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

|  Large accelerated filer  ̈ | Accelerated filer  ̈    |
|--------------------------------------|-----------------------------|
|                                 |                        |
| Non-accelerated filer  ̈         | Smaller reporting company x |

----

|               |                                                                                       |   | Page   |
|--------------------|--------------------------------------------------------------------------------------------|--------|--------|
|               | PART I                                                                                     |   |   |
| Item 1.            | Financial Statements                                                                       |   | F-1    |
| Item 2.            | Management’s Discussion and Analysis of Financial Condition and Results of Operation |   | 3      |
| Item 3.            | Quantitative and Qualitative Disclosures About Market Risk                                 |   | 11     |
| Item 4.            | Controls and Procedures                                                                    |   | 11     |
|               | PART II                                                                                    |   |   |
| Item 1.            | Legal Proceedings                                                                          |   | 11     |
| Item 1A  | Risk Factors                                                                               |   | 11     |
| Item 2.            | Unregistered Sales of Equity Securities and Use of Proceeds                                |   | 11     |
| Item 3.            | Defaults Upon Senior Securities                                                            |   | 11     |
| Item 4.            | Mine Safety Disclosures                                                                    |   | 11     |
| Item 5.            | Other Information                                                                          |   | 11     |
| Item 6.            | Exhibits                                                                                   |   | 12     |
| SIGNATURES         |                                                                                       | 13     |

----

ITEM 1. FINANCIAL STATEMENTS

| CONTENTS                                                   |         | PAGES      |
|------------------------------------------------------------|--------------|------------|
|                                                       |         |       |
| CONSOLIDATED BALANCE SHEETS                                |         | F-2        |
|                                                       |         |       |
| CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |         | F-4        |
|                                                       |         |       |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY      |         | F-6        |
|                                                       |         |       |
| CONSOLIDATED STATEMENTS OF CASH FLOWS                      |         | F-7        |
|                                                       |         |       |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 |    | F-9 - F-33 |

----

CONSOLIDATED BALANCE SHEETS

|                                        |   | Notes  |   |   | June 30, 2012(Unaudited) |       |   | December 31, 2011(Audited) |      |
|---------------------------------------------|--------|--------|--------|--------|--------------------------|------------|--------|--------------------------------------|-----------|
| ASSETS                                      |   |   |   |   |                     |       |   |                                 |      |
| Current assets                              |   |   |   |   |                     |       |   |                                 |      |
| Cash and cash equivalents                   |   | 2      | (k)    |   | $                        | 992,689    |   |                                 | $         | 1,550,911 |   |
| Trade receivables, net                      |   | 5      |   |   |                     | 7,309,138  |   |                                 |      | 6,883,677 |   |
| Notes receivables                           |   |   |   |   |                     | 95,022     |   |                                 |      | 283,362 |   |
| Inventories                                 |   | 8      |   |   |                     | 3,659,579  |   |                                 |      | 2,764,560 |   |
| Advances to suppliers                       |   |   |   |   |                     | 1,356,741  |   |                                 |      | 837,170 |   |
| Prepayments                                 |   |   |   |   |                     | 373,769    |   |                                 |      | 852,017 |   |
| Tender deposits                             |   |   |   |   |                     | 328,785    |   |                                 |      | 176,860 |   |
| Travel advances to shareholders             |   | 6      |   |   |                     | 42,385     |   |                                 |      | 10,639 |   |
| Advances to employees                       |   | 7      |   |   |                     | 567,219    |   |                                 |      | 455,666 |   |
| Deferred tax assets                         |   |   |   |   |                     | 786,997    |   |                                 |      | 600,835 |   |
|                                        |   |   |   |   |                     |       |   |                                 |      |   |   |
| Total current assets                        |   |   |   |   | $                        | 15,512,324 |   |                                 | $         | 14,415,697 |   |
| Restricted cash                             |   | 2      | (l)    |   |                     | 1,094      |   |                                 |      | 1,094 |   |
| Amount due from a related company           |   | 4      |   |   |                     | 333,408    |   |                                 |      | 126,769 |   |
| Property, plant and equipment, net          |   | 9      |   |   |                     | 5,973,678  |   |                                 |      | 6,855,505 |   |
| Intangibles, net                            |   | 10     |   |   |                     | 13,735,696 |   |                                 |      | 14,644,804 |   |
| Deposit for technology-based designed       |   |   |   |   |                     | 3,423,024  |   |                                 |      | 3,402,547 |   |
| Deposit for purchase of plant and equipment |   |   |   |   |                     | -          |   |                                 |      | - |   |
|                                        |   |   |   |   |                     |       |   |                                 |      |   |   |
| TOTAL ASSETS                                |   |   |   |   | $                        | 38,979,224 |   |                                 | $         | 39,446,416 |   |
|                                        |   |   |   |   |                     |       |   |                                 |      |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY  |   |   |   |   |                     |       |   |                                 |      |   |   |
| Current liabilities                         |   |   |   |   |                     |       |   |                                 |      |   |   |
| Short term bank loans                       |   | 11     |   |   | $                        | -          |   |                                 | $         | - |   |
| Accounts payable                            |   |   |   |   |                     | 932,927    |   |                                 |      | 621,997 |   |
| Income tax payable                          |   |   |   |   |                     | 7,477      |   |                                 |      | 4,307 |   |
| Turnover and other taxes                    |   |   |   |   |                     | 58,706     |   |                                 |      | 77,512 |   |
| Expected warranty liabilities               |   | 12     |   |   |                     | 21,122     |   |                                 |      | 20,995 |   |
| Customer deposits                           |   |   |   |   |                     | 2,447,134  |   |                                 |      | 1,748,881 |   |
| Accrued liabilities                         |   |   |   |   |                     | 1,185,813  |   |                                 |      | 627,211 |   |
|                                        |   |   |   |   |                     |       |   |                                 |      |   |   |
| Total current liabilities                   |   |   |   |   | $                        | 4,653,179  |   |                                 | $         | 3,100,903 |   |
| Warrants liabilities                        |   | 13     |   |   | -                 |       |   |                                 | 1,165,692 |   |
| TOTAL LIABILITIES                           |   |   |   |   | $                        | 4,653,179  |   |                                 | $         | 4,266,595 |   |

----

|                                                                                                                                                               |   | Notes  |   | June 30, 2012(Unaudited) |       |   | December 31, 2011(Audited) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------------------------|------------|--------|--------------------------------------|--------|
|                                                                                                                                                               |   |   |   |                     |       |   |                                 |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                         |   |   |   |                     |       |   |                                 |   |
|                                                                                                                                                               |   |   |   |                     |       |   |                                 |   |
| Series B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at June 30, 2012 and December 31, 2011 |   | 13     |   | $                        | 1          |   |                                 | $      | 1 |   |
|                                                                                                                                                               |   |   |   |                     |       |   |                                 |   |   |   |
| Common stock at $0.0000001 par  value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at June 30, 2012 and December 31, 2011    |   |   |   |                     | 2          |   |                                 |   | 2 |   |
| Additional paid-in capital                                                                                                                                         |   |   |   |                     | 13,833,383 |   |                                 |   | 13,833,383 |   |
| Statutory reserves                                                                                                                                                 |   |   |   |                     | 4,267,115  |   |                                 |   | 4,267,115 |   |
| Retained earnings                                                                                                                                                  |   |   |   |                     | 9,262,270  |   |                                 |   | 10,331,224 |   |
| Accumulated other comprehensive income                                                                                                                             |   |   |   |                     | 6,963,274  |   |                                 |   | 6,748,096 |   |
|                                                                                                                                           |   |   |   |                     |       |   |                                 |   |   |   |
|                                                                                                                                                               |   |   |   | $                        | 34,326,045 |   |                                 | $      | 35,179,821 |   |
|                                                                                                                                                               |   |   |   |                     |       |   |                                 |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                              |   |   |   | $                        | 38,979,224 |   |                                 | $      | 39,446,416 |   |

----

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                    |   |         |   | The six months ended June 30, |        |
|-----------------------------------------|--------|--------------|--------|--------------------------------------------------------|-------------|
|                                    |   | Notes        |   | 2012                                                   |        |   | 2011 |   |
|                                    |   |         |   |                                                   |        |   |   |   |
| Net revenues                            |   | 17           |   | $                                                      | 4,283,794   |   |   | $ | 3,411,973 |   |
| Cost of net revenues                    |   | 17           |   |                                                   | (2,068,223) |   |   |   | (1,233,349) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Gross profit                            |   |         |   | $                                                      | 2,215,571   |   |   | $ | 2,178,624 |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Selling expenses                        |   |         |   |                                                   | (1,359,538) |   |   |   | (562,220) |   |
| General and administrative expenses     |   |         |   |                                                   | (3,265,025) |   |   |   | (3,460,820) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| (Loss)/Income from operations           |   |         |   | $                                                      | (2,408,992) |   |   | $ | (1,844,416) |   |
| Interest income                         |   |         |   |                                                   | 2,217       |   |   |   | 19,957 |   |
| Changes in fair value of warrants       |   |    |   |                                                   | 1,165,692   |   |   |   | 735,874 |   |
|                               |   |         |   |                                                   |        |   |   |   |   |   |
| (Loss)/Income before income tax         |   |         |   | $                                                      | (1,241,083) |   |   | $ | (1,088,585) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Income tax expense                      |   | 14           |   |                                                   | 172,129     |   |   |   | 167,644 |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Net (loss)/income                       |   |         |   | $                                                      | (1,068,954) |   |   | $ | (920,941) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Net income/(loss) per share:            |   |         |   |                                                   |        |   |   |   |   |   |
| -Basic                                  |   | 15           |   | $                                                      | (0.06)      |   |   | $ | (0.05) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| -Diluted                                |   | 15           |   | $                                                      | (0.05)      |   |   | $ | (0.04) |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| Weighted average number of common stock |   |         |   |                                                   |        |   |   |   |   |   |
| -Basic                                  |   | 15           |   |                                                   | 18,499,736  |   |   |   | 18,499,736 |   |
|                                    |   |         |   |                                                   |        |   |   |   |   |   |
| -Diluted                                |   | 15           |   |                                                   | 23,314,556  |   |   |   | 23,314,556 |   |

----

|                                    |   |         |   | The three months ended June 30, |        |
|-----------------------------------------|--------|--------------|--------|----------------------------------------------------------|-------------|
|                                    |   | Notes        |   | 2012                                                     |        |   | 2011 |   |
|                                    |   |         |   |                                                     |        |   |   |   |
| Net revenues                            |   | 17           |   | $                                                        | 2,276,562   |   |   | $ | 1,850,462 |   |
| Cost of net revenues                    |   | 17           |   |                                                     | (1,120,090) |   |   |   | (501,021) |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Gross profit                            |   |         |   | $                                                        | 1,156,472   |   |   | $ | 1,349,441 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Selling expenses                        |   |         |   |                                                     | (817,721)   |   |   |   | (330,851) |   |
| General and administrative expenses     |   |         |   |                                                     | (1,523,463) |   |   |   | (2,487,235) |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| (Loss)/Income from operations           |   |         |   | $                                                        | (1,184,712) |   |   | $ | (1,468,645) |   |
| Interest income                         |   |         |   |                                                     | 697         |   |   |   | 11,434 |   |
| Changes in fair value of warrants       |   |    |   |                                                     | 197,824     |   |   |   | 3,065,754 |   |
|                               |   |         |   |                                                     |        |   |   |   |   |   |
| (Loss)/Income before income tax         |   |         |   | $                                                        | (986,191)   |   |   | $ | 1,608,543 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Income tax expense                      |   | 14           |   |                                                     | 135,466     |   |   |   | 145,956 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Net (loss)/income                       |   |         |   | $                                                        | (850,725)   |   |   | $ | 1,754,499 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Net income/(loss) per share:            |   |         |   |                                                     |        |   |   |   |   |   |
| -Basic                                  |   | 15           |   | $                                                        | (0.05)      |   |   | $ | 0.09 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| -Diluted                                |   | 15           |   | $                                                        | (0.04)      |   |   | $ | 0.08 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| Weighted average number of common stock |   |         |   |                                                     |        |   |   |   |   |   |
| -Basic                                  |   | 15           |   |                                                     | 18,499,736  |   |   |   | 18,499,736 |   |
|                                    |   |         |   |                                                     |        |   |   |   |   |   |
| -Diluted                                |   | 15           |   |                                                     | 23,314,556  |   |   |   | 23,314,556 |   |

----

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

|                         |   |      |   |   |      |   |   |        |   |   |       |   |   | Additional |   |   |      |   |       | Retained     |   |   | Accumulated   |   |   |   |        |
|------------------------------|--------|-----------|--------|--------|-----------|--------|--------|-------------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|------------|--------------|--------|--------|---------------|--------|--------|--------|-------------|
|                         |   | Preferred |   |   | Preferred |   |   | No. of |   |   |       |   |   | paid       |   |   |      |   |       | earnings/    |   |   | other         |   |   |   |        |
|                         |   | Series    |   |   | Series    |   |   | shares      |   |   | Common     |   |   | in         |   |   | Statutory |   |       | (Accumulated |   |   | comprehensive |   |   |   |        |
|                         |   | A         |   |   | B         |   |   | outstanding |   |   | stock      |   |   | capital    |   |   | reserves  |   |       | deficit)     |   |   | income        |   |   | Total  |        |
|                         |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |
| Balance, January 1, 2011     |   | $         | -      |   |      | $      | 1      |        |   |   | 18,499,736 |   |   | $          | 2      |   |      | $      | 13,833,383 |         |   | $      | 4,267,115     |   |   | $      | 8,542,065   |   |   | $ | 4,907,103 |   |   | $ | 31,549,669 |   |
| Net income                   |   |      | -      |   |      |   | -      |        |   |   | -          |   |   |       | -      |   |      |   | -          |         |   |   | -             |   |   |   | 1,789,159   |   |   |   | - |   |   |   | 1,789,159 |   |
| Appropriations to statutory  |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Reserves                     |   |      | -      |   |      |   | -      |        |   |   | -          |   |   |       | -      |   |      |   | -          |         |   |   |          |   |   |   |        |   |   |   | - |   |   |   | - |   |
| Foreign currency translation |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   | 1,840,993 |   |   |   | 1,840,993 |   |
| Adjustment                   |   |      | -      |   |      |   | -      |        |   |   | -          |   |   |       | -      |   |      |   | -          |         |   |   | -             |   |   |   | -           |   |   |   |   |   |   |   |   |   |
|                         |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2011   |   | $         | -      |   |      | $      | 1      |        |   |   | 18,499,736 |   |   | $          | 2      |   |      | $      | 13,833,383 |         |   | $      | 4,267,115     |   |   | $      | 10,331,224  |   |   | $ | 6,748,096 |   |   | $ | 35,179,821 |   |
|                         |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Balance, January 1, 2012     |   | $         | -      |   |      | $      | 1      |        |   |   | 18,499,736 |   |   | $          | 2      |   |      | $      | 13,833,383 |         |   | $      | 4,267,115     |   |   | $      | 10,331,224  |   |   | $ | 6,748,096 |   |   | $ | 35,179,821 |   |
| Net income/(loss)            |   |      | -      |   |      |   | -      |        |   |   | -          |   |   |       | -      |   |      |   | -          |         |   |   | -             |   |   |   | (1,068,954) |   |   |   | - |   |   |   | (1,068,954 | ) |
| Foreign currency translation |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Adjustment                   |   |      | -      |   |      |   | -      |        |   |   | -          |   |   |       | -      |   |      |   | -          |         |   |   | -             |   |   |   | -           |   |   |   | 215,178 |   |   |   | 215,178 |   |
|                         |   |      |   |   |      |   |   |        |   |   |       |   |   |       |   |   |      |   |       |         |   |   |          |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2012  |   | $         | -      |   |      | $      | 1      |        |   |   | 18,499,736 |   |   | $          | 2      |   |      | $      | 13,833,383 |         |   | $      | 4,267,115     |   |   | $      | 9,262,270   |   |   | $ | 6,963,274 |   |   | $ | 34,326,045 |   |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                   |   | The six months ended June 30, |            |
|----------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------------|
|                                                                                   |   | 2012                                                   |            |   | 2011 |   |
| Cash flows from operating activities                                                   |   |                                                   |            |   |   |   |
| Net (loss)/income                                                                      |   | $                                                      | (1,068,954)     |   |   | $ | (920,941 | ) |
| Depreciation                                                                           |   |                                                   | 968,584         |   |   |   | 939,852 |   |
| Amortization                                                                           |   |                                                   | 997,273         |   |   |   | 1,240,326 |   |
| Changes in fair value of warrants                                                      |   |                                                   | (1,165,692)     |   |   |   | (735,874) |   |
| Impairment of fixed assets                                                             |   |                                                   |            |   |   |   | 326,854 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                                                   |            |   |   |   |   |   |
| Trade receivables, net                                                                 |   |                                                   |  (384,047) |   |   |   | 1,223,177 |   |
| Inventories                                                                            |   |                                                   |  (878,410) |   |   |   | (746,135 | ) |
| Note receivables                                                                       |   |                                                   |  190,051   |   |   |   | - |   |
| Advances to suppliers                                                                  |   |                                                   |  (514,549) |   |   |   |  (65,419) |   |
| Prepayments                                                                            |   |                                                   |  483,391   |   |   |   | (166,882 | ) |
| Tender deposits                                                                        |   |                                                   |  (150,865) |   |   |   | 44,466 |   |
| Travel advances to shareholders                                                        |   |                                                   | (31,683)        |   |   |   | (10,089) |   |
| Advances to employees                                                                  |   |                                                   | (108,814)       |   |   |   | (55,999) |   |
| Deferred tax assets                                                                    |   |                                                   |  (149,386) |   |   |   | (228,317) |   |
| Receivables from relationship                                                          |   |                                                   |  (274,308) |   |   |   | - |   |
| Accounts payable                                                                       |   |                                                   |  307,196   |   |   |   | 40,801 |   |
| Income tax payable                                                                     |   |                                                   | 3,144           |   |   |   | (366,549) |   |
| Turnover and other taxes                                                               |   |                                                   |  (19,273)  |   |   |   | (312,319) |   |
| Customer deposits                                                                      |   |                                                   | 687,750         |   |   |   | 1,211,303 |   |
| Accrued liabilities                                                                    |   |                                                   | 554,844         |   |   |   | (45,648) |   |
|                                                                                   |   |                                                   |            |   |   |   |   |   |
| Net cash provided/(used) by operating activities                                       |   | $                                                      | (553,748)       |   |   | $ | 1,372,607 |   |
|                                                                                   |   |                                                   |            |   |   |   |   |   |
| Cash flows from investing activities                                                   |   |                                                   |            |   |   |   |   |   |
| Decrease in restricted cash                                                            |   | $                                                      | -               |   |   | $ | 64,943 |   |
| Purchase of plant and equipment                                                        |   |                                                   | (45,471)        |   |   |   | (176,617 | ) |
| Purchase of intangibles                                                                |   |                                                   | -               |   |   |   | (1,963,908 | ) |
| Deposit for technology-based designed                                                  |   |                                                   | -               |   |   |   | - |   |
|                                                                                   |   |                                                   |            |   |   |   |   |   |
| Net cash used in investing activities                                                  |   | $                                                      | (45,471)        |   |   | $ | (2,075,582 | ) |
|                                                                                   |   |                                                   |            |   |   |   |   |   |
| Cash flows from financing activities                                                   |   | $                                                      | -               |   |   | $ | - |   |
| Net cash provided by financing activities                                              |   | $                                                      | -               |   |   | $ | - |   |

----

|                                             |   | The six months ended June 30, |      |
|--------------------------------------------------|--------|--------------------------------------------------------|-----------|
|                                             |   | 2012                                                   |      |   | 2011 |   |
|                                             |   |                                                   |      |   |   |   |
| Net in cash and cash equivalents (used)/sourced  |   | $                                                      | (599,219) |   |   | $ | (702,975)  |   |
| Effect of foreign currency translation on        |   |                                                   |      |   |   |   |   |   |
| cash and cash equivalents                        |   |                                                   | 40,997    |   |   |   | 564,523 |   |
|                                             |   |                                                   |      |   |   |   |   |   |
| Cash and cash equivalents–beginning period |   |                                                   | 1,550,911 |   |   |   | 9,587,765 |   |
|                                             |   |                                                   |      |   |   |   |   |   |
| Cash and cash equivalents–end period       |   | $                                                      | 992,689   |   |   | $ | 9,449,313 |   |

|                                 |   | The six months ended June 30, |   |
|--------------------------------------|--------|--------------------------------------------------------|--------|
|                                 |   | 2012                                                   |   |   | 2011 |   |
| Supplementary cash flow information: |   |                                                   |   |   |   |   |
| Tax paid                             |   | $                                                      | 14,033 |   |   | $ | 381,151 |   |
| Interest received                    |   |                                                   | 2,217  |   |   |   | 19,957 |   |
| Interest paid                        |   |                                                   | -      |   |   |   | - |   |

| 1. | During the six months ended June 30, 2012 and 2011, an amount of nil and $1,342,184 were transferred from “Deposit for technology-based designed” to “property, plant and equipment”, respectively. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
|----|---------------------------------------|

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----|--------------------------------------------|

| (a) | Method of accounting |
|-----|----------------------|

----

| (b) | Principles of consolidation |
|-----|-----------------------------|

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

| (c) | Use of estimates |
|-----|------------------|

| (d) | Economic and political risks |
|-----|------------------------------|

----

| (e) | Intangibles |
|-----|-------------|

| Land use rights         | Over the lease terms |
|-------------------------|----------------------|
| Technology-based design | 10 years             |

| (f) | Property, plant and equipment |
|-----|-------------------------------|

| Buildings                           | 20 years     |
|-------------------------------------|--------------|
| Machinery and equipment             | 6 years      |
| Moldings                            | 10 years     |
| Computer software                   | 3 - 10 years |
| Office equipment and motor vehicles | 6 - 10 years |

| (g) | Maintenance and repairs |
|-----|-------------------------|

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

----

| (i) | Inventories |
|-----|-------------|

| (j) | Trade receivables |
|-----|-------------------|

| (k) | Cash and cash equivalents |
|-----|---------------------------|

|                                     |   | June 30, 2012 |    |   | December 31, 2011 |   |
|------------------------------------------|--------|---------------|---------|--------|-----------------------------|--------|
| Bank of Communications, Branch of Daqing |   |          |    |   |                        |   |
| City Economic Zone                       |   |          | 241,488 |   |                        | $      | 198,988 |   |
| China Construction Bank, Beijing Branch  |   |          | 609,907 |   |                        |   | 1,209,771 |   |
| Qingdao bank                             |   |          | 1,918   |   |                        |   | 1,461 |   |
| Agricultural Bank of China               |   |          | 109,321 |   |                        |   | 122,803 |   |
| HSBC                                     |   |          | 961     |   |                        |   | 1,186 |   |
| Cash on hand                             |   |          | 29,094  |   |                        |   | 16,702 |   |
|                                     |   |          | 992,689 |   |                        | $      | 1,550,911 |   |

| (l) | Restricted cash |
|-----|-----------------|

| (m) | Revenue recognition |
|-----|---------------------|

----

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|--------------------------------------------------------|

| (m)  | Revenue recognition (Continued) |
|-----------|---------------------------------|

| (n) | Expected warranty liabilities |
|-----|-------------------------------|

| (o) | Cost of sales |
|-----|---------------|

| (p) | Leases |
|-----|--------|

| (q) | Advertising |
|-----|-------------|

| (r) | Shipping and handling |
|-----|-----------------------|

| (s) | Research and development |
|-----|--------------------------|

----

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|--------------------------------------------------------|

| (t) | Retirement benefits |
|-----|---------------------|

| (u) | Income taxes |
|-----|--------------|

| (v) | Foreign currency translation |
|-----|------------------------------|

|                       |   | June 30, 2012 |   |   | December 31, 2011 |   |   | June 30, 2011 |   |
|----------------------------|--------|---------------|--------|--------|-------------------|--------|--------|---------------|--------|
| Twelve months ended        |   |          |   |   |              |   |   |          |   |
| RMB : USD exchange rate    |   |          | -      |   |              |   | 6.3523 |          |   |   | - |   |
| Three months ended         |   |          |   |   |              |   |   |          |   |   |   |   |
| RMB : USD exchange rate    |   |          | 6.3143 |   |              |   | -      |          |   |   | 6.4635 |   |
| Average six months ended   |   |          |   |   |              |   |   |          |   |   |   |   |
| RMB : USD exchange rate    |   |          | 6.3141 |   |              |   | -      |          |   |   | 6.5399 |   |
| Average three months ended |   |          |   |   |              |   |   |          |   |   |   |   |
| RMB : USD exchange rate    |   |          | 6.3194 |   |              |   | -      |          |   |   | 6.4999 |   |

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

| (w) | Statutory reserves |
|-----|--------------------|

|   | (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 |
|-----|----------------------|

| (y) | Warrant Liability |
|-----|-------------------|

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

| (z) | Recent accounting pronouncements |
|-----|----------------------------------|

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

| (z) | Recent accounting pronouncements (Continued) |
|-----|----------------------------------------------|

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

| (z) | Recent accounting pronouncements (Continued) |
|-----|----------------------------------------------|

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

| (z) | Recent accounting pronouncements (Continued) |
|-----|----------------------------------------------|

----

| 3. | CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS |
|----|---------------------------------------------------|

|       |   | For the six months ended June 30, |    |
|------------|--------|-----------------------------------------------------------------|---------|
|       |   | 2012                                                            |    |   | 2011 |   |
| Customer A |   | $                                                               | 637,158 |   |   | $ | - |   |
| Customer D |   |                                                            | 308,630 |   |   |   | - |   |
| Customer F |   |                                                            | 271,614 |   |   |   | - |   |
| Customer K |   |                                                            |    | -  |   |   |  216,848 |   |
| Customer L |   |                                                            |    | -  |   |   | 211,718 |   |

|       |   | June 30, 2012 |    |   | December 31, 2011 |   |
|------------|--------|---------------|---------|--------|-----------------------------|--------|
|       |   |          |    |   |                        |   |
| Customer A |   | $             | 631,923 |   |                        | $      | 332,386 |   |
| Customer B |   |          | 369,749 |   |                        |   | 256,827 |   |
| Customer C |   |          | 238,247 |   |                        |   | 291,466 |   |
| Customer D |   |          | 231,603 |   |                        |   | 261,008 |   |
| Customer E |   |          | 511,133 |   |                        |   | 291,256 |   |
| Customer F |   |          | 367,005 |   |                        |   | 417,594 |   |
| Customer G |   |          | 864,170 |   |                        |   | 807,578 |   |

----

| 4. | AMOUNT DUE FROM A RELATED COMPANY |
|----|-----------------------------------|

|                                  |   | June 30, 2012 |    |   | December 31, 2011 |   |
|---------------------------------------|--------|---------------|---------|--------|-----------------------------|--------|
|                                  |   |          |    |   |                        |   |
| Rise Elite International Ltd.         |   | $             | 830     |   |                        | $      | 830 |   |
| Daqing Sunway Software Tech Co., Ltd. |   |          | 332,578 |   |                        |   | 125,939 |   |
|                                  |   |          |    |   |                        |   |   |   |
|                                  |   | $             | 333,408 |   |                        | $      | 126,769 |   |

| 5. | TRADE RECEIVABLES, NET |
|----|------------------------|

|                         |   | June 30, 2012 |      |   | December 31, 2011 |   |
|------------------------------|--------|---------------|-----------|--------|-------------------|--------|
|                         |   |          |      |   |              |   |
| Trade receivables, gross     |   | $             | 7,350,456 |   |              | $      | 7,219,617 |   |
| Provision for doubtful debts |   |          | (41,318)  |   |              |   | (335,940) |   |
| Trade receivables, net       |   | $             | 7,309,138 |   |              | $      | 6,883,677 |   |

|                           |   | June 30, 2012 |   |   | June 30, 2011 |   |
|--------------------------------|--------|---------------|--------|--------|---------------|--------|
|                           |   |          |   |   |          |   |
| Balance at beginning of period |   | $             | 39,579 |   |          | $      | 39,579 |   |
| Addition of the provision      |   |          | -      |   |          |   | - |   |
| Foreign exchange adjustment    |   |          | 1,739  |   |          |   | 786 |   |
|                           |   |          |   |   |          |   |   |   |
|                           |   |          |   |   |          |   |   |   |
| Balance at end of period       |   | $             | 41,318 |   |          | $      | 40,365 |   |
|                           |   |          |   |   |          |   |   |   |

----

| 6. | TRAVEL ADVANCES TO SHAREHOLDERS |
|----|---------------------------------|

|       |   | June 30, 2012 |   |   | December 31, 2011 |   |
|------------|--------|---------------|--------|--------|-----------------------------|--------|
|       |   |          |   |   |                        |   |
| Deli Liang |   |          | 42,385 |   |                        |   | 10,639 |   |
|       |   |          |   |   |                        |   |   |   |
|       |   | $             | 42,385 |   |                        | $      | 10,639 |   |

|                                        |   | June 30, 2012 |    |   | December 31, 2011 |   |
|---------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
|                                        |   |          |    |   |              |   |
| Beginning balance                           |   | $             | 10,639  |   |              | $      | 332,709 |   |
|                                        |   |          |    |   |              |   |   |   |
| Add: Advanced during the period/year        |   |          | 41,539  |   |              |   | 85,345 |   |
|                                        |   |          |    |   |              |   |   |   |
| Less:  Transferred to income statement |   |          | (9,793) |   |              |   | (94,333) |   |
| Repayment by directors                      |   |          | -       |   |              |   | (313,082) |   |
| Ending balance                              |   | $             | 42,385  |   |              | $      | 10,639 |   |

| 7. | ADVANCES TO EMPLOYEES |
|----|-----------------------|

|                                        |   | June 30, 2012 |      |   | December 31, 2011 |   |
|---------------------------------------------|--------|---------------|-----------|--------|-------------------|--------|
|                                        |   |          |      |   |              |   |
| Beginning balance                           |   | $             | 455,666   |   |              | $      | 269,303 |   |
| Add: Advanced during the period/year        |   |          | 1,092,767 |   |              |   | 1,415,966 |   |
|                                        |   |          |      |   |              |   |   |   |
| Less:  Transferred to income statement |   |          | (597,650  | )      |              |   | (925,341 | ) |
| Recollected from employees                  |   |          | (383,564  | )      |              |   | (304,262 | ) |
| Ending balance                              |   | $             | 567,219   |   |              | $      | 455,666 |   |

----

| 8. | INVENTORIES |
|----|-------------|

|            |   | June 30, 2012 |      |   | December 31, 2011 |   |
|-----------------|--------|---------------|-----------|--------|-------------------|--------|
| Finished goods  |   | $             | 409,699   |   |              | $      | 2,093,393 |   |
| Work in process |   |          | 2,516,406 |   |              |   | 218,788 |   |
| Raw materials   |   |          | 733,474   |   |              |   | 452,379 |   |
|            |   | $             | 3,659,579 |   |              | $      | 2,764,560 |   |

| 9. | PROPERTY, PLANT AND EQUIPMENT, NET |
|----|------------------------------------|

|                                |   | June 30, 2012 |       |   | December 31, 2011 |   |
|-------------------------------------|--------|---------------|------------|--------|-------------------|--------|
| At cost                             |   |          |       |   |              |   |
| Buildings                           |   | $             | 2,251,470  |   |              | $      | 2,195,166 |   |
| Machinery and equipment             |   |          | 973,037    |   |              |   | 953,761 |   |
| Moldings                            |   |          | 9,709,112  |   |              |   | 9,651,031 |   |
| Computer software                   |   |          | 2,297,531  |   |              |   | 2,283,786 |   |
| Office equipment and motor vehicles |   |          | 747,502    |   |              |   | 713,585 |   |
|                                |   |          |       |   |              |   |   |   |
|                                |   |          |       |   |              |   |   |   |
|                                |   | $             | 15,978,652 |   |              | $      | 15,797,329 |   |
| Less: accumulated depreciation      |   |          | (9,410,841 | )      |              |   | (8,391,785 | ) |
| Less: accumulated impairment        |   |          | (594,133   | )      |              |   | (590,579 | ) |
|                                |   |          |       |   |              |   |   |   |
|                                |   | $             | 5,973,678  |   |              | $      | 6,814,965 |   |
| Construction in progress            |   |          | -          |   |              |   | 40,540 |   |
|                                |   | $             | 5,973,678  |   |              | $      | 6,855,505 |   |

|                                |   | Six Months Ended June 30, |    |
|-------------------------------------|--------|---------------------------|---------|
|                                |   | 2012                      |    |   | 2011 |   |
| Cost of net revenues                |   | $                         | 698,267 |   |   | $ | 849,001 |   |
| General and administrative expenses |   |                      | 35,727  |   |   |   | 54,397 |   |
| Selling expenses                    |   |                      | 234,590 |   |   |   | 36,454 |   |
| Total depreciation expenses         |   | $                         | 968,584 |   |   | $ | 939,852 |   |

----

| 10. | INTANGIBLES, NET |
|-----|------------------|

|                             |   | June 30, 2012 |       |   | December 31, 2011 |   |
|----------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                             |   |          |       |   |              |   |
| Land use rights, at cost         |   | $             | 1,351,344  |   |              | $      | 1,343,261 |   |
| Technology-based design, at cost |   |          | 21,256,909 |   |              |   | 21,129,748 |   |
|                             |   |          |       |   |              |   |   |   |
|                             |   |          |       |   |              |   |   |   |
|                             |   | $             | 22,608,253 |   |              | $      | 22,473,009 |   |
| Less: accumulated amortization   |   |          | (6,973,297 | )      |              |   | (5,940,306 | ) |
| Less: accumulated impairment     |   |          | (1,899,260 | )      |              |   | (1,887,899 | ) |
| Total intangibles, net           |   | $             | 13,735,696 |   |              | $      | 14,644,804 |   |

----

| 11. | SHORT-TERM BANK LOANS |
|-----|-----------------------|

|                                                                               |   | June 30, 2012 |   |   | December 31, 2011 |   |
|------------------------------------------------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
|                                                                               |   |          |   |   |              |   |
| Loans from Bank of Qingdao, interest rates at 6.37% per annum, due August 30, 2011 |   | $             | -      |   |              | $      | 303,407 |   |
| Less: Repayment during the period                                                  |   |          | -      |   |              |   | (303,407) |   |
|                                                                               |   | $             | -      |   |              | $      | - |   |

| 12. | EXPECTED WARRANTY LIABILITIES |
|-----|-------------------------------|

|                          |   | June 30, 2012 |   |   | December 31, 2011 |   |
|-------------------------------|--------|---------------|--------|--------|-------------------|--------|
|                          |   |          |   |   |              |   |
| Beginning balance             |   | $             | 20,995 |   |              | $      | 53,308 |   |
| Warranty expense for the year |   |          | -      |   |              |   | (33,780) |   |
| Foreign currency difference   |   |          | 127    |   |              |   | 1,467 |   |
| Ending balance                |   | $             | 21,122 |   |              | $      | 20,995 |   |

----

| 13. | SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS |
|-----|--------------------------------------------------------------|

|                                 |   | InvestmentAmount |      | PreferredB |    | AWarrant |   | BWarrant  |   | JWarrant  |   | CWarrant |      | DWarrant |      |
|--------------------------------------|--------|------------------|-----------|------------|---------|----------|--------|-----------|--------|-----------|--------|----------|-----------|----------|-----------|
| Vision Opportunity Master Fund, Ltd. |   |             | 6,500,000 |       | 160,494 |     |   | 4,814,815 |   | 2,407,407 |   |     | 4,362,416 |     | 4,362,416 |   |   | 2,181,208 |   |
| Columbia China Capital Group, Inc.   |   |             | 200,000   |       | 4,938   |     |   | 148,148   |   | 74,074    |   |     | 134,228   |     | 134,228   |   |   | 67,114 |   |

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

----

| 13.  | SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS (Continued) |
|-----------|--------------------------------------------------------------------------|

----

| 13.  | SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS (Continued) |
|-----------|--------------------------------------------------------------------------|

----

| 14. | INCOME TAXES |
|-----|--------------|

|                                      |   | June 30, 2012 |   |   | December 31, 2011 |   |
|-------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
| U.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 | % |

----

| 14. | INCOME TAXES (Continued) |
|-----|--------------------------|

|                   |   | June 30, 2012 |     |   | December 31, 2011 |   |
|------------------------|--------|---------------|----------|--------|-------------------|--------|
| Current tax - PRC CIT  |   | $             | 14,033   |   |              | $      | 15,670 |   |
|                   |   |          |     |   |              |   |   |   |
| Deferred tax provision |   |          | (186,162 | )      |              |   | (600,835 | ) |
|                   |   |          |     |   |              |   |   |   |
| Income tax             |   | $             | (172,129 | )      |              | $      | (585,165 | ) |

|                                                                                             |   | June 30, 2012 |       | December 31, 2011 |   |
|--------------------------------------------------------------------------------------------------|--------|---------------|------------|-------------------|--------|
| (Loss) / Income before tax                                                                       |   | $             | (1,241,083 | )                 |   | $ | 1,203,994 |   |
| Add:   Impairment of fixed assets and intangible assets                           |   |          | -          |              |   |   | 2,439,271 |   |
| Loss on disposal of fixed assets and intangible assets                                           |   |          | -          |              |   |   | 2,318,889 |   |
| Tax loss not deductible among subsidiaries                                                       |   |          | -          |              |   |   | 10,358,719 |   |
|            Other non-tax deductible items |   |          | 2,500,328  |              |   |   | 137,417 |   |
|                                                                                             |   |          |       |              |   |   |   |   |
| Less:  Change in fair value of warrants                                                |   |          | (1,165,692 | )                 |   |   | (16,353,823 | ) |
|                                                                                             |   |          |       |              |   |   |   |   |
| Taxable income (adjusted)                                                                        |   | $             | 93,553     |              |   | $ | 104,467 |   |

----

| 15. | EARNINGS PER SHARE |
|-----|--------------------|

|                                                                                   |   | For the six months ended June 30, |        |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|-------------|
|                                                                                   |   | 2012                                                            |        |   | 2011 |   |
| Income:                                                                                |   |                                                            |        |   |   |   |
| Income/(loss) for the purpose of basic earnings per share                              |   | $                                                               | (1,068,954) |   |   | $ | (920,941) |   |
| Effect of dilutive potential common stock                                              |   |                                                            | -           |   |   |   | - |   |
| Income for the purpose of dilutive earnings per share                                  |   | $                                                               | (1,068,954) |   |   | $ | (920,941) |   |
|                                                                                   |   |                                                            |        |   |   |   |   |   |
| Number of shares:                                                                      |   |                                                            |        |   |   |   |   |   |
| Weighted average number of common stock for the purpose of basic earnings per share    |   |                                                            | 18,499,736  |   |   |   | 18,499,736 |   |
| Effect of dilutive potential common stock                                              |   |                                                            |        |   |   |   |   |   |
|  -conversion of Series A                                                          |   |                                                            |        |   |   |   |   |   |
|   convertible preferred stock                                                |   |                                                            | -           |   |   |   | - |   |
|  -conversion of Series B                                                          |   |                                                            |        |   |   |   |   |   |
|   convertible preferred stock                                                |   |                                                            | 4,814,820   |   |   |   | 4,814,820 |   |
| -conversion of Warrant Series A                                                        |   |                                                            | -           |   |   |   | - |   |
| -conversion of Warrant Series B                                                        |   |                                                            | -           |   |   |   | - |   |
| -conversion of Warrant Series J                                                        |   |                                                            | -           |   |   |   | - |   |
| -conversion of Warrant Series C                                                        |   |                                                            | -           |   |   |   | - |   |
| -conversion of Warrant Series D                                                        |   |                                                            | -           |   |   |   | - |   |
| Weighted average number of common stock for the purpose of dilutive earnings per share |   |                                                            | 23,314,556  |   |   |   | 23,314,556 |   |

----

| 16. | COMMITMENTS AND CONTINGENCIES |
|-----|-------------------------------|

| June 30,            |   |   |   |
|---------------------|--------|--------|--------|
| 2012                |   | $      | 63,218 |   |
| 2013 and thereafter |   |   | -      |   |
|                |   | $      | 63,218 |   |

| 17. | SEGMENT INFORMATION |
|-----|---------------------|

| For the six           |   |        |   |   |        |   |   |        |   |   |      |   |   |   |      |   |         |   |
|---------------------------------|--------|-------------|--------|--------|-------------|--------|--------|-------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------------|--------|
| months ended          |   |        |   |   |        |   |   |        |   |   |      |   |   |   |      |   |         |   |
| June 30,                   |   | Workstation |   |   | Workstation |   |   | Workstation |   |   |      |   |   |   |      |   |         |   |
| 2012                            |   | Type A      |   |   | Type B      |   |   | Type C      |   |   | SADP      |   |   | Other  |      |   | Consolidated |   |
| Net revenues                    |   | $           | -      |   |        | $      | -      |        |   | $      | 2,449,168 |   |   | $      | 1,061,614 |   |         |   | 773,012 |   |   |   | 4,283,794 |   |
| Cost of  net revenues |   |        | -      |   |        |   | -      |        |   |   | (800,512) |   |   |   | (723,867) |   |         |   | (543,844) |   |   |   | (2,068,223) |   |
|                            |   | $           | -      |   |        | $      | -      |        |   | $      | 1,648,656 |   |   | $      | 337,747   |   |         |   | 229,168 |   |   |   | 2,215,571 |   |

|                                   |   | Workstation |    |   | Workstation |   |    | Workstation |   |   |      |   |   |   |      |   |         |   |
|----------------------------------------|--------|-------------|---------|--------|-------------|--------|---------|-------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------------|--------|
| For the six months ended June 30, 2011 |   | Type A      |    |   | Type B      |   |    | Type C      |   |   | SADP      |   |   | Other  |      |   | Consolidated |   |
| Net revenues                           |   | $           | 96,357  |   |        | $      | 164,126 |        |   | $      | 1,327,663 |   |   | $      | 1,386,608 |   |         | $      | 437,218 |   |   | $ | 3,411,973 |   |
| Cost of  net                 |   |        |    |   |        |   |    |        |   |   |      |   |   |   |      |   |         |   |   |   |   |   |   |   |
| revenues                               |   |        | (31,199 | )      |        |   | (44,533 | )           |   |   | (336,769  | )      |   |   | (592,891  | )      |         |   | (227,957 | ) |   |   | (1,233,349 | ) |
|                                   |   | $           | 65,158  |   |        | $      | 119,593 |        |   | $      | 990,894   |   |   | $      | 793,717   |   |         | $      | 209,261 |   |   | $ | 2,178,624 |   |

----

| 18. | FAIR VALUE MEASUREMENTS |
|-----|-------------------------|

| 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.                                                           |

----

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

|                              |   | Three Months Ended June 30, |       |   |   |   |       |   |   |
|-----------------------------------|--------|-------------------------------------------------|------------|--------|--------|--------|------------|--------|--------|
|                              |   | 2012                                            |       |   | 2011   |   |       | Change |   |   | Change rate |   |
| Net Revenues                      |   | $                                               | 2,276,562  |   |   | $      | 1,850,462  |   |   | $ | 426,100 |   |   |   | 23.03 | % |
| Cost of net revenues              |   | $                                               | 1,120,090  |   |   | $      | 501,021    |   |   | $ | 619,069 |   |   |   | 123.56 | % |
| Gross Profit                      |   | $                                               | 1,156,472  |   |   | $      | 1,349,441  |   |   | $ | (192,969 | ) |   |   | (14.30 | ) % |
| Gross Margin                      |   |                                            | 50.8       | %      |   |   | 72.92      | %      |   |   | - |   |   |   | (22.12 | ) % |
| Operating Income/(loss)           |   | $                                               | (1,184,712 | )      |   | $      | (1,468,645 | )      |   | $ | 283,933 |   |   |   | (19.33 | ) % |
| Changes in fair value of warrants |   | $                                               | 197,824    |   |   | $      | 3,065,754  |   |   | $ | (2,867,930 | ) |   | (93,55 | )% |
|                              |   |                                            |       |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Net (Loss)/Income                 |   | $                                               | (850,725   | )      |   | $      | 1,754,499  |   |   | $ | (2,605,224 | ) |   |   | (148.44 | ) % |
| Net profit margin                 |   |                                            | (37.37     | ) %    |   |   | 94.81      | %      |   |   | - |   |   |   | (132.18 | ) % |

----

|              |   | Three Months Ended June 30, |      |
|-------------------|--------|-------------------------------------------------|-----------|
|              |   | 2012                                            |      | 2011 |   |
|              |   | sales                                           |      | % of total sales |   | sales |   | % of total sales |   |
| PTS               |   | $                                               | 1,295,029 |   |   |   | 56.89 | %   |   | $ | 1,172,929 |   |   |   | 63.39 | % |
| SADP              |   | $                                               | 815,467   |   |   |   | 35.82 | % |   | $ | 393,070 |   |   |   | 21.24 | % |
| Other             |   | $                                               | 166,066   |   |   |   | 7.29 | % |   |   | 284,463 |   |   |   | 15.37 | % |
| Total net revenue |   | $                                               | 2,276,562 |   |   |   | 100.00 | % |   | $ | 1,850,462 |   |   |   | 100.00 | % |

|                |   | Three Months Ended June 30, |      |   |   |   |
|---------------------|--------|-------------------------------------------------|-----------|--------|--------|--------|
|                |   | 2012                                            |      |   | 2011   |   |   | Change |   |
| Cost of net revenue |   | $                                               | 1,120,090 |   |   | $      | 501,021 |   |   |   | 123.56 | % |

|         |   | Three Months Ended June 30, |      |
|--------------|--------|-------------------------------------------------|-----------|
|         |   | 2012                                            |      |   | 2011 |   |
|         |   | US$                                             |      |   | Gross profitmargin |   |   | US$ |   | Gross profitmargin |   |
| Gross Profit |   | $                                               | 1,156,472 |   |   |   | 50.80 | % |   | $ | 1,349,441 |   |   |   | 72.92 | % |

----

|                                  |   | Three Months Ended June 30, |      |   |   |   |
|---------------------------------------|--------|-------------------------------------------------|-----------|--------|--------|--------|
|                                  |   | 2012                                            |      |   | 2011   |   |   | Change |   |
| Selling expenses                      |   | $                                               | 817,721   |   |   | $      | 330,851 |   |   |   | 147.16 | % |
| General & Administrative expenses |   | $                                               | 1,523,463 |   |   | $      | 2,487,235 |   |   |   | (38.75) | % |
| Total operating expenses              |   | $                                               | 2,341,184 |   |   | $      | 2,818,086 |   |   |   | (16.92) | % |

----

|                             |   | Six Months Ended June 30, |       |   |   |   |
|----------------------------------|--------|-----------------------------------------------|------------|--------|--------|--------|
|                             |   | 2012                                          |       |   | 2011   |   |   | Change |   |   | Change rate |   |
| Net Revenue                      |   | $                                             | 4,283,794  |   |   | $      | 3,411,973 |   |   | $ | 871,821 |   |   |   | 25.55 | % |
| Cost of net revenue              |   | $                                             | 2,068,223  |   |   | $      | 1,233,349 |   |   | $ | 834,874 |   |   |   | 67.69 | % |
| Gross Profit                     |   | $                                             | 2,215,571  |   |   | $      | 2,178,624 |   |   | $ | 36,947 |   |   |   | 1.70 | % |
| Gross Margin                     |   |                                          | 51.72      | %      |   |   | 63.85 | % |   |   | - |   |   |   | (12.13) | % |
| Operating Income/(loss)          |   | $                                             | (2,408,992 | )      |   | $      | (1,844 416 | ) |   | $ | (564,576 | ) |   |   | 30.61 | % |
| Change in fair value of warrants |   | $                                             | 1,165,692  |   |   | $      | 735,874 |   |   | $ | 429,818 |   |   |   | 58.41 | % |
| Net Income/(loss)                |   | $                                             | (1,068,954 | )      |   | $      | (920,941 | ) |   | $ | (148,013 | ) |   |   | 16.07 | % |
| Net profit margin                |   |                                          | (24.95     | )%     |   |   | (26.99 | )% |   |   | - |   |   |   | 2.04 | % |

|              |   | Six Months Ended June 30, |      |
|-------------------|--------|-----------------------------------------------|-----------|
|              |   | 2012                                          |      |   | 2011 |   |
|              |   | Sales                                         |      |   | % of total sales |   |   | Sales |   |   | % of total sales |   |
| PTS               |   | $                                             | 2,449,168 |   |   |   | 57.17 | % |   | $ | 1,588,146 |   |   |   | 46.55 | % |
| SADP              |   | $                                             | 1,061,614 |   |   |   | 24.78 | % |   | $ | 1,386,608 |   |   |   | 40.64 | % |
| OTHER             |   | $                                             | 773,012   |   |   |   | 18.05 | % |   | $ | 437,219 |   |   |   | 12.81 | % |
| Total net revenue |   | $                                             | 4,283,794 |   |   |   | 100.00 | % |   | $ | 3,411,973 |   |   |   | 100.00 | % |

----

|                |   | Six Months Ended June 30, |      |   |   |
|---------------------|--------|-----------------------------------------------|-----------|--------|--------|
|                |   | 2012                                          |      |   | 2011   |   | Change |   |
| Cost of net revenue |   | $                                             | 2,068,223 |   |   | $ | 1,233,349 |   |   |   | 67.69 | % |

|         |   | Six Months Ended June 30, |      |
|--------------|--------|-----------------------------------------------|-----------|
|         |   | 2012                                          |      |   | 2011 |   |
|         |   | US$                                           |      |   | Gross profitmargin |   |   | US$ |   |   | Gross profitmargin |   |
|         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Gross Profit |   | $                                             | 2,215,571 |   |   |   | 51.72 | % |   | $ | 2,178,624 |   |   |   | 63.85 | % |

|                                  |   | Six Months Ended June 30, |      |   |   |
|---------------------------------------|--------|-----------------------------------------------|-----------|--------|--------|
|                                  |   | 2012                                          |      |   | 2011   |   | Change |   |
| Selling expenses                      |   | $                                             | 1,359,538 |   |   | $ | 562,220 |   |   |   | 141.82 | % |
| General & Administrative expenses |   | $                                             | 3,265,025 |   |   | $ | 3,460,820 |   |   |   | (5.66) | % |
| Total operating expenses              |   | $                                             | 4,624,563 |   |   | $ | 4,023,040 |   |   |   | 14.95 | % |

----

| Item             |   | June 30,2012 |      |   | December 31,2011 |   |      | Change |   |
|------------------|--------|-------------------|-----------|--------|-----------------------|--------|-----------|--------|--------|
| Finished goods   |   | $                 | 409,699   |   |                  | $      | 2,093,393 |   |   |   | (80.43) | % |
| Work in progress |   | $                 | 2,516,406 |   |                  | $      | 218,788   |   |   |   | 1,050.16 | % |
| Raw material     |   | $                 | 733,474   |   |                  | $      | 452,379   |   |   |   | 62.14 | % |
| Total            |   | $                 | 3,659,579 |   |                  | $      | 2,764,560 |   |   |   | 32.37 | % |

----

|                                                                |   | Six months ended June 30, |      |   |   |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------|-----------|--------|--------|--------|
|                                                                |   | 2012                                          |      |   | 2011   |   |   | Change |   |
| Net cash provided by (used in) operating activities                 |   | $                                             | (553,748) |   |   | $      | 1,372,607 |   |   | $ | (1,926,355) |   |
| Net cash provided by (used in) investing activities                 |   | $                                             | (45,471)  |   |   | $      | (2,075,582) |   |   | $ | 2,030,111 |   |
| Net cash provided by (used in) financing activities                 |   | $                                             | -         |   |   | $      | - |   |   | $ | - |   |
| Effect of foreign currency translation on cash and cash equivalents |   | $                                             | 40,997    |   |   | $      | 564,523 |   |   | $ | 523,526 |   |
| Beginning cash and cash equivalent                                  |   | $                                             | 1,550,911 |   |   | $      | 9,587,765 |   |   | $ | (8,036,854)  |   |
| Ending cash and cash equivalent                                     |   | $                                             | 992,689   |   |   | $      | 9,449,313 |   |   | $ | (8,456,624) |   |

----

----

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 4. CONTROLS AND PROCEDURES.

ITEM 1.           LEGAL PROCEEDINGS.

ITEM 1A.        RISK FACTORS.

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

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

ITEM 4.          MINE SAFETY DISCLOSURES.

ITEM 5.           OTHER INFORMATION.

----

ITEM6 -         EXHIBITS.

| Exhibit No. |   | Description of Exhibit                                                             |
|------------------|--------|----------------------------------------------------------------------------------------------|
| 31.1             |   | Certification by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002 Section 302. |
| 31.2             |   | Certification by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002 Section 302. |
| 32.1             |   | Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906. |
| 32.2             |   | Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906. |

----

SIGNATURES

|                         | SUNWAY GLOBAL, INC.                                               |             |
|------------------------------|-------------------------------------------------------------------|------------------|
|                         |                                                              |             |
| Dated:  August 14, 2012 | By:                                                     | /s/ Liang Deli   |   |
|                         |                                                              | Name: Liang Deli |   |
|                         | Title: Chief Executive Officer (Principal Executive Officer) |             |

| Dated:  August 14, 2012 | By:                                                                          | /s/ Samuel Sheng |   |
|------------------------------|----------------------------------------------------------------------------------------|------------------|--------|
|                         | Name: Samuel Sheng                                                                     |             |
|                         | Title: Chief Financial Officer  (Principal Financial and Accounting officer) |             |