2014

Chardan 2008 Announces Its Acquisition

TORTOLA, British Virgin Islands, Dec. 14 /PRNewswire-FirstCall/ --

Acquisition Target Company Highlights

  • One of the largest providers of processing services for mortgage lenders and servicers in Florida and one of the largest judicial mortgage foreclosure processing services companies in the U.S.;
  • Provides a wide range of processing services in connection with mortgage defaults, title searches and abstracts, REOs (bank-owned properties), loan modifications, title insurance, evictions, bankruptcy, etc.
  • Blue-chip client base: Services provided for all of the top 10, and 17 of the top 20, mortgage lenders in the United States, many for more than 10 years;
  • Strong financial performance:
    • Company is providing pro forma net income guidance of $42.7 million or $2.21 per share* in 2009 and $49.0 million or $2.54 per share* in 2010, on a non-GAAP basis excluding one-time transaction expenses (*EPS calculated using Treasury Method assuming a common share price of $7.89)
    • Revenues increased from approximately $116 million in 2007 to an estimated $259 million in 2009; EBITDA adjusted on a pro forma basis increased from approximately $44 million in 2007 to an estimated $68 million in 2009; Net Income adjusted on a pro forma basis increased from approximately $28 million in 2007 to an estimated $43 million in 2009, excluding one-time transaction expenses related to the business combination;
    • For the six months ended June 30, 2009, the company generated revenue of approximately $117 million, EBITDA adjusted on a pro forma basis of approximately $35 million and net income adjusted on a pro forma basis of approximately $22 million;
  • Compelling purchase price: Assuming a share price of $7.89 (estimated liquidation value of CACA), CACA shares trade at a PE of 4.3X 2010 projected pro forma net income per share, excluding one-time expenses related to the business combination, on a fully diluted basis;
  • Strong growth drivers for 2010 and beyond:
    • Current business is increasing at approximately 20% per year as there is an increasing market demand for its services as volume of delinquencies, foreclosures and loan modifications are increasing and are expected to remain at historically high levels;
    • The company plans to leverage its infrastructure to expand its service offerings, enter new geographic regions, and develop its cyclical business segments such as mortgage origination services;

Chardan 2008 China Acquisition Corp. (Nasdaq: CACA, CACAW, CACAU) ("Chardan") today announced that it has signed a definitive agreement to enter into a business combination with DAL Group, LLC ("DAL"), which, following the closing, will be one of the largest providers of mortgage processing services in Florida. At the closing of the business combination with Chardan, DAL will own 100% of the business and operations of Default Servicing, Inc. ("DSI") and Professional Title & Abstract Company of Florida ("PTA") and the non-legal operations supporting the foreclosure and other legal proceedings handled by the Law Offices of David J. Stern, P.A. ("DJS") (collectively referred to as the "Company").

Upon consummation of the transaction, Chardan will change its name to DJSP Enterprises, Inc. ("DJSP"), and its stock is expected to continue to trade on NASDAQ under the symbols DJSP, DJSPU, and DJSPW.

The closing of the acquisition is subject to customary closing conditions, including approval of the acquisition agreement by holders of a majority of Chardan's outstanding ordinary shares.

Business Overview

Following the closing of the business combination, DJSP will be one of the largest providers of processing services for the mortgage and real estate industries in Florida and one of the largest in the United States. The Company provides a wide range of processing services in connection with mortgages, mortgage defaults, title searches and abstracts, REO (bank-owned) properties, loan modifications, title insurance, loss mitigation, bankruptcy, related litigation and other services. DJS's clients include all of the top 10 and 17 of the top 20 mortgage servicers in the United States, many of which have been customers of DJS for more than 10 years. The Company has approximately 1000 employees and is headquartered in Plantation, Florida, with additional operations in Louisville, Kentucky and San Juan, Puerto Rico. In addition, the Company's U.S. operations are supported by a scalable, low-cost back office operation in Manila, the Philippines that provides data entry and document preparation support at a low cost.

The Company has experienced rapid growth over the past four years, increasing revenues from approximately $40 million in 2006 to approximately $199 million in 2008, while increasing net income, on a pro forma basis, for the same two periods from approximately $7 million to approximately $39 million. The Company had revenues of approximately $117 million for the 6 months ended June 30, 2009 and an adjusted pro forma net income for that period of $22 million, signaling continued growth.

DJSP's principal market, Florida, currently ranks second among the 50 states in the number of mortgage loan foreclosures according to September 2009 data from the Mortgage Bankers Association ("MBA"). According to RealtyTrac, 8 of the top 25 U.S. metropolitan areas ranked by foreclosure rates in the second quarter of 2009 were in Florida.

The Company has invested heavily in its infrastructure and state-of-the-art information technology systems in recent years, enabling it to manage effectively and efficiently the large volumes of data it needs to meet its customers' needs. The Company's highly skilled staff, scalable proprietary processes and more than decade long experience in large-scale, efficient processing services has uniquely positioned the Company to capitalize on the rapidly increasing demand for efficient loan default processing services as a result of the historically unprecedented default volumes

DJSP Outlook and Strategy

Mr. Kerry Propper, Chardan's CEO, commented that, "We are thrilled to be combining with DAL. As one of the largest providers of processing services to mortgage lenders in Florida, and with its plan to expand its cyclical business segments and enter new geographic areas in the near term, this business combination represents a phenomenal opportunity for Chardan. The acquisition should generate significant value for our shareholders. David J. Stern, who will be DJSP's CEO, has an impressive record building this business by continually strengthening the customer relationships on which it is based. After almost a year of interaction, we are continually more impressed with his exceptional management team and are convinced that they will be able to continue to capitalize on the market opportunities available to DJSP."

Mr. Propper further commented that "Chardan is very pleased to have found a merger target of this caliber. It is both well-positioned as a leader in its industry and has a strong fundamental outlook. We agree with forecasts that mortgage default levels will remain elevated for the next several years. The upcoming option ARM loan resets, combined with a generally overleveraged population, continuing stagnation in real estate values, and persistent high unemployment will lead to sustained high levels of mortgage defaults. The November Mortgage Monitor Report, released by Lender Processing Services, reveals significant nationwide loan deterioration and indicates that for every 1 loan that improved, more than 3 loans have deteriorated. The report also revealed that Florida leads the nation in delinquencies and foreclosure rate, now approximating 23%."

Mr. David J. Stern commented, "I am very excited about becoming the CEO of a NASDAQ-listed company. This will enable us to leverage our well-developed platform and decade-long experience to capitalize on the increasing business opportunities we have at hand.

Today, approximately one in seven households with mortgages in the United States is behind on mortgage payments or is in foreclosure, up from one in ten households a year ago. In addition, about 25% of residential mortgage loans in the U.S. are currently "under water," with homeowners owing more on their mortgage loan than their home is worth. We believe this trend will persist as other macro-economic trends, such as high unemployment, ongoing option ARM resets and high levels of consumer debt will continue to hinder the ability of homeowners to meet their mortgage obligations. We believe that home prices will remain near current depressed levels for at least the next few years and that foreclosure rates will remain at historically high levels for years to come."

Mr. Stern continued, "We anticipate that our growth will come from a number of areas. First, we anticipate a significant increase in business next year from services related to REO (bank owned) properties. This business involves helping banks dispose of properties that they have come to own through foreclosure. In 2008 and 2009 we provided REO processing services to only one client, but we have begun actively marketing this service to other clients. As a result, we expect meaningful increases from this portion of our business to occur in 2010 and beyond."

"Second, we expect growth in foreclosure file volumes in Florida due to declining home values, high unemployment rates and the forthcoming upward resets of adjustable rate mortgages. In addition, we believe the Company is well positioned to capitalize on the expanding loan modification efforts. As a large-scale operation, we plan to leverage our experience in mortgage default operations across multiple states and assist with broad loan modification efforts nationally."

"Third, many of DJS's customers, which include the top mortgage servicers in the United States, have expressed a preference to use fewer firms to handle their foreclosure files. We expect this will result in our being able to increase our market share substantially."

"We are also planning to leverage our existing platform and customer base to expand geographically and to increase our service offerings to include additional ancillary revenue generating services. And finally, we are planning to add cyclical business lines such as mortgage origination processing services, other consumer lending services, and legal process outsourcing to our repertoire, all of which will further enhance our growth in the future. "

DJSP Financial Outlook & Guidance

Chardan projects the following pro forma adjusted financial results for the years ending December 31, 2009 and 2010:



    In USD
     millions     YE Dec. 31, 2009      YE Dec. 31, 2010
                  ----------------      ----------------
    EBITDA                     $67.8                $80.6
    Net
     Income**                  $42.7                $49.0
    EPS*                       $2.21                $2.54


*Calculated using treasury stock method assuming a common share price of $7.89; Assumes 19.3 million shares outstanding

*Calculated on a fully diluted basis (26.71 million shares outstanding), projected pro forma EPS is $1.60 and $1.84 for 2009 & 2010, respectively, excluding one time expenses related to the business combination

**Net Income presented on a non-GAAP basis excluding one-time transaction expenses associated with the business combination

The Transaction

Summary

Assuming no redemptions by Chardan shareholders, the current owners of the Company (the "Stern Parties") will receive and the current owners of DAL will continue to own, the following at the close of the business combination:

  • Cash - Approximately $59 million paid at closing
  • Seller Note - Note in the amount of approximately $52 million; 3% annual interest; Term of 36 months;
  • Post Closing Consideration - Deferred payment in the amount of approximately $35 million; 0% interest for 6 months; 3% interest from 6 months to 18 months; 8% after 18 months; term of 60 months; paid after other Seller Note has been paid in full
  • 2,700,000 Common LLC interests in DAL ("DAL Common Shares")
  • 1,666,667 Series A Preferred LLC interests in DAL ("Series A Preferred Shares")
  • 3,900,00 Contingent Series B Preferred Earn-Out LLC interests in DAL ("Series B Preferred Shares")

DAL Common Shares

The 2,700,000 Common Shares to be held by the Stern Parties and the current owners of DAL are convertible on a 1-for-1 basis into Chardan ordinary shares.

Series A Preferred Shares

The 1,666,667 Series A Shares of DAL to be held by the Stern Parties are convertible on a 1-for-1 basis into DAL Common Shares or Series A Preferred Shares of Chardan. The Series A Preferred Shares have a liquidation preference of $15 per share until conversion. The Chardan Series A Preferred Shares also have a liquidation preference of $15 per share until conversion and are convertible into Chardan ordinary shares on a 1-for-1 basis.

Earn-Out Shares - Series B Preferred

The 3,900,000 Series B Preferred Shares to be held by the Stern Parties and the current owners of DAL are divided into five sub-classes and each subclass is automatically convertible into common shares of DAL on a 1-for-1 basis only if Chardan's stock trades above that subclass' price target for 10 out of 20 consecutive trading days. The Series B Preferred Shares are canceled if the trading price target is not reached by the 5th anniversary of the closing of the business combination. Any DAL common shares received upon conversion are exchangeable on a 1-for-1 basis for Chardan ordinary shares. The number of shares and the price target for each subclass is below:



    Share Price Target  $10.00  $12.50  $15.00  $17.50  $20.00   Total
    ------------------  ------  ------  ------  ------  ------   -----
     Series B Shares   750,000 750,000 800,000 800,000 800,000 3,900,000
    ---------------    ------- ------- ------- ------- ------- ---------


Cash and Seller Notes

In addition to the equity interests described above, the Stern Parties will receive approximately $111 million from DAL (the "Initial Consideration") and the right to receive another $35 million from DAL in post-closing cash (the "Post Closing Cash").

A portion of the Initial Consideration will be paid from the Chardan trust account ($54.3 million). The Stern Parties will receive a note for the portion of the Initial Consideration (the "Seller Note") that is not paid for at closing. The Seller Note will bear interest at 3% per annum, be secured by all of the assets of DAL, and will have priority over all other debt obligations of DAL, except for DJSP's line of credit, which will have a senior secured position. The Post-Closing Cash will be paid only after the Seller Note has been paid in full. The principal source of funds to pay the Post Closing Cash and the Seller Note will be the proceeds from the exercise of the DAL warrants and DAL's free positive cash flow from operations.

Chardan Ownership Structure Following the Transaction

The following provides a summary of Chardan's ownership structure after the transaction with DAL:




                                                                  Contingent
                                                                   Earn out
                                                                   Shares -
                                                                   Series B
                            Common      Series A*      Warrants   Preferred*
    ------------------------------------------------------------------------
    DJSP Management/DAL
     Owners                2,700,000*   1,666,667                  3,900,000
    CACA Shareholders      6,875,000                  6,875,000
    CACA Management        2,524,676                  4,291,666
    Other Investors        1,500,000
    Underwriters Option                                 275,000
    ------------------------------------------------------------------------
    Total                 13,599,676    1,666,667    11,441,666    3,900,000
    ------------------------------------------------------------------------


                                   TOTAL
                          -----------------------
                            Initial
                           Ownership
                          (including
                          Series A &
                           excluding    Including
                           Series B)     Warrants
    ---------------------------------------------
    DJSP Management/DAL
     Owners                4,366,667    4,366,667
    CACA Shareholders      6,875,000   13,750,000
    CACA Management        2,524,676    6,816,342
    Other Investors        1,500,000    1,500,000
    Underwriters Option                   275,000
    ---------------------------------------------
    Total                 15,266,343   26,708,009
    ---------------------------------------------

* Convertible on a 1-for-1 basis into Chardan common shares.



    Share Price Target  $10.00  $12.50  $15.00  $17.50  $20.00   Total
    ------------------  ------  ------  ------  ------  ------   -----
     Series B Shares   750,000 750,000 800,000 800,000 800,000 3,900,000
    ---------------    ------- ------- ------- ------- ------- ---------


Advisors

Chardan Capital Markets served as an advisor to CACA and P&M Corporate Finance served as advisors to the Company in the transaction. Rodman and Renshaw also advised on the transaction.

About Chardan

Chardan was formed in February 2008 for the purpose of acquiring, through a merger, stock exchange, asset acquisition or other similar business combination, a controlling interest in an unidentified operating business. Chardan's offices are located at 1-502, Tayuan Diplomatic Office Building, Chaoyang District, Beijing 100060, Peoples Republic of China. Additional information about Chardan is available in Chardan's public filings available from the SEC website: (http://www.sec.gov).

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, about Chardan, DAL, the Company, DJSP and their combined business after completion of the proposed acquisition. Forward looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Chardan and the Company's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions, changing interpretations of generally accepted accounting principles; outcomes of government or other regulatory reviews, particularly those relating to the regulation of the practice of law; the impact of inquiries, investigations, litigation or other legal proceedings involving DJSP, which, because of the nature of the Company's business, have happened in the past to the Company and the DJS; the impact and cost of continued compliance with government or state bar regulations or requirements; legislation or other changes in the regulatory environment, particularly those impacting the mortgage default industry; unexpected changes adversely affecting the businesses in which the Company is engaged; fluctuations in customer demand; the Company's ability to manage rapid growth; intensity of competition from other providers in the industry; general economic conditions, including improvements in the economic environment that slows or reverses the growth in the number of mortgage defaults, particularly in the State of Florida; the ability to efficiently expand its operations to other states or to provide services not currently provided by the Company; the impact and cost of complying with applicable SEC rules and regulation, many of which DJSP will have to comply with for the first time after the closing of the business combination; geopolitical events and changes, as well as other relevant risks detailed in Chardan's filings with the U.S. Securities and Exchange Commission, (the "SEC"), including its report on Form 20-F for the period ended December 31, 2008 and the Form 6-K filed with the SEC containing the proxy statement relating to the business combination to be mailed to shareholders of Chardan. The information set forth herein should be read in light of such risks. Chardan, DAL, and the Company do not assume any obligation to update the information contained in this press release.

Proxy Statement

In connection with the pending transaction, Chardan will file with the SEC a Form 6-K containing the Proxy Statement that provides information about the transaction and will be mailed to the shareholders of Chardan. The shareholders of Chardan are urged to read the Proxy Statement when it is available, as well as all other relevant documents filed or to be filed with the SEC, because they will contain important information about DAL, DJS, and Chardan and the proposed transaction. The final Proxy Statement will be mailed to shareholders of Chardan on a schedule that will ensure that they receive timely notice of the shareholder meeting to vote on the transaction. Chardan shareholders will be able to obtain the Proxy Statement and any other relevant filed documents for free at the SEC's website (www.sec.gov). These documents can also be obtained for free from Chardan by directing a request to:

Chardan, DAL and the Company and their respective directors and officers may be deemed to be participants in the solicitation of approvals from Chardan shareholders in respect of the proposed transaction. Information regarding Chardan's participants will be available in the Proxy Statement. Additional information regarding the interests of such participants will be included in the Proxy Statement.

Investor Presentation

The presentation slides concerning the business combination with the Company will be filed with the SEC and will be available on its web site at www.sec.gov as part of a report of foreign private issuer on Form 6-K that Chardan will be filing.

Non-GAAP Financial Measures

The financial information and data contained in this press release are unaudited and do not conform to the SEC's Regulation S-X. Accordingly, such information and data may not be included in, may be adjusted in or may be presented differently in, CACA's proxy statement to solicit stockholder approval for the proposed acquisition. This press release includes certain estimated financial information and forecasts presented as pro forma financial measures that are not derived in accordance with generally accepted accounting principles ("GAAP"), and which may be deemed to be non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. CACA and management of the acquired business believe that the presentation of these non-GAAP financial measures serve to enhance the understanding of the financial performance of acquired business and the proposed acquisition. However, these non-GAAP financial measures should be considered in addition to and not as substitutes for, or superior to financial measures of financial performance prepared in accordance with GAAP. Our Non-GAAP financial measures may not be comparable to similarly titled pro forma measures reported by other companies. The Non-GAAP measures used herein may not be comparable to similarly titled measures reported by other companies. Such measures are not recognized terms under U.S. GAAP, and should be considered in addition to, and not as substitutes for, or superior to, operating income, cash flows, revenues, or other measures of financial performance prepared in accordance with generally accepted accounting principles. Such measures are not a completely representative measure of either the historical performance or, necessarily, the future potential of DJSP.

Adjusted EBITDA

The adjusted EBITDA measure presented consists of income (loss) from continuing operations before (a) interest expense, net; (b) income tax expense; (c) depreciation and amortization; and (d) non-recurring income and/or expense. The adjusted EBITDA margin is the ratio of adjusted EBITDA to total revenues. The Company is providing adjusted EBITDA, a non-GAAP financial measure, along with GAAP measures, as a measure of profitability because adjusted EBITDA helps the Company to evaluate and compare its performance on a consistent basis with the lower operating cost structure that will be in place after consummation of the Transaction. In the calculation of adjusted EBITDA, the Company excludes from expenses the compensation paid to the Company's Founder that exceeds the base compensation that he will be entitled to receive after completion of the Transaction, as well as the payroll taxes associated with such compensation, non-recurring travel expenses incurred on behalf of the Founder and other benefits received in prior periods that will not be permitted in following the closing of the Transaction.

Adjusted EBITDA is a non-GAAP measure that has limitations because it does not include all items of income and expense that affect the operations of the Company. In addition, it should be noted that companies calculate adjusted EBITDA differently and, therefore, adjusted EBITDA as presented for us may not be comparable to the calculations of adjusted EBITDA reported by other companies.

Adjusted Net Income - The Company is providing adjusted Net Income, a non-GAAP financial measure, along with GAAP measures, as a measure of profitability because adjusted Net Income helps the Company to evaluate and compare its past performance on a consistent basis with the taxable structure that will be in place after consummation of the transaction, reflecting the effects of that taxable structure on profitability. In the calculation of adjusted Net Income, the Company deducts the Depreciation and Amortization amounts to the Adjusted EBITDA calculation and then subtracts the income tax expense, calculated at the expected 'going forward' tax rate of 35% from such figure.




                                       6 Months Ended
                                       --------------
                                            30-Jun-09
                                            ---------




    Net Income                            $27,454,842

    Adjustment
      Adj. to Fee to Processing             1,041,439
      Officers' Salaries                    2,170,000
      Non-Recurring Travel                  1,457,057
      Other Non-Recurring Salary &
       Benefits                             1,627,846
      Payroll Tax                              23,170
      Depreciation & Amortization             510,156
      Other Income (Expense)                        -
                                                  ---
    Total Adjustments                       6,829,668




    Pro-Forma EBITDA                      $34,284,510
    ================                      ===========




    Adjustments to Reconcile Pro-
     Forma Net Income
      Depreciation & Amortization             510,156
      Other Income (Expense)
      Tax (Estimated at 35%)               11,821,024
                                           ----------
    Total Adjustments                      12,331,180




    Pro-Forma Net Income                  $21,953,330
    ====================                  ===========




                                           Years Ended December 31,
                                           ------------------------
                                          2008          2007          2006
                                          ----          ----          ----




    Net Income                     $42,886,351   $38,688,840    $8,578,571

    Adjustment
      Adj. to Fee to Processing              -             -             -
      Officers' Salaries            12,640,000     4,415,000     2,890,000
      Non-Recurring Travel             384,364             -             -
      Other Non-Recurring Salary &
       Benefits                      4,360,555       294,931      -431,500
      Payroll Tax                       46,415             -             -
      Depreciation & Amortization      594,156       277,926       197,111
      Other Income (Expense)            31,677        16,328             -
                                        ------        ------           ---
    Total Adjustments               17,993,813     4,971,529     2,655,611




    Pro-Forma EBITDA               $60,880,164   $43,660,369   $11,234,182
    ================               ===========   ===========   ===========




    Adjustments to Reconcile Pro-
     Forma Net Income
      Depreciation & Amortization      594,156       277,926       197,111
      Other Income (Expense)            31,677        16,328
      Tax (Estimated at 35%)        21,111,190    15,189,570     3,862,975
                                    ----------    ----------     ---------
    Total Adjustments               21,673,669    15,451,168     4,060,086




    Pro-Forma Net Income           $39,206,495   $28,209,201    $7,174,096
    ====================           ===========   ===========    ==========



    DJS Processing Division and its Combined Affiliates
    (A Division of The Law offices of David J. Stern, P.A.)

    Combined Carve Out Balance Sheets


                                                  June 30,    December 31,
                                                    2009          2008
    Assets                                      (unaudited)
    ----------------------------------------------------------------------
    Current Assets
       Cash and cash equivalents                  $2,806,268    $1,427,588
       Accounts Receivable
         Client reimbursed costs                   7,344,812    26,147,837
         Fee income, net                          20,747,540    11,807,293
         Unbilled receivable                       9,887,635    11,210,565
                                                  37,979,987    49,165,695
         Prepaid expense                             133,854        46,939
                     Total current  assets        40,920,109    50,640,222

    Property and Equipment, net                    4,100,578     3,154,623

                                                 $45,020,687   $53,794,845

    Liabilities and Stockholder's and Member's
     Equity
    Current Liabilities
        Accounts payable - reimbursed client
         costs                                    $7,344,812   $20,425,337
        Accounts payable                           1,282,720       742,601
        Accrued compensation                       2,275,253     2,207,094
        Accrued expenses                             698,433       976,643
        Current portion of capital lease
         obligations                                 684,116       729,263
        Deferred revenue                             263,900       263,900
        Due to related party                          26,152        25,035
        Current portion of deferred rent           1,039,119       821,464
                     Total current liabilities    13,614,505    26,191,337

    Deferred Rent, less current portion                    -       137,859
    Line of Credit                                 9,500,000             -

                     Total liabilities            23,114,505    26,329,196

    Commitment and contingencies

    Common stock                                       1,000         1,000
    Retained earnings                              8,563,608     7,608,920
    Member's equity                               13,341,574    19,855,729
                   Total stockholder's and
                    member's equity               21,906,182    27,465,649

                   Total liabilities,
                    stockholder's and member's
                    equity                       $45,020,687   $53,794,845



    DJS Processing Division and its Combined Affiliates
    (A Division of The Law offices of David J. Stern, P.A.)

    Combined Carve Out Statements of Income

                                 For The     For The     For The     For The
                                   Six         Six        Three       Three
                                 Months      Months      Months      Months
                                  Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                   2009        2008        2009        2008
                               (Unaudited) (Unaudited) (Unaudited) (Unaudited)
    Revenue                   $116,766,051 $95,694,786 $61,722,462 $47,481,734

    Operating expenses:
      Direct operating &
       other expenses           11,365,860   6,987,305   6,056,325   3,948,496
      Client reimbursed costs   55,796,780  41,625,640  30,816,901  22,502,849
      Compensation related
       expenses                 21,638,413  17,381,244  10,634,042   9,676,430
      Depreciation expense         510,156     572,606     255,078     286,303
          Total operating
           expenses             89,311,209  66,566,795  47,762,346  36,414,078

            Net Income         $27,454,842 $29,127,991 $13,960,116 $11,067,656



    DJS Processing Division and its Combined Affiliates
    (A Division of The Law offices of David J. Stern, P.A.)

    Combined Carve Out Statements of Cash Flows

                                                For The Six      For The Six
                                                  Months            Months
                                              Ended June 30,    Ended June 30,
                                                   2009              2008
                                               (Unaudited)        (Unaudited)
    Cash Flows From Operating Activities
         Net income                            $27,454,842       $29,127,991
         Adjustments to reconcile net
          income to net cash provided by
          operating activities:
             Depreciation                          510,156           572,606

             Changes in operating assets and
              liabilities:
             (Increase) decrease in:
                 Accounts receivable - client
                  reimbursed costs              18,803,025        (6,399,998)
                  Fee income receivable, net    (8,940,241)       (1,632,131)
                 Unbilled receivable             1,322,929        (3,834,389)
                 Prepaid expenses                  (86,726)         (425,470)
                 Increased (decrease) in:
                 Accounts payable - client
                  reimbursed costs             (13,080,722)        8,325,646
                 Accounts payable                  540,117           534,354
                 Accrued expenses                 (277,091)          (60,907)
                 Accrued compensation               68,159           357,152
                 Deferred rent                      79,795
                     Net cash provided by
                      operating activities      26,394,243        26,564,854

    Cash Flows From Investing Activities
    Purchase of property and equipment          (1,456,108)       (2,683,003)

    Cash Flows From Financing Activities
         Advances on line of credit              9,500,000                 -
         Principal payments on capital lease
          obligations                              (45,147)                -
         Distributions                         (33,014,308)      (24,203,541)
               Net cash flow used for
                financing activities           (23,559,455)      (24,203,541)
                     Net change in cash and
                      cash equivalents           1,378,680          (321,690)

    Cash and cash equivalents, beginning of
     period                                      1,427,588           978,567
    Cash and cash equivalents, end of period    $2,806,268          $656,877

    DJS Processing Division and its Combined Affiliates
    (A Division of The Law Offices of David J. Stern, P.A.)


    Combined Carve Out Balance Sheets
    December 31, 2008, 2007 and 2006


    Assets                                      2008        2007       2006
    ------                                      ----        ----       ----
    Current Assets
    Cash and cash
     equivalents                          $1,427,588    $978,766    $69,889
         Accounts receivable
             Client reimbursed
              costs                       26,147,837  15,585,345  4,189,833
             Fee income, net              11,807,293   9,981,788  3,006,583
             Unbilled
              receivables                 11,210,565   8,227,464          -
                                          ----------   ---------        ---
                     Total accounts
                      receivable          49,165,695  33,794,597  7,196,416
                                          ----------  ----------  ---------
         Prepaid expenses                     46,939     302,185     40,758
                                              ------     -------     ------
                     Total current
                      assets              50,640,222  35,075,548  7,307,063

    Equipment and
     Leasehold
     Improvements, net
     (Note 3)                              3,154,623   2,724,594  1,419,047
                                           ---------   ---------  ---------

                                         $53,794,845 $37,800,142 $8,726,110
                                         =========== =========== ==========

    Liabilities and
     Stockholder's and
     Member's Equity
    Current Liabilities
         Accounts payable -
          client reimbursed
          costs                          $20,425,337 $10,325,195 $2,116,783
         Accounts payable                    742,601     158,111     49,466
         Accrued
          compensation                     2,207,094   1,000,557    524,956
         Accrued expenses                    976,643     526,613    363,150
         Current portion of
          capital lease
          obligations
             (Notes 3 and 4)                 217,095     112,149     45,953
         Deferred revenue                    263,900     263,900    430,603
         Due to related
          party                               25,035      12,883      6,578
         Current portion of
          deferred rent
          (Note 5)                           821,464           -          -
                                             -------         ---        ---
                     Total current
                      liabilities         25,679,169  12,399,408  3,537,489

    Deferred Rent, less
     current portion
     (Note 5)                                137,859           -          -
    Capital Lease
     Obligations, less
     current portion
         (Notes 3 and 4)                     512,168     255,975    156,710
                                             -------     -------    -------

                     Total liabilities    26,329,196  12,655,383  3,694,199

    Commitments and
     Contingencies
     (Notes 4, 5 and 7)

    Stockholder's and
     Member's Equity
         Common stock                          1,000       1,000      1,000
         Retained earnings                 7,608,920   6,073,685  1,652,616
         Member's equity                  19,855,729  19,070,074  3,378,295
                                          ----------  ----------  ---------
                     Total stockholder's
                      and member's
                      equity              27,465,649  25,144,759  5,031,911
                                          ----------  ----------  ---------

                     Total liabilities
                      and member's
                      equity             $53,794,845 $37,800,142 $8,726,110
                                         =========== =========== ==========



    DJS Processing Division and its Combined Affiliates
    (A Division of The Law Offices of David J. Stern, P.A.)


    Combined Carve Out Statements of Income
    Years Ended December 31, 2008, 2007 and 2006


                                                 2008         2007        2006

    Revenue (Note 2)                     $199,202,701 $115,500,349 $40,392,317

    Operating expenses:
         Client reimbursed
          costs                            92,319,306   47,613,198  16,802,800
         Compensation related
          expenses                         44,356,093   20,268,283  11,006,660
         Direct operating
          expenses                          6,993,565    3,593,078   1,099,873
         Other general and
          administrative                   12,084,907    5,075,352   2,711,280
         Depreciation expense                 594,156      277,926     193,133
                         Total operating
                          expenses        156,348,027   76,827,837  31,813,746

    Operating Income                       42,854,674   38,672,512   8,578,571
    Other Income                               31,677       16,328           -
                         Net income       $42,886,351  $38,688,840  $8,578,571



    DJS Processing Division and its Combined Affiliates
    (A Division of The Law Offices of David J. Stern, P.A.)

    Combined Carve Out Statements of Changes in Stockholder's and
     Member's Equity
    Years Ended December 31, 2008, 2007 and 2006


                                         Professional
                                          Title and
                                           Abstract
                               Default    Company of      DJS
                              Services,     Florida,   Processing
                                 Inc.         Inc.      Division     Combined
    2006
    Common stock, $1 par value
         Authorized and issued:
             Beginning and
              ending, 500
              shares             $500          $500           $-       $1,000

    Retained earnings (deficit)
         Balance, beginning   (98,504)    1,101,830            -    1,003,326
             Add net income 1,095,725     1,320,815            -    2,416,540
             (Deduct)
              dividends    (1,025,000)     (742,250)           -   (1,767,250)
         Balance, ending      (27,779)    1,680,395            -    1,652,616

    Member's equity
         Balance, beginning         -             -      947,425      947,425
             Add net income         -             -    6,162,031    6,162,031
             (Deduct)
              distributions         -             -   (3,731,161)  (3,731,161)
         Balance, ending            -             -    3,378,295    3,378,295
                             $(27,279)   $1,680,895   $3,378,295   $5,031,911
    2007
    Common stock, $1 par value
         Authorized and issued:
             Beginning and
              ending, 500
              shares             $500          $500           $-       $1,000

    Retained earnings (deficit)
         Balance, beginning   (27,779)    1,680,395            -    1,652,616
             Add net income 1,160,100     5,893,796            -    7,053,896
             (Deduct)
              dividends    (1,075,000)   (1,557,827)           -   (2,632,827)
         Balance, ending       57,321     6,016,364            -    6,073,685

    Member's equity
         Balance, beginning         -             -    3,378,295    3,378,295
             Add net income         -             -   31,634,944   31,634,944
             (Deduct)
              distributions         -             -  (15,943,165) (15,943,165)
         Balance, ending            -             -   19,070,074   19,070,074
                              $57,821    $6,016,864  $19,070,074  $25,144,759
    2008
    Common stock, $1 par value
         Authorized and issued:
             Beginning and
              ending, 500
              shares             $500          $500           $-       $1,000

    Retained earnings (deficit)
         Balance, beginning    57,321     6,016,364            -    6,073,685
             Add net income 2,594,180     4,643,198            -    7,237,378
             (Deduct)
              dividends    (2,665,023)   (3,037,120)           -   (5,702,143)
         Balance, ending      (13,522)    7,622,442            -    7,608,920

    Member's equity
         Balance, beginning         -             -   19,070,074   19,070,074
             Add net income         -             -   35,648,973   35,648,973
             (Deduct)
              distributions         -             -  (34,863,318) (34,863,318)
         Balance, ending            -             -   19,855,729   19,855,729
                             $(13,022)   $7,622,942  $19,855,729  $27,465,649


    DJS Processing Division and its Combined Affiliates
    (A Division of The Law Offices of David J. Stern, P.A.)

    Combined Carve Out Statements of Cash Flows
    Years Ended December 31, 2008, 2007 and 2006


                                                2008         2007        2006
    Cash Flows From Operating Activities
         Net income                      $42,886,351  $38,688,840  $8,578,571
         Adjustments to reconcile net
          income to net cash provided
          by operating activities:
             Depreciation expense            594,156      277,926     193,133
             Loss on disposal of
              leasehold improvements       1,698,303            -           -
             Changes in operating assets
              and liabilities:
               (Increase) decrease in:
                 Accounts receivable
                  - client reimbursed
                  costs                  (10,562,492) (11,395,512) (2,923,610)
                 Fee income receivable,
                  net                     (1,825,505)  (6,975,205)   (996,102)
                 Unbilled receivables     (2,983,101)  (8,227,464)          -
                 Prepaid expenses            255,246     (261,427)     (3,489)
               Increase in:
                 Accounts payable -
                  client reimbursed
                  costs                   10,100,142    8,208,412   1,737,252
                 Accounts payable            584,490      108,645      45,510
                 Accrued compensation      1,206,537      475,601     108,969
                 Accrued expenses            450,030      163,463     142,775
                 Deferred rent               959,323            -           -
                 Deferred revenue                  -     (166,703) (1,152,119)
                     Net cash provided
                      by operating
                      activities          43,363,480   20,896,576   5,730,890

    Cash Flows From Investing Activities
         Purchases equipment and
          leasehold improvements          (2,274,184)  (1,301,523)   (141,556)
                     Net cash used in
                      investing
                      activities          (2,274,184)  (1,301,523)   (141,556)

    Cash Flows From Financing Activities
         Net advances from related party      12,152        6,305       4,052
         Principal payments on capital
          lease obligations                  (87,165)    (116,489)    (50,221)
          Distributions and dividends    (40,565,461) (18,575,992) (5,498,411)
                     Net cash used in
                      financing
                      activities         (40,640,474) (18,686,176) (5,544,580)
                     Net change in cash
                      and cash equivalents   448,822      908,877      44,754

    Cash and cash equivalents, beginning
     of year                                 978,766       69,889      25,135
    Cash and cash equivalents, end of
     year                                 $1,427,588     $978,766     $69,889

                                     (Continued)


    DJS Processing Division and its Combined Affiliates
    (A Division of The Law Offices of David J. Stern, P.A.)


    Combined Carve Out Statements of Cash Flows (Continued)
    Years Ended December 31, 2008, 2007 and 2006


                                                       2008     2007     2006
    Supplemental Disclosures of Cash Flow Information

      Cash payments for interest on capital lease
       obligations                                  $55,952  $39,138   $4,773

    Supplemental Schedule of Noncash Investing Activities
      Acquisition of property and equipment
       through capital lease obligations           $448,304 $281,950 $204,575

SOURCE Chardan 2008 China Acquisition Corp.




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