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 SEPTEMBER 30, 2010
  OR
   ̈TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR
THE TRANSITION FROM _______ TO ________.
  COMMISSION
FILE NUMBER 000-27159
  SUNWAY GLOBAL
INC.
 (Exact
Name of Registrant as Specified in its Charter)
  Nevada
                    
                    26-1650042(State
      or other jurisdiction of
                    
                    (I.R.S.
      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   ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes  ̈  No   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes   ̈ No x
  APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
 DURING
THE PRECEDING FIVE YEARS
  Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes   ̈ No  ̈
  APPLICABLE
ONLY TO CORPORATE ISSUERS
  State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of November 10, 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
                
                3Item
      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
                
                42Item 1A.
                Risk
      Factors
                
                42Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                42Item
      3.
                Defaults
      Upon Senior Securities
                
                42Item
      4.
                (Removed
      and Reserved)
                
                42Item
      5.
                Other
      Information
                
                42Item
      6.
                Exhibits
                
                42SIGNATURES
                
                43
  2
  PART
I
 FINANCIAL
INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS
 
 CONTENTS
                    
                    PAGESREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCONSOLIDATED
      BALANCE SHEETS
                    
                    4 –
      5CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                    
                    6 –
      7CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY
                    
                    8CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                    
                    9 –
      10NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS10
                    
                    11 –
      32
  3
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
BALANCE SHEETS
 AS
AT SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
 (Stated
in US Dollars)
  Notes
                                        
                                        
                                        September 30, 2010
                                          (Unaudited)
                                        
                                        
                                        December 31, 2009
                                          (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                        
                                        
                                        2(k)
                                        
                                        
                                        $
                                        9,206,692
                                        
                                        
                                        $
                                        4,717,240Trade
      receivables, net
                                        
                                        
                                        5
                                        
                                        
                                        
                                        7,268,938
                                        
                                        
                                        
                                        3,537,395Inventories
                                        
                                        
                                        8
                                        
                                        
                                        
                                        1,282,261
                                        
                                        
                                        
                                        589,871Advances
      to suppliers
                                        
                                        
                                        
                                        
                                        
                                        
                                        309,317
                                        
                                        
                                        
                                        940,872Prepayments
                                        
                                        
                                        
                                        
                                        
                                        
                                        429,275
                                        
                                        
                                        
                                        127,388Tender
      deposits
                                        
                                        
                                        
                                        
                                        
                                        
                                        147,852
                                        
                                        
                                        
                                        122,050Travel
      advances to shareholders
                                        
                                        
                                        6
                                        
                                        
                                        
                                        28,131
                                        
                                        
                                        
                                        71,372Advances
      to employees
                                        
                                        
                                        7
                                        
                                        
                                        
                                        178,383
                                        
                                        
                                        
                                        217,865Total
      current assets
                                        
                                        
                                        
                                        
                                        
                                        $
                                        18,850,849
                                        
                                        
                                        $
                                        10,324,053Restricted
      cash
                                        
                                        
                                        
                                        
                                        
                                        
                                        128,897
                                        
                                        
                                        
                                        283,175Amount
      due from a related company
                                        
                                        
                                        4
                                        
                                        
                                        
                                        830
                                        
                                        
                                        
                                        830Property,
      plant and equipment, net
                                        
                                        
                                        9
                                        
                                        
                                        
                                        9,660,788
                                        
                                        
                                        
                                        10,508,415Intangibles,
      net
                                        
                                        
                                        10
                                        
                                        
                                        
                                        19,137,535
                                        
                                        
                                        
                                        15,109,988Deposit
      for technology-based designed
                                        
                                        
                                        
                                        
                                        
                                        
                                        649,847
                                        
                                        
                                        
                                        4,318,643TOTAL
      ASSETS
                                        
                                        
                                        
                                        
                                        
                                        $
                                        48,428,746
                                        
                                        
                                        $
                                        40,545,104LIABILITIES
      ANDSTOCKHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable
                                        
                                        
                                        
                                        
                                        
                                        $
                                        350,024
                                        
                                        
                                        $
                                        271,139Income
      tax payable
                                        
                                        
                                        
                                        
                                        
                                        
                                        425,556
                                        
                                        
                                        
                                        269,082Turnover
      and other taxes
                                        
                                        
                                        
                                        
                                        
                                        
                                        368,237
                                        
                                        
                                        
                                        154,871Expected
      warranty liabilities
                                        
                                        
                                        11
                                        
                                        
                                        
                                        33,296
                                        
                                        
                                        
                                        32,618Customer
      deposits
                                        
                                        
                                        12
                                        
                                        
                                        
                                        579,922
                                        
                                        
                                        
                                        304,093Accrued
      liabilities
                                        
                                        
                                        
                                        
                                        
                                        
                                        665,151
                                        
                                        
                                        
                                        657,215Total
      current liabilities
                                        
                                        
                                        
                                        
                                        
                                        $
                                        2,422,186
                                        
                                        
                                        $
                                        1,689,018Warrants
      liabilities
                                        
                                        
                                        13
                                        
                                        
                                        
                                        25,059,522
                                        
                                        
                                        
                                        40,808,327TOTAL
      LIABILITIES
                                        
                                        
                                        
                                        
                                        
                                        $
                                        27,481,708
                                        
                                        
                                        $
                                        42,497,345
 
 See
accompanying notes to consolidated financial statements
  4
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
BALANCE SHEETS (Continued)
 AS
AT SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
 (Stated
in US Dollars)
 
 September 30, 2010
                              
                              
                              December 31, 2009Notes
                              
                              
                              (Unaudited)
                              
                              
                              (Audited)STOCKHOLDERS’
      EQUITYSeries
      B Convertible Preferred Stock $0.0000001 par value; 400,000 shares
      authorized; 160,494 shares issued and outstanding at September 30, 2010
      and December 31, 2009
                              
                              
                              14
                              
                              
                              $
                              1
                              
                              
                              $
                              1Common
      stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736
      shares issued and outstanding at September 30, 2010 and December 31,
      2009
                              
                              
                              
                              
                              
                              
                              2
                              
                              
                              
                              2Additional
      paid-in capital
                              
                              
                              
                              
                              
                              
                              11,989,023
                              
                              
                              
                              11,989,023Statutory
      reserves
                              
                              
                              
                              
                              
                              
                              3,033,855
                              
                              
                              
                              3,033,855Retained
      earnings/(accumulated deficit)
                              
                              
                              
                              
                              
                              
                              2,095,621
                              
                              
                              
                              (19,890,859
                              )Accumulated
      other comprehensive income
                              
                              
                              
                              
                              
                              
                              3,828,536
                              
                              
                              
                              2,915,737$
                              20,947,038
                              
                              
                              $
                              (1,952,241
                              )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                              
                              
                              
                              
                              
                              $
                              48,428,746
                              
                              
                              $
                              40,545,104
 
 See
accompanying notes to consolidated financial statements
  5
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
  Nine months ended September 30Notes
                                                                    
                                                                    
                                                                    2010
                                                                    
                                                                    
                                                                    2009Net
      revenues
                                                                    
                                                                    
                                                                    18
                                                                    
                                                                    
                                                                    $
                                                                    16,418,963
                                                                    
                                                                    
                                                                    $
                                                                    8,819,247Cost
      of net revenues
                                                                    
                                                                    
                                                                    18
                                                                    
                                                                    
                                                                    
                                                                    (5,339,795
                                                                    )
                                                                    
                                                                    
                                                                    (3,068,381
                                                                    )Gross
      profit
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    11,079,168
                                                                    
                                                                    
                                                                    $
                                                                    5,750,866Selling
      expenses
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (1,225,161
                                                                    )
                                                                    
                                                                    
                                                                    (697,057
                                                                    )General
      and administrative expenses
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (2,476,970
                                                                    )
                                                                    
                                                                    
                                                                    (2,097,560
                                                                    )Income
      from operations
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    7,377,037
                                                                    
                                                                    
                                                                    $
                                                                    2,956,249Interest
      expenses
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (1,727
                                                                    )Interest
      income
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    15,234
                                                                    
                                                                    
                                                                    
                                                                    52,284Impairment
      on investment
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (4,831,386
                                                                    )Changes
      in fair value of warrants
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    15,748,805
                                                                    
                                                                    
                                                                    
                                                                    13,363,953Income
      before income tax
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    23,141,076
                                                                    
                                                                    
                                                                    $
                                                                    11,539,373Income
      tax expense
                                                                    
                                                                    
                                                                    15
                                                                    
                                                                    
                                                                    
                                                                    (1,154,596
                                                                    )
                                                                    
                                                                    
                                                                    (502,651
                                                                    )Net
      income
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    21,986,480
                                                                    
                                                                    
                                                                    $
                                                                    11,036,722Net
      income per share:-Basic
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    1.19
                                                                    
                                                                    
                                                                    $
                                                                    0.60-Diluted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    0.82
                                                                    
                                                                    
                                                                    $
                                                                    0.36Weighted
      average number of common stock-Basic
                                                                    
                                                                    
                                                                    16
                                                                    
                                                                    
                                                                    
                                                                    18,499,736
                                                                    
                                                                    
                                                                    
                                                                    18,499,736-Diluted
                                                                    
                                                                    
                                                                    16
                                                                    
                                                                    
                                                                    
                                                                    26,934,551
                                                                    
                                                                    
                                                                    
                                                                    30,763,019
  See
accompanying notes to consolidated financial statements
  6
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 Three months ended September 30,Notes
                                                          
                                                          
                                                          2010
                                                          
                                                          
                                                          2009Net
      revenues
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          5,769,462
                                                          
                                                          
                                                          $
                                                          3,150,969Cost
      of net revenues
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (1,814,588
                                                          )
                                                          
                                                          
                                                          (1,087,115
                                                          )Gross
      profit
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          3,954,874
                                                          
                                                          
                                                          $
                                                          2,063,854Selling
      expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (474,936
                                                          )
                                                          
                                                          
                                                          (335,787
                                                          )General
      and administrative expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (880,862
                                                          )
                                                          
                                                          
                                                          (697,782
                                                          )Income
      from operation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          2,599,076
                                                          
                                                          
                                                          $
                                                          1,030,285Interest
      income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,972
                                                          
                                                          
                                                          
                                                          10,041Change
      in fair value of warrants
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          16,552,201
                                                          
                                                          
                                                          
                                                          2,429,394Income
      before income taxes
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          19,157,249
                                                          
                                                          
                                                          $
                                                          3,469,720Income
      taxes
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (416,980
                                                          )
                                                          
                                                          
                                                          (168,978
                                                          )Net
      income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          18,740,269
                                                          
                                                          
                                                          $
                                                          3,300,742Net
      income per share:-Basic
      and diluted
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          1.01
                                                          
                                                          
                                                          $
                                                          0.18-Diluted
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.73
                                                          
                                                          
                                                          $
                                                          0.11Weighted
      average number of common stock-Basic
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          18,499,736
                                                          
                                                          
                                                          
                                                          18,499,736-Diluted
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          25,637,503
                                                          
                                                          
                                                          
                                                          30,323,548
 
 See
accompanying notes to consolidated financial statements
  7
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 FOR
THE YEAR ENDED DECEMBER 31, 2009 AND NINE MONTHS ENDED SEPTEMBER 30,
2010
 (Stated
in US Dollars)(Unaudited)
 
 Additional
                              
                              
                              
                              
                              
                              Retained
                              
                              
                              AccumulatedPreferred
                              
                              
                              No. of
                              
                              
                              
                              
                              
                              paid
                              
                              
                              
                              
                              
                              earnings
                              
                              
                              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
                              
                              
                              
                              -
                              
                              
                              
                              27,978,900Reclassification
      for issuance of Series B convertible preferred stock in
    2007
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (6,700,000
                              )
                              
                              
                              -
                              
                              
                              
                              6,700,000
                              
                              
                              
                              -
                              
                              
                              
                              -Appropriations
      to statutory reserves
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              905,877
                              
                              
                              
                              (905,877
                              )
                              
                              
                              -
                              
                              
                              
                              -Foreign
      currency translation  adjustment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              71,547
                              
                              
                              
                              71,547Balance,
      December 31, 2009
                              
                              $
                              1
                              
                              
                              
                              18,499,736
                              
                              
                              $
                              2
                              
                              
                              $
                              11,989,023
                              
                              
                              $
                              3,033,855
                              
                              
                              $
                              (19,890,859
                              )
                              
                              $
                              2,915,737
                              
                              
                              $
                              (1,952,241
                              )Balance,
      January 1, 2010
                              
                              $
                              1
                              
                              
                              
                              18,499,736
                              
                              
                              $
                              2
                              
                              
                              $
                              11,989,023
                              
                              
                              $
                              3,033,855
                              
                              
                              $
                              (19,890,859
                              )
                              
                              $
                              2,915,737
                              
                              
                              $
                              (1,952,241
                              )Net
      income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              21,986,480
                              
                              
                              
                              -
                              
                              
                              
                              21,986,480Foreign
      currency translation  adjustment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              912,799
                              
                              
                              
                              912,799Balance,
      September 30, 2010
                              
                              $
                              1
                              
                              
                              
                              18,499,736
                              
                              
                              $
                              2
                              
                              
                              $
                              11,989,023
                              
                              
                              $
                              3,033,855
                              
                              
                              $
                              2,095,621
                              
                              
                              $
                              3,828,536
                              
                              
                              
                              20,947,038
  See
accompanying notes to consolidated financial statements
  8
  SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars) (Unaudited)
  Nine
      months ended September 302010
                              
                              
                              2009Cash
      flows from operating activitiesNet
      income
                              
                              $
                              21,986,480
                              
                              
                              $
                              11,036,722Depreciation
                              
                              
                              1,355,059
                              
                              
                              
                              730,606Amortization
                              
                              
                              1,311,290
                              
                              
                              
                              743,651Loss
      on disposal of fixed assets
                              
                              
                              -
                              
                              
                              
                              9,553Changes
      in fair value of warrants
                              
                              
                              (15,748,805
                              )
                              
                              
                              (13,363,953
                              )Impairment
      on investment
                              
                              
                              -
                              
                              
                              
                              4,831,386Adjustments
      to reconcile net income to net cash provided by operating
      activities:Trade
      receivables, net
                              
                              
                              (3,594,595
                              )
                              
                              
                              (253,167
                              )Inventories
                              
                              
                              (668,336
                              )
                              
                              
                              (56,811
                              )Advances
      to suppliers
                              
                              
                              639,795
                              
                              
                              
                              (320,629
                              )Prepayments
                              
                              
                              (294,048
                              )
                              
                              
                              (236,756
                              )Tender
      deposits
                              
                              
                              (22,864
                              )
                              
                              
                              (6,131
                              )Travel
      advances to shareholders
                              
                              
                              43,947
                              
                              
                              
                              (53,536
                              )Advances
      to employees
                              
                              
                              43,242
                              
                              
                              
                              133,501Other
      receivables
                              
                              
                              -
                              
                              
                              
                              445,950Accounts
      payable
                              
                              
                              71,983
                              
                              
                              
                              48,915Income
      tax payable
                              
                              
                              148,267
                              
                              
                              
                              (461,647
                              )Turnover
      and other taxes
                              
                              
                              206,502
                              
                              
                              
                              (357,705
                              )Customer
      deposits
                              
                              
                              264,837
                              
                              
                              
                              300,213Accrued
      liabilities
                              
                              
                              (5,472
                              )
                              
                              
                              256,655Net
      cash provided by operating activities
                              
                              $
                              5,737,282
                              
                              
                              $
                              3,426,817Cash
      flows from investing activitiesUsed
      of restricted cash
                              
                              $
                              154,279
                              
                              
                              $
                              66,450Purchase
      of plant and equipment
                              
                              
                              (307,700
                              )
                              
                              
                              (4,287,278
                              )Purchase
      of intangibles assets
                              
                              
                              (1,267,340
                              )
                              
                              
                              (7,027,411
                              )Deposit
      for technology assets designed
                              
                              
                              -
                              
                              
                              
                              (2,648,886
                              )Net
      cash used in investing activities
                              
                              $
                              (1,420,761
                              )
                              
                              $
                              (13,897,125
                              )Cash
      flows from financing activities
                              
                              $
                              -
                              
                              
                              $
                              -Net
      cash provided by financing activities
                              
                              $
                              -
                              
                              
                              $
                              -
  9


SUNWAY
GLOBAL INC.
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 Nine months ended September 302010
                          
                          
                          2009Net
      in cash and cash equivalents sourced/(used)
                          
                          $
                          4,316,521
                          
                          
                          $
                          (10,470,308
                          )Effect
      of foreign currency translation on cash and cash
      equivalents
                          
                          
                          172,931
                          
                          
                          
                          140,915Cash
      and cash equivalents–beginning of period
                          
                          
                          4,717,240
                          
                          
                          
                          15,189,941Cash
      and cash equivalents–end of period
                          
                          $
                          9,206,692
                          
                          
                          $
                          4,860,548
 
 Nine months ended September 302010
                  
                  
                  2009Supplementary
      cash flow information:Tax
      paid
                  
                  $
                  1,006,328
                  
                  
                  $
                  964,297Interest
      received
                  
                  
                  15,234
                  
                  
                  
                  52,284Interest
      expenses
                  
                  
                  -
                  
                  
                  
                  1,727
 
 SUPPLEMENTAL
NON-CASH DISCLOSURES:
 
 1.
              During
      the nine months ended September 30, 2010 and 2009, an amount of $4,065,825
      and 1,750,751 were transferred from “deposit for technology-based
      designed” to “Purchase of intangibles assets”,
    respectively.
 
 2.
              During
      the nine months ended September 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”.
 
 Regarding
the non-cash disclosures of Liheng acquisition, the balance was transferred to
the following assets, liabilities and statements of income:
  Cash
      and cash equivalents
                        
                        $
                        73,193Property,
      plant and equipment
                        
                        
                        955,208Land
      use rights
                        
                        
                        1,133,323Other
      receivables
                        
                        
                        1,127,949Turnover
      and other taxes
                        
                        
                        28,477Other
      payables
                        
                        
                        (424,091
                        )Impairment
      on investment
                        
                        
                        4,831,386$
                        7,725,445
 
 See
accompanying notes to consolidated financial statements
  10
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 complied in accordance with generally accepted accounting
principles in the United States of America. All significant inter-company
accounts and transactions have been eliminated. The consolidated financial
statements include 100% of assets, liabilities, and net income or loss of those
wholly-owned subsidiaries.
 
 The
Company owned five subsidiaries since its reverse-merger on June 6, 2007. The
detailed identities of the consolidating subsidiaries would have been as
follows:
 Name of subsidiaries
                              
                              Place of incorporation
                              
                              Attributable
                                interestWorld
      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
                              
                              PRC
                              
                              
                              100
                              %Co.,
      LtdQingdao
      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 NINE MONTHS ENDED SEPTEMBER 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
nine months ended September 30, 2010 and 2009, impairment loss was nil and
$4,831,386 respectively.
  13
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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.
 
 September 30, 2010
                        
                        
                        December 31, 2009Bank
      of Communications, Branch of DaqingCity
      Economic Zone
                        
                        $
                        8,093,420
                        
                        
                        $
                        4,402,294China
      Construction Bank, Beijing Branch
                        
                        
                        411,727
                        
                        
                        
                        147,273Qingdao
      bank
                        
                        
                        266,787
                        
                        
                        
                        16,111Agricultural
      Bank of China
                        
                        
                        387,954
                        
                        
                        
                        100,025HSBC
                        
                        
                        34,866
                        
                        
                        
                        35,106Cash
      on hand
                        
                        
                        11,938
                        
                        
                        
                        16,431$
                        9,206,692
                        
                        
                        $
                        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 NINE MONTHS ENDED SEPTEMBER 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 $12,155 and
$56,807, and cost of sales were $34,650 and $9,865, selling expenses were
$64,253 and $5,805 for the nine months ended September 30, 2010 and 2009
respectively.
 
 (q)
              Advertising
 
 The Group
expensed all advertising costs as incurred. Advertising expenses included in
selling expenses were $10,670 and $585 for the nine months ended September 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 $48,477 and $23,091 for the nine months ended
September 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 $127,255
and $86,191 for the nine months ended September 30, 2010 and 2009
respectively.
  15
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 $156,943 and $93,579 for the nine months ended September 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:
 
 September 30,
                                        2010
                                      
                                      
                                      December 31, 2009
                                      
                                      
                                      September 30,
                                        2009Twelve
      months endedRMB
      : USD exchange rate
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6.8372
                                      
                                      
                                      
                                      -Nine
      months endedRMB
      : USD exchange rate
                                      
                                      
                                      6.6981
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6.8376Average
      threemonths endedRMB
      : USD exchange rate
                                      
                                      
                                      6.7803
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6.8411Average nine months
      ended

                                          RMB
      : USD exchange rate
                                      
                                      
                                      6.8164
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6.8425
  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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 September 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
September 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
nine months ended September 30, 2010 and 2009, the group’s sales were generated
from the PRC and Western Europe. Trade receivables as of September 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 nine months ended September 302010
                    
                    
                    2009Customer
      A
                    
                    $
                    1,694,443
                    
                    
                    $
                    906,389
 
 Details
of customers accounting for 10% or more of the Group’s trade receivables are as
follows:
 
 September 30, 2010
                    
                    
                    December 31, 2009Customer
      A
                    
                    $
                    723,024
                    
                    
                    $
                    347,195Customer
      B
                    
                    $
                    820,546
                    
                    
                    $
                    373,223
  21
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 followings:
 September 30,
                          2010
                        
                        
                        December 31, 2009Trade
      receivables, gross
                        
                        $
                        7,287,294
                        
                        
                        $
                        3,555,378Provision
      for doubtful debts
                        
                        
                        (18,356
                        )
                        
                        
                        (17,983
                        )Trade
      receivables, net
                        
                        $
                        7,268,938
                        
                        
                        $
                        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 nine months ended
September 30, 2010 and for the year ended December 31, 2009 is as
follows:
 
 September 30,
                          2010
                        
                        
                        December 31, 2009Balance
      at beginning of period/year
                        
                        $
                        17,983
                        
                        
                        $
                        8,414Addition
      of the provision
                        
                        
                        -
                        
                        
                        
                        9,549Foreign
      exchange adjustment
                        
                        
                        373
                        
                        
                        
                        20Balance
      at end of period/year
                        
                        $
                        18,356
                        
                        
                        $
                        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 NINE MONTHS ENDED SEPTEMBER 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.
 
 September 30, 2010
                        
                        
                        December 31, 2009Bo
      Liu
                        
                        $
                        5,222
                        
                        
                        $
                        28,015Deli
      Liang
                        
                        
                        22,909
                        
                        
                        
                        43,357$
                        28,131
                        
                        
                        $
                        71,372
 
 The
following table provides the rollforward of the activity in thetravel advances to
shareholders:
 
 September 30, 2010
                    
                    
                    December 31, 2009Beginning
      balance, January 1
                    
                    $
                    71,372
                    
                    
                    $
                    38,733Add:
      Advanced during the period/year
                    
                    
                    232,890
                    
                    
                    
                    122,997Less:
      Transferred to income statement
                    
                    
                    (39,626
                    )
                    
                    
                    (90,358
                    )Repayment by directors
                    
                    
                    (236,505
                    )
                    
                    
                    -Ending
      balance
                    
                    $
                    28,131
                    
                    
                    $
                    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:
 
 September 30, 2010
                        
                        
                        December 31, 2009Beginning
      balance, January 1
                        
                        $
                        217,865
                        
                        
                        $
                        429,804Add:
      Advanced during the period/year
                        
                        
                        471,502
                        
                        
                        
                        610,677Less:
      Transferred to income statement
                        
                        
                        (211,088
                        )
                        
                        
                        (418,288
                        )Recollected from employees
                        
                        
                        (299,896
                        )
                        
                        
                        (404,328
                        )Ending
      balance
                        
                        $
                        178,383
                        
                        
                        $
                        217,865
 
 8.
              INVENTORIES
 
 Inventories
comprise the followings:
 
 September 30, 2010
                        
                        
                        December 31, 2009Finished
      goods
                        
                        $
                        649,267
                        
                        
                        $
                        241,831Work
      in process
                        
                        
                        193,176
                        
                        
                        
                        26,152Raw
      materials
                        
                        
                        439,818
                        
                        
                        
                        321,888Total
      Inventories
                        
                        $
                        1,282,261
                        
                        
                        $
                        589,871
  23
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 9.
                PROPERTY,
      PLANT AND EQUIPMENT, NET
 
 Property,
plant and equipment, net comprise the followings:
 
 September 30, 2010
                            
                            
                            December 31, 2009At
      costBuildings
                            
                            $
                            1,886,455
                            
                            
                            $
                            1,848,075Machinery
      and equipment
                            
                            
                            708173
                            
                            
                            
                            1,087,332Moldings
                            
                            
                            9,152,782
                            
                            
                            
                            8,966,572Computer
      software
                            
                            
                            2,145,149
                            
                            
                            
                            2,101,507Office
      equipment and motor vehicles
                            
                            
                            640,040
                            
                            
                            
                            97,728$
                            14,532,599
                            
                            
                            $
                            14,101,214Less:
      accumulated depreciation
                            
                            
                            (6,130,780
                            )
                            
                            
                            (4,678,587
                            )$
                            8,401,819
                            
                            
                            $
                            9,422,627Construction
      in progress
                            
                            
                            1,258,969
                            
                            
                            
                            1,085,788Property,
      plant and equipment, net
                            
                            $
                            9,660,788
                            
                            
                            $
                            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:
 
 September 30, 2010
                        
                        
                        September 30, 2009Cost
      of net revenues
                        
                        $
                        1,222,724
                        
                        
                        $
                        619,907General
      and administrative expenses
                        
                        
                        81,784
                        
                        
                        
                        78,897Selling
      expenses
                        
                        
                        50,551
                        
                        
                        
                        31,802Total
      depreciation expenses
                        
                        $
                        1,355,059
                        
                        
                        $
                        730,606
  24
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 10.
              INTANGIBLES,
      NET
 
 Details
of intangibles are as follows:
 September 30, 2010
                        
                        
                        December 31, 2009Land
      use rights, at cost
                        
                        $
                        2,659,783
                        
                        
                        $
                        2,502,082Technology-based
      design, at cost
                        
                        
                        20,038,892
                        
                        
                        
                        14,811,984$
                        22,698,675
                        
                        
                        $
                        17,314,066Less:
      accumulated amortization
                        
                        
                        (3,561,140
                        )
                        
                        
                        (2,204,078
                        )Total
      intangibles, net
                        
                        $
                        19,137,535
                        
                        
                        $
                        15,109,988
 
 During
the year of 2009, the Group acquired the rights to use a parcel of land totaling
9,082 square meters, for a consideration of $89,552 (RMB613,035), located at
Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s
Republic of China for a term of 48 years from November 3, 2006 to July 24, 2053.
The Group acquired secondly the rights to use a parcel of land totaling 10,841
square meters, for a consideration of $106,709 (RMB730,485), located at Qingdao
Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of
China. 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 $1,311,290 and
$743,651 for the nine months ended September 30, 2010 and 2009,
respectively.
 
 11.
                EXPECTED
      WARRANTY LIABILITIES
 
 An
analysis of the expected warranty liabilities for the nine months ended
September 30, 2010 and for the year ended December 31, 2009 is as
follows:
 
 September 30, 2010
                      
                      
                      December 31, 2009Balance
      at beginning of period/year
                      
                      $
                      32,618
                      
                      
                      $
                      50,396Warranty
      expense for the period/year
                      
                      
                      -
                      
                      
                      
                      (17,903
                      )Foreign
      currency difference
                      
                      
                      678
                      
                      
                      
                      125Balance
      at end of period/year
                      
                      $
                      33,296
                      
                      
                      $
                      32,618
  25
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 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 September 30, 2010 and December
31, 2009, nine and three equipment units, respectively, were under
installation.
  13.
              WARRANT
      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 nine months ended September 30, 2010 and for
the year ended December 31, 2009 is as follows:
  September 30, 2010
                      
                      
                      December 31, 2009Balance
      at beginning of period/year
                      
                      $
                      40,808,327
                      
                      
                      $
                      69,901,873Changes
      in fair value of warrants
                      
                      
                      (15,748,805
                      )
                      
                      
                      (29,093,546
                      )Balance
      at end of period/year
                      
                      $
                      25,059,522
                      
                      
                      $
                      40,808,327
 
 14.
              SERIES
      B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED
  WARRANTS
 
 On June
5, 2007, the Company entered into a purchase agreement, whereby the company
agreed to sell 165,432 shares of the Company’s Series B Preferred shares and
various stock purchase warrants to purchase up to 18,686,054 shares of the
Company’s common shares. The exercise price, expiration date and number of share
eligible to be purchased with the warrants is summary in the following
table:
 
 Investment
                      Amount
                    
                    Preferred
                      B
                    
                    A
                      Warrant
                    
                    B
                      Warrant
                    
                    J
                      Warrant
                    
                    C
                      Warrant
                    
                    D
                      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
  On June
6, 2007, we issued to Kuhns Brothers, Inc. and its designees an aggregate of
17,646 shares of Series A Preferred and a Series J warrant to purchase an
aggregate of 496,296 shares of common stock of the Company at $1.62 per share in
connection with the reverse merger transaction pursuant to the placement agent
agreement with Kuhns Brothers, Inc.
  26
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 an amendment to the articles
of incorporation was filed to effect the 86.3035-for-one reverse split in
February 2008, each share of Series B preferred stock is 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.
  27
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 14.
              SERIES
      B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED
      WARRANTS(Continued)
 
 On June
18, 2008, Columbia China Capital Group, Inc. converted 4,938 shares of Preferred
Series B into 148,140 shares of common stock.
 
 On
November 10, 2008, Columbia China Capital Group, Inc. converted the Warrant J,
totally 53,691 shares into 53,691 of common stock.
  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 ("Vision") and Vision Capital Advantage Fund, LLP 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 the PRC, including the district where our
operations are located, is subject to a rate of 25% for the nine months ended
September 30, 2010 and 2009.
  28
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 September 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:
 
 September 30, 2010
                        
                        
                        September 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:
 
 September 30, 2010
                        
                        
                        September 30, 2009Current
      tax - PRC CIT
                        
                        $
                        1,154,596
                        
                        
                        $
                        502,651Deferred
      tax provision
                        
                        
                        -
                        
                        
                        
                        -Income
      tax expenses
                        
                        $
                        1,154,596
                        
                        
                        $
                        502,651
 
 Reconciliation
of these items is as follows:
 September 30, 2010
                    
                    
                    September 30, 2009Income
      before taxation
                    
                    $
                    23,141,076
                    
                    
                    $
                    11,539,373Add:
      Impairment on investment
                    
                    
                    -
                    
                    
                    
                    4,831,386Change
      in fair value of warrants
                    
                    
                    (15,748,805
                    )
                    
                    
                    (13,363,953
                    )Other
      non-tax deductible items
                    
                    
                    305,036
                    
                    
                    
                    344,200Income
      before taxation (adjusted)
                    
                    $
                    7,697,307
                    
                    
                    $
                    3,351,006
  29
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 302010
                            
                            
                            2009Income:Income
      for the purpose of basic earnings per share
                            
                            $
                            21,986,480
                            
                            
                            $
                            11,036,722Effect
      of dilutive potential common  Stock
                            
                            
                            -
                            
                            
                            
                            -Income
      for the purpose of  dilutive earnings per share
                            
                            $
                            21,986,480
                            
                            
                            $
                            11,036,722Number
      of shares:Weighted
      average number of  common 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
                            
                            
                            1,771,357
                            
                            
                            
                            2,940,791-conversion
      of Warrant Series B
                            
                            
                            396,057
                            
                            
                            
                            1,160,176-conversion
      of Warrant Series C
                            
                            
                            1,285,728
                            
                            
                            
                            2,432,728-conversion
      of Warrant Series D
                            
                            
                            166,853
                            
                            
                            
                            914,768Weighted
      average number of common stock for the purpose of dilutive earnings per
      share
                            
                            
                            26,934,551
                            
                            
                            
                            30,763,019
  30
  SUNWAY
GLOBAL INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 2010 and 2009 amounted
to $26,009 and $49,945 respectively.
 
 As at
September 30, 2010, the Group’s commitments for minimum lease payments under
these leases for the next one year are as follows:
 
 September
      30,2011
                        
                        $
                        86,1012012
      and thereafter
                        
                        
                        -$
                        86,101
 
 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 nine months
                          
                          Workstation
                          
                          
                          Workstation
                          
                          
                          Workstationended September 30, 2010
                          
                          Type A
                          
                          
                          Type B
                          
                          
                          Type C
                          
                          
                          SADP
                          
                          
                          Other
                          
                          
                          ConsolidatedNet
      revenues
                          
                          $
                          3,815,445
                          
                          
                          $
                          204,190
                          
                          
                          $
                          11,434,287
                          
                          
                          $
                          648,746
                          
                          
                          $
                          316,295
                          
                          
                          $
                          16,418,963Cost
      of net revenues
                          
                          
                          (1,184,175
                          )
                          
                          
                          (50,624
                          )
                          
                          
                          (3,840,028
                          )
                          
                          
                          (250,099
                          )
                          
                          
                          (14,869
                          )
                          
                          
                          (5,339,795
                          )$
                          2,631,270
                          
                          
                          $
                          153,566
                          
                          
                          $
                          7,594,259
                          
                          
                          $
                          398,647
                          
                          
                          $
                          301,426
                          
                          
                          $
                          11,079,168
  For the Nine Months ended
                      
                      Workstation
                      
                      
                      Workstation
                      
                      
                      WorkstationSeptember 30, 2009
                      
                      Type A
                      
                      
                      Type B
                      
                      
                      Type C
                      
                      
                      SADP
                      
                      
                      Other
                      
                      
                      ConsolidatedNet
      revenues
                      
                      $
                      3,157,837
                      
                      
                      $
                      1,177,786
                      
                      
                      $
                      3,727,970
                      
                      
                      $
                      672,276
                      
                      
                      $
                      83,378
                      
                      
                      $
                      8,819,247Cost
      of net revenues
                      
                      
                      (999,727
                      )
                      
                      
                      (364,953
                      )
                      
                      
                      (1,271,340
                      )
                      
                      
                      (361,927
                      )
                      
                      
                      (70,434
                      )
                      
                      
                      (3,068,381
                      )$
                      2,158,110
                      
                      
                      $
                      812,833
                      
                      
                      $
                      2,456,630
                      
                      
                      $
                      310,349
                      
                      
                      $
                      12,944
                      
                      
                      $
                      5,750,866
 
 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 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (Stated
in US Dollars)(Unaudited)
 
 19.
              FAIR
      VALUE MEASUREMENTS
 
 The
Company has adopted FASB Statement No. 157, Fair Value Measurements (ASC
820), establishes a framework for measuring fair value. That framework provides
a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs (level 3
measurements). The three levels of the fair value hierarchy under FASB Statement
No. 157 are described as follows:
 
 Level
      1
                    
                    Inputs
      to the valuation methodology are unadjusted quoted prices for identical
      assets or liabilities in active markets.Level
      2
                    
                    Inputs
      to the valuation methodology include
                      ·quoted
      prices for similar assets or liabilities in active markets
                      ·quoted
      prices for identical or similar assets or liabilities in inactive
      markets
                      ·inputs
      other than quoted prices that are observable for the asset or
      liability
                      ·inputs
      that are derived principally from or corroborated by observable market
      data by correlation or other means
                      If
      the asset or liability has a specified (contractual) term, the level 2
      input must be observable for substantially the full term of the asset or
      liability.Level
      3
                    
                    Inputs
      to the valuation methodology are unobservable and significant to the fair
      value
measurement.
 
 The
asset’s or liability’s fair value measurement level within the fair value
hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of
observable inputs and minimize the use of unobservable inputs.
 
 Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value.
  Warrant
Liability: Valued at fair value using the Black-Scholes valuation method using
the quoted price of the company’s common stock in an active market, volatility
based on the actual market activity of the company’s stock, the remaining life
of the warrant and the risk free interest rate at the date of the financial
statements.
  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 and
medicine dispensing systems and equipment that are principally used by hospitals
and other medical facilities in the PRC. Currently our Company is the only
producer of two products in the PRC. We have served approximately 300 customers
in the PRC from our facilities in Daqing and Qingdao. We generate our revenue
from sales in two product categories: pneumatic transport systems (“PTS”) and
medicine dispensing systems (“SADP”).
  This
discussion and analysis focuses on the business results of Sunway Group
(consisting of Daqing Sunway, the Company’s primary operating entity, along with
its other indirectly-owned subsidiaries Beijing Sunway New-force Medical
Treatment Tech Co., Ltd. and Qingdao Liheng Textile Co., Ltd), comparing its
results in the three and nine months periods ended September 30, 2010 to the
three and nine months periods ended September 30, 2009.
 
 Three-month
period ended September 30, 2010 and September 30, 2009
 
 Results
of Operations
 
 In the
three months ended September 30, 2010, the company’s net revenue, gross profit,
operating expense and net income increased as compared with the same period in
the same period of 2009. Exclude change 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 September 30, 2010 and 2009, respectively, and provides information
regarding the dollar and percentage increase or (decrease) from the three months
ended September 30, 2010 and 2009.
 
 Three Months Ended September 30,2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    Change rateNet
      Revenue
                    
                    $
                    5,769,462
                    
                    
                    $
                    3,150,969
                    
                    
                    $
                    2,618,493
                    
                    
                    
                    83.10
                    %Cost
      of net revenue
                    
                    $
                    1,814,588
                    
                    
                    $
                    1,087,115
                    
                    
                    $
                    727,473
                    
                    
                    
                    66.92
                    %Gross
      Profit
                    
                    $
                    3,954,874
                    
                    
                    $
                    2,063,854
                    
                    
                    $
                    1,891,020
                    
                    
                    
                    91.63
                    %Gross
      Margin
                    
                    
                    68.55
                    %
                    
                    
                    65.50
                    %
                    
                    
                    -
                    
                    
                    
                    3.05
                    %Operating
      Income
                    
                    $
                    2,599,076
                    
                    
                    $
                    1,030,285
                    
                    
                    $
                    1,568,791
                    
                    
                    
                    152.27
                    %Change
      in fair value of warrants
                    
                    $
                    16,552,201
                    
                    
                    $
                    2,429,394
                    
                    
                    $
                    14,122,807
                    
                    
                    
                    -
                    %Net
      Income
                    
                    $
                    18,740,269
                    
                    
                    $
                    3,300,742
                    
                    
                    $
                    15,439,527
                    
                    
                    
                    -
                    %Net
      profit margin
                    
                    
                    324.82
                    %
                    
                    
                    104.75
                    %
                    
                    
                    -
                    
                    
                    
                    -
                    %
  33
  Net
Revenue
  Net
revenue for the three months ended September 30, 2010, which resulted entirely
from sales, was $5,769,462, an increase of 83.10% as compared with net revenue
of $3,150,969 for the three months ended September 30, 2009. In the three months
ended September 30, 2010, we sold 1,050 workstations, an increase of 93.72% as
compared with 542 workstations sold in the three months ended September 30,
2009. We also sold 2 units SASP in the same period. 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.
  Three Months Ended September 30,2010
                  
                  
                  2009sales
                  
                  
                  % of total sales
                  
                  
                  sales
                  
                  
                  % of total salesPTS
                  
                  $
                  5,467,590
                  
                  
                  
                  94.77
                  %
                  
                  $
                  2,913,590
                  
                  
                  
                  92.47
                  %SADP
                  
                  $
                  172,472
                  
                  
                  
                  2.99
                  %
                  
                  $
                  237,379
                  
                  
                  
                  7.53
                  %Other
                  
                  $
                  129,400
                  
                  
                  
                  2.24
                  %
                  
                  $
                  -
                  
                  
                  
                  -
                  %Total
      net revenues
                  
                  $
                  5,769,462
                  
                  
                  
                  100.00
                  %
                  
                  $
                  3,150,969
                  
                  
                  
                  100.00
                  %
 
 Gross
Profit
 
 Gross
profit increased 91.63% to $3,954,874 in the three months ended September 30,
2010, as compared with $2,063,854 in the three months ended September 30, 2009.
Our gross profit margin rose 3.05% from 65.50% in the three months ended
September 30, 2009 to 68.55% in 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 September 30,2010
                          
                          
                          2009US$
                          
                          Gross profit
                            margin
                          
                          
                          US$
                          
                          Gross profit
                            marginGross
      Profit
                          
                          $
                          3,954,874
                          
                          
                          
                          68.55
                          %
                          
                          $
                          2,063,854
                          
                          
                          
                          65.50
                          %
 
 Income
from Operations
 
 Operating
income increased 152.27% to $2,599,076 in the three months ended September 30,
2010, as compared with $1,030,285 in the three months ended September 30, 2009.
The increase was primarily attributable to a sharp increase in sales
growth.
 
 Cost
of Net Revenue
 
 Cost of
net revenue increased to $1,814,588 in the three months ended September 30,
2010, representing a 66.92% increase as compared with $1,087,115 in 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:
 
 Three Months Ended September 30,2010
                    
                    
                    2009
                    
                    ChangeCost
      of net revenue
                    
                    $
                    1,814,588
                    
                    
                    $
                    1,087,115
                    
                    
                    
                    66.92
                    %
  34
  Operating
Expenses
 
 Operating
expenses were $1,355,798 in the three months ended September 30, 2010, an
increase of 31.18% as compared with $1,033,569 in the same period of 2009. The
increase was composed primarily due to two factors: (i) selling expenses
increased $139,149, or 41.44% to $474.936 in the three months ended September
30, 2010 from $335,787 for the same period of 2009; and (ii) general and
administration expenses increased $183,080 or 26.24% to $880,862 in the three
months ended September 30, 2010 from $697,782 in the same period of 2009. In the
three months ended September 30, 2010, we increased direct sales office
expenses. Reflecting this change, costs related to direct sales office expenses
were $155,514 for the three months ended September 30, 2010, as compared to
$131,368 for the same period of 2009.
 
 The table
below presents information about our operating expenses for the periods
indicated:
  Three Months Ended September 30,2010
                    
                    
                    2009
                    
                    ChangeSelling
      expenses
                    
                    $
                    474,936
                    
                    
                    $
                    335,787
                    
                    
                    
                    41.44
                    %General
      & Administrative expenses
                    
                    $
                    880,862
                    
                    
                    $
                    697,782
                    
                    
                    
                    26.24
                    %Total
      operating expenses
                    
                    $
                    1,355,798
                    
                    
                    $
                    1,033,569
                    
                    
                    
                    31.18
                    %
 
 Changes
in fair value of warrants
 
 Changes
in fair value of warrants were $16,552,201 in the three months ended September
30, 2010. This is recorded as a non-cash charge, which resulted from the change
in fair value of warrants issued to investors in conjunction with the Company’s
issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic
815, “Derivative and Hedging” (ASC 815). The accounting treatment of the
warrants resulted from a provision providing anti-dilution protection to the
warrant holders. On March 18, 2010, the Company entered into a Security Exchange
Agreement intending to exchange all warrants into common stock. As a result of
this agreement, on the closing date of the agreement, the Company will issue
2,000,000 shares of common stock in exchange for the retirement of all of the
outstanding warrants owned by Vision Opportunity Master Fund Ltd. and its
affiliates. The closing of the agreement is conditioned upon a closing of a
financing with minimum proceeds of $10 million to the Company.
 
 Net
Income
 
 Net
income was $18,740,269 for the three months ended September 30, 2010, an
increase as compared with $3,300,743 for the same period of 2009. In the three
months ended September 30, 2010, our net income was impacted by a non-cash
charge of $16,552,201 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 $2,188,068 for
the three months ended September 30, 2010 and $871,348 for the three months
ended September 30, 2009, representing an increase of 151.11% from the three
months ended September 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 three months ended September 30, 2010 were
$1.01 and $0.73 compared to $0.18 and $0.11 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 September 30, 2010 and
September 30, 2009, respectively. The weighted average number of shares
outstanding to calculate diluted EPS was 25,637,503 and 30,323,548 for the three
months ended September 30, 2010 and September 30, 2009.
  Nine-month
period ended September 30, 2010 and September 30, 2009
  Results
of Operations
 
 In the
nine months ended September 30, 2010, the company’s net revenue, gross profit,
operating expenses and net income increased as compared with the same period in
the same period of 2009. These increases were primarily attributable to a result
of more effective sales and marketing efforts.
  The
following table summarizes the results of our operations during the nine months
ended September 30, 2010 and 2009, respectively, and provides information
regarding the dollar and percentage increase or (decrease) from the nine months
ended September 30, 2010 and 2009.
  35
  Nine Months Ended September 30,2010
                        
                        
                        2009
                        
                        
                        Change
                        
                        
                        Change rateNet
      Revenue
                        
                        $
                        16,418,963
                        
                        
                        $
                        8,819,247
                        
                        
                        $
                        7,599,716
                        
                        
                        
                        86.17
                        %Cost
      of net revenue
                        
                        $
                        5,339,795
                        
                        
                        $
                        3,068,381
                        
                        
                        $
                        2,271,414
                        
                        
                        
                        74.03
                        %Gross
      Profit
                        
                        $
                        11,079,168
                        
                        
                        $
                        5,750,866
                        
                        
                        $
                        5,328,302
                        
                        
                        
                        92.65
                        %Gross
      Margin
                        
                        
                        67.48
                        %
                        
                        
                        65.21
                        %
                        
                        
                        -
                        
                        
                        
                        2.27
                        %Operating
      Income
                        
                        $
                        7,377,037
                        
                        
                        $
                        2,956,249
                        
                        
                        $
                        4,420,788
                        
                        
                        
                        149.54
                        %Impairment
      on investment
                        
                        $
                        -
                        
                        
                        $
                        4,831,386
                        
                        
                        
                        (4,831,386
                        )
                        
                        
                        -
                        %Change
      in fair value of warrants
                        
                        $
                        15,748,805
                        
                        
                        $
                        13,363,953
                        -
                        
                        $
                        2,384,852
                        
                        
                        
                        17.85
                        %Net
      Income
                        
                        $
                        21,986,480
                        
                        
                        $
                        11,036,722
                        
                        
                        $
                        10,949,758
                        
                        
                        
                        99.21
                        %Net
      profit margin
                        
                        
                        133.91
                        %
                        
                        
                        125.14
                        %
                        
                        
                        -
                        
                        
                        
                        -
                        %
 
 Net
Revenue
  Net
revenue in the nine months ended September 30, 2010, which resulted entirely
from sales, was $16,418.963, an increase of 86.17% as compared with net revenue
of $8,819,247 for the nine months ended September 30, 2009. In the nine months
ended September 30, 2010, we sold 2,998 workstations, an increase of 96.72% as
compared with 1,524 workstations sold in the nine months ended September 30,
2009, in the nine months ended September 30, 2010, we sold 7 units of SADP, an
increase of 16.67 as compared with 6 units of SADP in the nine months ended
September 30, 2009. The increase was due primarily toa
result of more effective sales and marketing efforts.
  The
following table breaks down application categories as percentage of total net
revenue.
  Nine Months Ended September 30,2010
                          
                          
                          2009sales
                          
                          % of total sales
                          
                          
                          sales
                          
                          % of total salesPTS
                          
                          $
                          15,453,922
                          
                          
                          
                          94.12
                          %
                          
                          $
                          8,063,593
                          
                          
                          
                          91.43
                          %SADP
                          
                          $
                          648,746
                          
                          
                          
                          3.95
                          %
                          
                          $
                          672,276
                          
                          
                          
                          7.62
                          %Other
                          
                          $
                          316,295
                          
                          
                          
                          1.93
                          %
                          
                          $
                          83,378
                          
                          
                          
                          0.95
                          %Total
      net revenue
                          
                          $
                          16,418,963
                          
                          
                          
                          100.00
                          %
                          
                          $
                          8,819,247
                          
                          
                          
                          100.00
                          %
  Gross
Profit
 
 Gross
profit increased 92.65% to $11,079,168 in the nine months ended September 30,
2010, as compared with $5,750,866 in the nine months ended September 30, 2009.
Our gross profit margin rose 2.27% from 65.21% in the nine months ended
September 30, 2009 to 67.48% in the same period of 2010, mainly due to a
decrease in product output caused by the fall of in average fixed cost per
unit.
 
 The table
below presents information about our gross profit for the periods
indicated:
  Nine Months Ended September 30,2010
                          
                          
                          2009US$
                          
                          Gross profit
                            margin
                          
                          
                          US$
                          
                          Gross profit
                            marginGross
      Profit
                          
                          $
                          11,079,168
                          
                          
                          
                          67.48
                          %
                          
                          $
                          5,750,866
                          
                          
                          
                          65.21
                          %
 
 Income
from Operations
 
 Operating
income increased 149.54% to $7,377,037 for the nine months ended September 30,
2010, as compared to $2,956,249 for the nine months ended September 30, 2009.
The increase was primarily attributable to a sharp increase in sales growth and
a lesser increase in operations expenses in the nine months ended September 30,
2010..
 
 Cost
of Net Revenue
 
 Cost of
net revenue increased to $5,339,795 for the nine months ended September 30,
2010, representing a 74.03% % increase as compared with $3,068,381 for the same
period of 2009. The increase is primarily due to sales growth and an increase in
production volume caused by the fall of average fixed cost per
unit.
  36
  The table
below presents information about our cost of net revenue for the periods
indicated:
 
 Nine Months Ended September 30,2010
                      
                      
                      2009
                      
                      ChangeCost
      of net revenue
                      
                      $
                      5,339,795
                      
                      
                      $
                      3,068,381
                      
                      
                      
                      74.03
                      %
 
 Operating
Expenses
 
 Operating
expenses were $3,702,131 for the nine months ended September 30, 2010, an
increase as compared with $2,794,617 for the same period of 2009. The increase
was composed of two factors: (i) selling expenses increased by $528,104 or
75.76% to $1,225,161 for the nine months ended September 30, 2010 from $697,057
for the same period of 2009; and (ii) general and administration expenses
increased $379,410 or 18.09% to $2,476,970 for the nine months ended September
30, 2010 from $2,097,560 for the same period of 2009. In the nine months ended
September 30, 2010, we increased direct sales office expenses. Reflecting this
change, costs related to direct sales office expenses were $542,710 for the nine
months ended September 30, 2010, as compared to 170,477 for the same period of
2009.
  The table
below presents information about our operating expenses for the periods
indicated:
  Nine Months Ended September 30,2010
                    
                    
                    2009
                    
                    ChangeSelling
      expenses
                    
                    $
                    1,225,161
                    
                    
                    $
                    697,057
                    
                    
                    
                    75.76
                    %General
      & Administrative expenses
                    
                    $
                    2,476,970
                    
                    
                    $
                    2,097,560
                    
                    
                    
                    18.09
                    %Total
      operating expenses
                    
                    $
                    3,702,131
                    
                    
                    $
                    2,794,617
                    
                    
                    
                    32.47
                    %
 
 Changes
in fair value of warrants
 
 Changes
in fair value of warrants were $15,748,805 for the nine months ended September
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 $21,986,480 for the nine months ended September 30, 2010, an increase
as compared with $11,036,722 for the same period of 2009. In the nine months
ended September 30, 2010, our net income was exaggerated by a non-cash charge of
$15,748,805 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 $6,237,675 for the nine months ended
September 30, 2010 and $2,504,155 for the nine months ended September 30, 2009,
representing an increase of 149.09% from the nine months ended September 30,
2009 to the same period of 2010. The increase was primarily due to sales
growth.
  37
  Earnings
Per Share
 
 Basic and
diluted earnings per share for the nine months ended September 30, 2010 were
$1.19 and $0.82 compared to $0.60 and $0.36 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 nine months ended September 30, 2010 and
September 30, 2009, respectively. The weighted average number of shares
outstanding to calculate diluted EPS was 26,934,551 and 30,763,019 for the nine
months ended September 30, 2010 and September 30, 2009.
  Trade
Receivables, net
 
 Trade
receivables, net increased to $7,268,938 as of September 30, 2010, compared with
$3,537,395 as of December 31, 2009. The increase in trade receivables was
primarily attributable to sales growth.
  Inventory
 
 Inventory consists of raw materials,
finished goods and work in progress. As of September 30, 2010, the recorded
value of our inventory has increased 97.57% to $1,282,261 from $649,024 as of
December 31, 2009. The increase is mainly due to (i) Raw material inventory
decreased from $487,044 as of December 31, 2009 to $439,818 as of September 30,
2010, a decrease of 9.70%. (ii) Work in progress inventory increased from
$23,197 as of December 31, 2009 to $193,176 as of September 30, 2010, an
increase of 732.76%,and (iii) an increase in finished goods
from $138,783 as of December 31, 2009 to $649,267 as of September 30, 2010, an
increase of 367.83%. The increase was primarily attributable to an expected
increase in sales volume based upon market research and several confirmed
purchase agreements for our products.
  The table
below presents information about our inventory for the periods
indicated:
 
 Item
                    
                    September 30, 2010,
                    
                    
                    December 31, 2009
                    
                    
                    ChangeFinished
      goods
                    
                    $
                    649,267
                    
                    
                    $
                    138,783
                    
                    
                    
                    367.83
                    %Work
      in progress
                    
                    $
                    193,176
                    
                    
                    $
                    23,197
                    
                    
                    
                    732.76
                    %Raw
    material
                    
                    $
                    439,818
                    
                    
                    $
                    487,044
                    
                    
                    
                    (9.70
                    )
      %Total
                    
                    $
                    1,282,261
                    
                    
                    $
                    649,024
                    
                    
                    
                    97.57
                    %
 
 Accounts
Payable
 
 Accounts
payable amounted to $350,024 as of the September 30, 2010, an increase as
compared with $271,139 for the same period of 2009. The increase was primarily
attributable to the increased volume of raw material purchased.
 
 Liquidity
and Capital Resources
 
 We have
historically financed our operations and capital expenditures principally
through private placements of debt and equity offerings and cash provided by
operations.
 
 The table
below presents information about our cash flow for the periods
indicated:
  Nine months ended September 30,2010
                  
                  
                  2009
                  
                  
                  ChangeNet
      cash provided by (used in) operating activities
                  
                  $
                  5,737,282
                  
                  
                  $
                  3,426,817
                  
                  
                  $
                  2,310,465Net
      cash provided by (used in) investing activities
                  
                  $
                  (1,420,761
                  )
                  
                  $
                  (13,897,125
                  )
                  
                  $
                  (12,476,364
                  )Net
      cash provided by (used in) financing activities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Effect
      of foreign currency translation on cash and cash
    equivalents
                  
                  $
                  172,931
                  
                  
                  $
                  140,915
                  
                  
                  $
                  32,016Beginning
      cash and cash equivalent
                  
                  $
                  4,717,240
                  
                  
                  $
                  15,189,941
                  
                  
                  $
                  (10,472,701
                  )Ending
      cash and cash equivalent
                  
                  $
                  9,206,692
                  
                  
                  $
                  4,860,548
                  
                  
                  $
                  4,346,144
  38
  Operating
Activities
 
 For the
nine months ended September 30, 2010, net cash provided by operating activities
was $5,737,282. This was primarily attributable to our net income of
$21,986,480, adjusted by an add-back of non-cash expenses mainly consisting of
depreciation, amortization, loss on disposal of fixed assets, and change in fair
value of warrants of $13,082,456 offset by a $3,166,742 decrease in working
capital. Specifically, the working capital increase was primarily due to (i) a
$3,594,595 trade receivables increase driven by change in sales policy and sales
growth; (ii) a $668,336 inventories increase, comprised principally raw material
and work in progress, due to in-house market research and the confirmation of
several purchase agreements for our products; (iii) a $639,795 decrease in
advances to suppliers to buy raw materials; (iv) a $229,723 increase in
prepayments, travel advances to shareholders, tender deposits and advances to
employees, consisting primarily of prepayments for raw materials supplies in
advance of shipment, working capital of sales employee and pay deposit for
client; partially offset by a $686,117 decrease in accounts payable, tax
payable, customers deposits, accrued liabilities and other
payables.
 
 Investing
Activities
 
 For the
nine months ended September 30, 2010, net cash used in investing activities was
$1,420,761, This was primarily attributable to (i) a $307,700 capital
expenditure to purchase new plant and equipment for our Qingdao factory and the
manufacture of our new product, an advanced automatic dispensing system; (ii) a
$1,267,340 capital expenditure to purchase new intangible assets for our new
product and to improve our existing dispensary system; and (iii) $154,279 in
restricted cash.
 
 Cash
and Cash Equivalents
 
 Our cash
and cash equivalents as at the beginning of September 30, 2010 were $4,717,240
and increased to $9,206,692 by the end of the period.
 
 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 September 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.
  39
  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 does
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
 -
Collection is reasonably assured.
 
 Contract
revenues are recognized when the manufacturing and installation of the medical
equipment is completed. Generally, the company receives total contract sum from
clients in 3 installments. A 30% deposit is received from client when the
contract is signed. A second payment of 30% is received when the project
commenced. The final sum of the remaining portion is received after the
construction is completed within 4 months.
 
 Expected warranty
liabilities. The Company warrants its products against defects in design,
materials, and workmanship generally for one year. A provision for estimated
future costs relating to warranty expense are recorded when products are
shipped, and the provision is based upon our own historical claim
experience.
 
 Off-Balance
Sheet Arrangements
  We have
no off-balance sheet arrangements as of September 30, 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 nine
months ended September 30, 2010, our accounting staff found the following
misstatements in our previously reported financial statements in 2009 that
require correction:
  40
  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, the classification of the Company’s acquisition of Qingdao Liheng
      Textiles Co., Ltd as an impairment on investment, and the classification
      of the statements of stockholders equity relating to the Series B
      financing.
 
 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 September 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 September 30, 2010.
 
 Changes
in Internal Control over Financial Reporting
 
 Based
upon their evaluation as of the end of the period covered by this quarterly
report, the Company’s chief executive officer and chief financial officer
concluded that, due to the significant deficiencies in internal control over
financial reporting described below, the Company’s disclosure controls and
procedures are not effective as of September 30, 2010.
 
 Our
management identified that the misstatements identified above was due to not
having internal personnel with sufficient expertise and knowledge of the
requirements for disclosure of the information that have been collected and
reported, as required under the securities laws and disclosures required under
U.S. GAAP.
 
 We plan
to take the following steps to remediate the deficiencies in disclosure controls
and procedures that are identified above:
 
 1. Hiring
additional accounting and operations personnel, as needed, and reorganizing the
accounting and finance department to ensure that accounting personnel with
adequate experience, skills and knowledge relating to complex, non-routine
transactions are directly involved in the review and accounting evaluation of
our complex, non-routine transactions.
 
 2.
Requiring senior accounting personnel and the principal accounting officer to
review complex, non-routine transactions to evaluate and approve the accounting
treatment for such transactions.
 
 3.  Interviewing
prospective new Directors for our Board, including a member who is appropriately
credentialed as a financial expert with a goal to establish both an Audit and
Compensation committee as well as sufficient independent Directors.
 
 We
believe that the foregoing steps will remediate the significant deficiencies
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate.
 
 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.
  41
  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.
 
 ITEM6
- 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.
  42
  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:
        November 12, 2010
                  By:
                  /s/
      Liu BoName:
      Liu BoTitle:
      Chief Executive Officer
                    (principal
      executive officer)
 
 Dated:
        November 12, 2010
                By:
                /s/
      Samuel ShengName:
      Samuel ShengTitle:
      Chief Financial Officer
                  (principal financial and accounting
officer)
  43