Wave Sync Corp. - Quarter Report: 2009 December (Form 10-Q)

Unassociated Document

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______ to __________

COMMISSION FILE NUMBER: 001-34113

CHINA INSONLINE CORP.

(Exact name of registrant as specified in its charter)

Delaware		74-2559866
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Room 42, 4F, New Henry House, 10 Ice House Street, Central, Hong Kong

(Address of principal executive offices)

(011) 00852-25232986

(Registrant’s Telephone Number, Including Area Code)

CHINA INSONLINE CORP.

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 o No o

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

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 o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of February 8, 2010, the registrant had 40,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I			F-1

FINANCIAL INFORMATION			F-1

ITEM 1. FINANCIAL STATEMENTS			F-1

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			2

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			22

ITEM 4. CONTROLS AND PROCEDURES			22

PART II			23

OTHER INFORMATION			23

ITEM 1. LEGAL PROCEEDINGS			23

ITEM 1A. RISK FACTORS			23

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			23

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			23

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS			23

ITEM 5. OTHER INFORMATION			23

ITEM 6. EXHIBITS			24

SIGNATURES			26

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA INSONLINE CORP.

AND

SUBSIDIARIES

Condensed Consolidated Financial Statements

For The Three And Six Months Ended December 31, 2009 and 2008

(Unaudited)

F-1

CHINA INSONLINE CORP.

AND

SUBSIDIARIES

TABLE OF CONTENTS

	Page

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBR 31, 2009 (UNAUDITED) AND JUNE 30, 2009	F-3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)	F-4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)	F-5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)	F-6 – F-18

F-2

CHINA INSONLINE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2009 (Unaudited)		June 30, 2009
ASSETS
Cash and cash equivalents	$	432,375	$	1,217,085
Accounts receivable, net of allowance for doubtful accounts of $910,364 and $26,302 at December 31, 2009 and June 30, 2009, respectively		3,590		7,764,537
Prepayments and deposits		19,850,455		5,428,848
Other receivables		585,943		2,385
Deferred taxes		727,834		466,828
Total Current Assets		21,600,197		14,879,683

Fixed assets, net		157,735		212,591
Software, net		10,050,192		2,963,136
Prepayments for software		-		6,981,952
Goodwill		4,473,787		4,473,787
Deposits		18,458		78,093
Deferred taxes		110,460		65,447
Total Long-Term Assets		14,810,632		14,775,006

TOTAL ASSETS	$	36,410,829	$	29,654,689

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	-	$	150,514
Other payables and accrued liabilities		534,678		638,169
Business tax payable		2,593,083		2,097,456
Amount due to director		527,848		253,506
Income taxes payable		8,255,435		6,260,070
Deferred taxes		48,100		90,644
Total Current Liabilities		11,959,144		9,490,359

Deferred taxes		-		-
Total Long-Term Liabilities		-		-

TOTAL LIABILITIES		11,959,144		9,490,359

COMMITMENTS

SHARHOLDERS’ EQUITY
Common stock, $.001 par value; 100,000,000 shares authorized; 40,000,000 shares issued and outstanding as of December 31, 2009 and June 30, 2009, respectively		40,000		40,000
Additional paid-in capital		86,360		86,360
Retained earnings (restricted portion of $1,055,584 at December 31, 2009 and June 30, 2009)		23,596,226		19,291,210
Accumulated other comprehensive income		729,099		746,760
Total Shareholders’ Equity		24,451,685		20,164,330

TOTAL LIABILITIES AND SHARHOLDERS’ EQUITY	$	36,410,829	$	29,654,689

See accompanying notes to condensed consolidated financial statements

F-3

CHINA INSONLINE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2009			2008			2009			2008

REVENUES, NET	$	3,656,145		$	3,580,301		$	8,783,556		$	9,033,665

COST OF SALES		670,979			354,557			1,232,407			790,413
GROSS PROFIT		2,985,166			3,225,744			7,551,149			8,243,252

Selling expenses		17,011			81,619			32,745			165,893
Advertising expenses		-			991,134			-			1,901,068
General and administrative expenses		323,817			348,978			673,244			738,371
Allowance for doubtful accounts		884,234			646,740			883,906			932,338

INCOME FROM OPERATIONS		1,760,104			1,157,273			5,961,254			4,505,582

Loss on sale of fixed assets		(2,834	)		-			(5,306	)		-
Interest (expense) income, net		(215	)		22,932			49			22,818

INCOME FROM OPERATIONS BEFORE INCOME TAXES		1,757,055			1,180,205			5,955,997			4,528,400

Income taxes		572,649			391,335			1,650,981			1,283,130

NET INCOME		1,184,406			788,870			4,305,016			3,245,270

OTHER COMPREHENSIVE INCOME
Foreign currency translation (loss) gain		(17,668	)		(35,965	)		(17,661	)		27,524

COMPREHENSIVE INCOME	$	1,166,738		$	752,905		$	4,287,355		$	3,272,794

NET INCOME PER SHARE

- BASIC AND DILUTED	$	0.03		$	0.02		$	0.11		$	0.08

WEIGHTED AVERAGE SHARES OUTSTANDING

- BASIC AND DILUTED		40,000,000			40,000,000			40,000,000			40,000,000

See accompanying notes to condensed consolidated financial statements

F-4

CHINA INSONLINE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended December 31, 2009			Six Months Ended December 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,305,016		$	3,245,270
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		48,199			53,573
Amortization		620,778			201,319
Loss on sale of fixed assets		5,306			-
Deferred taxes		(348,563	)		(309,795	)
Allowance for doubtful accounts		883,906			932,338
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable		6,877,041			(4,526,206	)
Other receivables		(583,558	)		4,923
Prepayments and deposits		(14,361,972	)		420,717
Accounts payable		(150,514	)		730,715
Other payables and accrued liabilities		(103,491	)		52,026
Business tax payable		495,627			464,269
Income taxes payable		1,995,365			1,599,290
Deferred revenue		-			(63,583	)
Net cash (used in) provided by operating activities		(316,860	)		2,804,856

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired		-			(5,715,919	)
Repayment from a former shareholder of GHIA		-			1,019,759
Acquisition of equipment		(1,840	)		(109,377	)
Acquisition of intangible assets		(725,431	)		-
Proceeds from sale of fixed assets		3,188			-
Net cash used in investing activities		(724,083	)		(4,805,537	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from a director		274,440			77
Net cash provided by financing activities		274,440			77

NET DECRESASE IN CASH AND CASH EQUIVALENTS		(766,503	)		(2,000,604	)
Effect of exchange rate changes on cash		(18,207	)		28,417
Cash and cash equivalents, at beginning of the period		1,217,085			4,567,853
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	432,375		$	2,595,666

SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-

See accompanying notes to condensed consolidated financial statements

F-5

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

1. Organization and Principal Activities

China INSOnline Corp. (“CHIO”) was incorporated on December 23, 1988 as a Delaware corporation and commenced operations on January 1, 1989.

CHIO and subsidiaries (collectively, the “Company”) is an Internet service and media company focusing on the People’s Republic of China (the “PRC”) insurance industry. With localized websites targeting Greater China, the Company primarily provides, through Beijing ZYTX Technology Co., Ltd (“ZYTX”), a network portal through its industry website, www.soobao.cn, to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development. The Company is also a licensed online motor vehicle, property and life insurance agent generating revenues through sales commissions from customers in the PRC

On October 28, 2008, Rise and Grow Limited (“Rise & Grow”) and ZYTX entered into a Share Purchase Agreement pursuant to which Rise & Grow acquired 100% ownership of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, through ZYTX to act as legal owner in China. GHIA is an insurance agent company which operates in the PRC. The consideration was US$5,846,244 (RMB$40,000,000) in cash. This share purchase transaction resulted in Rise & Grow obtaining 100% of the voting and beneficial interest in GHIA.

On April 2, 2009, Zhi Bao Da Tong (Beijing) Technology Co., Ltd changed its name into New Fortune Associate (Beijing) Information Technology Co., Ltd. (“NFA”).

In July 2009, the Financial Accounting Standards Board (“FASB”) launched the “FASB Accounting Standards Codification” (the “ASC”) as the single source of authoritative nongovernmental U.S. GAAP. The FASB ASC did not change current U.S. GAAP, but simplified user access to all authoritative U.S. GAAP by organizing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents were superseded and all other accounting literature not included in the FASB ASC is now considered nonauthoritative. The FASB ASC was effective for the Company’s financial statements for the quarter ended September 30, 2009. The adoption of the FASB ASC did not have an impact on the Company’s consolidated financial statement.

2. Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to Quarterly Reports on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of June 30, 2009 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.

F-6

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

3. Principles of Consolidation

The condensed consolidated financial statements included the accounts of CHIO and the following subsidiaries:

Rise & Grow – 100% subsidiary of CHIO;

NFA – 100% subsidiary of Rise & Grow;

ZYTX – a Variable Interest Entity (“VIE”) of NFA. It does this by controlling ZYTX, through an Exclusive Technical Consulting and Service Agreement (the “Consulting Agreement”) and related transaction documents dated as of September 28, 2007 (collectively, the “Service Agreements”).

According to the Consulting Agreement, NFA has the exclusive right to provide technical consulting and other services to ZYTX, effectively restricting and controlling the operations of ZYTX. Pursuant to Clause 1.3 of the Consulting Agreement, NFA, “shall be the sole and exclusive owner of all right, title and interests to any and all intellectual property rights arising from the performance of this Agreement (including but not limited to, copyrights, patent, know-how, commercial secrets and others), no matter whether it is developed by NFA or by ZYTX based on NFA’s intellectual property rights.” Thus, NFA could substantially, solely and exclusively possess all intellectual property of ZYTX which comprise the core value and assets of ZYTX (ultimately, solely and exclusively possessed by the Company); and

GHIA – 100% subsidiary of Rise & Grow through ZYTX to act as legal owner in China.

ZYTX and GHIA are the major components of the Company’s condensed consolidated financial statements, representing over 99% of the assets and liabilities of the Company.

Inter-company accounts and transactions have been eliminated in consolidation.

4. Summary of Significant Accounting Policies

(a) Economic and Political Risks

The Company'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 environments in the PRC, and by the general state of the PRC economy. The Company'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 Company'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.

(b) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

F-7

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

4. Summary of Significant Accounting Policies (Continued)

The carrying value of financial instruments classified as current assets and current liabilities, such as accounts receivables, other receivables, prepayments and deposits, accounts payable, other payables and accrued liabilities, approximate fair value due to the short-term nature of the instruments.

The Company adopted Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (formerly Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements) on January 1, 2008 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of December 31, 2009 are as follows:

			Fair Value Measurements at Reporting Date Using
	Carrying Value as of December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	432,375	$	432,375		-		-

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short term maturity. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

F-8

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

4. Summary of Significant Accounting Policies (Continued)

(d) Revenue Recognition

Advertising

Advertising revenues are derived mainly from online advertising arrangements, which allow advertisers to place advertisements on particular areas of the Company’s web sites, in particular formats and over particular periods of time. Such arrangements have generally included some combination of the following: website construction service, web site advertising and website maintenance services. In accordance with ASC 605-25, Multiple-Element Arrangement (formerly Emerging Issues Task Force (“EITF”) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables), advertising arrangements involving multiple deliverables are broken down into single-element arrangements based on their relative fair value for revenue recognition purposes, when possible.

The details of revenue recognition of each type of advertising revenues are illustrated below:

Website construction service, which is usually included in new advertising contract, mainly consist fee for design and computer coding of the new web site. The service fee is recognized when the web site is completed.

Website advertising is recognized ratably over the displayed period of the advertisement, which is typically one year.

Website maintenance service is providing technically support and maintenance for the customers’ web sites. Such services are generally on contract basis with service period for one year. Revenue is recognized ratably over the contact period.

Under the guidance of ASC 985-605, Software Revenue Recognition (formerly the Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions), the Company determines vendor-specific objective evidence (“VOSE”) based on actual prices charged when the service is sold on a standalone basis.

Software Development

Software development revenue is recognized in accordance with ASC 985-605, when the outcome of a contract for software development can be estimated reliably, contract revenue and costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that costs incurred to date bear to estimated total costs for each contract. When the outcome of a contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred. Contract revenue is recognized to the extent of contract costs incurred that it is probable will be recoverable. Where it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

F-9

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

4. Summary of Significant Accounting Policies (Continued)

(e) Revenue Recognition (Continued)

Insurance Commissions

Insurance revenues, net of discounts, represent commissions earned from performing agency-related services. Insurance commissions are recognized at the later of the date when the customer is initially billed or the insurance policy effective date.

In accordance with ASC 605-50-25, Vendor’s Accounting for Consideration Given to a Customer, (formerly EITF No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Product), cash consideration given to customers or resellers, for which the Company does not receive a separately identifiable benefit or cannot reasonably estimate fair value, are accounted for as a reduction of revenue rather than as an expense.

Cash consideration includes discounts and other offers that entitle a customer to receive a reduction in the price of a product. For the six months ended December 31, 2009 and 2008, the Company recognized $33,581 and $363,388, respectively, as a reduction of revenue for the discount offered to its customers.

(f) Foreign Currency Translation

The accompanying financial statements are presented in United States dollars. The functional currencies of the Company are the Renminbi (“RMB”) and the Hong Kong Dollar (“HKD”). The financial statements are translated into United States Dollars (“US$” or “$”) from RMB and US$ from HKD at years-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	December 31, 2009		June 30, 2009		December 31, 2008

Period end RMB: US$ exchange rate		6.8372		6.83191		-

Period average RMB: US$ exchange rate		6.8386		-		6.8477

Period end HKD: US$ exchange rate		7.7551		7.7501		-

Period average HKD: US$ exchange rate		7.7513		-		7.7748

(g) Earnings Per Share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive securities outstanding for the periods presented.

(h) Goodwill

In accordance with ASC 805, Business Combination (formerly SFAS No.141, Business Combination), the total purchase price in a business combination is allocated to their fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date, with amounts exceeding the fair values at the acquisition date, being recorded as goodwill. In accordance with ASC 350, Intangibles – Goodwill and Other (formerly SFAS No.142, Goodwill and Other Intangible Assets), goodwill is not amortized. Instead, it is tested for impairment on an accrual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired. For the period ended December 31, 2009, the Company did not identify any potential impairment related to its goodwill.

F-10

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

5. Recent Accounting Pronouncements

In December 2007, ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51) changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. The adoption of ASC 810-10-65 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB approved ASC 820-10-65-4 (formerly FASB Staff Position (“FSP”) FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment).

ASC 820-10-65-4 provides additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have significantly decreased. ASC 820-10-65-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only for periods ending after initial adoption.

In March 2008, the FASB issued ASC 815, Derivative and Hedging, (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities), which expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives. The adoption of ASC 815 did not have a material impact on its consolidated financial statements.

In June 2008, the FASB issued ASC 815-10-65-3, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (formerly EITF No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock), which is effective for fiscal years beginning after December 15, 2008. ASC 815-10-65-3 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which would qualify as a scope exception under ASC 815, Derivatives and Hedging (formerly SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities). ASC 815-10-65-3 was effective for the financial statements issued for fiscal years beginning after December 15, 2009. The Company adopted ASC 815-10-65-3 and determined that no balance sheet reclassifications were necessary.

In April 2009, the FASB issued ASC 825-10-65, Interim Disclosures about Fair Value of Financial Instruments, (formerly FSP FAS 107-1 and ABP 28-1, Interim Disclosures about Fair Value of Financial Instruments), which requires disclosures about fair value of financial instruments in interim and annual reporting periods. The adoption of ASC 825-10-65 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued ASC 320-10-65-1, Recognition and Presentation of Other-Than-Temporary Impairments (formerly FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments), which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to modify the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The adoption of ASC 320-10-65-1 did not have a material impact on the Company’s consolidated financial statements.

F-11

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

5. Recent Accounting Pronouncements (Continued)

In May 2009, the FASB issued ASC 855, Subsequent Events (formerly SFAS 165, Subsequent Events), which establishes accounting and disclosure requirements for events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires disclosure of the date through which the Company has evaluated subsequent events for recognition or disclosure. ASC 855 also requires events that provide additional evidence about conditions that existed at the date of the balance sheet and the related estimates to be recognized in the financial statements. Events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before the financial statements are issued or available to be issued should not be recognized, but should be disclosed if material. The adoption of ASC 855 did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued FAS No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”). FAS 167 amends FASB 46(R) to require an enterprise to perform an analysis and ongoing reassessments to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. FAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 and for all interim reporting periods after that and is not anticipated to have any material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact of the adoption of FAS 167. This recently issued but not yet enacted accounting standard has not been codified by the FASB. See Note 1.

In October 2009, the FASB’s EITF revised its guidance on Revenue Recognition for Multiple-Deliverable Revenue Arrangements. The revised guidance will enable companies to separately account for multiple revenue-generating activities (deliverables) that they perform for their customers.

Existing U.S. GAAP requires a company to use VSOE or third party evidence of selling price to separate deliverables in a multiple-deliverable arrangement. The revised guidance will allow the use of an estimated selling price, if neither VSOE nor third-party evidence is available. The revised guidance will require additional disclosures of information about an entity’s multiple-deliverable arrangements. The requirements of the revised guidance may be applied prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is permitted. The Company is currently evaluating the impact of the update on its financial position and results of operations and does not plan to early or retroactively adopt the new guidance.

6. Prepayments and Deposits

Prepayments and deposits represent the following:

	December 31, 2009		June 30, 2009
	(Unaudited)
Electronic products	$	19,774,177	$	5,386,497
Financial consultant		65,000		30,000
Rents		10,452		12,351
Other		826		-
	$	19,850,455	$	5,428,848

On October 15, 2009, the Company amended an agreement for the purchase of electronic products for the promotion of the insurance agency business amounting to $20,476,219 (RMB140,000,000). For the six months ended December 31, 2009, the Company made a 97% prepayment for the products of $19,774,177 (RMB135,200,000). The electronic products will be sold together with the Company’s insurance package and will be inventoried upon receipt and charged to cost of goods sold upon sale. Also see Note 10.

Prepaid rents represent rents prepaid to landlords, for the period from one to eleven months in accordance with the operating lease agreement, for the offices of the Company.

F-12

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

7. Other Receivables

On October 22, 2009, the Company advanced an unsecured loan of $585,943 (Rmb4,000,000) to an unrelated party at an interest rate of 4.86% per annum and it was repayable on January 22, 2010. The Company received a full settlement of the loan on January 22, 2010.

8. Software

Software consists of the following by segment:

	December 31, 2009		June 30, 2009
	(Unaudited)
At cost:
Online insurance advertising	$	8,011,571	$	2,115,712
Insurance agency		3,241,904		1,429,929
		11,253,475		3,545,641

Less: Accumulated amortization
Online insurance advertising		697,972		300,242
Insurance agency		505,311		282,263
		1,203,283		582,505

Software, net	$	10,050,192	$	2,963,136

There were five software packages and three software packages used in the Company’s two segments as of December 31, 2009 and June 30, 2009, respectively. Amortization expense for the six months ended December 31, 2009 and 2008 was $620,778 and $201,319, respectively.

Amortization expense for the next five years and thereafter is as follows:

Year ending June 30,	Amount
2010	$	620,778
2011		1,241,556
2012		1,241,556
2013		1,241,556
2014		1,241,556
Thereafter		4,463,190
Total	$	10,050,192

F-13

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

9. Taxes

(a) Corporation Income Tax (“CIT”)

The Company has not recorded a provision for U.S. federal income taxes for the period ended December 31, 2009 due to the net operating loss carry forward in the United States.

On March 16, 2007, the National People’s Congress of China approved the new Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), which was effective from January 1, 2008. Prior to January 1, 2008, the CIT rate applicable to the Company’s subsidiary in the PRC was 33%. As from January 1, 2008, the applicable CIT rate for NFA, the wholly owned subsidiary, is 25%.

Of the $8,255,435 of income taxes payable at December 31, 2009, $8,249,156 represents the amount of income taxes payable by NFA. Of the $8,249,156 of income taxes payable by NFA, $4,508,167 was due on April 30, 2009 and $3,740,989 is due on April 30, 2010. The Company has been negotiating with the tax authorities to defer the payment of CIT due on April 30, 2009 without interest or penalties, and the Company is awaiting the final ruling from the tax authorities. If the response from the tax authorities is adverse, the Company may have a shortage of working capital and may need funding to maintain its operations.

ZYTX, a VIE of the Company, enjoys a favorable tax rate of 15% as it is considered as a high technology company by the Chinese government. ZYTX is also entitled to a full exemption from CIT for the first two years from January 1, 2007 to December 31, 2008. Starting from January 1, 2009, the CIT rate of ZYTX is 15%. ZYTX is exempted from CIT for the six months period from July 1, 2008 to December 31, 2008 and for 15% for the twelve months period from January 1, 2009 to December 31, 2009. For the six months ended December 31, 2009, the CIT for ZYTX was $0 as ZYTX has transferred all its net income to its primary beneficiary, NFA.

The applicable CIT rate for GHIA is 25%. For the six months ended December 31, 2009, the CIT for GHIA was $6,279, which should be payable on April 30, 2010.

Some of the tax concession granted to eligible companies prior to the new CIT law is grand fathered. The new CIT Law has an impact on the deferred tax assets and liabilities of the Company. The Company adjusted deferred tax balances as of September 30, 2009 and June 30, 2009 based on the current applicable tax rate and will continue to assess the impact of such new law in the future. Effects arising from the enforcement of the new CIT Law were reflected into the accounts by best estimates.

Pursuant to the Inland Revenue Ordinance of Hong Kong, Rise & Grow is subject to Hong Kong Profits Tax at 16.5% for the period ended December 31, 2009 and the year ended June 30, 2009. As Rise & Grow has no assessable profits for the three months ended December 31, 2009 and the year ended June 30, 2009, no provision for profits tax has been made.

Computed “expected” expense of the Company was calculated using 25% income tax rate for the six and three months ended December 31, 2009 and 2008, respectively.

Income tax expense is summarized as follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Computed “expected” expense	$	439,264	$	295,051	$	1,488,999	$	1,132,100
Favorable tax rate effect		100,935		96,284		107,406		151,011
Permanent differences		32,450		-		54,576		19
Income tax expense	$	572,649	$	391,335	$	1,650,981	$	1,283,130

F-14

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

9. Taxes (Continued)

(a) Corporation Income Tax (“CIT”) (Continued)

Provision for income tax expense is summarized as follows:

	December 31,						December 31,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Current	$	790,787		$	550,323		$	1,981,470		$	1,578,383
Deferred		(218,138	)		(158,988	)		(330,489	)		(295,253	)
Income tax expense	$	572,649		$	391,335		$	1,650,981		$	1,283,130

The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities are as follows:

	December 31, 2009		June 30, 2009
	(Unaudited)
Deferred tax assets:
Social welfare expenses	$	39,662	$	39,693
Consumable expenses		2,791		6,271
Discounts allowed		1,489		1,490
Business tax		467,789		358,915
Allowance for doubtful accounts		136,555		3,945
Tax loss		74,807		56,500
Amortization		4,022		-
Depreciation		705		-
Other		14		14
Total current deferred tax assets		727,834		466,828

Amortization		106,777		56,727
Depreciation		3,683		8,720
Total long-term deferred tax assets		110,460		65,447

Total deferred tax assets		838,294		532,275

Deferred tax liabilities:
Commission income		5,445		5,449
Rental income		-		21,053
Disposal income		-		38,786
Consultancy fee		4,505		4,509
Amortization		38,064		18,997
Depreciation		-		1,764
Other		86		86
Total current deferred tax liabilities		48,100		90,644

Net deferred tax assets	$	790,194	$	441,631

The Company adopted ASC 740, Income Tax (formerly FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109), on January 1, 2007. The Company did not have any material unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing ASC 740.

F-15

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

9.	Taxes (Continued)

(b)	Business Tax

Pursuant to the relevant PRC tax laws, the Company is subject to business tax at 5% of the gross sales, excluding software development income. For the periods ended December 31, 2009 and 2008, the Company incurred a total business tax of $545,325 and $694,217, respectively, which is included in the cost of sales in the accompanying condensed consolidated statement of income and comprehensive income.

The business tax payable is a $2,593,083 and $2,097,456 at December 31, 2009 and June 30, 2009, respectively. Of the $2,593,083 of business tax payable at December 31, 2009, $1,495,788 was due on April 30, 2009 and $1,097,295 is due on April 30, 2010. The Company has been negotiating with the tax authorities to defer the payment of business tax which was due on April 30, 2009 without interest or penalties, and the Company is awaiting the final ruling from the tax authorities. If the response from the tax authorities is adverse, the Company may have a shortage of working capital and may need funding to maintain its operations.

10.	Commitments

(a)	Lease Commitments

The Company occupies office spaces leased from third parties. For the six months ended December 31, 2009 and 2008, the Company recognized $58,797 and $155,859, respectively, as rental expense for these spaces. As of December 31, 2009, the Company has outstanding commitments with respect to non-cancelable operating leases as follows:

Year Ending June 30,	Amount
2010	$	51,400
2011		92,504
2012		7,576
	$	151,480

(b)	Purchase of Electronic Products

As of December 31, 2009, the Company has outstanding commitments of $702,042 (Rmb4,800,000) with respect to the purchase of electronic products of $20,476,219 (Rmb140,000,000) due within one year as follows:

Payment Due Dates	Amount

On or before April 20, 2010	$	702,042

Expected Product Delivery Dates	Units

February 20, 2010		20,000
April 20, 2010		20,000
May 20, 2010		30,000
		70,000

Also see Note 6.

F-16

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

11.	Certain Risks and Concentrations

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company has $424,796 and $1,207,171 in bank deposits in the banks in China, which constitutes about 98.2% and 99.9% of its total cash and cash equivalents as of December 31, 2009 and June 30, 2009, respectively. Historically, deposits in Chinese banks are secured due to the state policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006, which came into effect on June 1, 2007. The new Bankruptcy Law contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks. Under the new Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s concession to World Trade Organization, foreign banks have been gradually permitted to operate in China and have been severe competitors against Chinese banks in many aspects, especially since the opening of RMB businesses to foreign banks in late 2006.

Therefore, the risk of bankruptcy of the bank in which that the Company has deposits has increased. In the event of bankruptcy of the bank which holds the Company’s deposits, the Company is unlikely to recover its deposits back in full since it is unlikely to be classified as a secured creditor based on PRC laws.

As of December 31, 2009, accounts receivable consist primarily of insurance agency of 100% and As of June 30, 2009, accounts receivable consist primarily of software development clients and insurance agents of online insurance advertising, approximately 15% and 84%, respectively. Regarding the Company’s online advertising and insurance agency operations, no individual customer accounted for more than 10% of total net revenues for the six months ended December 31, 2009 and year ended June 30, 2009.

The concentration of sales for the six months ended December 31, 2009 and 2008, and accounts receivable at December 31, 2009 and June 30, 2009 are summarized as follows:

	Sales						Accounts Receivable
	December 31, 2009			December 31, 2008			December 31, 2009			June 30, 2009
	(Unaudited)			(Unaudited)			(Unaudited)
Software Development
Company A		65	%		-			-			-
Company B		13	%		-			-			-
Company C		-			15	%		-			-
Company D		-			6	%		-			-
Company E		-			-			-			10	%
Company F		-			-			-			5	%
		78	%		21	%		0	%		15	%

Online Insurance Advertising		21	%		78	%		0	%		84	%

Insurance Agency		1	%		1	%		100	%		1	%

Total		100	%		100	%		100	%		100	%

F-17

CHINA INSONLINE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

12.	Segment Information

Based on criteria established by ASC 280, Segment Reporting, (formerly SFAS 131, Disclosures about Segments of an Enterprise and Related Information), the Company operates three business segments for the three months ended December 31, 2009 and 2008, which are software development, online insurance advertising and insurance agency within the PRC. The following is the summary information by segment as of December 31, 2009 and June 30, 2009 and for the three and six months ended December 31, 2009 and 2008:

	Software Development		Online Insurance Advertising		Insurance Agency			Administra- tion			Total
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
Six Months Ended December 31, 2009
Revenue, net	$	6,814,290	$	1,937,793	$	28,189		$	3,284		$	8,783,556
Cost of sales		57,692		266,564		472,923			435,228			1,232,407
Gross profit (loss)	$	6,756,598	$	1,671,229	$	(444,734	)	$	(431,944	)	$	7,551,149

Three Months Ended December 31, 2009
Revenue, net	$	2,457,567	$	1,181,752	$	15,266		$	1,560		$	3,656,145
Cost of sales		21,933		144,900		327,636			176,510			670,979
Gross profit (loss)	$	2,435,634	$	1,036,852	$	(312,370	)	$	(174,950	)	$	2,985,166

December 31, 2009
Long-lived assets	$	32,420	$	7,309,870	$	7,255,719		$	212,623		$	14,810,632
Current assets	$	-	$	-	$	19,799,705		$	1,800,492		$	21,600,197

Six Months Ended December 31, 2008
Revenue, net	$	1,931,361	$	7,098,892	$	3,412		$	-		$	9,033,665
Cost of sales		32,237		439,193		37,387			281,596			790,413
Gross profit (loss)	$	1,899,124	$	6,659,699	$	(33,975	)	$	(281,596	)	$	8,243,252

Three Months Ended December 31, 2008
Revenue, net	$	14,649	$	3,565,037	$	615		$	-		$	3,580,301
Cost of sales		3,197		234,787		33,513			83,060			354,557
Gross profit (loss)	$	11,452	$	3,330,250	$	(32,898	)	$	(83,060	)	$	3,225,744

June 30, 2009
Long-lived assets	$	53,592	$	1,817,578	$	12,648,168		$	255,668		$	14,775,006
Current assets	$	1,214,889	$	6,528,069	$	92,470		$	7,044,255		$	14,879,683

13.	Subsequent Event

In preparing the unaudited condensed consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition or disclosure through February 16, 2010, the date the unaudited condensed financial statements were issued.

F-18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The following is our management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes” “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this report.

Acquisition of Rise & Grow

On December 18, 2007 (the “Closing Date”), China INSOnline Corp., formerly known as Dexterity Surgical, Inc. (“Dexterity Surgical”) and hereinafter, “CHIO” and together with its subsidiaries, the “Company”, entered into a Share Exchange Agreement (the “Exchange Agreement”) with Rise and Grow Limited, an inactive Hong Kong limited holding company (“Rise & Grow”) and Newise Century Inc., a British Virgin Islands company and the sole stockholder of Rise & Grow (the “Stockholder”). As a result of the share exchange, CHIO acquired all of the issued and outstanding securities of Rise & Grow from the Stockholder in exchange for Twenty-Six Million Four Hundred Thousand (26,400,000) newly-issued shares of CHIO’s common stock, par value $0.001 per share (“Common Stock”). As a result of the exchange, Rise & Grow became our wholly-owned and chief operating subsidiary. We currently have no other business operations other than those of Rise & Grow.

The following is disclosure regarding CHIO, Rise & Grow and the wholly-owned operating subsidiary of Rise & Grow, New Fortune Associate (Beijing) Information Technology Co., Ltd. (formerly known as Zhi Bao Da Tong (Beijing) Technology Co. Ltd. and hereinafter, “NFA”), a company formed under the laws of the People’s Republic of China (the “PRC”) and doing business in the PRC. Since the Closing Date, the operations of Rise & Grow, through its operating subsidiary, NFA, are the only operations of CHIO.

Effective March 17, 2008, the Common Stock of CHIO began trading under a new ticker symbol, “CHIO.OB” on the Over-The-Counter Bulletin Board. CHIO changed its ticker symbol from “DEXT.OB” to “CHIO.OB” as a result of the Company’s name change from “Dexterity Surgical, Inc.” to “China INSOnline Corp.”, which such name change became effective as of February 26, 2008.

Effective July 1, 2008, the Common Stock of CHIO began trading under the same ticker symbol “CHIO” on the NASDAQ Capital Market.

Organizational Structure of Rise & Grow, NFA, ZYTX and GHIA

Rise & Grow was formed on February 10, 2006 as a Hong Kong limited company. NFA was established and incorporated by Rise & Grow and commenced business on September 6, 2007. Rise & Grow’s sole business is to act as a holding company for NFA. NFA was formed by Rise & Grow for the purpose of developing computer and network software and related products and to promote the development of high-tech industries in the field of Chinese information technology. It does this by controlling, through an Exclusive Technical Consulting and Service Agreement and related transaction documents dated as of September 28, 2007 (collectively, the “Service Agreements”), Beijing Zhi Yuan Tian Xia Technology Co., Ltd. (“ZYTX”), a limited liability company duly established on October 8, 2006 and validly existing under the PRC.

Pursuant to the Service Agreements, NFA shall provide on-going technical services and other services to ZYTX in exchange for substantially all net income of ZYTX. In addition, Mr. Zhenyu Wang and Ms. Junjun Xu have pledged all of their shares in ZYTX to NFA, representing one hundred percent (100)% of the total issued and outstanding capital stock of ZYTX, as collateral for non-payment under the Service Agreements or for fees on technical and other services due to us thereunder. We have the power to appoint all directors and senior management personnel of ZYTX. Currently, ZYTX is sixty percent (60)% owned by Mr. Zhenyu Wang, CHIO’s Chairman of the Board, and forty percent (40)% owned by Junjun Xu, CHIO’s Chief Executive Officer and a director.

On October 28, 2008, Rise & Grow and ZYTX entered into a Share Purchase Agreement pursuant to which Rise & Grow acquired 100% ownership of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, through ZYTX to act as legal owner in China. GHIA is an insurance agent company which operates in the PRC. The consideration was US$5,846,244 (RMB$40,000,000) in cash. This share purchase transaction resulted in Rise & Grow obtaining 100% of the voting and beneficial interest in GHIA.

Business of the Company

We are an Internet service and media company focusing on the PRC insurance industry. With localized websites targeting Greater China, the Company primarily provides, through ZYTX, a network portal through its industry website, www.soobao.cn (hereinafter also referred to as “Soobao”), to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development. The Company is also a licensed online motor vehicle, property and life insurance agent generating revenues through sales commissions from customers in the PRC.

ZYTX was originally founded with goal of raising the national insurance consciousness and reducing the cost on national security in China by constructing and maintaining its network portal (www.soobao.cn) in order to integrate and optimize business flow during the course of insurance sales and related client services. From incorporation through the end of December 31, 2009, ZYTX was primarily engaged in institutional preparation and prior-period business development. Thereafter, through trial implementation of www.soobao.cn, ZYTX’s products and services received favorable reviews and recognition in the Chinese insurance industry. ZYTX strengthened its technical research and development and expanded its product line after collecting suggestions from clients. In April 2007, www.soobao.cn was formally put into use. For the six months ended December 31, 2009 and 2008, the Company generated net revenues of $8,783,556 and $9,033,665, respectively.

Today, the Company offers online insurance products and services in China including (a) a network portal for the Chinese insurance industry (www.soobao.cn), offering industry players a forum for advertising products and services, (b) website construction and software development services for marketing teams in the insurance industry, (c) insurance agency services (whereby the Company generates sales commissions on motor vehicle insurance, property insurance and life insurance) and (d) accompanying client support services.

On September 28, 2007, NFA signed the following Service Agreements with ZYTX and its stockholders:

Exclusive Technology Consultation Service Agreement, by and between ZYTX and NFA, through which NFA will provide, exclusively for both parties, technology consultation services to the Company and receive payments periodically;

Exclusive Equity Interest Purchase Agreements, by and between each of ZYTX’s stockholders and NFA, through which NFA is entitled to exclusively purchase all of the outstanding shares of capital stock of ZYTX from its current stockholders upon certain terms and conditions, especially upon it is allowable under the PRC laws and regulations;

Equity Interest Pledge Agreements, by and between each of ZYTX’s stockholders and NFA, through which the current stockholders of ZYTX have pledged all their respective shares in ZYTX to NFA. These Equity Interest Pledge Agreements guarantee the cash-flow payments under the Exclusive Technology Consultation Service Agreement; and

Powers of Attorney, executed by each of the ZYTX’s stockholders, through which NFA is entitled to perform the equity right of ZYTX’s stockholders.

Powers of Attorney were also executed by the two (2) owners of ZYTX empowering NFA to act on their behalf, and NFA has the full authority to perform all of the rights bestowed upon them as a shareholder of ZYTX and control over said equity interests in ZYTX. These rights include: (i) the right to attend shareholder meetings, (ii) signatory authority for shareholder resolutions, (iii) the performance of all rights as a shareholder, including voting rights and the right to partially or wholly transfer, assign or pledge the equity interest in ZYTX, (v) a right to appoint legal representatives, board members, executive directors and other senior management officers, (vi) the right to execute and perform the obligations of a certain Transfer Agreement referenced in the Equity Purchase Agreements, (vii) the right to transfer, allocate, or use the dividends-in-cash and other non cash income as directed by ZYTX, (viii) the right to perform all the necessary rights incurred from ZYTX’s equity interest and (ix) the right to re-consign all the matters and rights under the Powers of Attorney to any other individual(s) or other legal person(s).

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R “Consolidation of Variable Interest Entities” (“FIN 46R”), an Interpretation of Accounting Research Bulletin No. 51, a Variable Interest Entity (a “VIE”) is to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. After executing the above agreements, ZYTX is now considered a VIE and NFA its primary beneficiary.

On October 28, 2008, Rise & Grow and ZYTX entered into a Share Purchase Agreement which Rise & Grow acquired 100% ownership of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, through ZYTX to act as legal owner in China. GHIA is an insurance agent company which operates in the entire nation of the PRC. The consideration was US$5,846,244 (RMB40,000,000) in cash. This share purchase transaction resulted in Rise & Grow obtaining 100% of the voting and beneficial interest in GHIA.

On April 2, 2009, Zhi Bao Da Tong (Beijing) Technology Co., Ltd changed its name into New Fortune Associate (Beijing) Information Technology Co., Ltd.

Pursuant to relevant PRC tax laws, the Company is subject to business tax at 5% of gross sales, excluding software development income. Of the $2,593,083 of business tax payable at December 31, 2009, $1,495,788 was due on April 30, 2009 and $1,097,295 is due on April 30, 2010. The Company has been negotiating with the tax authorities to defer the payment of business tax which was due on April 30, 2009 without interest or penalties, and the Company is awaiting the final ruling from the tax authorities. If the response from the tax authorities is adverse, the Company may have a shortage of working capital and may need funding to maintain its operations.

On December 30, 2009, the Company received a Staff Deficiency Letter from the NASDAQ indicating that for the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the NASDAQ Capital Market. The notification conveyed by the Letter had no effect on the listing of the Company’s common stock as of the notice date, however the Company has 180 calendar days from the notice date to regain compliance. In order to regain compliance, the Company's common stock must have a closing bid price of $1.00 per share or greater for a minimum of ten consecutive business days during the grace period. If the minimum bid requirement cannot be demonstrated by the Company prior to the expiration of such grace period, NASDAQ may grant to the Company an additional 180 calendar day period to regain compliance if at that time the Company meets the NASDAQ Capital Market initial listing requirements except for the minimum bid price requirement. Otherwise, if the Company fails to regain compliance during the grace period and the staff does not elect to grant an additional compliance period, the Company's common stock may be subject to delisting.

Plan of Operation

Publicity and Promotion of Soobao

Since its inception, ZYTX has been making business preparations and development mainly in the Beijing area, with a sales mode focusing on marketing. The Company plans to continue to popularize www.soobao.cn and its insurance sales commission businesses in first and second-level cities across China. The Company plans to attempt to develop www.soobao.cn so that it is the largest network portal in China’s insurance industry and the first choice of network media for insurance companies to advertise and to promote their products and services. We are also planning to organize an insurance agency marketing program.

With respect to network promotion, we plan to set “hot-spot” key words for price competition of the relevant industries in popular search engines and release advertisements in the relevant columns of large portal websites. With respect to traditional media, we plan to launch an integrated vertical promotion campaign by means of LCD televisions installed in office buildings, elevator advertisements, public buses, radio stations and airplane media so as to popularize the www.soobao.cn brand.

Technical Development Plan

Our technical development plan consists of (a) developing applications of new technologies aimed at the network portal to meet the clients’ demand in online transactions, member score accumulation and other new functions, (b) building a two-way bridge for insurance providers and customers based on development and application of our insurance portal website (www.soobao.cn) while taking advantage of the Internet platform to connect traditional sales and marketing with e-commerce, (c) technical development aimed at comprehensive solutions in the Internet application field for insurance companies and insurance agencies, (d) the introduction of and continued R&D of a comprehensive life insurance real-time quotation system whereby all life insurance products may be thoroughly compared under certain scientific and quantifiable factors and (e) the introduction and continued R&D of an insurance statistical and data analysis system that can analyze a present and prospective customer’s “hot-points” of insurance through analyzing a large number of effective clicks.

Products and Services Plan

The Company intends to focus on its products and services in the following areas:

With respect to the Company’s motor vehicle insurance sales business, the Company plans to provide motor vehicle-owners with more value-added services following the purchase of motor vehicle insurance and the Company plans to improve its membership club programs in the area of motor vehicle insurance; and

The Company plans to gradually grow its property insurance and life insurance business as an insurance agent by utilizing third-party insurance brokers and by choosing cost-effective products. With online product optimization and the ability to compare products online in real-time, the Company will be able to choose more suitable insurance, enhance customer insurance purchasing efficiency and reduce costs.

Nationwide Marketing Network Construction Plan

To carry out insurance sales more effectively and to supplement the function and effect of www.soobao.cn, the Company is in the process of constructing a comprehensive chain insurance supermarket entity whereby the Company intends to establish branch sales agency locations in key cities throughout China in the form of a purchase or franchisee, and strive to establish a nationwide insurance marketing network system. The Company plans to set up subsidiaries and branches in every province and major city across China, provide prospective clients with a series of services such as one-to-one advisory on different products offered by different insurance companies, examination of life insurance, insurance site-sales, compensation and appreciation and claims settlement. As there will likely be many specialized clients in the transaction market, the Company plans to organize professional lectures on insurance, create an industry salon and release new products and services. It is our goal through such entity to (a) educate consumers with respect to insurance and insurance products, (b) provide objective and impartial information on each of the Company’s products, (c) offer personalized insurance programs to consumers, (d) offer after-sale one-stop compensation services including improved efficiency with claims settlements and (e) offer exposure to www.soobao.cn and enjoy the network value-added services which are not offered through more traditional insurance consumption.

Employees

With the anticipated business growth and nationwide business development as discussed above, the Company plans to employ up to two hundred (200) employees in the following two (2) to three (3) years through external introduction and internal training.

Cash Requirements

As of the date of this report, all of our capital is equity capital and we do not have any debt financing with any bank or other financial institutions. We believe our capital is sufficient to satisfy our cash requirements. As our business develops, the Company may consider raising additional funds if conditions are suitable.

Summary of Significant Accounting Policies

Use of Estimates

Fair Value of Financial Instruments

The Company adopted Accounting Standards Codification (“ASC”) 820 Fair Value Measurements (formerly Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements) on January 1, 2008 for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Revenue Recognition

Advertising

Advertising revenues are derived mainly from online advertising arrangements, which allow advertisers to place advertisements on particular areas of the Company’s websites, in particular formats and over particular periods of time. Such arrangements have generally included some combination of the following: website construction services, website advertising and website maintenance services. In accordance with ASC 605-25, “Multiple-Element Arrangement” (formerly Emerging Issues Task Force (“EITF”) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables), advertising arrangements involving multiple deliverables are broken down into single-element arrangements based on their relative fair value for revenue recognition purposes, when possible.

The details of revenue recognition of each type of advertising revenues are illustrated below:

Website construction services, which are usually included in new advertising contracts, mainly consist of fees for design and computer coding of the new website. The service fee is recognized when the website is completed and wired in the server.

Website advertising is recognized ratably over the displayed period of the advertisement, which is typically one year.

Website maintenance service is providing technically support and maintenance for the customers’ websites. Such services are generally on contract basis with service period for one year. Revenue is recognized ratably over the contact period.

Under the guidance of ASC 985-605 Software Revenue Recognition (formerly the Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions), the Company determines vendor-specific objective evidence (“VOSE”) based on actual prices charged when the service is sold on a standalone basis.

Software Development

Software development revenue is recognized in accordance with ASC985-605, when the outcome of a contract for software development can be estimated reliably, contract revenue and costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that costs incurred to date bear to estimated total costs for each contract. When the outcome of a contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred. Contract revenue is recognized to the extent of contract costs incurred that it is probable will be recoverable. Where it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

Insurance Commissions

Cash consideration includes discounts and other offers that entitle a customer to receive a reduction in the price of a product. For the six (6) months ended December 31, 2009 and 2008, the Company recognized $33,581 and $363,388, respectively, as a reduction of revenue for the discount offered to its customers.

Goodwill

In accordance with ASC 805 Business Combination (formerly SFAS No.141, Business Combination), the total purchase price in a business combination is allocated to their fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date, with amounts exceeding the fair values at the acquisition date being recorded as goodwill. In accordance with ASC 350, Intangibles – Goodwill and Other (formerly SFAS No.142, Goodwill and Other Intangible Assets), goodwill is not amortized. Instead, it is tested for impairment on an accrual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired. For the period ended December 31, 2009, the Company did not identify any potential impairment related to its goodwill.

Recent Accounting Pronouncements

Results of Operations For the Three (3) Months Ended December 31, 2009 Compared To the Three (3) Months Ended December 31, 2008

Our operating results are presented on a condensed consolidated basis for the three (3) months ended December 31, 2009, as compared to the three (3) months ended December 31, 2008.

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the three (3) months ended December 31, 2009 and 2008:

	2009					2008				Variance

REVENUES	$	3,660,041		100	%	$	3,876,754	108	%	$	(216,713	)	(6	)%
DISCOUNT ALLOWED		3,896		0	%		296,453	8	%		(292,557	)	(99	)%
REVENUES, NET		3,656,145		100	%		3,580,301	100	%		75,844		2	%
COST OF SALES		670,979		18	%		354,557	10	%		316,422		89	%
GROSS PROFIT		2,985,166		82	%		3,225,744	90	%		(240,578	)	(7	)%
Selling expenses		17,011		0	%		81,619	2	%		(64,608	)	(79	)%
Advertising expenses		-		0	%		991,134	28	%		(991,134	)	(100	)%
General and administrative expenses		323,817		9	%		348,978	10	%		(25,161	)	(7	)%
Allowance for doubtful accounts		884,234		24	%		646,740	18	%		237,494		37	%
INCOME FROM OPERATIONS		1,760,104		49	%		1,157,273	32	%		602,831		52	%
Loss on disposal of fixed assets		(2,834	)	0	%		-	0	%		(2,834	)	100	%
Interest income (expense), net		(215	)	0	%		22,932	1	%		(23,147	)	(101	)%
INCOME BEFORE TAXES		1,757,055		49	%		1,180,205	33	%		576,850		49	%
Income taxes		572,649		17	%		391,335	11	%		181,314		46	%
NET INCOME	$	1,184,406		32	%	$	788,870	22	%	$	395,536		50	%

Revenues

The Company’s consolidated revenues were $3,660,041 for the three (3) months ended December 31, 2009, which represents a $216,713 or 6% decrease from $3,876,754 for the three (3) months ended December 31, 2008. This decrease was primarily the result of a decline in our online advertising income, offset by the increase in our software development income.

	2009				2008				Variance

Software development	$	2,457,567	67	%	$	14,649	1	%	$	2,442,918		16,676	%
Online insurance advertising		1,181,752	32	%		3,565,037	91	%		(2,383,285	)	(67	)%
Insurance agency		19,162	1	%		297,068	8	%		(277,906	)	(94	)%
Others		1,560	0	%		-	0	%		1,560		100	%
Total Revenues	$	3,660,041	100	%	$	3,876,754	100	%	$	(216,713	)	(6	)%

Online insurance advertising revenue decreased by 67%, or $2,383,285, to $1,181,752 during the three (3) months ended December 31, 2009 from $3,565,037 during the three (3) months ended December 31, 2008. This decrease is due to the fact that insurance agents failed to renew their agreements with the Company to advertise on the Company’s website.

Software development revenues increased by $2,442,918, or 167 times, to $2,457,567 during the three (3) months ended December 31, 2009 from $14,649 during the three (3) months ended December 31, 2008. This significant increase was primarily due to our newly developed software packages that were successfully delivered and tested by our customers during the three (3) months ended December 31, 2009.

Revenue from our insurance agency services during the three (3) months ended December 31, 2009 decreased by $277,906, or 94%, to $19,162 from $297,068 during the same period in 2008. This decrease is mainly due to unfavorable market conditions.

Cost of Sales

The Company’s consolidated cost of sales (“COS”) during the three (3) months ended December 31, 2009 increased by $316,422, or 89%, from $354,557 or 10% of our net revenues to $670,979 or 18% of net revenues. This increase is primarily attributable to the significant increase in amortization of $402,280, or 100%, due to amortization of the application software for revenue earning activities that occurred during the three (3) months ended December 31, 2009.

	2009				2008				Variance

Business tax and levies	$	242,594	37	%	$	297,596	83	%	$	(55,002	)	(18	)%
Salaries and allowances		13,516	2	%		32,787	9	%		(19,271	)	(59	)%
Depreciation		3,232	0	%		3,480	1	%		(248	)	(7	)%
Amortization		402,280	60	%		-	0	%		402,280		100	%
Other		9,357	1	%		20,694	6	%		(11,337	)	(55	)%
Total Cost of Sales	$	670,979	100	%	$	354,557	100	%	$	316,422		89	%

Gross Profit

The Company’s consolidated gross profit during the three (3) months ended December 31, 2009 decreased by $240,578, or 7%, to $2,985,166 from $3,225,744 during the three (3) months ended December 31, 2008. This decrease is attributable to the significant increase in amortization of our software system.

Selling Expenses

Selling expenses decreased by $64,608 or 79%, to $17,011 for the three (3) months ended December 31, 2009, as compared to $81,619 for the three (3) months ended December 31, 2008. This decrease is primarily attributable to our efforts of reducing operating costs and reducing employee headcount in order to maintain our competitiveness in a turbulent market.

	2009				2008				Variance

Salaries and allowances	$	14,971	88	%	$	65,367	80	%	$	(50,396	)	(77	)%
Depreciation		743	4	%		675	1	%		68		10	%
Office expenses		-	0	%		1,394	2	%		(1,394	)	(100	)%
Other		1,297	8	%		14,183	17	%		(12,886	)	(91	)%
	$	17,011	100	%	$	81,619	100	%	$	(64,608	)	(79	)%

Advertising Expenses

No advertising and promotion expenses were incurred during the three (3) months ended December 31, 2009, as compared to $991,134, or 28% of our net revenue, during the three (3) months ended December 31, 2008. This 100% decrease is attributable to the suspension of our advertising and promotion campaign during the three (3) months ended December 31, 2009 in light of the global financial crisis and our belief that such campaign would not have yielded the improved sales.

General and Administrative Expenses

General and administrative (“G&A”) expenses were $323,817, or 9% of our net revenues, during the three (3) months ended December 31, 2009 as compared to $348,978, or 10% of our net revenues, during the three (3) months ended December 31, 2008. This decrease of $25,161 or 7% is mainly attributable to the decrease of amortization of our software system, which was classified into COS during the three (3) months ended December 31, 2009, and the decrease in the allowance for doubtful accounts.

	2009				2008				Variance

Salaries and allowances	$	69,084	22	%	$	74,682	21	%	$	(5,598	)	(7	)%
Rental		29,809	9	%		84,684	24	%		(54,875	)	(65	)%
Building management fee		26,374	8	%		10,586	3	%		15,788		149	%
Depreciation		7,883	2	%		18,704	5	%		(10,821	)	(58	)%
Amortization		-	0	%		100,973	29	%		(100,973	)	(100	)%
Travel & accommodations		65,548	20	%		21,014	7	%		44,534		212	%
Legal & professional fees		77,000	24	%		-	0	%		77,000		100	%
Other		48,119	15	%		38,335	11	%		9,784		26	%
	$	323,817	100	%	$	348,978	100	%	$	(25,161	)	(7	)%

Legal and professional fees were a major component of our G&A expenses, representing 24% and 0% of our total G&A expenses during the three (3) months ended December 31, 2009 and 2008, respectively. Legal and professional fees increased by $77,000, or 100%, during the three (3) months ended December 31, 2009. This increase was due to the increase in legal expenses in the United States by our management for consultation of operating activities.

Travel and accommodations have been a major component of our G&A expenses, representing 20% and 7% of our total G&A expenses during the three (3) months ended December 31, 2009 and 2008, respectively. Travel and accommodations increased by $44,534, or 212%, during the three (3) months ended December 31, 2009. This increase was due to the increase in travel to and from the United States by our management for investor relations activities.

Rental expense also decreased by $54,875, or 65%, to $29,809 during the three (3) months ended December 31, 2009 from $84,684 during the same period in 2008. This decrease is attributable to the reduction in rent for office space in the Beijing area.

Allowance for Doubtful Accounts

There was an allowance for doubtful accounts of $884,234 and $646,740 during the three (3) months ended December 31, 2009 and 2008, respectively. This increase is attributable to the outstanding receivables over 90 days which resulted from the impact of the global financial crisis. The Company will improve its credit control to reduce this in the future.

Interest Income (Expense), Net

Net interest expense during the three (3) months ended December 31, 2009 was $215, which represents a $23,147 or 101% decrease from $22,932 of net interest income during the three (3) months ended December 31, 2008.

Income Taxes

Income taxes during the three (3) months ended December 31, 2009 increased by $181,314, or 46%, to $572,649 from $391,335 during the three (3) months ended December 31, 2008. This increase is attributable to the increase in the operating income of our subsidiary NFA, which was subject to a CIT rate of 25%, and our subsidiary ZYTX, which was subject to a CIT rate of 15%, during the three (3) months ended December 31, 2009.

Net Income

Net income for the three (3) months ended December 31, 2009 increased by $395,536, or 50%, to $1,184,406 from $788,870 for the three (3) months ended December 31, 2008. This increase is primarily attributable to the increase in software development revenue of $2,442,918 for the three (3) months ended December 31, 2009.

Results by Segment

The Company determined that there were three (3) reportable business segments during the three (3) months ended December 31, 2009 and 2008 within the PRC, which are software development, online insurance advertising and insurance agency. Each segment is described below.

Software Development

	2009				2008				Variance

Revenues, net	$	2,457,567	100	%	$	14,649	100	%	$	2,442,918	16,676	%
COS		21,933	1	%		3,197	22	%		18,736	586	%
Gross profit	$	2,435,634	99	%	$	11,452	78	%	$	2,424,182	21,168	%

Revenues from software development during the three (3) months ended December 31, 2009 increased by $2,442,918, or 167 times, to $2,457,567 from $14,649 during the three (3) months ended December 31, 2008. This increase is attributable to the completion of five (5) projects during the three (3) months ended December 31, 2009.

Gross profit during the three (3) months ended December 31, 2009 increased by $2,424,182 or 212 times as a result of our increase in revenues. Details of COS are summarized as follows:

	2009				2008				Variance

Salaries and allowances	$	13,516	61	%	$	-	0	%	$	13,516		100	%
Depreciation		2,114	10	%		3,197	100	%		(1,083	)	(34	)%
Other		6,303	29	%		-	0	%		6,303		100	%
	$	21,933	100	%	$	3,197	100	%	$	18,736		586	%

Salaries and allowances were the major component of COS for software development income during the three (3) months ended December 31, 2009, which is 61% of COS. Salaries and allowances increased by $13,516, or 100%, to $13,516 during the three (3) months ended December 31, 2009 as compared to $0 during the three (3) months ended December 31, 2008.

Our Software Development segment is the only segment not subject to business tax and levies under existing PRC tax laws. As a result, no business tax and levy expenses were incurred during the three (3) months ended December 31, 2009 and 2008.

Online Insurance Advertising

	2009				2008				Variance

Revenues, net	$	1,181,752	100	%	$	3,565,037	100	%	$	(2,383,285	)	(67	)%
COS		144,900	12	%		234,787	7	%		(89,887	)	(38	)%
Gross profit	$	1,036,852	88	%	$	3,330,250	93	%	$	(2,293,398	)	(69	)%

Revenues from our online insurance advertising segment during the three (3) months ended December 31, 2009 decreased by $2,383,285, or 67%, to $1,181,752 from $3,565,037 during the three (3) months ended December 31, 2008. This decrease is due to the fact that insurance agents failed to renew their agreements with the Company to advertise on the Company’s website.

The Company maintained stable COS and GP ratios during December 31, 2009 and 2008.

	2009				2008				Variance

Business tax and levies	$	64,997	45	%	$	196,076	83	%	$	(131,079	)	(67	)%
Salaries and allowances		-	0	%		17,934	8	%		(17,934	)	(100	)%
Depreciation		1,118	1	%		83	0	%		1,035		1,247	%
Amortization		75,754	52	%		-	0	%		75,754		100	%
Other		3,031	2	%		20,694	9	%		(17,663	)	(85	)%
	$	144,900	100	%	$	234,787	100	%	$	(89,887	)	(38	)%

Amortization was the major component of COS for online advertising income during the three (3) months ended December 31, 2009, which increased by $75,754, or 100%, to $75,754 as compared with $0 during the three (3) months ended December 31, 2008.

Insurance Agency

	2009					2008					Variance

Revenues	$	19,162		126	%	$	297,068		48,304	%	$	(277,906	)	(94	)%
Discounts allowed		3,896		26	%		296,453		48,204	%		(292,557	)	(99	)%
Revenues, net		15,266		100	%		615		100	%		14,651		2,382	%
COS		327,636		2,146	%		33,513		5,449	%		294,123		878	%
Gross profit	$	(312,370	)	(2,046	)%	$	(32,898	)	(5,349	)%	$	(279,472	)	850	%

Our insurance agency revenue for the three (3) months ended December 31, 2009 decreased by $277,906, or 94%, to $19,162 from $297,068 during the three (3) months ended December 31, 2008. This decrease is attributable to the turbulence of the insurance agency market.

Revenue from our insurance agency business has been subject to business tax and levies during the three (3) months ended December 31, 2009 and 2008. The COS mainly consists of business tax and levies of 5.5% of gross revenue, net of returned commissions for cancelled policies, amounting to $1,091 for the three (3) months ended December 31, 2009, compared with $18,460 for the three (3) months ended December 31, 2008.

As the income from our insurance agency business has developed, the COS and GP ratios for both the three (3) months ended December 31, 2009 and 2008 fluctuated.

	2009				2008				Variance

Business tax and levies	$	1,091	0	%	$	18,460	55	%	$	(17,369	)	(94	)%
Salaries and allowances		-	0	%		14,853	44	%		(14,853	)	(100	)%
Depreciation		-	0	%		200	1	%		(200	)	(100	)%
Amortization		326,526	100	%		-	0	%		326,526		100	%
Other		19	0	%		-	0	%		19		100	%
	$	327,636	100	%	$	33,513	100	%	$	294,123		878	%

Except for business tax and levies, amortization was a major component of COS for the three (3) months ended December 31, 2009. As we commenced our usage of our new application software, amortization on such software was charged to COS.

Administration

	2009					2008					Variance

Revenues	$	1,560		0	%	$	-		0	%	$	1,560		100	%
COS		176,510		100	%		83,060		100	%		93,450		113	%
Gross profit	$	(174,950	)	(100	)%	$	(83,060	)	(100	)%	$	(91,890	)	111	%

Administration revenues included the inter-company service income from ZYTX to NFA and non-recurring supporting services to customers. The inter-company service income from ZYTX to NFA was eliminated in consolidation. Under relevant PRC tax laws, service income of NFA was subject to business tax and levies of 5.5% on revenue, which was recognized as a COS of administration.

Results of Operations For the Six (6) Months Ended December 31, 2009 Compared To the Six (6) Months Ended December 31, 2008

Our operating results are presented on a condensed consolidated basis for the six (6) months ended December 31, 2009, as compared to the six (6) months ended December 31, 2008.

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the six (6) months ended December 31, 2009 and 2008:

	2009					2008				Variance

REVENUES	$	8,817,137		100	%	$	9,397,053	104	%	$	(579,916	)	(6	)%
DISCOUNT ALLOWED		33,581		0	%		363,388	4	%		(329,807	)	(91	)%
REVENUES, NET		8,783,556		100	%		9,033,665	100	%		(250,109	)	(3	)%
COST OF SALES		1,232,407		14	%		790,413	9	%		441,994		56	%
GROSS PROFIT		7,551,149		86	%		8,243,252	91	%		(692,103	)	(8	)%
Selling expenses		32,745		0	%		165,893	2	%		(133,148	)	(80	)%
Advertising expenses		-		0	%		1,901,068	21	%		(1,901,068	)	(100	)%
General and administrative expenses		673,244		8	%		738,371	8	%		(65,127	)	(9	)%
Allowance for doubtful accounts		883,906		10	%		932,338	10	%		(48,432	)	(5	)%
INCOME FROM OPERATIONS		5,961,254		68	%		4,505,582	50	%		1,455,672		32	%
Loss on disposal of fixed assets		(5,306	)	0	%		-	0	%		(5,306	)	100	%
Interest income, net		49		0	%		22,818	0	%		(22,769	)	(100	)%
INCOME BEFORE TAXES		5,955,997		68	%		4,528,400	50	%		1,427,597		32	%
Income taxes		1,650,981		19	%		1,283,130	14	%		367,851		29	%
NET INCOME	$	4,305,016		49	%	$	3,245,270	36	%	$	1,059,746		33	%

Revenues

The Company’s consolidated revenues were $8,817,137 for the six (6) months ended December 31, 2009, which represents a $579,916 or 6% decrease from $9,397,053 for the six (6) months ended December 31, 2008. This decrease was primarily the result of a decline in our online advertising income, offset by the increase in our software development income.

	2009				2008				Variance

Software development	$	6,814,290	77	%	$	1,931,361	20	%	$	4,882,929		253	%
Online insurance advertising		1,937,793	22	%		7,098,892	76	%		(5,161,099	)	(73	)%
Insurance agency		61,770	1	%		366,800	4	%		(305,030	)	(83	)%
Others		3,284	0	%		-	0	%		3,284		100	%
Total Revenues	$	8,817,137	100	%	$	9,397,053	100	%	$	(579,916	)	(6	)%

Online insurance advertising revenue decreased by 73%, or $5,161,099, to $1,937,793 during the six (6) months ended December 31, 2009 from $7,098,892 during the six (6) months ended December 31, 2008. This decrease is due to the fact that insurance agents failed to renew their agreements with the Company to advertise on the Company’s website.

Software development projects increased by $4,882,929, or 253%, to $6,814,290 during the six (6) months ended December 31, 2009 from $1,931,361 during the six (6) months ended December 31, 2008. This significant increase was primarily due to our newly developed software packages that were successfully delivered and tested by our customers during the six (6) months ended December 31, 2009.

Revenue from our insurance agency services during the six (6) months ended December 31, 2009 decreased by $305,030, or 83%, to $61,770 from $366,800 during the same period in 2008. This decrease is mainly due to unfavorable market conditions.

Cost of Sales

The Company’s consolidated cost of sales (“COS”) during the six (6) months ended December 31, 2009 increased by $441,994, or 56%, from $790,413 or 9% of our net revenues to $1,232,407 or 14% of net revenues. This increase is primarily attributable to the significant increase in amortization of $620,778, or 100%, due to amortization of the application software for revenue earning activities that occurred during the six (6) months ended December 31, 2009.

	2009				2008				Variance

Business tax and levies	$	545,325	44	%	$	694,217	88	%	$	(148,892	)	(21	)%
Salaries and allowances		31,440	3	%		66,704	8	%		(35,264	)	(53	)%
Depreciation		6,685	1	%		5,794	1	%		891		15	%
Amortization		620,778	50	%		-	0	%		620,778		100	%
Others		28,179	2	%		23,698	3	%		4,481		19	%
Total Cost of Sales	$	1,232,407	100	%	$	790,413	100	%	$	441,994		56	%

Gross Profit

The Company’s consolidated gross profit during the six (6) months ended December 31, 2009 decreased by $692,103, or 8%, to $7,551,149 from $8,243,252 during the six (6) months ended December 31, 2008. This decrease is primarily attributable to the significant increase in amortization of our software system.

Selling Expenses

Selling expenses decreased by $133,148 or 80%, to $32,745 for the six (6) months ended December 31, 2009, as compared to $165,893 for the six (6) months ended December 31, 2008. This decrease is primarily attributable to our efforts of reducing operating costs and reducing employee headcount in order to maintain our competitiveness in a turbulent market.

	2009				2008				Variance

Salaries and allowances	$	30,868	94	%	$	135,685	82	%	$	(104,817	)	(77	)%
Depreciation		1,485	5	%		1,276	1	%		209		16	%
Office expenses		286	1	%		2,069	1	%		(1,783	)	(86	)%
Other		106	0	%		26,863	16	%		(26,757	)	(100	)%
	$	32,745	100	%	$	165,893	100	%	$	(133,148	)	(80	)%

Advertising Expenses

No advertising and promotion expenses were incurred during the six (6) months ended December 31, 2009, as compared to $1,901,068, or 21% of our net revenue, during the six (6) months ended December 31, 2008. This 100% decrease is attributable to the suspension of our advertising and promotion campaign during the six (6) months ended December 31, 2009 in light of the global financial crisis and our belief that such campaign would not have yielded improved sales.

General and Administrative Expenses

General and administrative (“G&A”) expenses were $673,244, or 8% of our net revenues, during the six (6) months ended December 31, 2009 as compared to $738,371, or 8% of our net revenues, during the six (6) months ended December 31, 2008. This decrease of $65,127 or 9% is mainly attributable to the decrease of amortization of our software system, which was classified into COS during the six (6) months ended December 31, 2009, and the decrease in the allowance for doubtful accounts.

	2009				2008				Variance

Salaries and allowances	$	125,985	18	%	$	135,785	18	%	$	(9,800	)	(7	)%
Rental		58,797	9	%		155,187	21	%		(96,390	)	(62	)%
Building management fee		26,363	4	%		21,105	3	%		5,258		25	%
Depreciation		40,029	6	%		46,503	6	%		(6,474	)	(14	)%
Amortization		-	0	%		201,319	27	%		(201,319	)	(100	)%
Travel & accommodations		126,888	19	%		86,194	12	%		40,694		47	%
Legal & professional fees		129,826	19	%		5,841	1	%		123,985		2,123	%
Other		165,356	25	%		86,437	12	%		78,919		91	%
	$	673,244	100	%	$	738,371	100	%	$	(65,127	)	(9	)%

Legal and professional fees were a major component of our G&A expenses, representing 19% and 1% of our total G&A expenses during the six (6) months ended December 31, 2009 and 2008, respectively. Legal and professional fees increased by $123,985, or 2,123%, during the six (6) months ended December 31, 2009. This increase was due to the increase in legal expenses in the United States by our management for consultation of operating activities.

Travel and accommodations have been a major component of our G&A expenses, representing 19% and 12% of our total G&A expenses during the six (6) months ended December 31, 2009 and 2008, respectively. Travel and accommodations increased by $40,694, or 47%, during the six (6) months ended December 31, 2009. This increase was due to the increase in travel to and from the United States by our management for investor relations activities.

Rental expense also decreased by $96,390, or 62%, to $58,797 during the six (6) months ended December 31, 2009 from $155,187 during the same period in 2008. This decrease is attributable to the reduction in rent for office space in the Beijing area.

Allowance for Doubtful Accounts

There was an allowance for doubtful accounts of $883,906 and $932,338 during the six (6) months ended December 31, 2009 and 2008, respectively. This decrease is attributable to the outstanding receivable over 90 days resulted from the impact of the global financial crisis. The Company will improve its credit control to reduce this in the future.

Interest Income, Net

Net interest income during the six (6) months ended December 31, 2009 was $49, which represents a $22,769 or 100% decrease from $22,818 of net interest income during the six (6) months ended December 31, 2008.

Income Taxes

Income taxes during the six (6) months ended December 31, 2009 increased by $367,851, or 29%, to $1,650,981 from $1,283,130 during the six (6) months ended December 31, 2008. This increase is attributable to the increase in operating income of our subsidiary NFA, which was subject to a CIT rate of 25%, and our subsidiary ZYTX, which was subject to a CIT rate of 15%, during the six (6) months ended December 31, 2009.

Net Income

Net income for the six (6) months ended December 31, 2009 increased by $1,059,746, or 33%, to $4,305,016 from $3,245,270 for the six (6) months ended December 31, 2008. This increase is attributable to the increase in software development revenue of $4,882,929 for the six (6) months ended December 31, 2009.

Results by Segment

The Company determined that there were three (3) reportable business segments during the six (6) months ended December 31, 2009 and 2008 within the PRC, which are software development, online insurance advertising and insurance agency. Each segment is described below.

Software Development

	2009				2008				Variance

Revenues, net	$	6,814,290	100	%	$	1,931,361	100	%	$	4,882,929	253	%
COS		57,692	1	%		32,236	2	%		25,456	79	%
Gross profit	$	6,756,598	99	%	$	1,899,125	98	%	$	4,857,473	256	%

Revenues from software development during the six (6) months ended December 31, 2009 increased by $4,882,929, or 253%, to $6,814,290 from $1,931,361 during the six (6) months ended December 31, 2008. This increase is attributable to the completion of eight (8) projects during the six (6) months ended December 31, 2009.

Gross profit during the six (6) months ended December 31, 2009 increased by $4,857,473 or 256% as a result of our increase in revenue. Details of COS are summarized as below:

	2009				2008				Variance

Salaries and allowances	$	31,440	54	%	$	23,986	74	%	$	7,454		31	%
Depreciation		4,373	8	%		5,181	16	%		(808	)	(16	)%
Other		21,879	38	%		3,069	10	%		18,810		613	%
	$	57,692	100	%	$	32,236	100	%	$	25,456		79	%

Salaries and allowances were major components of COS for software development income for both the six (6) months ended December 31, 2009 and 2008. Salaries and allowances increased by $7,454, or 31%, to $31,440 during the six (6) months ended December 31, 2009 as compared to $23,986 during the six (6) months ended December 31, 2008.

Online Insurance Advertising

	2009				2008				Variance

Revenues, net	$	1,937,793	100	%	$	7,098,892	100	%	$	(5,161,099	)	(73	)%
COS		266,564	14	%		439,192	6	%		(172,628	)	(39	)%
Gross profit	$	1,671,229	86	%	$	6,659,700	94	%	$	(4,988,471	)	(75	)%

Revenues from our online insurance advertising segment during the six (6) months ended December 31, 2009 decreased by $5,161,099, or 73%, to $1,937,793 from $7,098,892 during the six (6) months ended December 31, 2008. This decrease is due to the fact that insurance agents failed to renew their agreements with the Company to advertise on the Company’s website.

The Company maintained stable COS and GP ratios during December 31, 2009 and 2008.

	2009				2008				Variance

Business tax and levies	$	106,579	40	%	$	390,439	89	%	$	(283,860	)	(73	)%
Salaries and allowances		-	0	%		27,909	6	%		(27,909	)	(100	)%
Depreciation		2,312	1	%		215	0	%		2,097		976	%
Amortization		151,452	57	%		-	0	%		151,452		100	%
Other		6,221	2	%		20,629	5	%		(14,408	)	(70	)%
	$	266,564	100	%	$	439,192	100	%	$	(172,628	)	(39	)%

Amortization was the major component of COS for online advertising income during the six (6) months ended December 31, 2009, which increased by $151,452, or 100%, to $151,452 as compared with $0 during the six (6) months ended December 31, 2008.

Insurance Agency

	2009					2008					Variance

Revenues	$	61,770		219	%	$	366,800		10,750	%	$	(305,030	)	(83	)%
Discounts allowed		33,581		119	%		363,388		10,650	%		(329,807	)	(91	)%
Revenues, net		28,189		100	%		3,412		100	%		24,777		726	%
COS		472,923		1,678	%		37,389		1096	%		435,534		1,165	%
Gross profit	$	(444,734	)	(1,578	)%	$	(33,977	)	(996	)%	$	(410,757	)	1,209	%

Our insurance agency revenue for the six (6) months ended December 31, 2009 decreased by $305,030, or 83%, to $61,770 from $366,800 during the six (6) months ended December 31, 2008. This decrease is attributable to the turbulence of the insurance agency market.

Revenue from our insurance agency business has been subject to business tax and levies during the six (6) months ended December 31, 2009 and 2008. The COS mainly consists of business tax and levies of 5.5% of gross revenue, net of returned commissions for cancelled policies, amounting to $3,529 for the six (6) months ended December 31, 2009, compared with $22,182 for the six (6) months ended December 31, 2008.

As the income from our insurance agency business has developed, the COS and GP ratios for both the six (6) months ended December 31, 2009 and 2008 fluctuated.

	2009				2008				Variance

Business tax and levies	$	3,529	1	%	$	22,182	59	%	$	(18,653	)	(84	)%
Salaries and allowances		-	0	%		14,809	40	%		(14,809	)	(100	)%
Depreciation		-	0	%		398	1	%		(398	)	(100	)%
Amortization		469,326	99	%		-	0	%		469,326		100	%
Other		68	0	%		-	0	%		68		100	%
	$	472,923	100	%	$	37,389	100	%	$	435,534		1,165	%

Except for business tax and levies, amortization was a major component of COS for the six (6) months ended December 31, 2009. As we commenced our usage of our new application software, amortization on such software was charged to COS.

Administration

	2009					2008					Variance

Revenues	$	3,284		0	%	$	-		0	%	$	3,284		100	%
COS		435,228		100	%		281,596		100	%		153,632		55	%
Gross profit	$	(431,944	)	(100	)%	$	(281,596	)	(100	)%	$	(150,348	)	53	%

Material Commitments

Lease Commitments

Year Ending June 30,	Amount

2010	$	51,400
2011		92,504
2012		7,576
	$	151,480

Purchase of Electronic Products

Payment Due Dates	Amount

On or before April 20, 2010	$	702,042

Expected Product Delivery Dates	Units

February 20, 2010		20,000
April 20, 2010		20,000
May 20, 2010		30,000
		70,000

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources

As of December 31, 2009, the Company had $424,796 in bank deposits with a bank in China, which constituted approximately 98.2% of its total cash and cash equivalents.

Set forth below is a summary of our Statement of Cash Flows during the three (3) months ended September 30, 2009:

	2009			2008			Variance

Net cash (used in) provided by
Operating activities	$	(316,860	)	$	2,804,856		$	(3,121,716	)	(111	)%
Investing activities		(724,083	)		(4,805,537	)		4,081,454		(85	)%
Financing activities		274,440			77			274,363		356,316	%
Net change in cash and cash equivalents		(766,503	)		(2,000,604	)		1,234,101		(62	)%

Effect of exchange rate changes on cash and cash equivalents		(18,207	)		28,417			(46,624	)	(164	)%

Cash and cash equivalents at beginning of period		1,217,085			4,567,853			(3,350,768	)	(73	)%

Cash and cash equivalents at end of period	$	432,375		$	2,595,666		$	(2,163,291	)	(83	)%

Cash flows used in operating activities during the six (6) months ended December 31, 2009 were equal to $316,860, representing a decrease of $3,121,716 or 111%, as compared with cash flows provided by operating activities of $2,804,856 during the six (6) months ended December 31, 2008. The major decrease in cash flows from operating activities was primarily due to the prepayment for electronic products that will be inventoried upon receipt.

Cash flows used in investing activities was $724,083 during the six (6) months ended December 31, 2009, which represented a decrease of $4,081,454 or 85%, as compared to $4,805,537 at December 31, 2008. This decrease is mainly attributable to our acquisition of GHIA during the six (6) months ended December 31, 2009.

For the six (6) months ended December 31, 2009, cash provided by financing activities was $274,440, which represented an increase of $274,363, or 3,563 times, as compared to $77 for the six (6) months ended December 31, 2008. This amount represented an advance from a director to the Company for operating expenses of the Company.

Liquidity

The primary source of liquidity had been cash generated from operations, which included cash inflows from currency translation activities. Historically, the primary liquidity requirements were for capital expenditures, working capital and investments. Our contractual obligations, commitments and debt service requirements over the next 12 months are shown below.

Taxation

Of the $8,255,435 of income taxes payable at December 31, 2009, $8,249,156 represents the amount of income taxes payable by NFA. Of the $8,249,156 of income taxes payable, $4,508,167 was due on April 30, 2009 and $3,740,989 is due on April 30, 2010. The Company has been negotiating with the tax authorities to defer the payment of CIT due on April 30, 2009 without interest or penalties, and the Company is awaiting the final ruling from the tax authorities.

Of the $2,593,083 of business tax payable at December 31, 2009, $1,495,788 was due on April 30, 2009 and $1,097,295 is due on April 30, 2010. The Company has been negotiating with the tax authorities to defer the payment of business tax due on April 30, 2009 without interest or penalties, and the Company is awaiting the final ruling from the tax authorities.

If the response from the tax authorities is adverse, the Company may have a shortage of working capital and may need additional funding to maintain its operations.

Commitments

As of December 31, 2009, the Company had outstanding commitments equal to $702,042 (Rmb4,800,000) with respect to the purchase of electronic products of $20,476,219 (Rmb140,000,000) due within one year and the details are stated in the “Material Commitments” subsection above.

If the Company is unable to fulfill its contractual commitment to purchase electronic products, this would cause a loss on prepayments made.

Our primary source of liquidity will continue to be cash generated from operations as well as existing cash on hand. We may look for to our credit facilities to assist, if required, in meeting our working capital needs and other contractual obligations.

Our current cash and cash equivalents and cash generated from operations may not satisfy our expected working capital and other requirements for the foreseeable future based on our current business strategy and expansion plan. However, we believe we will have available resources to meet our short-term liquidity requirements.

As of December 31, 2009, all of our capital is equity capital and we have not made any debt financing with any bank or other financial institutions. We believe our capital is sufficient to satisfy our cash requirements for the next twelve (12) months. As for our business development, the Company may consider raising additional funds for the following future business plans if conditions are suitable:

To expand our operations in different cities in the PRC;

To acquire companies which would add value to our business expansion;

To expand our online insurance sales supermarket; and

To acquire equipment to continually upgrade the existing network portal hardware environment and to strengthen its network security inputs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain market risks in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading purposes. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. A discussion of the Company’s primary market risk exposure and credit risk is presented below.

As of December 31, 2009, accounts receivable consist primarily of insurance agency of 100% and as of June 30, 2009, accounts receivable consist primarily of software development clients and insurance agents of online insurance advertising, approximately 15% and 84%, respectively. Regarding the Company’s online advertising and insurance agency operations, no individual customer accounted for more than 10% of total net revenues for the six months ended December 31, 2009 and year ended June 30, 2009.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, principally our chief financial officer and chief executive officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report in order to determine whether the information required to be disclosed by us in our reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure. Based on that evaluation, our management concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective. We have identified as a material weakness the fact that there is a lack of sufficient accounting staff at the Company which results in a lack of effective controls which are necessary for a good system of internal control over financial reporting.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) for the Company. Although there were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, management had assessed its controls for its financial reporting as of June 30, 2009 and had identified the following material weaknesses, which continue to exist as of December 31, 2009:

There is a weakness on the control of the financial statements closing system. This resulted primarily from the fact that certain parts of the work of our accounting staff may not be monitored or reviewed correctly.

As a result of the material weakness in our internal control over financial reporting, our management concluded that our internal control over financial reporting as of June 30, 2009 was not effective based on the criteria set forth by COSO in Internal Control – Integrated Framework. A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management’s Plan for Remediation of Material Weaknesses

In light of the conclusion that our internal control over financial reporting was not effective, our management is in the process of implementing a plan intended to remediate such ineffectiveness and to strengthen our internal controls over financial reporting through the implementation of certain remedial measures, which include:

Improving the control and oversight of the duties relating to the systems we use in the evaluation and processing of certain accounts and areas in the posting and recording of journal entries into certain accounts (in which material weaknesses have been identified as described above). This improvement should include reviews by management of the accounting processes as well as a reorganization of some of the accounting functions.

The segregation of duties relating to the preparation of financial statements and the reviewing of financial statements in the reporting controls.

We will begin implementing additional oversight and review of certain accounts and postings, and also financial reporting on or before March 15, 2010.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are named as a defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of December 31, 2009, there was no such outstanding litigation.

ITEM 1A. RISK FACTORS

As a small reporting company, we are not required to provide information required by this item.

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

During the quarter ended December 31, 2009, the Company had no unregistered sales of equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits:

EXHIBIT NO.	DESCRIPTION	LOCATION
3.1	Certificate of Incorporation (as amended) of Dexterity Surgical, Inc.	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

3.2	Certificate of Amendment to the Company’s Certificate of Incorporation, dated February 26, 2008	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008

3.3	Amended and Restated Bylaws of the Company	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008

3.4	Certificate of Incorporation of Rise and Grow Limited	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

3.5	Certificate of Incorporation of ZBDT (Beijing) Technology Co., Ltd.	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

3.6	Company Charter of ZBDT (Beijing) Technology Co., Ltd.	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.1	Share Exchange Agreement, dated December 17, 2007, by and among Dexterity Surgical, Inc., Rise and Grow Limited and Newise Century Inc.	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.2	Exclusive Technology Consultation Service Agreement, dated September 28, 2007, by and between ZBDT and ZYTX	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.3	Exclusive Interest Purchase Agreement, dated September 28, 2007, by and between ZBDT and Zhenyu Wang	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.4	Exclusive Interest Purchase Agreement, dated September 28, 2007, by and between ZBDT and Junjun Xu	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.5	Equity Interest Pledge Agreement, dated September 28, 2007, by and between ZBDT and Zhenyu Wang	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.6	Equity Interest Pledge Agreement, dated September 28, 2007, by and between ZBDT and Junjun Xu	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.7	Power of Attorney, dated September 28, 2007, executed by Zhenyu Wang in favor of ZBDT	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.8	Power of Attorney, dated September 28, 2007, executed by Junjun Xu in favor of ZBDT	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2007

10.9	Share Purchase Agreement, effective as of October 28, 2008, by and among Rise and Grow Limited, ZYTX Technology Co., Ltd., Bian Yong and Li Zhong	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 3, 2008

14.1	Code of Ethics	Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on September 29, 2008

16.1	Auditor’s Letter	Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on September 29, 2008

31.1	Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith

31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith

32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith

32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith

99.1	Audit Committee Charter of the Company	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 27, 2008

99.2	Compensation Committee Charter of the Company	Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 27, 2008

99.3	Corporate Governance and Nominating Committee Charter of the Company	Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on February 27, 2008

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 16, 2010	By:	/s/ Junjun Xu
	Name:	Junjun Xu
	Its:	Chief Executive Officer


Date: February 16, 2010	By:	/s/Mingfei Yang
	Name:	Mingfei Yang
	Its:	Chief Financial Officer and
		Principal Accounting Officer