
      per share
                                              
                                              
                                              27,631,984
                                              
                                              
                                              
                                              30,969,100




30


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





17.
            COMMITMENTS
      AND CONTINGENCIES





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





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





June
      30,2011
                      
                      $
                      84,7022012
      and thereafter
                      
                      
                      -$
                      84,702





18.
            SEGMENT
      INFORMATION





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





Net
revenues and cost of revenues by product:


For the six
                                months ended
                                June 30, 2010
                              
                              Workstation
                              
                              
                              Workstation
                              
                              
                              WorkstationType A
                              
                              
                              Type B
                              
                              
                              Type C
                              
                              
                              SADP
                              
                              
                              Other
                              
                              
                              ConsolidatedNet
      revenues
                              
                              $
                              2,647,900
                              
                              
                              $
                              203,618
                              
                              
                              $
                              7,136,955
                              
                              
                              $
                              474,374
                              
                              
                              $
                              188,614
                              
                              
                              $
                              10,651,461Cost
      of netrevenues
                              
                              
                              (834,486
                              )
                              
                              
                              (50,406
                              )
                              
                              
                              (2,440,326
                              )
                              
                              
                              (194,411
                              )
                              
                              
                              (5,723
                              )
                              
                              
                              (3,525,352
                              )$
                              1,813,414
                              
                              
                              $
                              153,212
                              
                              
                              $
                              4,696,629
                              
                              
                              $
                              279,963
                              
                              
                              $
                              182,891
                              
                              
                              $
                              7,126,109




For the six
                          months ended
                          June 30, 2009
                        
                        Workstation
                        
                        
                        Workstation
                        
                        
                        WorkstationType A
                        
                        
                        Type B
                        
                        
                        Type C
                        
                        
                        SADP
                        
                        
                        Other
                        
                        
                        ConsolidatedNet
      revenues
                        
                        $
                        2,044,292
                        
                        
                        $
                        601,327
                        
                        
                        $
                        2,504,453
                        
                        
                        $
                        434,901
                        
                        
                        $
                        83,369
                        
                        
                        $
                        5,668,342Cost
      of netrevenues
                        
                        
                        (627,672
                        )
                        
                        
                        (174,297
                        )
                        
                        
                        (854,162
                        )
                        
                        
                        (254,402
                        )
                        
                        
                        (70,753
                        )
                        
                        
                        (1,981,286
                        )$
                        1,416,620
                        
                        
                        $
                        427,030
                        
                        
                        $
                        1,650,291
                        
                        
                        $
                        180,499
                        
                        
                        $
                        12,616
                        
                        
                        $
                        3,687,056





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


31


SUNWAY
GLOBAL INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Stated
in US Dollars)(Unaudited)





19.
            FAIR
      VALUE MEASUREMENTS





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





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





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





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





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


32





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





Forward-Looking
Statements





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





The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.




Overview




Since
June 27, 2007, the Company has operated as a holding company for entities that,
through contractual relationships, control the business of Daqing Sunway
Technology Co., Ltd. (“Daqing Sunway”), a company organized under the laws of
the PRC that designs, manufactures and sells logistic transport systems, medicine
dispensing systems and equipment that are principally used by hospitals and
other medical facilities in the PRC, and we have sold our first logistic
transport systems to chain stores in the second quarter of 2010. We have served
approximately 300 customers in the PRC and 14 customers in France, Germany and
Spain. We generate our revenue from sales in two product categories: pneumatic
transport systems (“PTS”) and medicine dispensing systems (“SADP”).
Currently our Company is the only producer of these two products in the
PRC.




This
discussion and analysis focuses on the business results of Daqing Sunway,
Beijing Sunway and Qingdao Liheng, comparing its results in the three and six
month periods ended June 30, 2010 to the three and six month periods ended June
30, 2009.


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




Results
of Operations


In the
three months ended June 30, 2010, the Company’s net revenues, gross profit and
operating income grew substantially as compared with the same period in the same
period of 2009. Exclude changes in fair value of warrants net income increased
during these periods. These increases are primarily attributable to a result of
more effective sales and marketing effort.




The
following table summarizes the results of our operations during the three months
ended June 30, 2010 and 2009, respectively, and provides information regarding
the dollar and percentage increase or (decrease) from the three months ended
June 30, 2010 and 2009.




Three Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  Change rateNet
      Revenues
                  
                  $
                  5,451,337
                  
                  
                  $
                  2,734,631
                  
                  
                  $
                  2,716,706
                  
                  
                  
                  99.34
                  %Cost
      of net revenues
                  
                  $
                  1,767,876
                  
                  
                  $
                  1,087,385
                  
                  
                  $
                  680,491
                  
                  
                  
                  62.58
                  %Gross
      Profit
                  
                  $
                  3,683,461
                  
                  
                  $
                  1,647,246
                  
                  
                  $
                  2,036,215
                  
                  
                  
                  123.61
                  %Gross
      Margin
                  
                  
                  67.57
                  %
                  
                  
                  60.24
                  %
                  
                  -
                  
                  
                  
                  7.33
                  %Operating
      Income
                  
                  $
                  2,485,313
                  
                  
                  $
                  705,823
                  
                  
                  $
                  1,779,490
                  
                  
                  
                  252.12
                  %Changes
      in fair value of warrants
                  
                  $
                  659,878
                  
                  
                  $
                  31,415,835
                  
                  
                  $
                  (30,755,957
                  )
                  
                  
                  (97.90
                  )%Net
      Income
                  
                  $
                  2,761,906
                  
                  
                  $
                  32,013,030
                  
                  
                  $
                  (29,251,124
                  )
                  
                  
                  (91.37
                  )%Net
      profit margin
                  
                  
                  57.79
                  %
                  
                  
                  1,170.65
                  %
                  
                  
                  -
                  
                  
                  
                  (1,112.86
                  )%




33


Net
Revenue




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




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





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





Gross
Profit





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





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





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





Income
from Operations





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





Cost
of Net Revenue





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





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





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





Operating
Expenses





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


34


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





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





Changes
in fair value of warrants





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





Net
Income





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





Earnings
per Share





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


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





Results
of Operations





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





The
following table summarizes the results of our operations during the six months
ended June 30, 2010 and 2009, respectively, and provides information regarding
the dollar and percentage increase or (decrease) from the six months ended June
30, 2010 and 2009.


Six Months Ended June 30,2010
                        
                        
                        2009
                        
                        
                        Change
                        
                        Change rateNet
      Revenue
                        
                        $
                        10,651,461
                        
                        
                        $
                        5,668,342
                        
                        
                        $
                        4,983,119
                        
                        
                        87.91
                        %Cost
      of net revenue
                        
                        $
                        3,525,352
                        
                        
                        $
                        1,981,286
                        
                        
                        $
                        1,544,066
                        
                        
                        77.93
                        %Gross
      Profit
                        
                        $
                        7,126,109
                        
                        
                        $
                        3,687,056
                        
                        
                        $
                        3,439,053
                        
                        
                        93.27
                        %Gross
      Margin
                        
                        
                        66.90
                        %
                        
                        
                        65.05
                        %
                        
                        
                        -
                        
                        
                        1.85
                        %Operating
      Income
                        
                        $
                        4,779,044
                        
                        
                        $
                        1,931,281
                        
                        
                        $
                        2,847,763
                        
                        
                        147.45
                        %Impairment
      on investment
                        
                        $
                        
                        -
                        
                        $
                        (4,831,386)
                        
                        
                        $
                        4,831,386
                        
                        
                        -Change
      in fair value of warrants
                        
                        $
                        (803,396)
                        
                        
                        $
                        10,934,559
                        
                        
                        $
                        (11,737,955)
                        
                        
                        (107.35)
                        %Net
      Income
                        
                        $
                        3,247,074
                        
                        
                        $
                        7,741,294
                        
                        
                        $
                        (4,494,220)
                        
                        
                        (58.05)
                        %Net
      profit margin
                        
                        
                        30.48
                        %
                        
                        
                        136.57
                        %
                        
                        
                        -
                        
                        
                        (106.09)
                        %




35





Net
Revenue




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




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





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





Gross
Profit





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





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




Six Months Ended June 30,2010
                      
                      
                      2009US$
                      
                      Gross profit
                        margin
                      
                      
                      US$
                      Gross profit
                        marginGross
      Profit
                      
                      $
                      7,126,109
                      
                      66.90
                      %
                      
                      $
                      3,687,056
                      65.05
                      %





Income
from Operations





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





Cost
of Net Revenue





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





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





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




36




Operating
Expenses


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





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


Six Months Ended June 30,2010
                  
                  
                  2009
                  
                  ChangeSelling
      expenses
                  
                  $
                  750,724
                  
                  
                  $
                  361,302
                  
                  
                  
                  107.78
                  %General
      & Administrative expenses
                  
                  $
                  1,596,341
                  
                  
                  $
                  1,394,473
                  
                  
                  
                  14.48
                  %Total
      operating expenses
                  
                  $
                  2,347,065
                  
                  
                  $
                  1,755,775
                  
                  
                  
                  33.68
                  %





Changes
in fair value of warrants





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





Impairment
on investment





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





Net
Income





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





Earnings
Per Share





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








Trade
Receivables, net





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





Inventory





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


37




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


Item
                  
                  June30,
                    2010
                  
                  
                  December31,
                    2009
                  
                  
                  ChangeFinished
      goods
                  
                  $
                  367,002
                  
                  
                  $
                  241,831
                  
                  
                  
                  51.76
                  %Work
      in progress
                  
                  $
                  196,551
                  
                  
                  $
                  26,152
                  
                  
                  
                  651.57
                  %Raw
      material
                  
                  $
                  364,152
                  
                  
                  $
                  321,888
                  
                  
                  
                  13.13
                  %Total
                  
                  $
                  927,705
                  
                  
                  $
                  589,871
                  
                  
                  
                  57.27
                  %





Accounts
Payable





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





Liquidity
and Capital Resources





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





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





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




Operating
Activities





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





Investing
Activities





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





Cash
and Cash Equivalents





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


38




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





Trends





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





Inflation





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





Obligations
under Material Contracts





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





Critical
Accounting Policies





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





Impairment of long-lived
assets. We account for impairment of property, plant and equipment and
amortizable intangible assets in accordance with SFAS No. SFAS No. 144. The
carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner, except
that fair market values are reduced for the cost to dispose. During the
reporting years, there was no impairment loss incurred. Competitive pricing
pressure and changes in interest rates, could materially and adversely affect
our estimates of future net cash flows to be generated by our long-lived
assets.




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





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





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





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





-
Persuasive evidence of an arrangement exists;


-
Delivery has occurred or services have been rendered;


- The
seller’s price to the buyer is fixed or determinable, and


39




-
Collection is reasonably assured.





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





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





Off-Balance
Sheet Arrangements




We have
no off-balance sheet arrangements as of June 30, 2010.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.




N/A.




ITEM
4. CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures





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





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





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





2.
            All Quarterly Reports on Form
      10-Q/A filed for the interim fiscal periods in 2009 to correct and restate
      its financial statements, notes, and related disclosure as relates to
      changes in the classification of the fair value of warrants in accordance
      with to paragraph 815-40.15 of the FASB Accounting Standards Codification
      (EITF 07-05) as adopted on January 1, 2009 and the classification of the
      Company’s acquisition of Qingdao Liheng Textiles Co., Ltd as an impairment
      on investment.





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





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


40




Changes
in Internal Control over Financial Reporting





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





PART
II




OTHER INFORMATION




ITEM
1.  LEGAL PROCEEDINGS




To our
knowledge, there is no material litigation pending or threatened against
us.




ITEM
1A. RISK FACTORS




Not
Applicable.




ITEM
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




None.




ITEM
3.  DEFAULTS UPON SENIOR SECURITIES




To our
knowledge, there are no material defaults upon senior securities.




ITEM
4.  (REMOVED AND RESERVED)







ITEM
5.  OTHER INFORMATION




None.




ITEM
6.  EXHIBITS.





Exhibit No.
              
              Description of Exhibit31.1
              
              Certification
      by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002 Section
      302.31.2
              
              Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002 Section
      302.32.1
              
              Certification
      by Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002 Section
      906.32.2
              
              Certification
      by Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002 Section
      906.


41




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




SUNWAY
      GLOBAL INC.Dated:
        August 13, 2010
              By:
              /s/ Liu BoName:
      Liu BoTitle:
      Chief Executive Officer





Dated:
        August 13, 2010
              By:
              /s/ Samuel ShengName:
      Samuel ShengTitle:
      Chief Financial Officer




42