UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q/A


Amendment No. 1





(Mark One)





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





FOR THE QUARTERLY PERIOD ENDED March 31, 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 May 15, 2010, there were 18,499,736 outstanding shares of the Registrant's Common Stock, $0.0000001 par value.





EXPLANATORY NOTE




The Amendment No.1 to Sunway Global Inc.’s (the "Company", "Sunway") Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2010  amends certain financial information included in Part I, Item 1, Note 20; and corrects typographical errors and clarifies disclosure details in Note 1, 4, 14, Item 2 and Item 4. No other information included in the original Form 10Q is amended hereby.




For convenience and ease of reference, the Company is filing the Quarterly Report in its entirety with applicable changes. Unless otherwise stated, all information contained in this amendment is as of May 17, 2010, the filing date of the original Quarterly Report and does not reflect events or transactions occurring after such filing.








TABLE OF CONTENTS





PagePART IItem 1.
Financial Statements
3Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
34Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39Item 4T
Controls and Procedures
39PART IIItem 1.
Legal Proceedings
40Item 1A.
Risk Factors
40Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40Item 3.
Defaults Upon Senior Securities
41Item 4.
(Removed and Reserved)
41Item 5.
Other Information
41Item 6.
Exhibits
41SIGNATURES
42


2


PART I


FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS





ALBERT WONG & CO.


CERTIFIED PUBLIC ACCOUNTANTS


7th Floor, Nan Dao Commercial Building


359-361 Queen’s Road Central


Hong Kong


Tel : 2851 7954


Fax: 2545 4086





ALBERT WONG


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


CPA(Practising)


To:  The board of directors and stockholders of Sunway Global Inc. (“the Company”)





Report of Independent Registered Public Accounting Firm





We have reviewed the accompanying interim consolidated balance sheets of Sunway Global Inc. as of March 31, 2010 and 2009, and the related consolidated statements of income, stockholders’ equity and cash flows for the three-month periods then ended, in accordance with the standards of the Public Company Accounting Oversight Board (United States). All information included in these financial statements is the representation of the management of Sunway Global Inc.





A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.





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





Since our previous report dated May 17, 2010, it was determined that the consolidated financial statements needed restatement to make corrections as described in note 20.





Hong Kong
Albert Wong & Co.May 17, 2010
Certified Public Accountants


Except for note 20 which is dated April 30, 2011


3


SUNWAY GLOBAL INC.





CONSOLIDATED BALANCE SHEETS


AS AT MARCH 31, 2010 AND DECEMBER 31, 2009


(Stated in US Dollars)





Notes

March 31, 2010

(Unaudited)

(Restated)


December 31, 2009

(Audited)

(Restated)ASSETSCurrent assetsCash and cash equivalents

2(k)

$
4,861,514


$
4,717,240Trade receivables, net

5


5,485,586



3,537,395Inventories

8


643,977



589,871Advances to suppliers




527,233



940,872Prepayments




99,399



127,388Tender deposits




141,885



122,050Travel advances to shareholders

6


116,584



71,372Advances to employees

7


258,889



217,865Total current assets



$
12,135,067


$
10,324,053Restricted cash




253,023



283,175Amount due from a related company

4


830



830Property, plant and equipment, net

9


12,192,666



10,508,415Intangibles, net

10


14,838,444



15,109,988Deposit for technology-based designed




3,131,997



4,318,643TOTAL ASSETS



$
42,552,027


$
40,545,104LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilitiesAccounts payable



$
284,472


$
271,139Income tax payable




353,037



269,082Turnover and other taxes




278,491



154,871Expected warranty liabilities

11


32,624



32,618Customer deposits




221,768



304,093Accrued liabilities




570,922



657,215Total current liabilities



$
1,741,314


$
1,689,018Warrants liabilities

12


42,271,601



40,808,327TOTAL LIABILITIES



$
44,012,915


$
42,497,345





See accompanying notes to consolidated financial statements


4


SUNWAY GLOBAL INC.





CONSOLIDATED BALANCE SHEETS (Continued)


AS AT MARCH 31, 2010 AND DECEMBER 31, 2009


(Stated in US Dollars)





March 31, 2010


December 31,

2009Notes

(Unaudited)

(Restated)


(Audited)

(Restated)STOCKHOLDERS’ EQUITYSeries B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at March 31, 2010 and  December 31, 2009

13

$
1


$
1Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at March 31, 2010 and December 31, 2009




2



2Additional paid-in capital




13,833,383



13,833,383Statutory reserves




3,033,855



3,033,855Accumulated deficit




(21,250,046
)


(21,735,219
)Accumulated other comprehensive income




2,921,917



2,915,737$
(1,460,888
)

$
(1,952,241
)TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY



$
42,552,027


$
40,545,104





See accompanying notes to consolidated financial statements


5


SUNWAY GLOBAL INC.





CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





Three months ended March 31,Notes

2010


2009Net revenues

17

$
5,200,091


$
2,933,573Cost of net revenues

17


(1,757,452
)


(893,980
)Gross profit



$
3,442,639


$
2,039,593Selling expenses




(406,247
)


(180,349
)General and administrative expenses




(742,655
)


(631,894
)Income from operations



$
2,293,737


$
1,227,350Interest income




4,363



23,577Impairment on investment




-



(4,831,386
)Changes in fair value of warrants




(1,463,274
)


(20,481,276
)Income/(loss) before income tax



$
834,826


$
(24,061,735
)Income tax expense

14


(349,653
)


(207,996
)Net income/(loss)



$
485,173


$
(24,269,731
)Net income/(loss) per share:-Basic



$
0.03


$
(1.31
)-Diluted



$
0.02


$
(1.31
)Weighted average number of common stock-Basic

15


18,499,736



18,499,736-Diluted

15


27,772,675



18,499,736





See accompanying notes to consolidated financial statements


6


SUNWAY GLOBAL INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR THE YEAR ENDED DECEMBER 31, 2009 AND THREE MONTHS ENDED MARCH 31, 2010


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





Additional








AccumulatedPreferred


No. of





paid








otherSeries


shares


Common


in


Statutory


Accumulated


comprehensiveB


outstanding


stock


capital


reserves


deficit


income


Total(Restated)





(Restated)Balance, January 1, 2009 (Restated)

$
1



18,499,736


$
2


$
17,824,325


$
2,127,978


$
17,102,689


$
2,844,190


$
39,899,185Reclassification of warrants from equity to derivative liabilities


-



-



-



(3,990,942
)


-



(65,910,931
)


-



(69,901,873
)Net income


-



-



-



-



-



27,978,900



-



27,978,900Appropriations to statutory reserves


-



-



-



-



905,877



(905,877
)


-



-Foreign currency translation adjustment


-



-



-



-



-



-



71,547



71,547Balance, December 31, 2009 (Restated)

$
1



18,499,736


$
2


$
13,833,383


$
3,033,855


$
(21,735,219
)

$
2,915,737


$
(1,952,241
)Balance, January 1, 2010

$
1



18,499,736


$
2


$
13,833,383


$
3,033,855


$
(21,735,219
)

$
2,915,737


$
(1,952,241
)Net income


-



-



-



-



-



485,173



-



485,173Foreign currency translation adjustment


-



-



-



-



-



-



6,180



6,180Balance, March 31, 2010 (Restated)

$
1



18,499,736


$
2


$
13,833,383


$
3,033,855


$
(21,250,046
)

$
2,921,917


$
(1,460,888
)





See accompanying notes to consolidated financial statements


7


SUNWAY GLOBAL INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars) (Unaudited)





Three months ended March 31,2010


2009Cash flows from operating activitiesNet income/(loss)

$
485,173


$
(24,269,731
)Depreciation


440,058



240,444Amortization


370,359



253,803Changes in fair value of warrants


1,463,274



20,481,276Impairment on investment


-



4,831,386Adjustments to reconcile net income to net cash provided by operating activities:Trade receivables, net


(1,947,650
)


255,153Inventories


(54,012
)


(430,489
)Advances to suppliers


413,797



(776,077
)Prepayments


28,010



(178,370
)Tender deposits


(19,816
)


94,457Travel advances to shareholders


(45,202
)


(18,699
)Advances to employees


(40,990
)


98,741Accounts payable


13,290



652,243Income tax payable


83,913



(422,216
)Turnover and other taxes


123,597



(289,028
)Customer deposits


(82,375
)


202,073Accrued liabilities


(86,391
)


316,414Net cash provided by operating activities

$
1,145,035


$
1,041,380Cash flows from investing activitiesUsed of restricted cash

$
30,152


$
22,320Purchase of plant and equipment


(147,804
)


(78,781
)Purchase of intangibles assets


(96,378
)


(596,754
)Purchase of technology assets designed


(787,482
)


(3,505,390
)Net cash used in investing activities

$
(1,001,512
)

$
(4,158,605
)Cash flows from financing activities

$
-


$
-Net cash provided by financing activities

$
-


$
-


8


SUNWAY GLOBAL INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





Three months ended March 31,2010


2009Net in cash and cash equivalents sourced/(used)

$
143,523


$
(3,117,225
)Effect of foreign currency translation on cash and cash equivalents


751



139,715Cash and cash equivalents–beginning of period


4,717,240



15,189,941Cash and cash equivalents–end of period

$
4,861,514


$
12,212,431





Three months ended March 31,2010


2009Supplementary cash flow information:Tax paid

$
265,740


$
630,304Interest received


4,363



23,577





SUPPLEMENTAL NON-CASH DISCLOSURES:





1.
During the three months ended March 31, 2010 and 2009, an amount of nil and $1,752,695 were transferred from “deposit for the acquisition of computer software” to “property, plant and equipment”, respectively.





2.
During the three months ended March 31, 2010 and 2009, an amount of $1,974,839 and nil were transferred from “Deposit for technology-based designed” to “property, plant and equipment”, respectively.





3.
During the three months ended March 31, 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


9


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





1.
ORGANIZATION AND PRINCIPAL ACTIVITIES





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





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





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





On February 7, 2008, the Company changed its name from National Realty and Mortgage, Inc. to Sunway Global Inc.





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





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





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





(a)
Method of accounting





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


10


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 TechCo., Ltd

PRC


100
%Qingdao Liheng Textiles Co Ltd

PRC


100
%




*Note: Deemed variable interest entity





(c)
Use of estimates





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





(d)
Economic and political risks





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





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


11


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 2010 and 2009, impairment loss was nil and $4,831,386 respectively.


12


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 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.





(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.





March 31, 2010


December 31, 2009Bank of Communications, Branch of DaqingCity Economic Zone

$
4,702,324


$
4,402,294China Construction Bank, Beijing Branch


54,674



147,273Qingdao bank


58,549



16,111Agricultural Bank of China


-



100,025HSBC


34,951



35,106Cash on hand


11,016



16,431$
4,861,514


$
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.


13


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 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.





(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 $24,517 and $26,333, and cost of sales were $1,492  and $6,297   for the three months ended March 31, 2010 and 2009 respectively.





(q)
Advertising





The Group expensed all advertising costs as incurred. Advertising expenses included in selling expenses were $16,852 and nil for the three months ended March 31, 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 $22,300 and $5,728 for the three months ended March 31, 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 $42,204 and $20,534 for the three months ended March 31, 2010 and 2009 respectively.


14


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 $46,651 and $26,719 for the three months ended March 31, 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:





March 31, 2010


December 31, 2009


March 31, 2009Twelve months endedRMB : USD exchange rate


-



6.8372



-Three months endedRMB : USD exchange rate


6.8361



-



6.8456Average three months endedRMB : USD exchange rate


6.8360



-



6.8466





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.


15


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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.


16


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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.


17


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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.


18


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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.


19


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 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 March 31, 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 three months ended March 31, 2010 and 2009, the group’s sales were generated from the PRC and Western Europe. Trade receivables as of March 31, 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 three months ended March 31,2010


2009Customer A

$
486,396


$
-Customer B

$
404,476


$
398,738Customer D

$
450,556


$
-Customer E

$
435,196


$
-Customer K

$
-


$
552,099Customer L

$
-


$
350,539





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





March 31, 2010


December 31, 2009Customer A

$
433,250


$
347,195Customer B

$
426,527


$
373,223Customer C

$
315,037


$
310,245Customer D

$
424,794


$
421,177Customer E

$
394,694


$
214,417Customer F

$
378,143


$
287,106


20


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





4.
AMOUNT DUE FROM A RELATED COMPANY





As at March 31, 2010, amount due from Rise Elite International Ltd. (“Rise Elite”), a related company where Mr. Liu Bo, the director of the company is a shareholder. The amount is unsecured, interest free and repayable on demand. The amount was held by Rise Elite for the initial setup expenses.





5.
TRADE RECEIVABLES, NET





Trade receivables comprise the followings:





March 31, 2010


December 31, 2009Trade receivables, gross

$
5,503,572


$
3,555,378Provision for doubtful debts


(17,986
)


(17,983
)Trade receivables, net

$
5,485,586


$
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 three months ended March 31, 2010 and for the year ended December 31, 2009 is as follows:





March 31, 2010


December 31, 2009Balance at beginning of period/year

$
17,983


$
8,414Addition of the provision


-



9,549Foreign exchange adjustment


3



20Balance at end of period/year

$
17,986


$
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.


21


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 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.





March 31, 2010


December 31, 2009Bo Liu

$
38,259


$
28,015Deli Liang


78,325



43,357$
116,584


$
71,372





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





March 31, 2010


December 31, 2009Beginning balance, January 1

$
71,372


$
38,733Add: Advanced during the period/year


45,212



122,997Less: Transferred to income statement


-



(90,358
)Ending balance

$
116,584


$
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:





March 31, 2010


December 31, 2009Beginning balance, January 1

$
217,865


$
429,804Add: Advanced during the period/year


131,177



610,677Less: Transferred to income statement


(73,286
)


(418,288
)Recollected from employees


(16,867
)


(404,328
)Ending balance

$
258,889


$
217,865




8.
INVENTORIES




Inventories comprise the followings:





March 31, 2010


December 31, 2009Finished goods

$
265,539


$
241,831Work in process


63,446



26,152Raw materials


314,992



321,888$
643,977


$
589,871


22


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





9.
PROPERTY, PLANT AND EQUIPMENT, NET





Property, plant and equipment, net comprise the followings:





March 31, 2010


December 31, 2009At costBuildings

$
1,848,373


$
1,848,075Machinery and equipment


2,662,058



1,087,332Moldings


8,968,015



8,966,572Computer software


2,101,845



2,101,507Office equipment and motor vehicles


504,189



97,728$
16,084,480


$
14,101,214Less: accumulated depreciation


(5,119,372
)


(4,678,587
)$
10,965,108


$
9,422,627Construction in progress


1,227,558



1,085,788$
12,192,666


$
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:





March 31, 2010


March 31, 2009Cost of net revenues

$
397,745


$
219,089General and administrative expenses


25,919



11,702Selling expenses


16,394



9,653Total depreciation expenses

$
440,058


$
240,444


23


SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





10.
INTANGIBLES, NET





Details of intangibles are as follows:


March 31, 2010


December 31, 2009Land use rights, at cost

$
2,606,090


$
2,502,082Technology-based design, at cost


14,814,368



14,811,984$
17,420,458


$
17,314,066Less: accumulated amortization


(2,582,014
)


(2,204,078
)Total intangibles, net

$
14,838,444


$
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 also acquired the rights to use a parcel of land totalling 10,841 square meters, for a consideration of $106,709 (RMB730,485), located at Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China. Both lands have been used to build 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 for the three months ended 2010 and 2009 were $370,359 and $253,803 respectively.


24





SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





11.
EXPECTED WARRANTY LIABILITIES





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





March 31, 2010


December 31, 2009Balance at beginning of period/year

$
32,618


$
50,396Warranty expense for the period/year


-



(17,903
)Foreign currency difference


6



125Balance at end of period/year

$
32,624


$
32,618





12.
WARRANTS LIABILITIES





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





March 31, 2010


December 31, 2009Balance at beginning of period/year

$
40,808,327


$
69,901,873Changes in fair value of warrants


1,463,274



(29,093,546
)Balance at end of period/year

$
42,271,601


$
40,808,327





13.
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 the Kuhns Brothers, Inc.




25




SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





13.     SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS


(Continued)





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





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





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





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





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





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





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





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




26




SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





13.
SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS


(Continued)





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





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





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





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





On April 5, 2010, the Company entered into a Security Escrow Agreement as an inducement to the holders of warrants to enter into the Security Exchange Agreement, the principal shareholders of the Company have agreed to place an amount of common stock equal to one million shares into escrow for the benefit of the holders in the event the Company fails to achieve certain milestones by December 31, 2010.





14.
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 not subject to any income tax. The subsidiaries are SWT, Sunway, Beijing Sunway, and Liheng (see note 1).





SWT, Sunway, Beijing Sunway and Liheng, being registered in the PRC, are subject to PRC’s Corporate Income Tax (“CIT”). Under applicable income tax laws and regulations, an enterprise located in PRC, including the district where our operations are located, is subject to a rate of 25% for the three months ended March 31, 2010 and 2009.




27




SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





14.
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 March 31, 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:





March 31, 2010


March 31, 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:





March 31, 2010


March 31, 2009Current tax - PRC CIT

$
349,653


$
207,996Deferred tax provision


-



-Income tax expenses

$
349,653


$
207,996





Reconciliation of these items is as follows:





March 31, 2010

March 31, 2009Income before taxation (as of March 30, 2010)

$
834,826


$
(24,061,735
)Add: Impairment on investment


-



4,831,386Other non-tax deductible items


32,920



135,713Change in fair value of warrants


1,463,274



20,481,276Adjusted PRC EIT taxable income

$
2,331,020


$
1,386,640





28





SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





15.
EARNINGS/ LOSS 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 three months ended March 31,2010


2009Income:Income/(loss) for the purpose of basic earnings per share

$
485,173


$
(24,269,731
)Effect of dilutive potential common Stock


-



-Income/(loss) for the purpose of dilutive earnings/(loss) per share

$
485,173


$
(24,269,731
)Number 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



--conversion of Warrant Series A


2,027,368



--conversion of Warrant Series B


563,337



--conversion of Warrant Series C


1,536,828



--conversion of Warrant Series D


330,586



-Weighted average number of common stock for the purpose of dilutive earnings per share


27,772,675



18,499,736





29





SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





16.
COMMITMENTS AND CONTINGENCIES





The Group has entered into a tenancy agreement for factory expiring through 2011. Total rental expenses for the three months ended March 31, 2010 and 2009 amounted to $26,009 and $32,630 respectively.





As at March 31, 2010, the Group’s commitments for minimum lease payments under these leases for the next one year are as follows:





March 31,2011

$
84,3622012 and thereafter


-$
84,362





17.
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 three months ended

Workstation


Workstation


WorkstationMarch 31, 2010

Type A


Type B


Type C


SADP


Others


ConsolidatedNet revenues

$
1,536,366


$
203,928


$
2,908,000


$
475,820


$
75,977


$
5,200,091Cost of net revenues


(493,139
)


(50,247
)


(1,017,833
)


(193,798
)


(2,435
)


(1,757,452
)$
1,043,227


$
153,681


$
1,890,167


$
282,022


$
73,542


$
3,442,639





For the three months ended

Workstation


Workstation


WorkstationMarch 31, 2009

Type A


Type B


Type C


SADP


Others


ConsolidatedNet revenues

$
1,088,862


$
368,066


$
1,476,645


$
-


$
-


$
2,933,573Cost of net revenues


(307,439
)


(101,667
)


(484,874
)


-



-



(893,980
)$
781,423


$
266,399


$
991,771


$
-


$
-


$
2,039,593





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.





30





SUNWAY GLOBAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Stated in US Dollars)(Unaudited)





18. 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.





19. SUBSEQUENT EVENTS





In preparing these financial statements, the Company evaluated the events and transactions that occurred from April 1, 2010 through May 17, 2010, the date these financial statements were issued. The Company has made the required additional disclosures in reporting periods in which subsequent events occur.





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.





20.
RESTATEMENTS




As a result of the restatement of the consolidated balance sheet as of December 31, 2007 that has carryover effect to December 31, 2009, additional paid-in capital decreased from $18,689,023 to $13,833,383.  The Accumulated deficit reduced from $26,590,859 to 21,735,219. The assets, liabilities and total stockholders’ equity have no changes.




ITEMS




31




CONSOLIDATED BALANCE SHEETS


(Stated in US Dollars)




Notes


Original


RestatedDecember 31, 2009(Audited)


(Audited)STOCKHOLDERS’ EQUITYSeries B Convertible PreferredStock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at December 31, 2009

13


$
1


$
1Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at December 31, 2009





2



2Additional paid-in capital





18,689,023



13,833,383Statutory reserves





3,033,855



3,033,855Accumulated deficit





(26,590,859
)


(21,735,219
)Accumulated other comprehensive income





2,915,737



2,915,737STOCKHOLDERS’ EQUITY




$
(1,952,241
)

$
(1,952,241
)




As a result of the restatement of the consolidated balance sheet as of December 31, 2007 that has carryover effect to March 31, 2010, additional paid-in capital decreased from $18,689,023 to $13,833,383.  The assets, liabilities and total stockholders’ equity have no changes.




ITEMS




32




CONSOLIDATED BALANCE SHEETS


(Stated in US Dollars)




Notes


Original


RestatedMarch 31, 2010(Unaudited)


(Unaudited)STOCKHOLDERS’ EQUITYSeries B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at March 31, 2010

13


$
1


$
1Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at March 31, 2010





2



2Additional paid-in capital





18,689,023



13,833,383Statutory reserves





3,033,855



3,033,855Accumulated deficit





(26,105,686
)


(21,250,046
)Accumulated other comprehensive income





2,921,917



2,921,917STOCKHOLDERS’ EQUITY




$
(1,460,888
)

$
(1,460,888
)





33





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





Forward-Looking Statements





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





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





Overview





Since June 27, 2007, the Company has operated as a holding company for entities that, through contractual relationships, control the business of Daqing Sunway Technology Co., Ltd. (“Daqing Sunway”), a company organized under the laws of the PRC that designs, manufactures and sells logistic transport systems 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. We generate our revenue from sales in two product categories: pneumatic transport systems (“PTS”) and Sunway Automatic Dispensing and Packing (“SADP”).





Affected by the financial crisis and affected by equivocal reform of the medical institutions in the PRC, bring about hospital’s investment declines, the company sales growth quickly in the first quarter of 2010. However, our strong balance sheet and liquidity position should allow us to not only weather the current economic environment but potentially benefit and continue to execute growth strategies and pursue the numerous opportunities.





This discussion and analysis focuses on the business results of Daqing Sunway, comparing its results in the three month period ended March 31, 2010 with the three month period ended March 31, 2009.





Three-month period ended March 31, 2010 and March 31, 2009





Results of Operations





In the three months ended March 31, 2010, the Company’s net revenue, gross profit and operation income was growing quickly as compared with 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 three months ended March 31, 2010 and 2009, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the three months ended March 31, 2010 and 2009.





Three Months Ended March 312010


2009


Change


Change rateNet Revenue

$
5,200,091


$
2,933,573


$
2,266,518



77.26
%Cost of net revenue

$
1,757,452


$
893,980


$
863,472



96.59
%Gross Profit

$
3,442,639


$
2,039,593


$
1,403,046



68.79
%Gross Margin


66.20
%


69.53
%


-



(3.33
)%Operating Income

$
2,293,737


$
1,227,350


$
1,066,387



86.89
%Changes in fair value of warrants

$
1,463,274


$
20,481,276


$
21,944,550



(107.14
)%Impairment on investment

$
-


$
4,831,386


$
4,831,386



-Net Income/(loss)

$
485,173


$
(24,269,731
)

$
24,754,904



-Net profit margin


9.33
%


-



-



-




34




Net Revenue





Net revenue for the three months ended March 31, 2010, which resulted entirely from sales, was $5,200,091, an increase of 77.26% as compared with net revenue of $2,933,573 for the three months ended March 31, 2009. In the three months ended March 31, 2010, we sold 904 workstations, an increase of 59.72% as compared with 566 workstations in the three months ended March 31, 2009. During the same period of 2010, we also sold 5 units of SADP. The increase was due primarily to the positive results of more effective sales and marketing efforts.





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





Three Months Ended March 31,2010


2009sales


% of total sales


sales


% of total salesPTS

$
4,648,294



89.39
%

$
2,933,573



100.00
%SADP

$
475,820



9.15
%

$
-



-
%Other

$
75,977



1.46


$
-



-
%Total net revenue

$
5,200,091



100.00
%

$
2,933,573



100.00
%





Gross Profit





Gross profit increased 68.79% to $3,442,639 for the three months ended March 31, 2010, as compared to $2,039,593 for the three months ended March 31, 2009, mainly due to sale growth. Our gross profit margin dropped 3.33% from 69.53% as of the three months ended March 31, 2009 to 66.20% as of the same period of 2010, mainly due to a decrease in product output caused by the rise of average fixed cost per unit and an approximately 33% decrease in the pricing of SADP units.





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





Three Months Ended March 31,2010


2009US$


Gross profit

margin


US$


Gross profit

marginGross Profit

$
3,442,639



66.20
%

$
2,039,593



69.53
%





Income from Operations





Operating income increased 86.89% to $2,293,737 for the three months ended March 31, 2010, as compared to $1,227,350 for the three months ended March 31, 2009. The increase was primarily attributable to the higher sales growth during this period.





Cost of Net Revenue





Cost of net revenue increased to $1,757,452 for the three months ended March 31, 2010, representing a 96.59% increase as compared with $893,980 for the same period of 2009. The increase was primarily due to sales growth and a decrease in product volume caused by the rise of average fixed cost per unit.





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





Three Months Ended March 31,2010


2009


ChangeCost of net revenue

$
1,757,452


$
893,980



96.59
%





Operating Expenses





Operating expenses were $1,148,902 for the three months ended March 31, 2010, an increase as compared with $812,243 for the same period of 2009. The increase was primarily due to two reasons: (i) selling expenses increased $225,898, or 125.26% to $406,247 in the three months ended March 31, 2010 from $180,349 for the same period of 2009; and (ii) general and administration expenses increased $110,761, or 17.53% to $742,655 in the three months ended March 31, 2010 from $631,894 for the same period of 2009. In the three months ended March 31, 2010, we increased direct sales office expenses. Reflecting this change, costs related to direct sales offices expenses were $292,416 for the three months ended March 31, 2010, as compared to 117,321 for the same period of 2009.




35




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





Three Months Ended March 31,2010


2009

ChangeSelling expenses

$
406,247


$
180,349



125.26
%General & Administrative expenses

$
742,655


$
631,894



17.53
%Total operating expenses

$
1,148,902


$
812,243



41.45
%





Changes in fair value of warrants





Changes in fair value of warrants were $1,463,274 for the three months ended March 31, 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 $485,173 for the three months ended March 31, 2010, an increase as compared with $24,269,731 of net loss for the same period of 2009. In the first quarter of 2010, our net income was impacted by a non-cash charge of $1,463,274 unrelated to the Company’s operations. Excluding the changes in fair value of warrants in non-cash charge, the Company’s net income from operations would have been $ 1,948,447 for the three months ended March 31, 2010 and $1,042,931 for the three months ended March 31, 2009, representing an increase of 86.82% from the first quarter of 2009 to the first quarter of 2010. The increase was primarily due to sales growth.





Earnings Per Share





Basic and diluted earnings per share for the three months ended March 31, 2010 were $0.03 and $0.02 compared to loss per share for the same period of 2009 were $1.31 and $1.13. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended March 31, 2010 and March 31, 2009, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 27,772,675 and 18,499,736 for the three months ended March 31, 2010 and 2009.





Trade Receivables, net





Trade receivables, net increased 55.07% to $5,485,586 as of March 31, 2010, compared with $3,537,395 as of December 31, 2009. The increase in trade receivables was primarily attributable to change in our sales policy. In the third quarter of 2009, we changed our trade receivables policy to require that the remaining 5 percent of the amount due under the purchase contract is received within one year after the acceptance test is completed. Previously, we required receipt of the remaining 5 percent immediately after the acceptance test was completed.





Inventory





Inventory consists of raw materials, finished goods and work in progress. As of March 31, 2010, the recorded value of our inventory has increased 9.17% to $643,977 from $589,871 as of December 31, 2009. The increase was mainly due to an increase of 9.80% in finished goods from $241,831 as of December 31, 2009 to $ 265,539 as of March 31, 2010; a decrease of 2.14% in raw material inventory from $321,888 as of December 31, 2009 to $314,992 as of March 31, 2010, an increase of 142.60% in work in progress inventory from $26,152 as of December 31, 2009 to $63,446 as of March 31, 2010. The increase was primarily attributable to our sales volume growth.




36




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





Item

March 31, 2010,


December 31, 2009


ChangeFinished goods

$
265,539


$
241,831



9.80
%Work in progress

$
63,446


$
26,152



142.60
%Raw material

$
314,992


$
321,888



(2.14
)%Total

$
643,977


$
589,871



9.17
%





Accounts Payable





Accounts payable amounted to $284,472 as of March 31, 2010, an increase as compared with $271,139 as of December 31, 2009. The increase was primarily attributable to product volume growth, which resulted in an increase in raw material purchases.





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:





Three months ended March 31,2010


2009


ChangeNet cash provided by (used in) operating activities

$
1,145,035


$
1,041,381


$
103,654Net cash provided by (used in) investing activities

$
(1,001,512
)

$
(4,158,605
)

$
3,157,093Net cash provided by (used in) financing activities

$
-


$
-


$
-Effect of foreign currency translation on cash and cash equivalents

$
751


$
139,714


$
(138,963
)Beginning cash and cash equivalent

$
4,717,240


$
15,189,941


$
(10,472,701
)Ending cash and cash equivalent

$
4,861,514


$
12,212,431


$
(7,350,917
)





Operating Activities





For the three months ended March 31, 2010, net cash provided by operating activities was $1,145,035. This was primarily attributable to our net income of $485,173, adjusted by an add-back of non-cash charges mainly consisting of depreciation, amortization, and charges in fair value of warrants of $440,058, $370,359, and $1,463,274 respectively, offset by a $1,613,829 decrease in working capital. Specifically, decrease in working capital was primarily due to: (i) a $1,947,650 trade receivables increase driven by a increase in sales; (ii) a $54,012 increase< font style="DISPLAY: inline; COLOR: #000000"> in inventories, principally of finished goods and work in progress inventory, due to our sales growth; (iii) a $413,797 decrease in advances to suppliers to buy raw materials; (iv) a $77,998 increase in prepayments, travel advances to shareholders, tender deposits and advances to employees, consisting primarily of prepayments for raw materials and other supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $52,034 increase in accounts payable, tax payable, customer deposits, accrued liabilities and other payables.





Investing Activities





For the three months ended March 31, 2010, net cash used in investing activities was $1,001,512. This was primarily attributable to: (i) a $147,804 capital expenditure for purchase of new plant and equipment; (ii) a $96,378 capital expenditure for purchase of new intangible assets; (iii) a $787,482 capital expenditure for the purchase of technology-based designs, and $30,152 in restricted cash.





Cash and Cash Equivalents





Our cash and cash equivalents as at the beginning of March 31, 2010, were $4,717,240 and increased to $4,861,514 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 9 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.




37




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 March 31, 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 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 recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. During the reporting years, there was no impairment loss incurred. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets.





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





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





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





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





- Persuasive evidence of an arrangement exists;


- Delivery has occurred or services have been rendered;


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


- Collection is reasonably assured.





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





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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.





Warrantsliabilities.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.





Off-Balance Sheet Arrangements





We have no off-balance sheet arrangements as of March 31, 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:





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 identified an improper classification of additional paid in capital items for the year ended December 31, 2007; which required overstated additional paid-in capital to be adjusted down by $4,855,640, and understated retained earnings to be adjusted up by $4,855,640. These adjustments will be made of the financial statements for the year ended December 31, 2009 and the three months ended March 31, 2010.





Our management determined that the misstatements identified above were due to not having internal personnel with sufficient expertise and knowledge of the requirements for disclosure of the information that have been collected and reported, as required under the securities laws and disclosures required under U.S. GAAP. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 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 March 31, 2010.





In light of the above-mentioned weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the six months ended March 31, 2010 on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our consolidated financial statements for the period ended March 31, 2010 are fairly stated, in all material respects, in accordance with U.S. GAAP.





Management’s Report on Internal Control over Financial Reporting





The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.





We engaged PricewaterhouseCoopers (“PwC”) to assist the Company in improving the internal control system based on COSO internal control framework.  Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2010.  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.  During our assessment of the effectiveness of internal control over financial reporting as of March 31, 2010, Management identified significant deficiencies related to the following:





1. Accounting and Finance Personnel Weaknesses - US GAAP expertise - The current staff in the accounting department is relatively new and inexperienced, and needs substantial training so as to meet with the higher demands of being a U.S. public company. The accounting skills and understanding necessary to fulfill the requirements of U.S. GAAP-based reporting, including the skills of subsidiary financial statements consolidation, are inadequate and were inadequately supervised. The lack of sufficient and adequately trained accounting and finance personnel resulted in an ineffective segregation of duties relative to key financial reporting functions.





2. Lack of internal audit function - The Company lacks qualified resources to perform the internal audit functions properly.  In addition, the scope and effectiveness of the internal audit function are yet to be developed.


The matters described above were the direct result of a lack of resources and accounting personnel. We have taken measures and plan to continue to take measures to remediate these deficiencies as soon as practicable. We have implemented the following measures to remediate the deficiencies:




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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.





Management believes that these deficiencies do not amount to a material weakness, and it has concluded that our internal controls over financial reporting were effective as of March 31, 2010.





A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.





Our management is not aware of any material weaknesses in our internal control over financial reporting, and nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of March 31, 2010.  The reportable conditions and other areas of our internal control over financial reporting identified by us as needing improvement have not resulted in a material restatement of our financial statements. Nor are we aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed with or submitted to the Commission. Accordingly, we believe that our financial controls were effective.





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





Changes in Internal Control over Financial Reporting





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





PART II





OTHER INFORMATION





ITEM 1 - LEGAL PROCEEDINGS





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





ITEM 1A. RISK FACTORS





Not Applicable.





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





None.




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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES





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





ITEM 4 – (REMOVED AND RESERVED)





ITEM 5 - OTHER INFORMATION





None.





ITEM 6 - EXHIBITS.





Exhibit No.

Description of Exhibit31.1

Certification by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.31.2

Certification by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.32.1

Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.32.2

Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.




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SIGNATURES





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





SUNWAY GLOBAL, INC.Dated:  May 12, 2011
By:
/s/ Liu BoName: Liu BoTitle: Chief Executive Officer





Dated:   May 12, 2011
By:
/s/ Samuel ShengName: Samuel ShengTitle: Chief Financial Officer





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