Unassociated Document

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2008

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

For the transition period from ______ to __________

COMMISSION FILE NUMBER: 0-20532

CHINA INSONLINE CORP.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

(011) 00852-25232986

(Registrant’s Telephone Number, Including Area Code)

CHINA INSONLINE CORP.

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

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

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of February 16, 2009, the registrant had 40,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I 1	F-1

FINANCIAL INFORMATION	F-1

ITEM 1. FINANCIAL STATEMENTS	F-1

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4. CONTROLS AND PROCEDURES	22

PART II	24

OTHER INFORMATION	24

ITEM 1. LEGAL PROCEEDINGS	24

ITEM 1A. RISK FACTORS	24

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	24

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS	24

ITEM 5. OTHER INFORMATION	24

ITEM 6. EXHIBITS	24

SIGNATURES	27

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND

SUBSIDIARIES

TABLE OF CONTENTS
	Page

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBR 31, 2008 (UNAUDITED) AND JUNE 30, 2008	F-2

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007 (UNAUDITED)	F-3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007 (UNAUDITED)	F-4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007 (UNAUDITED)	F-5 – F-17

F-1

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2008		June 30, 2008
ASSETS	(Unaudited)
Cash and cash equivalents	$	2,595,666	$	4,567,853
Accounts receivable, net of provision for doubtful debts of $934,125 and $0 at December 31, 2008 and June 30, 2008, respectively		10,299,779		6,387,502
Prepayments and deposits		873,153		1,284,963
Other receivables		2,517		7,440
Deferred taxes		563,710		243,676
Total Current Assets		14,334,825		12,491,434

Fixed assets, net		313,666		257,199
Software, net		2,469,525		2,671,286
Intangible asset		4,473,787		-
Deferred taxes		39,883		37,216
Total Long-Term Assets		7,296,861		2,965,701
TOTAL ASSETS	$	21,631,686	$	15,457,135

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	742,876	$	2,642
Other payables and accrued liabilities		1,906,455		1,304,805
Amount due to directors		182,427		153,069
Taxes payable		4,508,167		2,902,587
Deferred taxes		18,840		11,530
Deferred revenue		-		63,583
Total Current Liabilities		7,358,765		4,438,216

Deferred taxes		-		18,792
Total Long-Term Liabilities		-		18,792

TOTAL LIABILITIES		7,358,765		4,457,008

COMMITMENTS

SHAREHOLDERS’ EQUITY
Common stock, $.001 par value; 100,000,000 shares authorized; 40,000,000 shares issued and outstanding as of December 31, 2008 and June 30, 2008, respectively		40,000		40,000
Additional paid-in capital		86,360		86,360
Retained earnings (restricted portion of $315,584 at December 31, 2008 and June 30, 2008)		13,358,879		10,113,609
Accumulated other comprehensive income		787,682		760,158
Total Shareholders’ Equity		14,272,921		11,000,127

TOTAL LIABILITIES AND SHARHOLDERS’ EQUITY	$	21,631,686	$	15,457,135

See accompanying notes to condensed consolidated financial statements

F-2

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended December 31,					Six Months Ended December 31,
	2008			2007		2008		2007

REVENUES, NET	$	3,580,301		$	2,892,285	$	9,033,665	$	5,238,974

COST OF SALES		354,557			129,729		790,413		222,833
GROSS PROFIT		3,225,744			2,762,556		8,243,252		5,016,141

Selling expenses		81,619			35,227		165,893		55,943
Advertising expenses		991,134			-		1,901,068		-
General and administrative expenses		348,978			136,864		738,371		214,962
Bad debts		646,740			-		932,338		-

INCOME FROM OPERATIONS		1,157,273			2,590,465		4,505,582		4,745,236

Financial income, net		22,932			5,204		22,818		6,475

INCOME FROM OPERATIONS BEFORE INCOME TAXES		1,180,205			2,595,669		4,528,400		4,751,711

Income taxes		391,335			390,102		1,283,130		713,508
NET INCOME		788,870			2,205,567		3,245,270		4,038,203

OTHER COMPREHENSIVE INCOME
Foreign currency translation (loss) gain		(35,965	)		145,620		27,524		185,581

COMPREHENSIVE INCOME	$	752,905		$	2,351,187	$	3,272,794	$	4,223,784

NET INCOME PER SHARE

- BASIC AND DILUTED	$	0.02		$	0.08	$	0.08	$	0.16

WEIGHTED AVERAGE SHARES OUTSTANDING

- BASIC AND DILUTED		40,000,000			28,394,270		40,000,000		26,712,035

See accompanying notes to condensed consolidated financial statements

F-3

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended December 31, 2008			Six Months Ended December 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,245,270		$	4,038,203
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		53,573			6,544
Amortization		201,319			-
Deferred taxes		(309,795	)		(2,814	)
Bad debts		932,338			-
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable		(4,526,206	)		(50,587	)
Other receivables		1,024,682			5,982
Prepayments and deposits		420,717			(2,239,894	)
Accounts payable		730,715			9,019
Other payables and accrued liabilities		516,295			130,356
Taxes payable		1,599,290			925,954
Deferred revenue		(63,583	)		3,649
Net cash provided by operating activities		3,824,615			2,826,412

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired		(5,715,919	)		-
Purchases of equipment		(109,377	)		(124,641	)
Net cash used in investing activities		(5,825,296	)		(124,641	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advance to a related company		-			(645,737	)
Repayment from a related company		-			645,737
Advance from a director		77			-
Net cash provided by financing activities		77			-

NET (DECRESASE) INCREASE IN CASH AND CASH EQUIVALENTS		(2,000,604	)		2,701,771
Effect of exchange rate changes on cash		28,417			183,889
Cash and cash equivalents, at beginning of the period		4,567,853			47,657
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	2,595,666		$	2,933,317

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

See accompanying notes to condensed consolidated financial statements

F-4

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

1. Organization and Principal Activities

China INSOnline Corp. (“CHIO”), formerly known as Dexterity Surgical, Inc. (“Dexterity Surgical”) was incorporated on December 23, 1988 as a Delaware corporation and commenced operations on January 1, 1989. In August 1992, Dexterity Surgical completed an initial public offering of its common stock par value $0.001 per share (“Common Stock”), which at such time was trading on The Over-The-Counter Bulletin Board. In March 2008, Dexterity Surgical, Inc. changed its name to China INSOnline Corp. On July 1, 2008, CHIO’s Common Stock was approved by the NASDAQ to trade on the NASDAQ Capital Market under the symbol “CHIO”.

On December 18, 2007, Dexterity Surgical, Rise and Grow Limited (“Rise & Grow”) and Newise Century Inc., the sole stockholder of Rise & Grow (the “Shareholder”) consummated a share exchange agreement (the “Share Exchange Agreement”) pursuant to which the Shareholder transferred to Dexterity Surgical, and Dexterity Surgical acquired from the Shareholder, all of the capital stock of Rise & Grow (the “Shares”), which Shares constitute 100% of the issued and outstanding capital stock of Rise & Grow, in exchange for 26,400,000 shares of Common Stock, which shares now constitute 66% of the fully diluted outstanding shares of Common Stock. This share exchange transaction resulted in the Shareholder obtaining a majority voting interest in Dexterity Surgical. Generally accepted accounting principles require that a company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes, resulting in a reverse acquisition. Accordingly, the share exchange transaction has been accounted for as a recapitalization of Dexterity Surgical.

On April 19, 2004, Dexterity Surgical filed a voluntary petition for relief for reorganization (the “Reorganization”) under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas Houston Division (the “Bankruptcy Court”). Dexterity Surgical underwent numerous operating changes and operated its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court. On March 2, 2005, the Bankruptcy Court entered an Order confirming its First Amended Plan of Liquidation. In connection with that Plan, Dexterity Surgical’s assets were scheduled to be auctioned, which auction culminated in the sale of substantially all of Dexterity Surgical’s assets as approved by the Bankruptcy Court on March 17, 2006.

The First Amended Plan of Liquidation was subsequently amended on March 2, 2006, by an order titled “Order Approving Modification of the First Amended Plan” (the “Order”). The amendments provided for in the Order included the Bankruptcy Court’s authorization of a $50,000 Debtor-In-Possession Loan (the “DIP Loan”) for payment of administrative expenses of the bankruptcy, which converted into 6,000,000 shares of common stock (the “Section 1145 Shares”) and 3,000,000 warrants under Section 1145 of the U.S. Bankruptcy Code at the option of the holder(s) of the DIP Loan, which were cancelled immediately prior to the Exchange. For an additional $125,000, the Bankruptcy Court authorized the sale of 25,000,000 restricted shares of common stock to an investor for the payment of both administrative claims and creditor claims.

The Bankruptcy Court also provided that all of the old shares of Dexterity Surgical’s preferred stock, stock options and warrants were cancelled; issued 29,800 new shares of Common Stock under Section 1145 of the U.S. Bankruptcy Code; issue up to 25,000 shares of Common Stock under Section 1145 of the U.S. Bankruptcy Code to those persons deemed appropriate by the Board of Directors (it was not necessary to issue these shares and therefore they have been cancelled); and appoint new Board members, amend the Certificate of Incorporation to increase the authorized shares of common stock to 100,000,000, amend the Bylaws, change the fiscal year, execute the Share Exchange Agreement and issue shares in which effective control or majority ownership is given, all without stockholder approval.

Rise & Grow was formed on February 10, 2006 as a Hong Kong limited company. Zhi Bao Da Tong (Beijing) Technology Co., Ltd (“ZBDT”), a company registered in the People’s Republic of China (the “PRC” or “China”), was established and incorporated by Rise & Grow and commenced business on September 6, 2007. Rise & Grow’s sole business is to act as a holding company for ZBDT.

F-5

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

1.	Organization and Principal Activities (Continued)

ZBDT was formed by Rise & Grow for the purpose of developing computer and network software and related products and to promote the development of high-tech industries in the field of Chinese information technology. In compliance with the PRC’s foreign investment restrictions on Internet information services and other laws and regulations, ZBDT conducts all of our Internet information and media services and advertising in China through ZYTX, a domestic Variable Interest Entity (“VIE”), as its primary beneficiary. It does this by controlling Beijing ZYTX Technology Co., Ltd (“ZYTX”), through an Exclusive Technical Consulting and Service Agreement (the “Consulting Agreement”) and related transaction documents dated as of September 28, 2007 (collectively, the “Service Agreements”).

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

According to the Equity Purchase Agreements by and between the owners of ZYTX, on the one hand, and ZBDT, on the other hand, ZBDT has the exclusive and irrevocable right to acquire 100% of the equity interests of ZYTX. Furthermore, the Equity Purchase Agreements also state that ZBDT has the right to control the operating activities and the shareholding structure of ZYTX.

In light of the above, ZBDT has a controlling interest in ZYTX based on the fact that:

ZBDT has the ability to absorb all of the expected residual return from ZYTX, which makes ZBDT the primary beneficiary of ZYTX. In the event ZYTX fails to pay any required amounts, ZBDT could exercise its right to acquire certain pledged shares in ZYTX pursuant to a pledge agreement executed by and between ZYTX’s stockholders and ZBDT which guarantee all required payments;

ZBDT has the exclusive right to purchase all of the outstanding interests in ZYTX, which would make ZYTX a wholly-owned subsidiary of ZBDT when it’s allowable under the PRC regulation;

The Company’s CEO and the Chairman of the Board own all of the interests in ZYTX and also serve as ZYTX’s directors. Furthermore, such individuals oversee and run the business in ZYTX. As a result, the Company, through ZBDT, could exercise absolute influence over ZYTX.

Arrangements with these business enterprises have been evaluated, and those in which ZYTX is determined to have controlling financial interest are consolidated. In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities (“FIN 46”), and amended it by issuing FIN 46R in December 2003. FIN 46R addresses the consolidation of business enterprises to which the usual condition of consolidation (ownership of a majority voting interest) does not apply. This interpretation focuses on controlling financial interests that may be achieved through arrangements that do not involve voting interests. It concludes that, in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary is required to consolidate the assets, liabilities and results of operations of the variable interest entity in its financial statements. Upon executing the Consulting Agreement and Service Agreements, the shareholders of ZYTX have granted their power of attorney to ZBDT for influence and control over ZYTX as its own company and ZYTX is considered a VIE and ZBDT is its primary beneficiary.

F-6

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

1.	Organization and Principal Activities (Continued)

ZYTX, an entity consolidated into the Company under FIN 46R, a company registered in the PRC on October 8, 2006, is an Internet e-business development, online advertisement publishing and related online servicing company, which focuses on the PRC insurance industry. With localized web sites targeting Greater China, ZYTX provides a platform through its web site, www.soobao.cn, to consumers, agents and insurance companies for online transaction, advertising, online inquiry, news circulation, statistic analysis and software development. ZYTX also provides online insurance agent services including car, property and life insurance to customers in the PRC.

On October 28, 2008, Rise & Grow and ZYTX entered into a Share Purchase Agreement which Rise & Grow acquired 100% ownership of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, through ZYTX to act as legal owner in China. GHIA is an insurance agent company which operates in the PRC. The consideration was US$5,846,244 (RMB$40,000,000) in cash. This share purchase transaction resulted in Rise & Grow obtaining 100% of the voting and beneficial interest in GHIA. Also see Note 12.

2. Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Quarterly Reports on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of December 31, 2008 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.

3. Principles of Consolidation

The consolidated financial statements included the accounts of CHIO and the following subsidiaries (collectively, the “Company”):

Rise & Grow – 100% subsidiary of CHIO

ZBDT – 100% subsidiary of Rise & Grow

ZYTX – a VIE of ZBDT

GHIA – 100% subsidiary of Rise & Grow through ZYTX.

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

All inter-company accounts and transactions have been eliminated in consolidation.

F-7

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

4. Summary of Significant Accounting Policies

(a) Economic and Political Risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC economy. The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti−inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

(b) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturity of three months or less to be cash equivalents.

(e) Revenue Recognition

Advertising

Advertising revenues are derived mainly from online advertising arrangements, which allow advertisers to place advertisements on particular areas of the Company’s web sites, in particular formats and over particular periods of time. In accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” advertising arrangements involving multiple deliverables are broken down into single-element arrangements based on their relative fair value for revenue recognition purposes, when possible.

For web site construction service, which is usually included in new advertising contract, revenue is recognized ratably over the displayed period, typically one year. For web site maintenance services, revenue is recognized ratably over the contact period, generally one year.

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

F-8

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

4. Summary of Significant Accounting Policies (Continued)

(e) Revenue Recognition (Continued)

Software Development

Software development revenue is recognized in accordance with SOP 97-2, when the outcome of a contract for software development can be estimated reliably, contract revenue and costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that costs incurred to date bear to estimated total costs for each contract. When the outcome of a contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred. Contract revenue is recognized to the extent of contract costs incurred that it is probable will be recoverable. Where it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

Insurance Commissions

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

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

Cash consideration includes discounts and other offers that entitle a customer to receive a reduction in the price of a product. For the periods ended December 31, 2008 and 2007, the Company recognized $363,388 and $61,779, respectively, as a reduction of revenue for the discount offered to its customers.

(f) Foreign Currency Translation

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

	December 31, 2008		June 30, 2008		December 31, 2007
Period end RMB: US$ exchange rate		6.8346		6.8591		7.3046

Period average RMB: US$ exchange rate		6.8477		7.2753		7.4894

Period end HKD: US$ exchange rate		7.7502		7.7973		7.7470

Period average HKD: US$ exchange rate		7.7748		7.8081		7.7273

F-9

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

4. Summary of Significant Accounting Policies (Continued)

(g) Intangible Asset

The intangible asset of $4,473,787 represents an operating license for an insurance agency business in China and was obtained through the acquisition of GHIA. See Note 12. The fair value of the license was determined by an independent appraisal company. The intangible asset is not subject to amortization as the Company determined that it has an indefinite life and expects the license to generate indefinite cash flows.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for Impairment of Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company assesses the carrying value of long-lived assets whenever events or changes in circumstances indicate that the carrying value of these long-lived assets may not be recoverable. Factors the Company considers important which could result in an impairment review include (1) significant under-performance relative to the expected historical or projected future operating results, (2) significant changes in the manner of use of assets, (3) significant negative industry or economic trends, and (4) significant changes in the Company’s market capitalization relative to net book value. Any changes in key assumptions about the business or prospects, or changes in market conditions, could result in an impairment charge and such a charge could have a material adverse effect on the consolidated results of operations.

Determination of recoverability of long-lived assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. If quoted market prices for the assets are not available, the fair value is calculated using the present value of estimated expected future cash flows. The cash flow calculations are based on management’s best estimates at the time the tests are performed, using appropriate assumptions and projections. Management relies on a number of factors including operating results, business plans, budgets, and economic projections. In addition, management’s evaluation considers non-financial data such as market trends, customer relationships, buying patterns, and product development cycles. When impairments are assessed, the Company records charges to reduce long-lived assets based on the amount by which the carrying amounts of these assets exceed their fair values.

5. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS 141 (R) will significantly affect the accounting for future business combinations and we will determine the accounting as new combinations are determined.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for us beginning July 1, 2009 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. The Company is currently assessing the potential impact that adoption of SFAS No. 160 would have on the Company’s financial statements.

F-10

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

5. Recent Accounting Pronouncements (Continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), which amends SFAS No.133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives. SFAS No. 161 is effective for fiscal periods beginning on or after November 15, 2008. The Company is currently in the process of assessing the impact that SFAS No. 161 will have on the disclosures in the Company’s consolidated financial statements.

6. Fixed Assets

Fixed assets consist of the following:

	December 31, 2008		June 30, 2008
At cost:	(Unaudited)
Leasehold improvement	$	179,883	$	135,003
Furniture and fixtures		14,851		13,339
Computers and equipment		112,162		83,004
Motor vehicles		129,080		94,438
		435,976		325,784
Less: Accumulated depreciation
Leasehold improvement		78,920		44,972
Furniture and fixtures		2,453		1,032
Computers and equipment		24,815		15,456
Motor vehicles		16,122		7,125
		122,310		68,585
Fixed assets, net	$	313,666	$	257,199

Depreciation expense for the six months ended December 31, 2008 and 2007 was $53,573 and $6,544, respectively.

7. Software

Software consists of the following:

	December 31, 2008		June 30, 2008
	(Unaudited)
Cost	$	2,813,780	$	2,813,780
Less: Accumulated amortization		344,255		142,494
Software, net	$	2,469,525	$	2,671,286

Amortization expense for the six months ended December 31, 2008 and 2007 was $201,319 and $0, respectively.

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

Year ending June 30,	Amount
2009	$	202,187
2010		404,374
2011		404,374
2012		404,374
2013		404,374
Thereafter		649,842
Total	$	2,469,525

F-11

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

8. Taxes

(a) Corporation Income Tax (“CIT”)

The Company has not recorded a provision for U.S. federal income taxes for the period ended December 31, 2008 due to the net operating loss carry forward in the United States.

On March 16, 2007, the National People’s Congress of China approved the new Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), which was effective from January 1, 2008. Prior to January 1, 2008, the CIT rate applicable to the Company’s subsidiary in the PRC was 33%. As from January 1, 2008, the applicable CIT rate for ZBDT, the wholly owned subsidiary, is 25%. For the period ended December 31, 2008, CIT for ZBDT was $1,591,491. ZYTX, a VIE of the Company, enjoys a favorable tax rate of 15% as it is considered as a high technology company by the Chinese government. ZYTX is also entitled to a full exemption from CIT for the first two years from January 1, 2007 to December 31, 2008. Starting from January 1, 2009, the CIT rate of ZYTX will be 15%. ZYTX is exempted from CIT for the period ended December 31, 2008. The applicable CIT rate for GHIA is 25%. For the six months ended December 31, 2008, the CIT for ZBDT was $0 as GHIA has statutory losses carried forward.

Some of the tax concession granted to eligible companies prior to the new CIT law is grand-fathered. The new CIT Law has an impact on the deferred tax assets and liabilities of the Company. The Company adjusted deferred tax balances as of December 31, 2008 and June 30, 2008 based on the current applicable tax rate and will continue to assess the impact of such new law in the future. Effects arising from the enforcement of the new CIT Law were reflected into the accounts by best estimates.

Pursuant to the Inland Revenue Ordinance of Hong Kong, Rise & Grow is subject to Hong Kong Profits Tax at 16.5% and 17.5% for the periods ended December 31, 2008 and 2007, respectively. As Rise & Grow has no assessable profits for the periods ended December 31, 2008 and 2007, no provision for profits tax has been made.

Computed “expected” expense of the Company was calculated using 25% and 15% income tax rate for the six and three months ended December 31, 2008 and 2007, respectively.

Income tax expense is summarized as follows:

	Three Months ended December 31,					Six Months ended December 31,
	2008		2007			2008		2007
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Computed “expected” expense	$	295,051	$	390,389		$	1,132,100	$	716,177
Effect of tax rate changes on deferred taxes		96,284		-			151,011		-
Permanent differences		-		(287	)		19		(2,669	)
Income tax expense	$	391,335	$	390,102		$	1,283,130	$	713,508

Provision for income tax expense is summarized as follows:

	December 31,						December 31,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Current	$	550,323		$	390,389		$	1,578,383		$	716,177
Deferred		(158,988	)		(287	)		(295,253	)		(2,669	)
Income tax expense	$	391,335		$	390,102		$	1,283,130		$	713,508

F-12

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

8. Taxes (Continued)

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

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

	December 31, 2008		June 30, 2008
Deferred tax assets:	(Unaudited)
Social welfare expenses	$	32,623	$	19,231
Consumable expenses		4,736		4,607
Advertising		109,735		43,738
Discount allowed		-		2,591
Business tax		242,665		170,953
Provision for doubtful accounts		140,119		-
Depreciation		4,491		-
Tax loss carried forward		13,101		-
Other		16,240		2,556
Total current deferred tax assets		563,710		243,676

Amortization		32,489		32,373
Depreciation		7,394		4,843
Total long-term deferred tax assets		39,883		37,216

Total deferred tax assets		603,593		280,892

Deferred tax liabilities:
Commission income		2,645		7,776
Software income		-		1,194
Depreciation		-		80
Repairs and maintenance		80		-
Rent		768		2,480
Prepayments		4,506		-
Amortization		9,077		-
Depreciation		1,764		-
Total current deferred tax liabilities		18,840		11,530

Amortization		-		18,089
Depreciation		-		703
Total long-term deferred tax liabilities		-		18,792

Total deferred tax liabilities		18,840		30,322

Net deferred tax assets	$	584,753	$	250,570

As of December 31, 2008, the Company has $52,404 available tax losses carried forward, which expired in 2013. The Company has determined that $13,101 of deferred tax assets related to the subsidiary’s net operating losses carried forward will be utilized.

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

F-13

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

8. Taxes (Continued)

(b)	Business Tax

Pursuant to the relevant PRC tax laws, the Company is subject to business tax at 5% of the gross sales, excluding software development income. For the periods ended December 31, 2008 and 2007, the Company incurred a total business tax of $694,217 and $173,308, respectively, which is included in the cost of sales in the accompanying condensed consolidated statement of income and comprehensive income.

The business tax payable balance of $1,495,788 and $201,557 at December 31, 2008 and 2007, respectively, are included in other payables and accrued liabilities in the accompanying condensed consolidated balance sheets.

9. Commitments

(a) Lease Commitments

The Company occupies office spaces leased from third parties. For the six months ended December 31, 2008 and 2007, the Company recognized $155,859 and $27,193, respectively, as rental expense for these spaces. As of December 31, 2008, the Company has outstanding commitments with respect to non-cancelable operating leases as follows:

Year Ending June 30,	Amount
2009	$	188,507
2010		311,140
2011		46,011
	$	545,658

(b) Capital Commitments

The Company entered into an agreement of purchase for a software system to facilitate the operation of its insurance agency business amounting to $1,126,620 (Rmb7,700,000). For the six months ended December 31, 2008, the Company made a 65% prepayment of $732,303 (Rmb5,005,000). As of December 31, 2008, the Company had outstanding commitments with respect to this purchase agreement of $337,986 (Rmb2,310,000) and $56,331 (Rmb385,000) due on May 31, 2009 and August 20, 2009, respectively.

F-14

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

10. Certain Risks and Concentrations

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

The Company has $2,588,629 and $4,562,222 in bank deposits in the banks in China, which constitutes about 99.7% and 99.9% of its total cash and cash equivalents as of December 31, 2008 and June 30, 2008, respectively. Historically, deposits in Chinese banks are secured due to the State policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006, which came into effect on June 1, 2007. The new Bankruptcy Law contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks. Under the new Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s concession to World Trade Organization, foreign banks have been gradually permitted to operate in China and have been severe competitors against Chinese banks in many aspects, especially since the opening of RMB businesses to foreign banks in late 2006.

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

Accounts receivable consist primarily of software development clients and insurance agents. As of December 31, 2008 and June 30, 2008, there were approximately 17% and 35% for the software development and 81% and 64% for online insurance advertising, respectively. Regarding the Company’s online advertising and insurance agency operations, no individual customer accounted for more than 10% of total net revenues for the six months ended December 31, 2008 and 2007.

The concentration of sales for the six months ended December 31, 2008 and 2007, and accounts receivable at December 31, 2008 and June 30, 2008 are summarized as below:

	Sales						Accounts Receivable
	December 31, 2008			December 31, 2007			December 31, 2008			June 30, 2008
Software Development
Company 1		15	%		-			12	%		-
Company 2		6	%		-			5	%		13	%
Company 3		-			43	%		-			-
Company 4		-			-			-			22	%
		21	%		43	%		17	%		35	%

Online Insurance Advertising		78	%		57	%		81	%		64	%

Insurance Agency		1	%		-			2	%		1	%

Total		100	%		100	%		100	%		100	%

F-15

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

11. Segment Information

Based on criteria established by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company operates three business segments for the periods ended December 31, 2008 and 2007, which are software development, online insurance advertising and insurance agency within the PRC. The following is the summary information by segment as of and for the periods ended December 31, 2008 and 2007:

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

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

December 31, 2008
Long-lived assets	$	53,052	$	1,704	$	6,982,748		$	259,357		$	7,296,861
Current assets	$	1,320,487	$	8,848,617	$	2,940,792		$	1,224,929		$	14,334,825

Six Months Ended December 31, 2007
Revenue, net	$	2,149,694	$	3,093,138	$	(3,858	)	$	-		$	5,238,974
Cost of sales		42,103		177,544		3,186			-			222,833
Gross profit (loss)	$	2,107,591	$	2,915,594	$	(7,044	)	$	-		$	5,016,141

Three Months Ended December 31, 2007
Revenue, net	$	1,144,868	$	1,751,511	$	(4,094	)	$	-		$	2,892,285
Cost of sales		23,493		103,050		3,186			-			129,729
Gross profit (loss)	$	1,121,375	$	1,648,461	$	(7,280	)	$	-		$	2,762,556

December 31, 2007
Long-lived assets	$	26,087	$	1,767	$	-		$	127,259		$	155,113
Current assets	$	3,344,463	$	977,455	$	69,490		$	3,073,904		$	7,465,312

F-16

CHINA INSONLINE CORP.

(FORMERLY KNOWN AS DEXTERITY SURGICAL, INC.)

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

12. Acquisition of Company

On October 28, 2008, Rise & Grow and ZYTX consummated a Share Purchase Agreement (the “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, Rise & Grow and ZYTX purchased 100% of voting interest in Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC for a purchase price equal to US$5,846,244 (RMB$40,000,000) in cash. As a result of the transaction, GHIA became a wholly-owned subsidiary of the Company, with Rise & Grow through ZYTX acting as legal owner in China. GHIA is an insurance agency and performs services similar to those of the Company in China.

The following represents the assets purchased and liabilities assumed at the date of acquisition:

	October 28, 2008
	(Unaudited)
Intangible asset	$	4,473,787
Equipment		815
Cash and cash equivalents		130,325
Accounts receivable		318,409
Other receivable and prepayments		8,907
Due from shareholder		1,019,759
Deferred tax assets		25,007
Total assets purchased	$	5,977,009

Accounts payable	$	9,519
Other payables and accrued expenses		85,355
Taxes payable		6,290
Deferred tax liabilities		619
Amount due to shareholder		28,982
Total liabilities assumed	$	130,765

Total net assets	$	5,846,244

Share percentage		100	%

Net assets acquired	$	5,846,244

Total consideration paid	$	5,846,244

Goodwill	$	0

The following is the unaudited pro forma net income and basic and diluted net income per share of the Company for the six months ended December 31, 2008 assuming the acquisition of GHIA was completed on July 1, 2008.

	2008
	(Unaudited)
Net income	$	3,191,787

Net income per share
- Basic & diluted	$	0.08

F-17

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

Forward Looking Statements

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

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

Acquisition of Rise & Grow

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

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

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

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

Organizational Structure of Rise & Grow, ZBDT and ZYTX

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

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

Business of the Company

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

ZYTX was originally founded with goal of raising the national insurance consciousness and reducing the cost on national security in China by constructing and maintaining its network portal (www.soobao.cn) in order to integrate and optimize business flow during the course of insurance sales and related client services. From incorporation through the end of December 31, 2008, ZYTX was primarily engaged in institutional preparation and prior-period business development. Thereafter, through trial implementation of www.soobao.cn, ZYTX’s products and services received favorable reviews and recognition in the Chinese insurance industry. ZYTX strengthened its technical research and development and expanded its product line after collecting suggestions from clients. In April 2007, www.soobao.cn was formally put into use. For the six months ended December 31, 2008, the Company had revenue of $9.03 million.

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

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

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

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

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

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

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

The unaudited condensed consolidated financial statements of the Company as of December 31, 2008 and for the three months and six months ended December 31, 2008 have been prepared in accordance with generally accepted accounting principles of interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim condensed consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for the full year.

Plan of Operation

Publicity and Promotion of Soobao

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

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

Technical Development Plan

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

Products and Services Plan

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

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

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

Capitalize on our brand name and current influence in the Chinese insurance industry through www.soobao.cn in order to drive consumer sales.

Nationwide Marketing Network Construction Plan

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

Purchase of Equipment

In light of the expanding insurance industry and in order to make web-browsing timely, smooth and secure, it will be necessary for the Company to continually upgrade the existing network portal hardware environment and to strengthen its network security inputs, while at the same time increase advertisement promotion related to network portal brand building. Therefore, we expect to purchase an estimated RMB 10 million (US$1.3 million) of equipment over the next twelve (12) months.

Employees

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

Cash Requirements

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

Summary of Significant Accounting Policies

(a) Economic and Political Risks

(b) Use of Estimates

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturity of three months or less to be cash equivalents.

(e) Accounts Receivable

Accounts receivable are recognized and carried at original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable and the balance has been outstanding over 90 days. As at December 31, 2008 and 2007, the Company had allowance for doubtful debts of $932,338 and Nil, respectively.

(f) Prepayments

Prepayments represent cash paid in advance for advertising and promotional campaigns, insurance policy management system, rental payments and various deposits.

	December 31, 2008				June 30, 2008				Variance

Prepayment	$	782,411	90	%	$	1,190,424	93	%	$	(408,013	)	(34	)%
Prepaid rents		-	0	%		64,929	5	%		(64,929	)	(100	)%
Deposits		90,742	10	%		29,610	2	%		61,132		206	%
	$	873,153	100	%	$	1,284,963	100	%	$	(411,810	)	(32	)%

Prepayment represents advance payment to a promotion service provider for promotion and brand building services which the Company commenced in May 2008 and the prepayment of the purchase of a software system for our insurance agency operations in November 2008. The advertising and promotion campaigns spread across several months through the end of year 2008. The Company charged the portion of the payment to the advertising costs for the period according to the completed progress of the project. The software system would facilitate the operation of our insurance agency business amounting to $1,126,620 (Rmb7,700,000). For the six months ended December 31, 2008, the Company made a 65% prepayment of $733,303 (Rmb5,005,000). As of December 31, 2008, the Company has outstanding commitments with respect to this purchase agreement of $337,986 (Rmb2,310,000) and $56,331 (Rmb385,000) due on May 31, 2009 and August 20, 2009, respectively.

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

Deposits represent various deposits such as water and renovation deposits paid for the offices of the Company.

This decrease in prepayment was mainly caused by charging of promotion campaign expenses from the prepayment account to the advertising costs in the profit and loss account according to the progress of the completion of the advertising and promotion campaign during the six months ended December 31, 2008.

(g) Fixed assets

Fixed assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are five years for motor vehicles, furniture and fixtures, computers and equipment. For the leasehold improvements, deprecation is computed using the straight-line method over the estimated useful lives or lease term, whichever is shorter.

(h) Software

Software is carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets, which is seven years. During the year ended June 30, 2008, the Company acquired two sets of application software, one is an insurance policy management system and the other is a website streaming system. Both sets of application software are used for internal operations to enhance the Company’s online insurance agency business. The total amount of the software was $2,813,780, and the software was purchased from independent third-parties. None of the software was internally developed nor was there any internal cost that was capitalized for the software. Based on the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, the Company capitalized all the external direct cost of services in obtaining the computer software. Software is periodically reviewed for impairment, considering whether indicators are present which would affect the recoverability from future operations. The undiscounted cash flows projection was used in accordance with Statement of Financial Accounting Standards (“SFAS”) No.144, “Accounting for the Impairment or Disposal of Long-Live Assets”. To the extent the carrying value exceeds fair value, an impairment loss is recognized. No impairment was recorded for the period ended December 31, 2008 and the year ended June 30, 2008.

(i) Intangible asset

The intangible asset of $4,473,787 represents an operating license for an insurance agency business in China and was obtained through the acquisition of GHIA. The fair value of the license was determined by an independent appraisal company. The intangible asset is not subject to amortization as the Company determined that it has an indefinite life and expects the license to generate indefinite cash flows.

(i) Deferred Revenue

Deferred revenue primarily comprises of contractual billings in excess of recognized revenue and payments received in advance of revenue recognition.

(j) Revenue Recognition

Advertising

Software Development

Software development revenue is recognized in accordance with SOP 97-2, when the outcome of a contract for software development can be estimated reliably, contract revenue and costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that costs incurred to date bear to estimated total costs for each contract. When the outcome of a contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred. Contract revenue is recognized to the extent of contract costs incurred that it is probable will be recoverable. When it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

Insurance Commissions

(k) Foreign Currency Translation

	December 31, 2008		June 30, 2008		December 31, 2007
Period end RMB: US$ exchange rate		6.8346		6.8591		7.3046

Period average RMB: US$ exchange rate		6.8477		7.2753		7.4894

Period end HKD: US$ exchange rate		7.7502		7.7973		7.7470

Period average HKD: US$ exchange rate		7.7748		7.8081		7.7273

(l) Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs for campaigns that spread across several months are charged to the profit and loss account according to the progress of the campaigns completed. Differences between amounts paid to promotion service providers in advance for which advertising work has not been completed are included in the prepayment account on the balance sheet. Advertising costs charged to the profit and loss account were $1,901,068 and $0 for the six months ended December 31, 2008 and 2007, respectively. Advertising costs are grouped under selling expenses in the profit and loss account.

(m) Income Taxes

The Company accounts for income tax using the asset and liability approach. Deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future utilization is uncertain.

(n) Reserve Fund

In 2008, a subsidiary of the Company in China transferred 15% of their PRC profit after taxation to the surplus reserve fund. Subject to certain restrictions set out in the PRC Companies Law, the surplus reserve fund may be distributed to shareholders in the form of share bonus issues and/or cash dividends. The Company’s retained earnings in the amount of $315,584 and Nil is restricted as of December 31, 2008 and 2007, respectively, for the surplus reserve fund.

(o) Comprehensive Income

Comprehensive income include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income should be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s only current component of comprehensive income is the foreign currency translation adjustment.

(p) Earnings Per Share

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

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (R), Business Combination,. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS 141 (R) will significantly affect the accounting for future business combinations and we will determine the accounting as new combinations occur.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries’ non-parent owners be clearly presented in the equity section of the balance sheet; requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; requires that changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; requires that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair value of any noncontrolling equity; requires that entities provide disclosures that clearly identify the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008. The Company has not determined the impact, if any, SFAS No. 160 will have on its financial statements.

In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. FAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect the entity’s financial position, financial performance, and cash flows. FAS No. 161 is effective January 1, 2009. We are currently evaluating the impact of adopting this statement.

Results of Operations

For the Three Months Ended December 31, 2008 Compared To Three Months Ended December 31, 2007

Our operating results are presented on a condensed consolidated basis for the three months ended December 31, 2008, as compared to the three months ended December 31, 2007.

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our condensed consolidated statements of income for the three months ended December 31, 2008 and 2007.

	2008				2007				Variance

REVENUES	$	3,876,754	108	%	$	2,954,064	102	%	$	922,690		31	%
DISCOUNTS		296,453	8	%		61,779	2	%		234,674		380	%
REVENUES, NET		3,580,301	100	%		2,892,285	100	%		688,016		24	%
COST OF SALES		354,557	10	%		129,729	4	%		224,828		173	%
GROSS PROFIT		3,225,744	90	%		2,762,556	96	%		463,188		17	%
Selling expenses		81,619	2	%		35,227	1	%		46,392		132	%
Advertising expenses		991,134	28	%		0	0	%		991,134		100	%
General & administrative expenses		348,978	10	%		136,864	5	%		212,114		155	%
Bad debts		646,740	18	%		0	0	%		646,740		100	%
OPERATING INCOME		1,157,273	32	%		2,590,465	90	%		(1,433,192	)	(55	)%
Financial income, net		22,932	1	%		5,204	0	%		17,728		341	%
INCOME BEFORE TAXES		1,180,205	33	%		2,595,669	90	%		(1,415,464	)	(55	)%
Income tax expense		391,335	11	%		390,102	13	%		1,233		0	%
NET INCOME	$	788,870	22	%	$	2,205,567	76	%	$	(1,416,697	)	(64	)%

Revenues

The Company’s consolidated revenue rose to $3,876,754 for the three months ended December 31, 2008, a 31% increase from $2,954,064 reported for the three months ended December 31, 2007. The consolidated net revenue rose to $3,580,301 for the three months ended December 31, 2008, a 24% increase from $2,892,285 reported for the three months ended December 31, 2007.

The increase in revenue can be attributed to the significant increase in online insurance advertising services.

	2008				2007				Variance

Software development	$	14,649	0	%	$	1,144,868	39	%	$	(1,130,219	)	(99	)%
Online insurance advertising		3,565,037	92	%		1,751,511	59	%		1,813,526		104	%
Insurance agency		297,068	8	%		57,685	2	%		239,383		415	%
Total Revenue	$	3,876,754	100	%	$	2,954,064	100	%	$	922,690		31	%

The significant increase in online insurance advertising services is a result of the significant increase in the number of insurance agents that place advertisements on the Company’s website. There were 76 teams of insurance agents that placed advertisements on the Company’s website during the three months ended December 31, 2008 compared to 50 teams during the three months ended December 31, 2007. Each team of insurance agents includes a number of individual insurance agents. Each individual insurance agent signed an advertisement contract with the Company. There were 186 contracts in effect during the three months ended December 31, 2008, compared to 134 contracts in effect during the three months ended December 31, 2007. Online insurance advertising revenue increased by 104% or $1,813,526 to $3,565,037 for the three months ended December 31, 2008 from $1,751,511 for the three months ended December 31, 2007.

The decrease in software development projects during the three months ended December 31, 2008 of 99% or $1,130,219 compared to the three months ended December 31, 2007 was due to the significant decrease in the number of software development projects. Only one small software development project was completed for the three months ended December 31, 2008 compared to three projects there were completed for the three months ended December 31, 2007. This is the result of customers that are assessing the impact of the global financial crisis and most of their expansion or improvement plans were postponed or delayed.

Our insurance agency services had a significant increase of $239,383 or 415%, to $297,068 for the three months ended December 31, 2008 from $57,685 for the same period of 2007. This is mainly the result of the acquisition of the insurance agency company, GHIA, by the end of October 2008. It also results from the Company’s advertising and promotion campaign.

Cost of Sales

The Company’s consolidated cost of sales (“COS”) increased $224,828 or 173% to $354,557 or 10% of net revenues for the three months ended December 31, 2008, from $129,729 or 4% of net revenues for the three months ended December 31, 2007. The increase in COS is attributed to the significant increase in revenues and accordingly the enlarged scale of operations to meet the operational needs. The business tax for the inter-company transactions was $83,060 for the three months ended December 31, 2008, which was generated from the consultancy services fee paid by our VIE, ZYTX, to its primary beneficiary, ZBDT.

	2008				2007				Variance

Business tax and levies	$	297,596	84	%	$	99,509	77	%	$	198,087	199	%
Salaries and allowances		32,787	9	%		25,728	20	%		7,059	27	%
Depreciation		3,480	1	%		1,493	1	%		1,987	133	%
Other		20,694	6	%