Chardan 2008 Announces Its Acquisition

Share Name	Share Symbol	Market	Type
DJSP Enterprises Inc (CE)	USOTC:DJSP	OTCMarkets	Common Stock

DJSP Enterprises (CE) (USOTC:DJSP)
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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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DJSP DJSP Enterprises Inc (CE)