ITEM 1.
BUSINESS.
Our Business
As a result of the consummation of a reverse merger, discussed below, we are engaged in the business of designing, manufacturing and selling logistic transport systems, medicine dispensing systems and automatic medicament emitting system. Our principal products are both pneumatic tube logistic transport system and medicine dispensing system used in hospitals and other medical facilities.
Our customers are primarily hospitals and medical appliance companies in the People’s Republic of China (the “PRC”). As the market for Pneumatic Transport Systems (“PTS”), Medicine Dispensing System (“SADP”)and Automatic Medicament Emitting system (“SAME”)are still an emerging market, official data about the industry in general and competition in particular have not been readily available. Based on information we have collected from bids, the internet and other market intelligence, it is our estimate that among the hospitals that have adopted PTS in China, we were the supplier to the largest number of hospitals since 2005.In 2012, we sold 623 units PTS to 18hospitals and 38units SADP. We sold our products both directly, through our sales employees and sales office and indirectly, through twenty domestic independent sales agents and a European sales agent. Our sales network covers Beijing, Shanghai, Guangzhou, Xi’an, Chongqing, Qingdao, Daqing and 20other provinces in the PRC.
We generate our revenues from sales in six product categories: Type A workstations, Type B workstations, Type C workstations, SADP, SAME, spare part and support service. The PTS have the same function and price but with different product designs. Having three types of workstations enables us to provide more options and flexibility to our customers to accommodate their aesthetic taste, space restrictions and other requirements.
About Us
We are a Nevada corporation which was formed on October 18, 1971. Prior to June 6, 2007, we were a shell company. On June 6, 2007, we consummated (i) a reverse merger transaction, in which we acquired control over an operating company in the PRC and (ii) a private sale of our restricted stock, in which we received an aggregate of $6.7 million of financing. Through these transactions, we ceased to be a shell company and, through our subsidiaries, entered into the business of manufacturing and selling logistic transport systems and medicine dispensing and system in the PRC.
On June 6, 2007, we acquired World Through Limited, a British Virgin Islands Corporation (“WTL”) through a share exchange transaction with WTL and Rise Elite International Limited (“Rise Elite”), a company incorporated under the laws of the British Virgin Islands and the owner of 100% of the outstanding voting stock of WTL. WTL owns all of the stock of Sunway World Through Technology (Daqing) Co., Ltd. (“SWT”), a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the PRC. SWT has a series of contracts with our operating company, Daqing Sunway Technology Co., Ltd. (“Daqing Sunway”), a company organized under the laws of the PRC, which gives it control over Daqing Sunway’s business, personnel and finances as if it were a wholly owned subsidiary of SWT. The transaction was structured in this way because PRC regulations require that Daqing Sunway be acquired for cash and the natural person in control of WTL was unable to raise sufficient funds to pay the full value for Daqing Sunway’s shares of assets in cash prior to the acquisition.
As contemplated by the reverse merger and approved by a majority of shareholders on June 28, 2007, the Company effected a 86.3035-for-one reverse split of its common stock that took effect on February 7, 2008.
Also on February 7, 2008, we changed our name from National Realty and Mortgage, Inc. to Sunway Global Inc.
On March 16, 2008, SWT acquired Beijing Sunway New-force Medical Treatment Tech Co., Ltd. (“Beijing Sunway”) as its wholly-owned subsidiary. Beijing Sunway was incorporated in Beijing, PRC on May 24, 2007.
On January 16, 2009, WTL acquired Qingdao Liheng textiles Co., Ltd. (“Liheng”) as its wholly-owned subsidiary, Liheng was incorporated in Qingdao, PRC on June 6, 2003.
The current structure of the Company and its subsidiaries is set forth below:
The Company, through its subsidiaries and Daqing Sunway, is now in the business of designing, manufacturing and selling logistic transport systems, medicine dispensing systems and equipment, and automatic medicament emitting system.
Description of Our Products and Services
Medical Transport Systems
The Company’s principal product has been the SUNTRANS-160 pneumatic tube transport system (“PTS”) used in hospitals and medical facilities. Pneumatic tube material transport systems are used in over 140 countries throughout the world with many of the systems used in hospitals and medical facilities.
Our PTS transports small materials weighing up to five kilograms in capsules at high-speed through a network of tubing and transfer units that connect hundreds of working departments of a hospital, including nurse stations, operation departments, medicine dispensing centers, testing centers and disinfection stations, each designated as a user workstation. The high speed transmission of the materials in the tubing network is through pneumatic air flow powered by air compressors and the path of a capsule can be switched and redirected through transfer units. Typical applications for our PTS are the transport of items from a user workstation to another user workstation at a users’ request.
Our PTS provides two-way carrier travel between send/receive user workstations through a single interconnecting tube. It can deliver anything that fits in a capsule to a remote location - even on different floors or in other buildings - in a few seconds at speeds up to 8 meters per second on a stream of compressed air in the transmission tubes. Capsules can be transmitted up to 1,800 meters horizontally and 120 meters vertically. Each pneumatic tube transport system can have up to eight sub-systems with up to 64 send/receive workstations under control by each sub-system.
The control units for user workstations and transfer units contain self-diagnostic and troubleshooting software. When an operating error occurs, the applicable control unit will send error message to each user workstation and the system control center. When a receiving user workstation malfunctions, the system will automatically return the transmission carrier to its originating user workstation.
A PTS primarily consists of send/receive user workstations, transfer units, tubing network, capsules, air compressors, system blower and system control centers.
User Workstations
User Workstations are combined sending and receiving units that send and receive capsules carrying the items transported. Each workstation has an easy-to-use control panel equipped with a 5-inch LCD screen. It displays the real-time operating status of all workstations, capsules, transfer units and air compressors throughout a PTS and also monitors capsules in transit, indicates the sequence of transport requests and displays destinations of a transport. It has a heightened security system that can discern and prevent the entry of any foreign items that are not requested to be transported by the system. Each workstation has a voice function that announces the arrival of a capsule as well as its originating workstation. When error occurs in one user workstation, such user workstation can automatically shut down without interfering with the operation of other user workstations.
Transfer Units
Transfer units are switching devices used at branching points in a tubing system to direct and redirect the path of a capsule from one route into another route until it gets to its final destination.
Tubing network
The tubing and bends in a PTS are made from strong, lightweight, non-corroding, dent-resistant U-PVC that can withstand adverse exterior weather conditions as well as a numerous harsh conditions between buildings, through existing utilities and underground. Generally, the diameter of a straight tube is 160mm and the radius of a bend is 850 mm and the tube wall is 3.2mm thick.
System Control Centers
A system control center consists of one computer that controls the control units of all other components of the PTS connected through communication cables, and it configures the sub-systems, monitors system operations and troubleshoots system errors. It has a graphical user interface, dynamic system monitoring and administration, real-time tracking of capsules, event reporting and self-diagnostic systems and a security system to prevent unauthorized use. The system control centers can also store current and historical transport data and instructions entered into the system, which can be retrieved for research and other purposes. In the event of a system shut-down due to a blackout, the system can resume operation without losing any data or instructions and complete transport requests given prior to the shut-down when the power supply resumes.
Capsules
Capsules are the transporting “vehicle” for medical items within the hospital. A capsule is a tube-like bottle made from transparent Plexiglas with leak-resistant caps at both ends. Each capsule can carry a load weigh up to five kilograms.
Air Compressors and System Blower
Air compressors and the system blower compress and pressurize air which creates pneumatic force that moves capsules through the tubing system.
Execution and Transmission Flow of a Transport Request
A transport request is typically executed as follows: At an originating user workstation, a user places the item to be transmitted in a capsule and puts the capsule in the input basket of the originating user workstation. The user then enters a transmission request on the control panel of the workstation for the capsule to be delivered to another designated user workstation. The request will then be transmitted to the system control center. Upon receipt of the transmission request, the system control center will check whether there is any item currently in transit in the applicable route. If not, the system control center will instruct the originating user workstation to allow the capsule to enter the tube. Upon the capsule’s entry into the tube, the air compressor and system blower will be turned on. The system blower will provide vacuum to suck the capsule into the transfer unit and the transfer unit will then switch to the path leading to the destination workstation. The system blower will then provide positive pressure in the tube that will carry the capsule to its destination. Upon arrival of the capsule at the destination workstation, the destination workstation will automatically release the capsule into its output basket. At the same time, the destination workstation will make a voice announcement to alert the arrival of the capsule and the system control center records and stores all the information regarding the transport operation.
Installation
Send/receive workstations with built-in air compressors can sit on desks or tables, or mount easily in a minimum of space on walls, building columns, or any convenient flat surface, without using prime locations. Tubing may be installed indoors or outdoors and fire prevention measures can be added. Our outdoor installation utilizes antifreeze and is waterproof. Tubes can be installed through floors and walls with fireproof insulation casing.
Our PTS has three types: Type A Workstations, Type B Workstations and Type C Workstations. The three types of workstations are priced the same with similar functions. The differences between the three types lie in the mechanism of sending and receiving items as well as size and method of installation. Having three types of workstations enables us to provide more options and flexibility to our customers to accommodate their aesthetic taste, space restrictions and other requirements.
Medicine Dispensing Systems
We have developed the medicine dispensing system (“SADP”) primarily for hospital use, which we launched commercially in the first quarter of 2008. Our SAPD is a computerized system that can automatically fill medical prescriptions for oral medications in single or multiple dosages with high efficiency. Based on the prescriptions entered into the system by pharmacists, the system automatically dispenses and packages the prescribed amount of medication with printed labels that provides a patient’s name, location in the hospital, hospital bed identification, name of medication, quantity of medication and instructions for taking the medication. The prescription information can be stored in medicine dispensing system for up to one year for future reference. Each medicine dispensing system is connected with hospital computer network and can retrieve information from the network when necessary. Our SADP is capable of dispensing and packaging up to 60 prescriptions in one minute and can fill the prescriptions and package medication for 500 patients based on three doses per day in approximately 30 minutes. Our annual SADP sales in 2011 and 2012 were 38 and 33 units, respectively.
Each of our SADPs has the capacity to house between 240 to 500 medicine storage bins, which allows for the dispensing and packaging of between 240 and 500 different types of medication at any given time. Each medicine storage bin has a CPU which controls the precise dosage dispensed in accordance with the prescription. The interior of the medicine storage bins are specifically designed to hold different types of medications based on the specifications provided by hospitals. Our SADP also comes with a back-up medicine bin which can house up to 40 different types of medications. When a medication that is not stored in any of the storage bins is prescribed or if a non-standard dosage of a medication is prescribed (for example, one-half of a tablet may be prescribed), a pharmacist can mix and prepare the medication and place it in the back-up medicine bin for dispensing by our SADP system together with the rest of the prescribed medication.
The central control system controls of an SADP monitors the operating status of each storage bin. It also automatically recognizes and tracks the locations to which each medication was transmitted and the quantities of medication in each bin. Pharmacists can give operate the SADP with its touch screen.
Medical treatment mistakes are often caused by human errors made by medical professionals in prescribing and dispensing medicine because of lack of historical information on patients and the medication that the patients have been taking. We believe that the SADP, which retains information about patients medications can help reduce the number of such errors. In Europe and the United States, approximately 80% of hospitals already use some form of automatic drug dispensation system. However, the use of such systems has just started in the PRC.
Automatic Medicament Emitting Systems
We have developed an automatic medicament emitting systems (“SAME”) for hospital use, which we launched commercially in the fourth quarter of 2011. Our SAMD is a computerized system that can automatically get medical prescriptions for outpatients in dispensary with efficiency. Based on the prescriptions entered into the Hospital Information Systems by doctors, the system automatically got all of prescription’s medication with print paper that provides a patient’s name and details of medicament when outpatients paid. Our SAME is capable of finish a prescription between 4 seconds and 8 seconds. Each built-in medicine cabinet of our SAMEs has the capacity to accommodate between 10,000 and 30,000 boxes of drugs.
Manufacture and Quality Control
We manufacture the main components of our products, such as tube diverters and pneumatic direction diverters, in our own facility. We outsource the manufacturing of certain other parts such as workstations. We assemble all the components and parts into finished products. In choosing our suppliers, we focus on the quality of raw material supplied. We conduct our manufacturing procedures and quality testing based on ISO 9000 or CE Quality Standard and ISO Environmental Standards. We have received ISO 9000 certification since August 2004.
We usually provide a standard 12-month product warranty to our customers. During the warranty period, we replace defective products for our customers without charge.
Our Product/Marketing Strategy
Our product/marketing strategy focuses on using our human resources and intellectual capital to design new and better hardware and software products with a variety of applications for many markets. Currently, we are focused on logistics products for the hospital and medical markets, but believe that we can expand into other markets.
Implementing our product/marketing strategy involves the following:
Expand and Strengthen Our Product Lines. Currently, we offer two main products: medical transport systems and medicine dispensing systems. We hope to leverage the existing technologies that we own and our technical expertise to expand our product offerings in developing new logistics products and new medical and hospital products.
Expand and Strengthen Our Markets for our Current Product Lines in the PRC and then outside of the PRC. Our medical transport systems and medicine dispensing systems are designed principally for hospital use. Currently, we are conducting research and development to expand the use of our products in banks, industrial companies and office buildings. We believe that our low cost structure that comes with operating in the PRC can allow us to expand into other countries and successfully compete based on our cost and price advantages.
Expand and Strengthen Our Distribution Network in the PRC and then outside of the PRC. We own the technologies used in our existing products, and therefore, our cost of sales and the prices for our products are lower than those of other companies which must pay licensing fees and royalties. As result, we have been able to capture significant market share in the PRC (approximately 50% of hospitals and medical facilities that use pneumatic tube systems). In order to leverage this strength, we will seek to build our own distribution service centers in strategic locations in the PRC.
Sales and Marketing
We sell our products directly through our sales employees and direct sales offices or indirectly through independent sales agents. As of December 31, 2012, we have twenty domestic independent sales agents, one European sales agent and seven direct sales office covering Beijing, Shanghai, Guangzhou, Chongqing, Xi’an, Qingdao, Daqing and 21 other provinces, and 41 sales employees. We sell our products mostly directly to hospital through our sale agents and the agents will be paid sales commission.
Materials and Suppliers
The principal supplies purchased for our business are composite panels, aluminum frames, micro processors and other IC chips, power supplies, LCD panels, fans, U-PVC tubes and equipment chassis. Except for LCD panels, which we purchase from Truly Semiconductors Limited, a Japanese manufacturer, we have at least two suppliers for each of the supplies we purchase for our business. We generally have long-term relationships with our suppliers but no written contracts with them as the materials we need are generally available in the market.
Customers
Our customers are primarily hospitals and medical appliance companies. The following table presents, for the periods indicated, our largest customers by revenue:
The payment terms of our standard sales agreement generally require a cash payment of 30% of the total purchase price within 10 days of the signing of the agreement, a cash payment of 30% of the total purchase price upon receipt of the products if there is no exterior damage to the products, a cash payment of 30% of the total purchase price upon installation, completion of testing, and acceptance of the products, and a cash payment of 10% the total purchase price after a year. The purchase price generally does not contain shipping expenses. If a shipment is delayed in breach of a sales agreement, we are required to pay 1.0% of the total purchase price for each day delayed up to 10% of the total purchase price.
Technology and Research and Development
We have developed and own the intellectual property used in our products. Currently we hold thirteen PRC patents for our medical transport systems. In September 1999, Daqing Sunway was designated as a New-and-High-Technology Enterprise in Heilongjiang Province by the Science and Technology Commission of Heilongjiang Province.
We have 29 full-time employees engaged in research and development (“R&D”) efforts. Our R&D personnel specialize in the fields of software development, electronic engineering, machinery design and manufacture, electronic information technology, communication technology and application, automatic control technology and optoelectronic technology. Most of our R&D personnel have more than 5 years’ experience in their fields of specialty. We also outsource certain software development projects to third party software developers.
Currently, we are conducting R&D on products for use in banks, industrial companies and commercial use office buildings.
For the fiscal years ended December 31, 2012 and 2011, respectively, we expended approximately $190,812 and $158,789 on R&D activities.
Competition and Competitive Advantages
Pneumatic Transport System
Our main competitors in the supply of PTS are Beijing Chuansheng Weiye Science Trade Co., Ltd., Hainan Lingjing Medical Purification Project Co., Ltd., and Beijing Ruize Network Co., Ltd. While we are both a manufacturer and distributor of our medical transport systems, our competitors are distributors of imported pneumatic transport systems. Among these companies, Hainan Lingjing Medical Purification Project Co., Ltd. is a distributor of Swisslog’s pneumatic force transportation products, and Beijing Ruize Network Co., Ltd. is a distributor for Sumetzberger GMBH, an Austrian company.
As the market for pneumatic transport systems is still an emerging market in the PRC, official data about the industry in general, and competition in particular, are readily available. Based on the information we collected from competitive bids, the internet and other market intelligence, it is our estimate that among suppliers of pneumatic transport systems in the PRC, we were the supplier to the largest number of hospitals in the fiscal years ended December 31, 2012 and 2011 in Chinese Mainland.
The following table sets forth our estimates, based on information we have collected from bids, the internet and other market intelligence, of the relative number of hospitals and medical facilities in the PRC supplied with pneumatic transport systems by us and our major competitors in 2012 and 2011:
Medicine Dispensing Systems
We introduced our medicine dispensing systems to the market in May 2007. Currently, we face competition from Japanese manufacturers, Yuyama Manufacturing Co., Tosho Co., Inc. and Sanyo Co., Ltd., and a South Korean company, JV Medi Co., Ltd., whose products are imported into the PRC and sold through distributors. Since the introduction of our medical dispensing system to the market in January 2008, we have received orders to purchase eight units. We have sold and delivered 33 units and 38 units SADP in 2012 and 2011respectively.
The following table sets forth our estimates, based on information we have collected from bids, the internet and other market intelligence, of the relative number of hospitals and medical facilities in the PRC supplied with medicine dispensing systems by us and our major competitors in 2012.
Automatic Medication Emitting systems
We introduced our automatic medication emitting systems to the market in the fourth quarter of 2011. Currently, we face primary competition from internal manufacturers, Suzhou Iron Technology Co, Ltd., whose products are into the PRC in 2010. Since the introduction of our automatic medication emitting systems to the market in the fourth quarter of 2011, we have received orders to purchase four units. We sold 1 unit in 2012.
Competitive Advantages
We believe that we have the following competitive advantages over our competitors:
Cost : We have cost advantages because we source our supplies domestically and our products are manufactured domestically using technologies developed by us. Our major competitors are domestic distributors of imported products that cost more in both materials and labor and, additionally, are subject to customs duties. As a result, our PTS is generally priced lower than our competitors’ products - our PTS is priced at approximately $180,151 per unit while our cost of sales is approximately $14,929 per unit, representing a gross margin of approximately 91.71%. We estimate that similar products of our competitors are priced at approximately $210,000 per unit. Our medicine dispensing system, which we launched in 2008, is priced at $118,898 per unit in China while our cost of sales is approximately $51,502, representing a gross margin of approximately 56.68% in China. We estimate that our competitors’ prices range from $151,900 to $189,900.
Large Existing Customer Base and Customer Loyalty: As of the end of 2012, we estimate, based on information we have collected through competitive bids, internet research and other market sources, that we had an approximate 31% share in hospitals and medical facilities using pneumatic tube systems in the PRC market based on the number of hospitals and medical facilities that have adopted pneumatic tube transport systems in China, as compared to an approximate 29% for our largest competitor, Swisslog. Our large existing customer base, which includes approximately 400 hospitals as our end users, provides us an advantage in the marketing and sales of additional products and services, both because existing customers are an important source of new orders, and because we are frequently referred to new customers by our existing customers due to our cost advantage, localized technology and excellent service.
Localized and Customized Technology: We are one of the providers of PTS with localized interfaces in Chinese language specifically designed based on the needs of PRC customers. Daqing Sunway’s PTS is therefore more user friendly for Chinese speaking customers. Our competitors’ products are based on English language interfaces. As the general population in the PRC is not proficient in English, purchasers of our competitors’ products are required to employ highly educated and specially trained English speaking personnel to operate their systems, which represent an additional expense adding to their already higher prices. In addition, as the technologies used in our systems are developed by us, we have the capacity and flexibility to easily and quickly adapt our products to specific customer requirements and changing market trends.
Extensive After-Sales Service Coverage: We believe that we are more accessible to our customers than our competitors because we are the only manufacturer in the PRC, as opposed to distributor, of pneumatic tube systems. As a manufacturer, we believe we are in a better position to provide pre-sale consultation and post-sale services than our competitors, all of which are distributors of imported systems. We are available to provide pre-sale consultation to help potential customers determine their specific needs and design their transportation networks using PTS, and post-sale services such as on-site diagnostic tests to identify and prevent any potential problems, and maintenance and repair services. Our competitors’ customers do not have such easy access to the manufacturers because they must rely on the distributors to provide that access indirectly. Often, parts needed for maintenance are not available in the PRC and must be ordered from overseas for replacement, with a lag time for delivery.
Intellectual Property
Patents
Our products use patented technologies developed by us. Currently, we hold thirteen PRC patents used in our products. The following is a list of the patents we hold:
The PRC Patent Law was adopted by the National People's Congress, the parliament in the PRC, in 1984 and was subsequently amended in 1992 and 2000. The Patent Law aims to protect and encourage invention, foster application of inventions and promote the development of science and technology. To be patentable, an invention must meet three conditions: novelty, inventiveness and practical applicability. Certain items are not patentable under the Patent Law, which include scientific discoveries, rules and methods for intellectual activities; methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation. The Patent Office under the State Council is responsible for receiving, examining and approving patent applications. A patent is valid for a term of twenty years in the case of an invention and a term of ten years in the case of utility models and designs. Our patents are all utility models and subject to the ten years' protection. Any use of patent without consent or a proper license from the patent owner constitutes an infringement of patent rights which is actionable in court in the PRC.
Registered software
We own the following software used in our products:
Trademarks
We have two trademarks registered with the Trademark Office of the State Administration for Industry and Commerce in PRC as follows:
Under the PRC Trademark Law, which was adopted in 1982, and revised in 2001, registered trademarks are granted a term of ten years protection, renewable for further terms. Each renewal is limited to ten years term and the registrant must continue to use the trademark and apply for a renewal within six months prior to the expiration of the current term.
Other Intellectual Property Rights Protections in the PRC
In addition to patent, trademark and trade secret protection law in the PRC, we also rely on contractual confidentiality provisions to protect our intellectual property rights and our brand. Our R&D personnel and executive officers are subject to confidentiality agreements to keep our proprietary information confidential. In addition, they are subject to a one-year covenant not to compete following the termination of employment with our company. Further, they agree that any work product belongs to our company.
Insurance
We currently do not carry any product liability or other similar insurance, nor do we have property insurance covering our plant, manufacturing equipment and office building. While product liability lawsuits in the PRC are rare and Daqing Sunway and Liheng have never experienced significant failures or accidents, there can be no assurance that Daqing Sunway and Liheng would not face liability in the event of any failure or accident.
Daqing Sunway maintains social insurance for their staff and employees in accordance with relevant compulsory requirements under the PRC laws and has compulsory insurance and fixed-sum insurance for cars and other vehicles.
Employees
Presently we have 280 full-time employees and contractors, out of which 47 are management and accounting personnel, 29 are R&D personnel, 41 are marketing and sales personnel and 163 are manufacturing personnel and after-service personnel.
Government Regulation
Under certain regulations in the form of public notices issued by the PRC State Administration of Foreign Exchange, or SAFE, our shareholders who are PRC resident entities or individuals are subject to certain registration requirements due to the status of WTL as “SPCs” (as defined under the public notice issued by SAFE on October 21, 2005). These regulations would prohibit SWT distributing dividends or profits to WTL and/or SWT as “SPC”s unless the registration requirements are complied with. The registration procedures were completed and SWT obtained a SAFE certificate from SAFE’s Heilongjiang office on March 30, 2007. Our PRC counsel advised us that the SAFE certificate would allow SWT to distribute dividends and profits out of the PRC.
Medical Appliance manufacturing companies in the PRC are required to obtain Medical Appliance Manufacturing permits. Daqing Sunway holds a Medical Appliance registration certificate and Medical Appliance Manufacturing Permit issued by Heilongjiang Province Food and Drug Supervision Administration Bureau.
Pursuant to the tax laws of PRC, general enterprises are subject to income tax at an effective rate of 25%. Companies qualified as hi-technology companies are subject to certain preferential tax treatment. Liheng was approved as a foreign investment company and enjoys a 15% corporate income tax rate.
Other than the foregoing, Daqing Sunway is not subject to any other significant government regulation of its business or production, or any other government permits or approval requirements, except for the laws and regulations of general applicability for corporations formed under the laws of the PRC.
ITEM 1A.
ITEM 1A. RISK FACTORS.
No applicable.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES.
The Company’s manufacturing facilities are housed in a five-story and two one-story building occupying 6,529.08 square meters of land located in Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China.
Under the PRC law, most land is owned by the government, which grants a "land use right" to an individual or entity after a purchase price for such “land use right” is paid to the government. The “land use right” allows the holder the right to use the land for a specified long-term period of time and enjoys all the ownership rights incident to the land. Liheng holds the land use right for one parcel of land that was used in its business and which will be used in SWT's business pursuant to the leases entered into in connection with the Restructuring Agreements.
Land Use Right
Set forth below is the detailed information regarding the land use right registered under the name of Liheng:
Lease
Beijing Sunway leases from Beijing Bishiuyuan Tech Co., Ltd. a building with a total of 1050 square meters for use in its operation for a term of three years starting from October 25, 2012 with an annual rent of approximately $135,630.
Daqing Sunway leases from Daqing High-tech Zone Chuangye Service Co., Ltd office space with a total of 71.61 square meters for use in its operation for a term of one year starting from May 21, 2012 with an annual rent of approximately $2,815.
Beijing Sunway leases from Cheng Tonghang office space with a total of 103 square meters for use in its operation for a term of one year starting from November 8, 2011 with an annual rent of approximately $7,390.
Properties
The Company is awaiting the certificates of ownership for three other properties which it currently occupies:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
To our knowledge, there is no material litigation pending or threatened against us.
ITEM 4.
ITEM 4. MINE SAFETY MEASURES.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Company’s common stock is quoted on the OTC Bulletin Board under the symbol “SUWG.OB.” The following table sets forth, for the calendar periods indicated the range of the high and low last reported bid and ask prices of the Company’s common stock from January 1, 2011 through December 31, 2012, as reported by the OTC Bulletin Board. The quotations represent inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. The quotations may be rounded for presentation.
As of April 10, 2013, the Company had approximately 653 shareholders of record. Certain of the shares of common stock are held in “street” name and may be held by numerous beneficial owners.
Dividends
The Company’s board of directors has not declared a dividend on our common stock during the last two fiscal years and we do not anticipate the payments of dividends in the near future as we intend to reinvest our profits to grow operations. We rely on dividends from Daqing Sunway for our funds and PRC regulations may limit the amount of funds distributed to us from Daqing Sunway, which will affect our ability to declare any dividends.
Equity Compensation Plan Information
As of the date of this report, the Company neither has any securities authorized for issuance under any equity compensation plans nor does it have any equity compensation plans.
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
None.
ITEM 6.
ITEM 6. SELECT FINANCIAL DATA.
Not Applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes of Sunway Global Inc., appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements.
Sunway Global Inc. primarily functions as a holding company for entities that, through contractual relationships, control the business of Daqing Sunway, Liheng and Beijing Sunway, those companies 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. This discussion and analysis focuses on the business results, comparing its results in the fiscal years ended December 31, 2012and 2011.
Results of Operations
In the fiscal year ended December 31, 2012, our net sales and gross profit increased compared with the same period in the fiscal year ended December 31, 2011. These increases are due to our increased marketing effort. The following table summarizes the results of our operations during the fiscal years ended December 31, 2012 and 2011, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the fiscal years ended December 31, 2012 and 2011.
Net revenue
Net revenue for the fiscal year ended December 31, 2012, which resulted primarily from sales of PTS, SADP, SAME, spare parts and supporting services, were $9,754,094, an increase of 12.32% as compared with the net revenues of $8,683,877 in the same period ended December 31, 2011. In the fiscal year ended December 31, 2012, we sold 931 workstations, representing an increase in workstation sales of 33.08% as compared with 623 workstations in the same period ended December 31, 2011.The increase in workstation sales was primarily due to a result of the growth in the Qingdao factory’s output energy in the fourth quarter of 2012. We sold 33 units SADP, a decrease of 13.16% as compared with 38 units SADP for the fiscal year ended December 31, 2011. The decrease in SADP was due primarily to a decline in our marketing effort, and we sold 1 unit of SAME in the fiscal year ended December 31, 2012, an decrease of 50% as compared to 2 units in the fiscal year ended December 31, 2011. The decrease in SAME was due primarily to a defect in design in our first generation products. We just released our improved second generation products in the fourth quarter of 2012.
The following table presents information about our revenue for the periods indicated:
Gross Profit
Gross profit was $4,395,683 for the fiscal year ended December 31, 2012, an increase of 10.32% as compared with $3,984,371 for the fiscal year ended December 31, 2011. Our gross profit margin decreased 0.81% from 45.88% as of the fiscal year ended December 31, 2011 to 45.07% as of the same period of 2012, mainly due to the change in the Euros exchange rate.
The table below presents information about our gross profit for the periods indicated:
Income from Operations
Operating loss was $4,967,188 for the fiscal year ended December 31, 2012, as compared with $4,005,568 loss for the fiscal year ended December 31, 2011. The decrease was primarily because selling expenses increased sharply, especially employees’ salary increased approximately 139.76% as compare with the fiscal year of 2011.
Cost of Net Revenue
Cost of net revenue increase to $5,358,411 for the fiscal year ended December 31, 2012, representing an increase of 14.02% as compared with $4,699,506 for the fiscal year of 2011. This increase is primarily due to sale growth.
The following table presents information about our cost of sales for the periods indicated:
Operating Expenses
Operating expenses were $9,362,871for the fiscal year ended December 31, 2012, an increase of 17.18% as compared to $7,989,939 for the fiscal year of 2011. This increase was primarily because: (i) selling expenses increased $1,452,006, or 82.27% to $3,216,885 in the fiscal year ended December 31, 2012 from $1,764,879 for the fiscal year of 2011; and (ii) general and administration expenses decreased $79,074, or 1.27% to $6,145,986 for the fiscal year ended December 31, 2012 from $6,225,060 for the fiscal year of 2011.
The following table presents information about our operating expenses for the periods indicated:
Changes in fair value of warrants
Changes in fair value of warrants were $1,165,692 for the fiscal year ended December 31, 2012. This is recorded as a non-cash charges, which resulted from the change in fair value of warrants issued to investors in conjunction with the Company’s issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic 815, “Derivative and Hedging” (ASC 815). The accounting treatment of the warrants resulted from a provision providing anti-dilution protection to the warrant holders. As of June 5, 2012, all of the warrants were expiredby the agreement item.
Compensation for product quality and overdue delivery
Compensation for product quality and overdue delivery was 6,088,870 for the fiscal years ended December 31, 2011.Due to the closing of our factory in Daqing in the second quarter of 2011, we were unable to timely deliver products to some of our clients. Also, in an effort to increase output at our Qingdao factory we hired many new employees to meet our customers’ needs. However, many of these new employees did not have sufficient experience in manufacturing which affected the quality of some of our products. We agreed to compensate our clients who were affected by the foregoing with a combination of cash payments and reduction in their account balances with us.
Impairment on fixed assets
Impairment on fixed assets was 2,439,271 for the fiscal year ended December 31, 2011. The Impairment was due to disposal building, and equipment of the closing of our factory in Daqing.
Net Loss
Net loss was $3,098,445 for the fiscal year ended December 31, 2012, a decrease of 273.18% from $1,789,159 as net income for the fiscal year of 2011. In the fiscal year ended December 31, 2012, net income were impacted by a non-cash income of $1,165,692 in changes in fair value of warrants unrelated to the Company’s operations Excluding this non-cash income, the Company’s net loss from operations for the fiscal year ended December 31, 2012 would have been $4,264,138.
Earnings Per Share (“EPS”)
Basic and diluted loss per share for the fiscal year ended December 31, 2012 was $0.17 and $0.13 compared to $0.10 and $0.08 as net income per share for the fiscal year of 2011. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the fiscal years ended December 31, 2012, and 2011, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the fiscal years ended December 31, 2012 and 2011, respectively.
Cash and Cash Equivalents
Cash and cash equivalents decreased to $352,457 as of December 31, 2012, as compared with $1,550,911 as of December 31, 2011. This increase was mainly due to our selling expenses expense and employees salary increase, but it does not immediately bring out our sale growth.
Trade Receivables, net
Trade receivables, net increased to $8,595,793 as of December 31, 2012, compared with $6,883,677as of December 31, 2011. This decrease in trade receivables was primarily attributable to increase in sale and several client overdue payments.
Inventory
Inventory consists of raw materials, works in process and finished goods. As of December 31, 2012, the recorded value of our inventory has increased 20.68% to $3,336,188 from $2,764,560 as of December 31, 2011. This increase is mainly due to an increase of 1020.97% in work in process from $218,788 as of December 31, 2011 to $2,452,547 as of December 31, 2012; an increase of 57.78% in raw material from $452,379 as of December 31, 2011 to $713,769 as of December 31, 2012, a decrease of 91.89% in finished goods from $218,788 as of December 31, 2011 to $169,872 as of December 31, 2012. The increases were primarily attributable to our Qingdao factory’s augmented output of the SADP and PTS, so that we have adequate supply to meet our customers’ needs.
The following table presents information about our inventory for the periods indicated:
Accounts payable
Accounts payable was $1,211,450 as of December 31, 2012, an increase of 94.77% from $621,977 as of December 31, 2011. The increase was primarily attributable to the fact that our Qingdao factory started to augment output cause to an increase in purchase volume of raw materials.
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 following table presents information about our cash flow for the periods indicated:
Operating Activities
For the fiscal year ended December 31, 2012, net cash used in operating activities was $2,295,871. This was primarily attributable to net loss of $3,098,445, adjusted by an add-back of non-cash income mainly consisting of depreciation, amortization and change in fair value of warrants $2,550,536 offset by a $1,747,962 decrease in working capital. Specifically, the working capital increase was primarily due to (i) a $1,654,397 trade receivables increase driven by increase in sale; (ii) a $710,543 inventories increase, principally in work in process and finished goods, due to increase in purchasing volume and product volume; (iii) a $651,166 increase e in advance to suppliers to choose new suppliers for PTS in Qingdao factory; (iv) a $613,530 increase in prepayments, travel advances to directors, tender deposits and advances to employees, consisting primarily of prepayments for raw materials and supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $1,881,674 increase in accounts payable, tax payable, loans from unrelated parties, amount due from a director, customer deposits and accrued liabilities.
Investing Activities
For the fiscal year ended December 31, 2012, net cash used in investing activities were $127,233. This was primarily attributable to a $127,233 capital expenditure for purchase of new office equipment.
Financing Activities
For the fiscal year ended December 31, 2012, net cash used in financing activities were $697,538. This was primarily attributable to a short-term bank loan.
As of December 31, 2012, we had cash and cash equivalents of $352,457, down to $1,550,911 as of December 31, 2011.
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 6months. 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.
Obligations under Material Contracts
We do not have any material contractual obligations as of December 31, 2012.
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. Changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of such write down.
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 does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.
Revenue recognition . Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenues from services recognizes when the agreed services have been performed, provided, completed or virtual completed at an agreed period(s) of time, and are measurable. Revenue is recognized when all of the following criteria are met:
- Persuasive evidence of an arrangement exists;
- Delivery has occurred or services have been rendered;
- The seller’s price to the buyer is fixed or determinable, and
- Collection is reasonably assured.
Contract revenues are recognized when the manufacturing and installation of the medical equipment is completed. Generally, the company receives total contract sum from clients in 3 installments. Deposit of 30% is received from client when the contract is signed. 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 a year.
Expected warranty liabilities. The Company warrants its products against defects in design, materials, and workmanship generally for one year. A provision for estimated future costs relating to warranty expense are recorded when products are shipped, and the provision is based upon our own historical claim experience.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2012.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Albert Wong & Co. LLP
CERTIFIED PUBLIC ACCOUNTANTS
139 Fulton Street, Suite 818B
New York, NY 10038-2532
Tel : 1-212-226-9088
Fax: 1-212-437-2193
To:
The board of directors and stockholders of
Sunway Global Inc. (“the Company”)
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Sunway Global Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunway Global Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the year then endedin conformity with accounting principles generally accepted in the United States of America.
New York, United States of America
Albert Wong & Co. LLP
April 12, 2013
Certified Public Accountants
SUNWAY GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2012 AND DECEMBER 31, 2011
(Stated in US Dollars)
See accompanying notes to consolidated financial statements
SUNWAY GLOBAL INC.
CONSOLIDATED BALANCE SHEETS (Continued)
AS AT DECEMBER 31, 2012 AND DECEMBER 31, 2011
(Stated in US Dollars)
See accompanying notes to consolidated financial statements
SUNWAY GLOBAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
See accompanying notes to consolidated financial statements
SUNWAY GLOBAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AS AT DECEMBER 31, 2012 AND DECEMBER 31, 2011
(Stated in US Dollars)
See accompanying notes to consolidated financial statements
SUNWAY GLOBAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
SUNWAY GLOBAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
See accompanying notes to consolidated financial statements
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 Accounting Standards Codification ASC 810-10-05 to 10-65 which codified FASB Interpretation No. 46 (revised December 2003) Consolidated of Variable Interest Entities, an Interpretation of ARB No. 51 since SWT was the primary beneficiary. On March 16, 2008, SWT acquired Beijing Sunway New-force Medical Treatment Tech Co., Ltd (“Beijing Sunway”) as its wholly-owned subsidiary. Beijing Sunway was incorporated in Beijing, PRC on May 24, 2007.
On January 16, 2009, World Through (BVI) acquired Qingdao Liheng Textiles Co Ltd (“Liheng”) as its wholly-owned subsidiary. Liheng was incorporated in PRC on June 6, 2003.
The Company, through its subsidiaries and Sunway, (hereinafter, collectively referred to as “the Group”), is now in the business of designing, manufacturing and selling logistic transport systems and medicine dispensing systems and equipment.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Method of accounting
The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b)
Principles of consolidation
The consolidated financial statements, which include the Company and its subsidiaries, are compiled in accordance with generally accepted accounting principles in the United States of America. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.
The Company owned five subsidiaries since its reverse-merger on June 6, 2007. The detailed identities of the consolidating subsidiaries would have been as follows:
(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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e)
Intangibles
Intangibles are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful lives of the intangibles are as follows:
(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:
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 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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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. There were bad debts of $45,541 and $294,869 for the years ended December 31,2012 and 2011 respectively.
Outstanding accounts balances are reviewed individually for collectability. The Company does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.
(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.
(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. Revenues from services recognizes when the agreed services have been performed, provided, completed or virtual completed at an agreed period(s) of time, and are measurable.
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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 equipment is completed. Generally, the company receives total contract sum from clients in 4 installments. Deposit of 30% is received from client when the contract is signed. Second payment of 30% is received when the project commenced. Third payment of 30% 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 that do not qualify as capital lease are classified as operating lease. Operating lease rental payment included in general and administrative expenses and selling expenses were $172,962 and $89,636 and cost of sales were nil and $30,722 for the years ended December 31,2012 and 2011 respectively.
(q)
Advertising
The Group expensed all advertising costs as incurred. Advertising expenses included in selling expenses were 36,039 and $22,555 for the years ended December 31,2012 and 2011 respectively.
(r)
Shipping and handling
All shipping and handling are expensed as incurred. Shipping and handling expenses included in selling expenses and cost of sales were $116,912 and $144,267 for the years ended December 31,2012 and 2011 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 $190,812 and $158,789 for the years ended December 31,2012 and 2011 respectively.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 $189,916 and $197,903 for the years ended December 31,2012 and 2011 respectively.
(u)
Income taxes
The Group accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future realization is uncertain.
(v)
Foreign currency translation
The accompanying financial statements are presented in United States dollars. The reporting currency of the Group is the U.S. dollar ($). 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:
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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 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)
Warrant Liability
Effective January 1, 2009, the Company adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, the outstanding warrants of the Company previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.
As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in June 2007. On January 1, 2009 the Company recorded as a cumulative effect adjustment by decreasing additional paid-in capital amounting to $3,990,942 and decreasing beginning retained earnings by the amount of $65,910,931 and recording $69,901,873 as a warrant liability to recognize the fair value of such warrants on January 1, 2009. The fair value of the warrants was nil and $1,165,692 on December 31, 2012 and December 31, 2011 respectively. The Company recognized $1,165,692 as income and $16,353,823 as loss from the change in fair value of warrants for the years ended December 31,2012 and 2011 respectively.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(z)
Recent accounting pronouncements
In July 2012, the FASB has issued Accounting Standards Update (ASU) No. 2012-02, Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles--Goodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.
In August 2012, the FASB has released Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22. This ASU amends various SEC paragraphs: (a) pursuant to the issuance of Staff Accounting Bulletin No. 114; (b) pursuant to the issuance of the SEC’s Final Rule, Technical Amendments to Commission Rules and Forms Related to the FASB’s Accounting Standards Codification, Release Nos. 33-9250, 34-65052, and IC-29748 August 8, 2011; and (c) related to ASU No. 2010-22, Accounting for Various Topics.
In February 2013, FASB has issued Accounting Standards Update (ASU) No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter. The amendments in this ASU should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU’s scope that exist at the beginning of an entity’s fiscal year of adoption. An entity may elect to use hindsight for the comparative periods (if it changed its accounting as a result of adopting the amendments in this ASU) and should disclose that fact. Early adoption is permitted.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 December 31,2012 and December 31, 2011. The group performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.
as of December 31,2012 and December 31, 2011, 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 December 31,2012, the group’s sales were generated from the PRC and Western Europe. Trade receivables as of December 31,2012 and December 31, 2011 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:
Details of customers accounting for 10% or more of the Group’s trade receivables are as follows:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
4.
AMOUNT DUE FROM A RELATED COMPANY
The following table provides the details of amounts due from related companies:
Amount due from Rise Elite International Ltd. (Rise Elite) was $830, a related company where Mr. Liang Deli, the director of the Group is a shareholder. The amount is held by Rise Elite for the initial setup expenses. The amount was unsecured, interest free and repayable on demand.
Amount due from Daqing Sunway Software Tech Co., Ltd. was $126,962, a related company where Mr. Zhao Qichao, the director of the Group is a shareholder. The amount was unsecured, interest free and repayable on demand.
5.
TRADE RECEIVABLES, NET
Trade receivables comprise the followings:
All of the above trade receivables are due within one year of aging.
An analysis of the allowance for doubtful accounts for the years ended December 31,2012 and 2011 is as follows:
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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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.
The following table provides the activity in the travel advances to shareholders:
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 activity in the advances to employees:
8.
INVENTORIES
Inventories comprise the followings:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
9.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net comprise the followings:
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.
In 2011, the Company recorded an impairment loss of moldings in the amount of nil. The circumstances leading to the impairment are attributed to the forecasted results of the product - Sunway Automatic Medicament Emitting (“SAME”). The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, it may be required to record further impairment charges.
Depreciation expenses are included in the statement of income as follows:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
10.
INTANGIBLES, NET
Details of intangibles are as follows:
During the year of 2009, the Group acquired the rights to use a parcel of land totaling 9,082 square meters, for a consideration of $89,552 (RMB613,035), located at Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China for a term of 48 years from November 3, 2006 to July 24, 2053. The Group acquired secondly the rights to use a parcel of land totaling 10,841 square meters, for a consideration of $106,709 (RMB730,485), located at Qingdao Hi-Tech Industry Development Zone, Qingdao, Shandong in the People’s Republic of China for a term of 50 years from January 14, 2009 to January 13, 2059. Both lands have been used to build the Liheng’s facility.
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 years ended 2012 and 2011 were $1,984,540 and $1,985,289 respectively.
In 2011, the Company recorded an impairment loss of technology-based design in the amount of $1,895,598. The circumstances leading to the impairment are attributed to the forecasted results of the product - Sunway Automatic Medicament Emitting (“SAME”). The Company considered historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, it may be required to record further impairment charges.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
11.
SHORT-TERM BANK LOANS
A short-term bank loan for theyears ended December 31,2012 and 2011 is as follows:
12.
EXPECTED WARRANTY LIABILITIES
An analysis of the expected warranty liabilities for the year ended December 31,2012 and 2011 is as follows:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
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:
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.
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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
13.
SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS
(Continued)
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 ASC 450 “Contingencies” which codified 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.
On November 10, 2008, Columbia China Capital Group, Inc. converted the Warrant J, totally 53,691 shares into 53,691 of common stock.
On June 5, 2012, all of the Series A, Series B, Series C, and Series D were expired.
On October 15, 2012, Vision Opportunity Master Fund Ltd and Vision Capital Advantage Fund, LP (the “Sellers”) entered into a Sale and Purchase Agreement (the “Agreement”) with Liang Deli, the Chief Executive Officer and Chairman of Sunway Global, Inc. (the “Company”) and Zhao Qichao (together with Mr. Liang, the “Buyers”). Pursuant to the Agreement, the Sellers agreed to sell and transfer 4,896,959 shares of common stock of the Company and 160,494 shares of Series B Preferred Shares of the Company (the “Shares”) to the Buyers for an aggregate purchase price of $5,000,000.This transaction is not yet completed.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
13.
SERIES B CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS
(Continued)
Effective January 1, 2009, the Company adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, the outstanding warrants of the Company previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.
As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in June 2007. On January 1, 2009 the Company recorded as a cumulative effect adjustment by decreasing additional paid-in capital amounting to $3,990,942 and decreasing beginning retained earnings by the amount of $65,910,931 and recording $69,901,873 as a warrant liability to recognize the fair value of such warrants on January 1, 2009. The fair value of the warrants was nil and $1,165,692 on December 31,2012 and December 31, 2011 respectively. The Company recognized $1,165,692 and $16,353,823 as income from the change in fair value of warrants for the years ended December 31,2012 and 2011 respectively.
As of March 31, 2011, the Company adopts lattice model with Monte Carlo Simulations to measure the various outcome so as to calculate the most likely expected future value of the convertible shares at a define time period. The Company believes that the lattice model can improve the valuation of the existing warrants with consideration of early exercise rights and down ratchet exercise price reset provision. The change is accounted for as change in accounting estimates. As opposed to closed form model like Black Scholes which assumes warrants be exercised on expiry date, the lattice model assumes a low probability of early exercise due to declining stock prices and sample different price paths using Monte Carlo simulation.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
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 federal income tax until the operating profits was rebounded back to Untied States. The subsidiaries are SWT, Sunway, Beijing Sunway, 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 years ended December 31,2012 and 2011.
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 is physically 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 temporary differences on deferred tax asset $1,345,913 on net operating loss as of December 31,2012 and 600,835 as of December 31, 2011.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
14.
INCOME TAXES (Continued)
A reconciliation between the income tax computed at the U.S. statutory rate and the Group’s provision for income tax is as follows:
The provision for income taxes consists of the following:
Reconciliation of these items is as follows:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Stated in US Dollars) (Unaudited)
15.
EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the common stock holders is based on the following data:
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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 months ended December 31, 2012 and 2011 amounted to $31,487 and $59,861 respectively.
As at December 31, 2012, the Group’s commitments for minimum lease payments under these leases for the next one year are as follows:
The Group currently is engaged in the manufacturing and selling of logistic transport systems and categorized 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 other. Workstation types A, B and C are of the same function but with different product design.
Net revenues and cost of revenues by product:
The Group’s operations are located in the PRC. All revenues are derived from customers in the PRC and Europe. 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.
SUNWAY GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(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: As of December 31, 2012, the Company adopted the lattice valuation method to improve the valuation of the existing warrants with early exercise rights and down ratchet exercise price reset provision. The change is accounted for as change in accounting estimates. As opposed to closed
19.
SUBSEQUENT EVENTS
The Company has evaluated all other subsequent events through April 14, 2013, the date these consolidated financial statements were issued, and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements except the following:
Sales and Purchase Agrement
On October 15, 2012, Vision Opportunity Master Fund Ltd and Vision Capital Advantage Fund, LP entered into a Sale and Purchase Agreement with Liang Deli, the Chief Executive Officer and Chairman of Sunway Global, Inc. and Zhao Qichao. This transaction is not yet completed.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A.
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, following misstatement and control weakness are noted for the fiscal year ended December 31, 2012 that required correction:
No independent director exists in the Board of Directors, and the directors have a little understanding about U.S. GAAP and Sarbanes-Oxley Act 404. The Company’s staff obtained knowledge on US GAAP disclosure control and reporting requirements from PwC’s training as part of their Internal Control Advisory Engagement in 2009.The set-up of Audit Committee was failed in 2010. The Company has no financial resource to make it corrected within 2013.
Based upon their evaluation as of the end of the period covered by this annual report, the Company's chief executive officer and chief financial officer concluded that, with the significant deficiencies in internal control over financial reporting described below, the Company's disclosure controls and procedures are not effective as of December 31, 2012.
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.
During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2012, 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:
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 not effective as of December 31, 2012.
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 December 31, 2012. 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.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
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. After hiring PwC to enhance the internal control system, the internal control system over financial reporting is also included in this process. No final report has been received yet. Should PwC make anyone proposals to enhance the Company’s internal control over financial reporting such proposals will carefully be considered by the Company, and we will disclose the changes that we may execute to improve our internal control system.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Set forth below is certain information regarding our directors and executive officers. Our Board of Directors is comprised of two directors.
The following table sets forth certain information with respect to our directors and executive officers.
There are no family relationships between any of our directors or executive officers.
Each of our directors is elected to serve until the next annual meeting of our shareholders and until his successor is elected and qualified or until such director’s earlier death, removal or termination.
Set forth below is biographical information about our current directors and executive officers:
Liang Deli, our President and Chief Executive Officer and a director, has been Chairman of the Board, CEO since September 2011, and became a director upon the resignation of Richard Astrom in June 2007. He has been Vice President of Sunway since August 1997, and is under contract to serve in that position until 2017. Mr. Liang’s area of focus is Sunway’s technology and market operations. Mr. Liang received a Bachelor degree in the field of Automatic Systems Design and Control from Shenyang Industry University in Liaoning Province, China in 1983.
Samuel Sheng has been Chief Financial Officer since November 2007. Mr. Sheng has held numerous management positions requiring expertise in financial and accounting matters. From 2004 until his appointment with the Company, he served as the Chief Financial Officer of American Lorain Corp, and from 2002 through 2004 he served as President and Chief Financial Officer of LinyiJiangxing Steel Ltd.
Sun Weishan has been Secretary and Chief Operating Officer since December 2007. Prior to joining the Company, from April 2001 to December 2006 Mr. Sun served as Executive Director, Vice President, Assistant General Manager, and Secretary of the Board of Directors for Daqing Sunway. Mr. Sun graduated from Yenshan University and Daqing Petroleum Institute with degrees in mechanical engineering and chemical engineering, respectively.
To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:

Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.

Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

Been found by a court of competent jurisdiction (in a civil action), the SEC, the Commodities Futures Trading Commission, or any self-regulatory organization or equivalent exchange, association, entity or organization that has disciplinary authority over the Company or the executive officer/director to have violated a federal or state securities or commodities law, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, and the judgment or administrative order has not been reversed, suspended or vacated.
Board of Directors
Our Directors are elected by the vote of a plurality in interest of the holders of our voting stock and hold office for a term of one year and until a successor has been elected and qualified.
A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action.
The board held four meetings during the fiscal year of 2012. These meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.
Each director attended at least 100% of the total number of meetings of the board during the year. Our non-management directors did not meet in executive session during 2012.
Director Experience
The Board believes that each of the Company’s directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’s shareholders. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, and leadership skills. The Board has also considered the fact that all of our directors have worked for, or served on the boards of directors of, a variety of companies in a range of industries. The Board believes that through their varying backgrounds, the Company’s directors bring a wealth of experiences, new ideas and solutions to the Board. Specifically, the Board has noted that our directors have the following skills and qualifications that, among others, have made them particularly suited to serve as a director of Sunway Global:
Mr. Liang Deli is 50 years old, holds a bachelor’s degree, and is a senior engineer. He joined Sunway in 1997 and led the R&D team to National New Product Award. Mr. Liang received an MBA from Tsinghua University and spent two years training in Japan and Singapore.
Audit Committee
We have not yet appointed an audit committee, and our board of directors currently acts as our audit committee. At the present time, we believe that the Board is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.
Audit Committee Financial Expert
We do not currently have a member who qualifies as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K. Our board of directors is in the process of searching for a suitable candidate for this position.
Code of Ethics
We have not adopted a code of ethics to apply to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions because, until recently, we have not been an operating company. We expect to adopt a Code of Ethics in the near future.
Board Leadership and Risk Oversight
Our Chief Executive Officer also serves as Chairman of the Board. The Board believes that the Company’s Chief Executive Officer is best situated to serve as Chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having one person serve as both Chairman and Chief Executive Officer eliminates potential for confusion and provides clear leadership for the Company, with a single person setting the tone and managing our operations. The Board oversees specific risks, including, but not limited to:
•
appointing, retaining and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting;
•
approving all auditing and non-auditing services permitted to be performed by the independent auditors;
•
reviewing annually the independence and quality control procedures of the independent auditors;
•
reviewing, approving, and overseeing risks arising from proposed related party transactions;
•
discussing the annual audited financial statements with the management;
•
meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter and other material written communications between the independent auditors and the management; and
•
monitoring the risks associated with management resources, structure, succession planning, development and selection processes, including evaluating the effect the compensation structure may have on risk decisions.
Nominating Procedures
During 2012, there were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION.
Summary Compensation Table
The following is a summary of the compensation paid by us to the individuals who have served as our CEO and any executive officers who have received compensation in excess of $10,000 for the two years ended December 31, 2012 and 2011.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2012 and 2011, we did not have any stock option plan or stock incentive plan and there were no outstanding equity awards as of December 31, 2012 and 2011. No equity awards were granted during the year ended December 31, 2012.
Director Compensation
Other than as disclosed in the Summary Compensation Table above, Liang Deli received $0 for his services as a member of the Board of Directors for an initial term expiring on June 30, 2013. Our directors are also reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of the board and its committees, if any.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS.
The following table lists stock ownership of our common stock as of April 10, 2013. The information includes beneficial ownership by (i) holders of more than 5% of our common stock, (ii) each of our current directors and executive officers and (iii) all of our directors and executive officers as a group.
The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by the persons listed or contained in filings made by them with the Commission. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our common stock been beneficially owned by them.
Amount and Nature of Beneficial Ownership
(1) Applicable percentage ownership is based on 18,499,736 shares of common stock outstanding as of April 10, 2013, together with securities exercisable or convertible into shares of common stock within 60 days of April 10, 2013 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of April 10, 2013 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(2) Mr. Liang, the majority shareholder and sole officer and director of Rise Elite, has voting and dispositive control over the shares of common stock held by Rise Elite.
(3) Vision Capital Advisors, LLC (“Vision Capital Advisors”) serves as investment manager to Vision Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund. L.P. (collectively, the “Funds”). Adam Benowitz, Managing Member of Vision Capital Advisors and Director of each of the Funds, holds the power to vote and dispose of the subject shares.
Based upon the Form 4 filed by Vision Capital Advantage Fund, L.P. on April 24, 2009, it holds 596,808 shares of Common Stock of the Company.
In addition to those holdings disclosed in the table above, Vision Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, L.P. (collectively, “Vision”) holds warrants A, B, C and D to purchase up to 13,765,846 shares of common stock and 160,494 shares of Series B Convertible Preferred Stock, each share of which is convertible into 30 shares of common stock. However, Vision is contractually prohibited from exercising these warrants and converting the Series B Convertible Preferred Stock if the number of shares of our common stock to be issued pursuant to such exercise would cause Vision to hold in excess of 9.9% of our then issued and outstanding shares of common stock. Vision is permitted to waive such restrictions on exercise and conversion upon providing us sixty-one (61) days’ notice.
(4) Liang Deli is shareholder of Rise Elite holding40.93% ownership interest in Rise Elite, has voting and dispositive control over the shares of common stock held by Rise Elite.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE.
The following table provides the details of amounts due from related companies:
Amount due from Rise Elite International Ltd. was $830, a related company where Mr. Liang Deli is a shareholder. The amount is held by Rise Elite for the initial setup expenses. The amount was unsecured, interest free and repayable on demand.
Amount due from Daqing Sunway Software Tech Co., Ltd. was $126,962, a related company where Mr. Zhao Qichao is a shareholder. The amount was unsecured, interest free and repayable on demand.
Director Independence
The Company currently has one director, Liang Deli. Mr. Liang does not qualify as an “independent” director as that term is defined under the federal securities laws and the rules of The NASDAQ Stock Market. Our company, however, recognizes the importance of good corporate governance and intends to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, during our 2013 fiscal year.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees incurred by the Company’s independent registered public accounting firms, for professional services rendered for the audit of our annual financial statements for the years ended December 31, 2012 and December 31, 2011, and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q and other SEC filings during those fiscal years were approximately $96,000 and $96,000, respectively.
Audit-Related Fees
The aggregate fees incurred by the Company’s independent registered public accounting firms were approximately $7,827 and $9,290, respectively, for audit-related services during the years ended December 31, 2012 and December 31, 2011.
Tax Fees
The aggregate fees incurred by the Company’s independent registered public accounting firms were approximately $5,000 and $5,000, respectively, during the years ended December 31, 2012 and December 31, 2011.
All Other Fees
The Company did not incur any other fees from its independent registered public accounting firms for services rendered to the Company, other than the services covered in "Audit Fees" for the fiscal years ended December 31, 2012 and December 31, 2011.
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits:
(1) Incorporated by reference to the exhibit of the same number to our report on form 8-K filed with the SEC on June 12, 2007.
(2) Incorporated by reference to the exhibit of the same number to our report on form 8-K/A filed with the SEC on June 20, 2007.
(3) Incorporated by reference to the exhibit of the same number to our report on form 8-K/A filed with the SEC on June 27, 2007.
(4)Incorporated by reference to the exhibit of the same number to our registration statement on form S-1 filed with the SEC on September 23, 2008.
(5) Incorporated by reference to the exhibit to our quarterly report for the period ended March 31, 2008 on Form 10-Q/A filed with the SEC on March 6, 2009.
(6)Incorporated by reference to the exhibit to our annual report for the period ended December 31, 2008 on Form 10-K filed with the SEC on March 30, 2009.
* Filed Herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNWAY GLOBAL INC.
April 15, 2013
By:
/s/ Liang Deli
Liang Deli
Chief Executive Officer and Chairman
(principal executive officer)
/s/ Samuel Sheng
Samuel Sheng
Chief Financial Officer (Principal Financial and Accounting officer)
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
Chief Executive Officer and
April 15, 2013
/s/ Liang Deli
Chairman of the Board of Directors
Liang Deli
Chief Financial Officer
April 15, 2013
/s/ Samuel Sheng
Samuel Sheng