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:CACANASDAQ:CACAWNASDAQ: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 (http://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 http://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 DATASOURCE: Chardan
2008 China Acquisition Corp. CONTACT: Kerry Propper, CEO of Chardan
2008 China Acquisition Corp., +1-646-465-9088,
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