UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

For the quarterly period ended September 30, 2014

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the transition period from _______ to ________.

Commission File Number: 000-27159

SUNWAY GLOBAL INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

(Address of principal executive offices) (Zip Code)

Issuer's telephone Number: 86-10-61779332

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

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

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company x

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

As of November 13, 2014, there were 18,499,736 outstanding shares of the Registrant's Common Stock, $0.0000001 par value.

Table of Contents

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statement s	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4.	Controls and Procedures	8
	PART II
Item 1.	Legal Proceedings	9
Item 1A	Risk Factors	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3.	Defaults Upon Senior Securities	9
Item 4.	Mine Safety Disclosures	9
Item 5.	Other Information	9
Item 6.	Exhibit s	9
SIGNATURES		10

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONTENTS	PAGES

CONSOLIDATED BALANCE SHEETS		F-2

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME		F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		F-6

C ONSOLIDATED STATEMENTS OF CASH FLOWS		F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-9

F-1

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SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS

AS AT September 30, 2014 AND DECEMBER 31, 2013

(Stated in US Dollars)

ASSETS	Notes			September 30, 2014		December 31, 2013
Current assets				(Unaudited)		(Audited)

Cash and cash equivalents	2	(k)	$	112,132	$	442,006
Trade receivables, net	5			6,333,416		7,490,619
Inventories	8			4,470,431		3,457,459
Advances to suppliers				806,727		992,508
Prepayments				793,276		593,022
Tender deposits				467,548		425,944
Travel advances to shareholders	6			588		594
Advances to employees	7			1,343,544		913,722


Total current assets			$	14,327,662	$	14,315,874
Restricted cash	2	(1)		1,094		1,094
Amount due from a related company	4			123,744		400,458
Property, plant and equipment, net	9			2,270,562		2,830,263
Intangibles, net	10			5,049,381		5,985,692

TOTAL ASSETS			$	21,772,443	$	23,533,381

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans	11		$	649,910	$	590,464
Accounts payable				1,503,737		1,718,125
Income tax payable				3,764		4,718
Turnover and other taxes				67,256		69,994
Expected warranty liabilities	12			19,003		19,183
Customer deposits				4,905,081		4,702,095
Accrued liabilities				2,853,499		2,464,052

Total current liabilities			$	10,002,250	$	9,568,631

TOTAL LIABILITIES			$	10,002,250	$	9,568,631

See accompanying notes to consolidated financial statements

F-2

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SUNWAY GLOBAL INC.

CONSOLIDATED BALANCE SHEETS (Continued)

AS AT SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

(Stated in US Dollars)

	Notes	September 30, 2014		December 31, 2013
		(Unaudited)		(Audited)
STOCKHOLDERS’ EQUITY

Series B Convertible Preferred Stock $0.0000001 par value; 400,000 shares authorized; 160,494 shares issued and outstanding at September 30, 2014 and December 31, 2013	13	$	1	$	1

Common stock at $0.0000001 par value; 100,000,000 shares authorized; 18,499,736 shares issued and outstanding at September 30, 2014 and December 31, 2013			2		2
Additional paid-in capital			13,833,383		13,833,383
Statutory reserves			4,279,756		4,279,756
Retained earnings			(14,809,068)		(12,238,311)
Accumulated other comprehensive income			8,466,119		8,089,919

		$	11,770,193	$	13,964,750

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	21,772,443	$	23,533,381

See accompanying notes to consolidated financial statements

F-3

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SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

	Notes	The nine months ended September 30,
			2014			2013
Net revenues	17	$	4,056,281		$	5,818,329
Cost of net revenues	17		(1,741,688	)		(2,996,642	)

Gross profit		$	2,314,593		$	2,821,687

Selling expenses			(1,806,021	)		(2,505,230	)
General and administrative expenses			(2,854,164	)		(3,887,980	)


(Loss) / Income from operations		$	(2,345,592	)	$	(3,571,523	)
Interest income			1,281			1,355
Interest expenses			(43,500	)		(41,024	)
Impairment of fixed assets			(73,613	)		(9,650	)

(Loss)/Income before tax		$	(2,461,424	)	$	(3,620,842	)

Income tax	14		(109,333	)		122,362


Net (Loss)/income		$	(2,570,757	)	$	(3,498,480	)


Net income per share:
-Basic	15	$	(0.14	)	$	(0.19	)


-Diluted	15	$	(0.11	)	$	(0.15	)


Weighted average number of common stock
-Basic	15		18,499,736			18,499,736


-Diluted	15		23,314,556			23,314,556

See accompanying notes to consolidated financial statements

F-4

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SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)


	Notes		The three months ended September 30,
			2014			2013
Net revenues	17	$	1,621,167			$2,120,548
Cost of net revenues	17		(665,097	)		(837,649)

Gross profit		$	956,070		$	1,282,899

Selling expenses			(575,606	)		(827,661)
General and administrative expenses			(1,311,904	)		(1,278,579)

(Loss)/Income from operations		$	(931,440	)	$	(823,341)
Interest income			231			312
Interest expenses			(10,126	)		(14,804)
Impairment of fixed assets			(38,586	)		(9,732)

(Loss)/Income before income tax		$	(979,921	)	$	(847,565)

Income tax expense	14		(27,214	)		124,120

Net (loss)/income		$	(1,007,135	)	$	(723,445)

Net income/(loss) per share:
-Basic	15	$	(0.05	)	$	(0.04)

-Diluted	15	$	(0.04	)	$	(0.03)

Weighted average number of common stock
-Basic	15		18,499,736			18,499,736

-Diluted	15		23,314,556			23,314,556

See accompanying notes to consolidated financial statements

F-5

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SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AS AT SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

(Stated in US Dollars)

									Additional				Retained		Accumulated
	Preferred		Preferred		No. of				paid				earnings/		other
	Series		Series		shares		Common		in		Statutory		(Accumulated		comprehensive
	A		B		outstanding		stock		capital		reserves		deficit)		income		Total
Balance, January 1, 2013	$	-	$	1		18,499,736	$	2	$	13,833,383	$	4,279,756	$	7,220,138	$	7,117,039	$	32,450,319
Net income/(loss)		-		-		-		-		-		-		-19,458,449		-		-19,458,449
Appropriations to statutory
Reserves		-		-		-		-		-		-		-		-		-
Foreign currency translation
Adjustment		-		-		-		-		-		-		-		972,880		972,880
Balance, December 31,2013	$	-		1		18,499,736	$	2	$	13,833,383	$	4,279,756	$	-12,238,311	$	8,089,919	$	13,964,750
Balance, January 1, 2014	$	-	$	1		18,499,736	$	2	$	13,833,383	$	4,279,756	$	-12,238,311	$	8,089,919	$	13,964,750
Net income/(loss)		-		-		-		-		-		-		-2,570,757		-		-2,570,757
Appropriations to statutory
Reserves		-		-		-		-		-		-		-		-		-
Foreign currency translation
Adjustment		-		-		-		-		-		-		-		376,200		376,200
Balance, September 30, 2014	$	-		1		18,499,736	$	2	$	13,833,383	$	4,279,756	$	-14,809,068	$	8,466,119	$	11,770,193

See accompanying notes to consolidated financial statements

F-6

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SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

	For the nine months ended September 30,
	2014			2013
Cash flows from operating activities
Net (loss) / income	$	(2,570,757	)	$	(3,498,480	)
Depreciation		533,704			912,633
Amortization		881,057			1,510,766
Impairment of Intangible assets		73,613			9,650

Adjustments to reconcile net (loss) / income
to net cash provided by operating activities:
Trade receivables, net		1,088,041			(740,373	)
Inventories		(505,478	)		(910,293	)
Advances to suppliers		176,653			(91,717	)
Prepayments		(206,047	)		(93,576	)
Tender deposits		(45,653	)		(16,658	)
Travel advances to shareholders		-			41,819
Advances to employees		(438,880	)		(549,824	)
Deferred tax assets		27,820			(127,135	)
Amounts due from related companies					-
Accounts payable		(198,469	)		1,057,181
Income tax payable		(910	)		(4,518	)
Turnover and other taxes		(2,083	)		(49,434	)
Customer deposits		247,414			1,331,544
Accrued liabilities		413,037			1,188,907

Net cash (used in) / provided by operating activities	$	(526,938	)	$	(29,508	)

Cash flows from investing activities

Purchase of plant and equipment	$	(16,560	)	$	(63,637	)

Net cash provided by / (used in) investing activities	$	(16,560	)	$	(63,637	)
Cash flows from financing activities
Bank borrowings/(repayments)	$	65,062		$	(96,505	)

Net cash used in financing activities	$	65,062		$	(96,505	)

See accompanying notes to consolidated financial statements

F-7

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SUNWAY GLOBAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

	For the nine months ended September 30,
	2014			2013
Net in cash and cash equivalents (used)/sourced	$	(478,436	)	$	(189,650	)
Effect of foreign currency translation on
cash and cash equivalents		148,562			25,977
Cash and cash equivalents–beginning period		442,006			352,457
Cash and cash equivalents–end period	$	112,132			188,784

	For the nine months ended September 30,
	2014		2013
Supplementary cash flow information:
Tax paid	$	82,362	$	8,596
Interest received		1,281		1,355
Interest paid		43,500		41,024

See accompanying notes to consolidated financial statements

F-8

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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 had only nominal operations and assets.

On June 6, 2007, the Company acquired World Through Limited, a British Virgin Islands corporation (“World Through (BVI)”) through a share exchange transaction with World Through (BVI) and Rise Elite International Limited (“Rise Elite (BVI)”), a company incorporated under the laws of the British Virgin Islands and the owner of 100% of the outstanding voting stock of World Through (BVI). 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 (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 agreements, etc. As a result of entering into the abovementioned agreements,WFOE deems to control Sunway as a Variable Interest Entity (“VIE”) 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 as its wholly-owned subsidiary. Qingdao Liheng Textiles Co., Ltd. was incorporated in PRC on June 6, 2003.

On January 23, 2013, Qingdao Liheng Textiles Co., Ltd. changed its name to Qingdao Sunway New-Force Mechatronics Co., Ltd.(“Qingdao Sunway”).

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.

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.

F-9

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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

Name of subsidiaries	Place of incorporation	Attributable interest

World Through Ltd	British Virgin Islands		100	%

Sunway World Through Technology (Daqing) Co., Ltd	PRC		100	%

*Daqing Sunway Technology Co., Ltd	PRC		100	%

Beijing Sunway New-Force Medical Treatment Tech Co., Ltd	PRC		100	%

*Qingdao Sunway New-Force Mechatronics Co., Ltd. (formerly Qingdao Liheng Textiles Co., Ltd.).	PRC		100	%

*Note: Deemed variable interest entity

(c)

Use of estimates

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

(d)

Economic and political risks

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

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

F-10

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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:

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

(f)

Property, plant and equipment

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

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

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

(g)

Maintenance and repairs

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

(h)

Accounting for the impairment of long-lived assets

The Group periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in FASB ASC 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is 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.

F-11

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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 nil and nil for the nine months ended September 30, 2014 and 2013, 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 nine months or less to be cash equivalents. The Company maintains bank accounts in the PRC and Hong Kong. The Company does not maintain any bank accounts in the United States of America.

	September 30, 2014		December 31, 2013
Bank of Communications, Branch of Daqing
City Economic Zone	$	5,819	$	3,970
Industrial and Commercial Bank of China, Ronghui Branch		24,912		317,826
China Construction Bank, Beijing Branch		51,309		61,016
Qingdao bank		1,465		288
Agricultural Bank of China		5,123		28,666
Bank of China, Qingdao Branch		302		406
China Construction Bank, Beijing Shengmingyuan Branch		4,598		1,253
HSBC		96		98
Cash on hand		18,508		28,483
		112,132	$	442,006

(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.

F-12

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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 $43,234 and $86,782 for the nine months ended September 30, 2014 and 2013, respectively.

(q)

Advertising

The Group expensed all advertising costs as incurred. Advertising expenses included in selling expenses were $15,005 and $33,085 for the nine months ended September 30, 2014 and 2013, 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 $41,708 and $79,336 for the nine months ended September 30, 2014 and 2013, 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 $134,113 and $134,945 for the nine months ended September 30, 2014 and 2013, respectively.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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 $128,743 and $200,597 for the nine months ended September 30, 2014 and 2013, 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 Qingdao Sunway 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:

Twelve months ended	September 30, 2014	December 31, 2013	September 30, 2013
RMB : USD exchange rate	-	6.0969	-
Nine months ended	6.1547
RMB : USD exchange rate	-	-	6.1654
Average nine months ended	6.1480
RMB : USD exchange rate	-	-	6.2173
Average three months ended	6.1600
RMB : USD exchange rate	-	-	6.1439

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.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

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 Qingdao Sunway’s Articles of Association, SWT, Sunway, Beijing Sunway and Qingdao Sunway’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.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

In January 2013, FASB has issued Accounting Standards Update (ASU) No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies that ordinary trade receivables and receivables are not in the scope of ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, ASU 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the FASB Accounting Standards Codification™ (Codification) or subject to a master netting arrangement or similar agreement. The FASB undertook this clarification project in response to concerns expressed by U.S. stakeholders about the standard’s broad definition of financial instruments. An entity is required to apply the amendments in ASU 2013-01 for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of ASU 2011-11.

In February 2013, FASB has issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU improves the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP.

The new amendments will require an organization to:

	Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.

	Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). A private company is required to meet the reporting requirements of the amended paragraphs about the roll forward of accumulated other comprehensive income for both interim and annual reporting periods. However, private companies are only required to provide the information about the effect of reclassifications on line items of net income for annual reporting periods, not for interim reporting periods. The amendments are effective for reporting periods beginning after December 15, 2012, for public companies and are effective for reporting periods beginning after December 15, 2013, for private companies. Early adoption is permitted.

In February 2013, FASB issued Accounting Standards Update (ASU) No. 2013-03, Financial Instruments (Topic 825). This ASU clarifies the scope and applicability of a disclosure exemption that resulted from the issuance of Accounting Standards Update No. 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendment clarifies that the requirement to disclose “the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)" does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position, but for which fair value is disclosed. This ASU is the final version of Proposed Accounting Standards Update 2013-200—Financial Instruments (Topic 825) which has been deleted. The amendments are effective upon issuance.

F-16

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

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.

In March 2013, FASB has issued Accounting Standards Update (ASU) No. 2013-05, Foreign Currency Matters (Topic 830). This ASU resolve the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, Foreign Currency Matters—Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights)within a foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. This ASU is the final version of Proposed Accounting Standards Update EITF11Ar—Foreign Currency Matters (Topic 830), which has been deleted. The amendments in this Update are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. For nonpublic entities the amendments in this Update are effective prospectively for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. The guidance addresses the consolidation of lessors in certain common control leasing arrangements and is based on a consensus reached by the Private Company Council (PCC). Under current U.S. GAAP, a company is required to consolidate an entity in which it has a controlling financial interest. The assessment of controlling financial interest is performed under either: (a) a voting interest model; or (b) a variable interest entity model. In a variable interest entity model, the company has a controlling financial interest when it has: (a) the power to direct the activities that most significantly affect the economic performance of the entity; and (b) the obligation to absorb losses or the right to receive benefits of the entity that could be potentially significant to the entity. To determine which model applies, a company preparing financial statements must first determine whether it has a variable interest in the entity being evaluated for consolidation and whether that entity is a variable interest entity. The new guidance allows a private company to elect (when certain conditions exist) not to apply the variable interest entity guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement.

Under the amendments in this ASU, a private company lessee could elect an alternative not to apply variable interest entity guidance to a lessor when:-The private company lessee and the lessor are under common control;-The private company lessee has a leasing arrangement with the lessor;-Substantially all of the activity between the private company lessee and the lessor is related to the leasing activities (including supporting leasing activities) between those two companies, and-If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor. If elected, the accounting alternative should be applied to all leasing arrangements meeting the above conditions. The alternative should be applied retrospectively to all periods presented, and is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted for all financial statements that have not yet been made available for issuance.

The FASB has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The Company does not expect the adoption of 2014-08 to have a material effect on its operating results or financial position.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

The FASB has issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the IASB has issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS.

F-18

Table of Contents

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

-Step 1: Identify the contract(s) with a customer.
-Step 2: Identify the performance obligations in the contract.
-Step 3: Determine the transaction price.
-Step 4: Allocate the transaction price to the performance obligations in the contract.
-Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.

For all other entities (nonpublic entities), the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply this guidance earlier, however, only as of the following:

-An annual reporting period beginning after December 15, 2016, including interim periods within that reporting period (public entity effective date);
-An annual reporting period beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017; or
-An annual reporting period beginning after December 15, 2017, including interim periods within that reporting period.

An entity should apply the amendments in this ASU using one of the following two methods:

1. Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients:

-For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period.
-For completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.
-For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue.

2. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of:

-The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared to the guidance that was in effect before the change.
-An explanation of the reasons for significant changes.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions.

According to the FASB, the new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. ASU 2014-11 also brings U.S. GAAP into greater alignment with IFRS for repurchase-to-maturity transactions.

The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.

The amendments in this ASU are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. For all other entities, all changes are effective for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. Earlier application for a public company is prohibited, but all other companies and organizations may elect to apply the requirements for interim periods beginning after December 15, 2014.

The FASB has issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The issue is the result of a consensus of the FASB Emerging Issues Task Force.

The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.

The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.

Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.

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Table of Contents

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z)

Recent accounting pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The amendments in this ASU will apply to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other Codification Topics; and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the amendments are effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an annual period.

The fair value of the financial assets of a collateralized financing entity, as determined under GAAP, may differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets. Before this ASU, there was no specific guidance in GAAP on how a reporting entity should account for that difference.

The amendments in this ASU provide an alternative to Topic 820 Fair Value Measurement for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity to eliminate that difference. When the measurement alternative is not elected for a consolidated collateralized financing entity within the scope of this ASU, the amendments clarify that: (1) the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820; and (2) any differences in the fair value of the financial assets and the fair value of the financial liabilities of that consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income (loss).

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.

This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.

The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.

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Table of Contents

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially expose the Group to concentrations of credit risk, consists of cash and trade receivables as of September 30, 2014 and December 31, 2013. The group performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

As of September 30,2014 and December 31, 2013, the Group’s bank deposits were all placed with banks in the PRC and Hong Kong where there is currently no rule or regulation in place for obligatory insurance of bank accounts.

For the nine months ended September 30, 2014, the Group’s sales were generated from the PRC and Western Europe. Trade receivables as of September 30, 2014 and December 31, 2013 arose in the PRC and overseas.

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

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

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

	For the nine months ended September 30,
	2014		2013
Customer A	$	420,494	$	-

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

	September 30, 2014		December 31, 2013
Customer A	$	392,190	$	395,908
Customer B		214,008		289,038
Customer C		137,288		138,590
Customer E		376,890		380,463
Customer G		886,580		894,985

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Table of Contents

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

AMOUNT DUE FROM A RELATED COMPANY

The following table provides the details of amounts due from related companies:

	September 30, 2014		December 31, 2013
Rise Elite (BVI)	$	830	$	830
Daqing Sunway Software Tech Co., Ltd.		122,914		399,628
	$	123,744	$	400,458

Amount due from Rise Elite (BVI) was $830, a related company where Mr. Liang Deli, officer and director of the Group, is a shareholder. The amount is held by Rise Elite (BVI) 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 $122,914, 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.

TRADE RECEIVABLES, NET

Trade receivables comprise the following:

	September 30, 2014		December 31, 2013

Trade receivables, gross	$	9,149,353	$	10,299,611
Provision for doubtful debts		(2,815,937)		(2,808,992)

Trade receivables, net	$	6,333,416	$	7,490,619

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

An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013 is as follows:

	September 30, 2014		December 31, 2013

Balance at beginning of period	$	2,808,992	$	338,670
Addition of the provision		-		2,458,779
Foreign exchange adjustment		6,945		11,343

Balance at end of period	$	2,815,937	$	2,808,992

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.

F-23

Table of Contents

SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

TRAVEL ADVANCES TO SHAREHOLDERS

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

	September 30, 2014		December 31, 2013
Deli Liang		588		594
	$	588	$	594

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

	September 30, 2014			December 31, 2013
Beginning balance	$	594		$	41,837
Add: Advanced during the period/year		-			-
Less: Transferred to income statement		(6	)		(41,243	)
Repayment by directors		-			-
Ending balance	$	588		$	594

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:

	September 30, 2014			December 31, 2013
Beginning balance	$	913,772		$	500,387
Add: Advanced during the period/year		934,231			778,428
Less: Transferred to income statement		(83,367	)		(224,749	)
Recollected from employees		(421,092	)		(140,344	)
Ending balance	$	1,343,544		$	913,772

INVENTORIES

Inventories comprise the followings:

	September 30, 2014		December 31, 2013
Finished goods	$	414,274	$	888,861
Work in process		3,623,202		2,042,258
Raw materials		432,955		526,340
	$	4,470,431	$	3,457,459

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net comprise the followings:

	September 30, 2014			December 31, 2013
At cost
Buildings	$	2,312,823		$	2,334,746
Machinery and equipment		1,075,736			1,085,935
Moldings		9,966,661			10,055,314
Computer software		2,368,218			2,390,670
Office equipment and motor vehicles		829,053			836,913

	$	16,552,491		$	16,703,578
Less: accumulated depreciation		(12,179,161	)		(11,756,445	)
Less: accumulated impairment		(2,102,768	)		(2,116,870	)

	$	2,270,562		$	2,830,263
Construction in progress					-
	$	2,270,562		$	2,830,263

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 $590,579. The circumstances leading to the impairment are attributed to the forecasted results of two products – Sunway Automatic Medicament Emitting (“SAME”) and Sunway Automatic Dispensing and Packing (“SADP”). 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.

In 2013, the Company recorded an impairment loss of moldings in the amount of $1,501,552. The circumstances leading to the impairment are attributed to the forecasted results of two products –SAME and SADP. 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:

	September 30, 2014		September 30, 2013
Cost of net revenues	$	472,996	$	821,555
General and administrative expenses		48,505		27,732
Selling expenses		12,203		63,346
Total depreciation expenses	$	533,704	$	912,633

F-25

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

10.

INTANGIBLES, NET

Details of intangibles are as follows:

	September 30, 2014			December 31, 2013
Land use rights, at cost	$	1,386,388		$	1,399,530
Technology-based design, at cost		21,808,130			22,014,877

	$	23,194,518		$	23,414,407
Less: accumulated amortization		(11,022,944	)		(10,239,002	)
Less: accumulated impairment		(7,122,193	)		(7,189,713	)
Total intangibles, net	$	5,049,381		$	5,985,692

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 the rights to use another 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 Qingdao Sunway’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 expenses included in the general and administrative expenses were $328,203 and $1,944,298 for the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013, 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.

In 2013, the Company recorded an impairment loss of technology-based design in the amount of $5,294,115. The circumstances leading to the impairment are attributed to defect in design results of two products- SAME and SADP. 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.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

11.

SHORT-TERM BANK LOANS

Short-term bank loans for the nine months ended September 30, 2014 and the fiscal years ended December 31, 2013 are as follows:

	September 30, 2014		December 31, 2013
Loans	$	590,464	$	719,680
Add: Bank borrowings		59,446		-
Less: Repayment during the period		-		(129,216	)
	$	649,910	$	590,464

12.

EXPECTED WARRANTY LIABILITIES

An analysis of the expected warranty liabilities for the nine months ended September 30, 2014 and the fiscal year ended December 31, 2013 are as follows:

	September 30, 2014			December 31, 2013
Beginning balance	$	19,183		$	21,720
Warranty expense for the year		-			-
Foreign currency difference		(180	)		(2,537	)
Ending balance	$	19,003		$	19,183

F-27

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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 Convertible Preferred Stock (“Series B Preferred Stock”) and various stock purchase warrants to purchase up to 18,686,054 shares of the Company’s common stock (the “Transaction”). The exercise price and expiration date of the warrants and the number of shares of common stock eligible to be purchased under the warrants are set forth in the following table:

Investment

Amount

Series B Preferred

Stock

Series A

Warrant

Series B

Warrant

Series J

Warrant

Series C

Warrant

Series D

Warrant

Vision Opportunity Master Fund, Ltd.

6,500,000

160,494

4,814,815

2,407,407

4,362,416

2,181,208

Columbia China Capital Group, Inc.

200,000

4,938

148,148

74,074

134,228

67,114

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

On June 6, 2007, we issued to Kuhns Brothers, Inc. and its designees an aggregate of 17,646 shares of Series A Preferred Stock 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, subject to adjustments from time to time pursuant to the conversion rate.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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 stock 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 Series B Preferred Stock was determined by reference to the market price of the common stock 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 Stock since the Series B Preferred Stock was convertible at the issuance date.

The purchase 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 the NYSE MKT LLC (formerly 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, Series J Warrant expired on June 5, 2008. On that day, Vision Opportunity Master Fund Ltd. converted all the Series JWarrant into an aggregate of 4,362,416 shares of common stock.

On February 7, 2008, 12 shareholders of Series A Preferred Stock converted 228,530 shares of Series A Preferred Stock into 13,711,831 shares of common stock, in which Rise Elite (BVI), Vision Opportunity Master Fund, Ltd and Kuhns Brothers, Inc. converted 210,886, 7,990 and 2,647 shares of Series A Preferred Stock 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 Series B Preferred Stock into 148,140 shares of common stock.

On November 10, 2008, Columbia China Capital Group, Inc. convertedits Series J Warrant into an aggregate of 53,691 shares of common stock.

On June 5, 2012, all of the Series A, Series B, Series C, and Series D Warrants expired.

On August 24, 2013, 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 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 Stock of the Company (the “Shares”) to the Buyers for an aggregate purchase price of $1,250,000.This transaction was completed on December 2, 2013.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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 and VIE incorporated in PRC, is not subject to federal income tax until the operating profits was rebounded back to Untied States. The subsidiaries and VIE are SWT, Sunway, Beijing Sunway, Qingdao Sunway (see note 1).

SWT, Sunway, Beijing Sunway and Qingdao Sunway, 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 nine months ended September 30, 2014 and 2013.

However, Sunway is a high technology company, and in accordance with the relevant regulations regarding the favorable 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. The deferred tax assets were fully written-off as the possibility of temporary difference derived from accumulated loss was highly unlikely to be realized in the coming years owing to continuous operation loss.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014AND 2013

(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:

	September 30, 2014			December 31, 2013
U.S. statutory rate		34	%		34	%
Foreign income not recognized in the U.S.		(34	)%		(34	)%
PRC CIT		25	%		25	%
Tax holiday		(10	)%		(10	)%
Provision for income taxes		15	%		15	%

The provision for income taxes consists of the following:

	September 30, 2014			December 31, 2013
Current tax- PRC CIT	$	(109,333	)	$	10,071
Deferred tax provision		-			(1,348,302	)
Income tax	$	(109,333	)	$	(1,338,231	)

Reconciliation of these items is as follows:

	September 30, 2014			December 31, 2013
(Loss) before tax	$	(2,461,424	)	$	(18,100,076	)
Add: Impairment of fixed assets and intangible assets		73,613			10,112,946
Other non-tax deductible items		3,116,698			9,741
Change in fair value of warrants		-			8,017,673
Taxable income (adjusted)	$	728,887		$	40,284

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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:

	September 30, 2014			December 31, 2013
Income:
Income/(loss) for the purpose of basic earnings per share	$	(2,570,757	)	$	(19,458,449	)
Effect of dilutive potential common stock
Income for the purpose of dilutive earnings per share	$	(2,570,757	)	$	(19,458,449	)
Number of shares:
Weighted average number of common stock for the purpose of basic earnings per share		18,499,736			18,499,736
Effect of dilutive potential common stock
-conversion of Series A
convertible preferred stock		-			-
-conversion of Series B
convertible preferred stock		4,814,820			4,814,820
-conversion of Warrant Series A		-			-
-conversion of Warrant Series B		-			-
-conversion of Warrant Series J		-			-
-conversion of Warrant Series C		-			-
-conversion of Warrant Series D		-			-
Weighted average number of common stock for the purpose of dilutive earnings per share		23,314,556			23,314,556

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(Stated in US Dollars) (Unaudited)

16.

COMMITMENTS AND CONTINGENCIES

As at September 30, 2014, the Group’s commitments for minimum lease payments under these leases for the next one year are as follows:

September 30,
2015	$	52,715
September 30, 2015 and thereafter		-
	$	52,715

17.

SEGMENT INFORMATION

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:

	Workstation		Workstation		*Workstation*
Nine months ended September 30, 2014	Type A		Type B		Type C			SADP			Other			Consolidated
Net revenues	$	-	$	-	$	3,086,613		$	357,609		$	612,059		$	4,056,281
Cost of net Revenues		-		-		(1,296,374	)		(203,111	)		(242,203	)		(1,741,688	)
Gross profit	$	-	$	-	$	1,790,239		$	154,498		$	369,856		$	2,314,593

	Workstation		Workstation		*Workstation*
Nine ended September 30, 2013	Type A		Type B		Type C			SADP			Other			Consolidated
Net revenues	$	-	$	-	$	4,232,901		$	1,115,760			469,668			5,818,329
Cost of net Revenues		-		-		(1,959,206	)		(704,172	)		(333,264	)		(2,996,642	)
Gross profit	$	-	$	-	$	2,273,695		$	411,588			136,404			2,821,687

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.

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SUNWAY GLOBAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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 measurement). The three levels of the fair value hierarchy under FASB Statement No. 157 are described as follows:

1 Level

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

2 Level

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.

3 Level

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.

The Company adopted the lattice valuation method to calculate the valuation of the warrants during the fiscal year of 2012 with early exercise rights and down ratchet exercise price reset provision. There was no outstanding warrant liability during the nine months ended September 30, 2014.

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

Forward-Looking Statements

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

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

Overview

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 the Company, 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.

The Company primarily functions as a holding company for entities that control the business of Qingdao Sunway and Beijing Sunway, or through contractual relationships, Daqing Sunway, which companies are organized under the laws of the PRC that design, and manufacture and sell 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 results of operations in the nine months ended September 30, 2014 and 2013.

Three-month period ended September 30, 2014 and 2013

Results of Operations

In the three months ended September 30, 2014, the Company’s net revenue and operating income had a sharp decline as compared with the same period of 2013. These decreases were primarily attributable to a result of product design flaw on SADP.

The following table summarizes the results of our operations during the three months ended September 30, 2014 and 2013, respectively, and provides information regarding the dollar and percentage increase (or decrease) from the three months ended September 30, 2014 and 2013.

	Three months ended September 30,
	2014			2013			Change			Change rate
Net Revenues	$	1,621,167		$	2,120,548			(499,381	)		(23.55	)%
Cost of net revenues	$	665,097		$	837,649			(172,552	)		(20.60	)%
Gross Profit	$	956,070		$	1,282,899			(326,829	)		(25.48	)%
Gross Margin		58.97	%		60.50	%		-			(1.53	)%
Operating Income/(loss)	$	(931,440	)	$	(823,341	)		(108,099	)		13.13	%
Net (Loss)/Income	$	(1,007,135	)	$	(723,445	)		(283,690	)		39.21	%
Net profit margin		(62.12	)%		(34.12	)%		-			(28.00	)%

Net Revenues

Net revenues for the three months ended September 30, 2014, was $1,621,167, a decrease of 23.55% as compared with net revenues of $2,120,548 for the three months ended September 30, 2013. In the three months ended September 30, 2014, we sold 179 workstations, a decrease of 34.43% as compared with 273 workstations in the three months ended September 30, 2013. The decrease in workstation sales was primarily due to decline in order volume. During the three months ended September 30, 2014, we did not sell the SADP, compared with 6 units in the three months ended September 30, 2013. The decrease in the SADP was due primarily to a defect in design for our second-generation product compared with our competitors.

Table of Contents

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

	Three Months Ended September 30,
	2014					2013
	sales		% of total sales			sales		% of total sales
PTS	$	1,505,703		92.88	%	$	1,765,379		83.25	%
SADP	$	28,068		1.73	%	$	255,627		12.05	%
Other	$	87,396		5.39	%		99,542		4.70	%
Total net revenue	$	1,621,167		100.00	%	$	2,120,548		100.00	%

Gross Profit

Gross profit decreased 25.48% to $665,097 in the three months ended September 30, 2014, as compared to $837,649 for the three months ended September 30, 2013. Our gross profit margin down 1.53% to 58.97% for the three months ended September 30, 2014 from 60.50% for the same period of 2013, mainly due to a decrease in manufacturing salaries.

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

	Three Months Ended September 30,
	2014				2013
		US$	Gross profit margin		US$	Gross profit margin
Gross Profit	$	956,070	58.97	%	$1,282,899	60.50	%

Income from Operations

Operating loss was $931,440 in the three months ended September 30, 2014, as compared with operating loss of $823,341 for the three months ended September 30, 2013. The decrease in loss was primarily due to a decrease in sales.

Cost of Net Revenue

Cost of net revenue decreased to $665,097 for the three months ended September 30, 2014, representing a 20.60% decrease as compared with $837,649 for the same period of 2013. The decrease was primarily due to decrease in sale.

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

	Three Months Ended September 30,
	2014		2013		Change
Cost of net revenue	$	665,097	$	837,649		20.60	%

Operating Expenses

Operating expenses was $1,889,524 in the three months ended September 30, 2014, a decrease as compared with $2,106,240 in the same period of 2013. The decreased was primarily due to two factors: (i) selling expenses decrease 30.45% to $575,606 in The three months ended September 30, 2014 from $827,661 for the same period of 2013; and (ii) general and administration expenses increase 2.61% to $1,311,904 for the three months ended September 30, 2014 from $1,278,579 for the same period of 2013. The operating expenses decreased because of cutting expenses on the operation budget.

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

	Three Months Ended September 30,
	2014		2013		Change
Selling expenses	$	575,606	$	827,661		(30.45	)%
General & Administrative expenses	$	1,311,904	$	1,278,579		2.61	%
Total operating expenses	$	1,889,524	$	2,106,240		(10.29	)%

Table of Contents

Net Income

Net loss was $1,007,135 for the three months ended September 30, 2014, a increase of 39.21% as compared with $723,445 of net loss for the same period of 2013. In the three months ended September 30, 2014, the loss mainly reason is our products upgrade slowly compare with our competitor, led to our revenues decrease.

Earnings per Share

Basic and diluted loss per share for the three months ended September 30, 2014 were $0.05 and $0.04 compared with loss per share $0.04 and $0.03 for the same period of 2013. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended September 30, 2014 and 2013, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the three months ended September 30, 2014 and 2013.

Nine months period ended September 30, 2014 and 2013

Results of Operations

In the nine months ended September 30, 2014, the Company’s net revenue and operating expenses had a sharp decline as compared with the same period of 2013. The decrease was primarily attributable to a decline in the order volume.

The following table summarizes the results of our operations during the nine months ended September 30, 2014 and 2013, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30
	2014			2013			Change			Change rate
Net revenues	$	4,056,281		$	5,818,329		$	(1,762,048	)		(30.28	)%
Cost of net revenue	$	1,741,688		$	2,996,642		$	(1,254,954	)		(41.88	)%
Gross Profit	$	2,314,593		$	2,821,687		$	(507,094	)		(17.97	)%
Gross Margin		57.06	%		48.50	%		-			8.56	%
Operating expenses		(4,660,185	)	$	(6,393,210	)	$	1,733,025			(27.11	)%
Operating (loss)/ Income	$	(2,345,592	)	$	(3,571,523	)	$	1,225,931			(34.33	)%
Net Income/(loss)	$	(2,570,757	)	$	(3,498,480	)	$	927,723			(26.52	)%
Net (loss) / profit margin		(63.38	)%		(60.13	)%		-			(3.25	)%

Net Revenues

Net revenues for the nine months ended September 30, 2014, was $4,056,281, a decrease of 30.28% as compared with net revenues of $5,818,329 for the nine months ended September 30, 2013. In the nine months ended September 30, 2014, we sold 398 workstations, a decrease of 39.61% as compared with 659 workstations in the nine months ended September 30, 2013. The decrease in workstation sales was primarily due to decline in production volume and order volume as a result of the Company’s operating cash shortage. During the nine months ended September 30, 2014, we also sold 4 units of the SADP, a decrease of 76.47% as compared with 17 units in the nine months ended September 30, 2013. The decrease in sales of SADP was due primarily to a defect in design for our second-generation product.

The following table presents a breakdown of revenue by products for the periods indicated.

	Nine Months Ended September 30,
	2014					2013
	Sales		% of total sales			Sales		% of total sales
PTS	$	3,086,613		76.09	%	$	4,232,901		72.75	%
SADP	$	357,609		8.82	%	$	1,115,760		19.18	%
Other	$	612,059		15.09	%	$	469,668		8.07	%
Total net revenue	$	4,056,281		100.00	%	$	5,818,329		100.00	%

Cost of Net Revenue

Cost of net revenue decreased to $1,741,688 for the nine months ended September 30, 2014, representing a 41.88% decrease as compared with $2,996,642 for the same period of 2013. This decrease is primarily due to a decrease in sales of PTS and SADP.

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Gross Profit

Gross profit decrease 17.97% to $2,314,593 for the nine months ended September 30, 2014, as compared to $2,821,687 for the nine months ended September 30, 2013, our gross profit margin increased 8.56% from 48.50% as of the nine months ended September 30, 2013 to 57.06% as of the same period of 2014, mainly attributable to increase in production cost of PTS which has a higher gross profit margin.

Operating Expenses

Operating expenses were $4,660,185 for the nine months ended September 30, 2014, a decrease of 27.11% as compared with $6,393,210 for the same period of 2013. This decrease was primarily because of the decrease of $1,033,816 in general and administration expenses, and the decrease of $699,209 in selling expenses. The drop in general and administrative expenses was a result of decrease in employee salaries due to decrease in number of employees.

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

	Nine Months Ended September 30,
	2014		2013		Change
Selling expenses	$	1,806,021	$	2,505,230		(27.91)	%
General & Administrative expenses	$	2,854,164	$	3,887,980		(26.59)	%
Total operating expenses	$	4,660,185	$	6,393,210		(27.11)	%

Income from Operations

Operating loss was $2,345,592 for the nine months ended September 30, 2014, as compared to $3,571,523 for the nine months ended September 30, 2013. The decrease in loss was primarily due to decrease in operating expenses derived from close management monitoring.

Net Loss

Net loss was $2,570,757 for the nine months ended September 30, 2014, a decrease in loss of 26.52% from $2,793,368 for the nine months ended September 30, 2013. The mainly reason was due to close monitoring in spending and cutting expenses on the operation budget.

Earnings Per Share

Basic and diluted loss per share for the nine months ended September 30, 2014 were $0.14 and $0.11 compared with $0.19 and $0.15 for the same period of 2013. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the nine months ended September 30, 2014 and 2013, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the nine months ended September 30, 2014 and 2013 respectively.

Liquidity and Capital Resources

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

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

	Nine Months Ended September 30,
	2014		2013		Change
Net cash provided by (used in) operating activities	$	(526,938)	$	(29,508)	$	1,685.75	%
Net cash provided by (used in) investing activities	$	(16,560)	$	(63,637)	$	(73.98)	%
Net cash provided by (used in) financing activities	$	65,062	$	(96,505)	$	(167.42)	%
Effect of foreign currency translation on cash and cash equivalents	$	148,562	$	25,977	$	471.90	%
Beginning cash and cash equivalent	$	442,006	$	352,457	$	25.41	%
Ending cash and cash equivalent	$	112,132	$	188,784	$	(40.60)	%

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Operating Activities

For the nine months ended September 30, 2014, net cash used in operating activities was $526,938. This was primarily attributable to our net loss of $2,570,757, adjusted by an add-back of non-cash charges mainly consisting of depreciation, amortization, and impairment of fixed assets of $533,704, $881,057, and $73,613, respectively, offset by a $555,445 increase in working capital. Specifically, the increase in working capital was primarily due to: (i) a $1,088,041 trade receivables decrease driven by customers payment; (ii) a $505,478 increase in inventories, principally of work in progress; (iii) a $176,653 decrease in advances to suppliers to buy raw materials; (iv) a $662,760 increase in prepayments, travel advances to shareholders, tender deposits, advances to employees, and receivables from related parties consisting primarily of prepayments for raw materials and other supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $458,989 increase in accounts payable, tax payable, customer deposits, accrued liabilities and other payables.

Investing Activities

For the nine months ended September 30, 2014, net cash used in investing activities was $16,560. This was primarily attributable to a $16,560 capital expenditure for purchase of new plant and equipment.

Financing Activities

For the nine months ended September 30, 2014, net cash provided by financing activities were $65,062, primarily attributable to a short-term bank loan borrowing.

Cash and Cash Equivalents

Our cash and cash equivalents as of the nine months ended September 30, 2014 were $112,132 and decreased by $329,874 from $442,006 by the end of December 31, 2013.

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 insufficient to meet our presently anticipated future cash needs for at least the next year. 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.

Trade Receivables, net

Trade receivables, net decreased to $6,333,416 as of September 30, 2014, compared with $7,490,619 as of December 31, 2013. This increase in trade receivables was primarily attributable to customers’ payment.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of September 30, 2014, the recorded value of our inventory increased 29.30% to $4,470,431 from $3,457,459 as of December 31, 2013. This increase is mainly due to a increase of 77.41% in work in progress from $2,042,258 as of December 31, 2013 to $3,623,203 as of September 30, 2014 offset by a decrease of 53.39% in finished goods from $888,861 as of December 31, 2013 to $414,274 as of September 30, 2014 and a decrease of 17.74% in raw material from $526,340 as of December 31, 2013 to $432,955 as of September 30, 2014. The increase in work in progress was primarily attributable to the extended installing period and project volumes increase in PTS.

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

Item	September 30, 2014		December 31, 2013		Change
Finished goods	$	414,274	$	888,861		(53.39	)%
Work in progress	$	3,623,202	$	2,042,258		77.41	%
Raw material	$	432,955	$	526,340		(17.74	)%
Total	$	4,470,431	$	3,457,459		29.30	%

Accounts Payable

Accounts payable were $1,503,737 as of September 30, 2014, a decrease of 14.23% from $1,718,125 as of December 31, 2013. The increase was primarily attributable to our order volume decreased.

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Trends

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the quarterly period ended September 30, 2014. Based upon that evaluation, the Company’s management concluded that, as of the date of evaluation, the Company’s disclosure controls and procedures were not effective. Based upon that evaluation and due to the material weaknesses existing in our internal controls as of December 31, 2013 (as described in the Company's Form 10-K) which have not been fully remediated as of September 30, 2014, we have concluded that as of September 30, 2014, our disclosure controls and procedures were not effective.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not Applicable.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

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

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6 EXHIBITS.

Exhibit No.		Description of Exhibit
3.1		Articles of Incorporation, as amended and corrected. (1)
3.2		Articles of Amendment, filed on January 31, 2008.*
3.3		Bylaws. (2)
3.4		Specimen of Common Stock certificate. (1)
3.5		Certificate of Designations authorizing the Series A Convertible Preferred Stock, as amended and corrected. (1)
3.6		Certificate of Designations authorizing the Series B Convertible Preferred Stock, as amended and corrected. (1)
31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.*
31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002 Section 302.*
32.1		Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.**
32.2		Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002 Section 906.**
101.INS		XBRL Instance Document*
101.SCH		XBRL Schema Document*
101.CAL		XBRL Calculation Linkbase Document*
101.LAB		XBRL Label Linkbase Document*
101.PRE		XBRL Presentation Linkbase Document*
101. DEF		XBRL Definition Linkbase Document*

*Filed herewith.

**Furnished herewith.

(1) Incorporated by reference to the exhibits 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

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SIGNATURES

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

	SUNWAY GLOBAL INC.

Dated: November 18, 2014	By:	/s/ Liang Deli
		Name: Liang Deli
		Title: Chief Executive Officer (Principal Executive Officer)

Dated: November 18, 2014

By:

/s/ Samuel Sheng

Name: Samuel Sheng

Title: Chief Financial Officer

(Principal Financial and Accounting officer)

Sunway Global Inc. 10-Q