UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-27129

 

Duoyuan Printing, Inc.

(Exact Name of Registrant as Specified in its Charter)

Wyoming (State or Other Jurisdiction of Incorporation or Organization)		91-1922225 (IRS Employer Identification Number)

No. 3 Jinyuan Road
Daxing Industrial Development Zone
Beijing 102600, People’s Republic of China
(Address of Principal Executive Offices)

Tel: +86 10-6021-2222
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

As of February 8, 2010, the Company had 30,563,217 shares of common stock, par value $0.001 per share, issued and outstanding.

 

 

DUOYUAN PRINTING, INC.

INDEX

		Page
PART I. FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			43
PART II. OTHER INFORMATION			44
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 6. Exhibits			48
Signatures			49
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DUOYUAN PRINTING, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ASIAN FINANCIAL, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND JUNE 30, 2009

		December 31,				June 30,
		2009				2009
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	96,743,881			$	31,044,070
Accounts receivable, net of allowance for doubtful accounts of $1,612,406 and $1,401,689 as of December 31, 2009 and June 30, 2009, respectively			43,668,616				37,259,616
Inventories			25,150,892				25,883,242
Other current assets			570,703				26,912
Total current assets			166,134,092				94,213,840
PLANT AND EQUIPMENT, net			41,826,421				43,123,153
OTHER ASSETS:
Intangible assets, net			3,904,742				3,939,476
Advances on equipment purchases			7,284,609				7,274,677
Total other assets			11,189,351				11,214,153
Total assets		$	219,149,864			$	148,551,146
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Lines of credit		$	14,376,600			$	14,357,000
Accounts payable			1,292,853				756,116
Accrued liabilities			3,017,033				2,251,419
Taxes payable			4,821,371				1,512,727
Total current liabilities			23,507,857				18,877,262
Derivative instrument liabilities			5,136,268				1,180,477
Total Liabilities			28,644,125				20,057,739
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock; $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of December 31, 2009 and June 30, 2009			—				—
Common stock; $0.001 par value; 100,000,000 shares authorized; 30,563,217 shares issued and outstanding as of December 31, 2009 and 25,000,050 shares issued and outstanding as of June 30, 2009			30,563				25,000
Additional paid-in capital			70,272,694				27,263,040
Statutory reserves			11,179,137				9,428,573
Retained earnings			95,903,555				79,226,497
Accumulated other comprehensive income			10,973,612				10,788,585
Total Duoyuan Printing, Inc. shareholders’ equity			188,359,561				126,731,695
NONCONTROLLING INTEREST			2,146,178				1,761,712
Total equity			190,505,739				128,493,407
Total liabilities and equity		$	219,149,864			$	148,551,146

DUOYUAN PRINTING, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ASIAN FINANCIAL, INC.)
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008, AND 2009
(UNAUDITED)

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
REVENUES, net		$	42,408,047			$	36,837,283			$	75,702,970			$	63,016,714
COST OF REVENUES			19,564,713				16,609,073				35,353,104				28,939,825
GROSS PROFIT			22,843,334				20,228,210				40,349,866				34,076,889
RESEARCH AND DEVELOPMENT EXPENSES			628,674				490,084				992,833				1,184,601
SELLING EXPENSES			3,908,445				2,952,037				7,064,821				5,498,952
GENERAL AND ADMINISTRATIVE EXPENSES			3,628,448				1,344,637				5,118,646				2,276,335
INCOME FROM OPERATIONS			14,677,767				15,441,452				27,173,566				25,117,001
CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS			(3,344,611	)			108,669				(3,233,996	)			164,076
OTHER INCOME (EXPENSE), net
Non-operating expenses			—				(956,936	)			—				(956,936	)
Interest expense			(211,737	)			(213,664	)			(446,126	)			(426,739	)
Interest income and other income			40,280				35,708				71,927				69,187
Other expense, net			(171,457	)			(1,134,892	)			(374,199	)			(1,314,488	)
INCOME BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST			11,161,699				14,415,229				23,565,371				23,966,589
PROVISION FOR INCOME TAXES			2,849,832				1,604,339				5,258,478				2,531,130
NET INCOME			8,311,867				12,810,890				18,306,893				21,435,459
Less: Net income attributable to noncontrolling interest			223,951				168,986				381,904				278,723
NET INCOME ATTRIBUTABLE TO DUOYUAN PRINTING, INC.			8,087,916				12,641,904				17,924,989				21,156,736
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain			1,810				308,470				185,027				564,737
COMPREHENSIVE INCOME ATTRIBUTABLE TO DUOYUAN PRINTING, INC.		$	8,089,726			$	12,950,374			$	18,110,016			$	21,721,473
BASIC WEIGHTED AVERAGE NUMBER OF SHARES			28,367,934				25,000,050				26,683,992				25,000,050
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES			29,202,495				25,000,050				27,101,273				25,000,050
BASIC EARNING PER SHARE		$	0.29			$	0.51			$	0.67			$	0.85
DILUTED EARNING PER SHARE		$	0.28			$	0.51			$	0.66			$	0.85

DUOYUAN PRINTING, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ASIAN FINANCIAL, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Common Stock								Additional paid-in capital				Retained earnings								Accumulated other comprehensive income
		Number of shares				Amount								Statutory reserves				Unrestricted								Noncontrolling Interest				Total
BALANCE, June 30, 2008			25,000,050			$	25,000			$	27,263,040			$	6,000,090			$	50,058,176			$	10,460,031			$	1,292,843			$	95,099,180
Net income																			21,156,736								278,723				21,435,459
Adjustment to statutory reserves															3,558,242				(3,558,242	)											—
Foreign currency translation adjustments																							564,737				7,603				572,340
BALANCE, December 31, 2008 (Unaudited)			25,000,050			$	25,000			$	27,263,040			$	9,558,332			$	67,656,670			$	11,024,768			$	1,579,169			$	117,106,979
Net income																			11,440,068								184,830				11,624,898
Adjustment to statutory reserves															(129,759	)			129,759												—
Foreign currency translation adjustments																							(236,183	)			(2,287	)			(238,470	)
BALANCE, June 30, 2009			25,000,050			$	25,000			$	27,263,040			$	9,428,573			$	79,226,497			$	10,788,585			$	1,761,712			$	128,493,407
Cumulative effect of reclassification of warrants											(2,234,538	)							502,633												(1,731,905	)
BALANCE, July 1, 2009, as adjusted			25,000,050			$	25,000			$	25,028,502			$	9,428,573			$	79,729,130			$	10,788,585			$	1,761,712			$	126,761,502
Issuance of common shares in connection with Initial Public Offering, net of offering costs			5,500,000				5,500				41,910,036																				41,915,536
Stock-based compensation											2,324,109																				2,324,109
Issuance of common shares in connection with cashless exercise of warrants			63,167				63				1,010,047																				1,010,110
Net income																			17,924,989								81,904				18,306,893
Adjustment to statutory reserves															1,750,564				(1,750,564	)											—
Foreign currency translation adjustments																							185,027				2,562				187,589
BALANCE, December 31, 2009 (Unaudited)			30,563,217			$	30,563			$	70,272,694			$	11,179,137			$	95,903,555			$	10,973,612			$	2,146,178			$	190,505,739

DUOYUAN PRINTING, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ASIAN FINANCIAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)

		Six Months Ended
		December 31,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	17,924,989			$	21,156,736
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Noncontrolling interest			381,904				278,723
Depreciation			1,819,403				1,345,191
Amortization			40,096				40,038
Bad debt expense			208,718				—
Change in fair value of derivative instruments			3,233,996				(164,076	)
Stock-based compensation			2,324,109				—
Changes in operating assets and liabilities:
Accounts receivable			(6,564,254	)			(3,241,285	)
Inventories			768,133				(1,391,945	)
Other current assets			(543,538	)			657,362
Accounts payable			535,485				(103,601	)
Accrued liabilities			763,620				431,899
Taxes payable			3,305,225				1,596,550
Net cash provided by operating activities			24,197,886				20,605,592
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment			(464,353	)			(1,408,404	)
Advances on equipment purchases			—				(9,865,535	)
Payments for construction-in-progress			—				(172,302	)
Net cash used in investing activities			(464,353	)			(11,446,241	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit			12,900,800				12,885,840
Payments for lines of credit			(12,900,800	)			(9,957,240	)
Proceeds from Initial Public Offering, net of offering costs			41,915,536				—
Net cash provided by financing activities			41,915,536				2,928,600
EFFECT OF EXCHANGE RATE CHANGES ON CASH			50,742				113,511
INCREASE IN CASH			65,699,811				12,201,462
CASH, beginning of period			31,044,070				14,199,700
CASH, end of period		$	96,743,881			$	26,401,162

DUOYUAN PRINTING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 — Organization background and principal activities

Duoyuan Printing, Inc. (“DPI” or the “Company”), formerly known as Asian Financial, Inc., or AFI, was organized under the laws of the State of Nevada on August 10, 1998. On July 27, 2005, AFI merged with Asian Financial, Inc. (a Wyoming entity) for the purpose of changing its domicile from Nevada to Wyoming. AFI has no operations and generated no revenues since inception.

Pursuant to the amended and restated articles of incorporation with the State of Wyoming on October 15, 2009, the Company’s name was changed from “Asian Financial, Inc.” to “Duoyuan Printing, Inc.” (the “Corporate Name Change”). The Corporate Name Change was approved and authorized by the Board of Directors of the Company as well as the holders of the majority of the outstanding shares of the Company’s voting stock by written consent.

The Company is an offset printing equipment supplier headquartered in Beijing, People’s Republic of China (“PRC”). Through the principal operating subsidiaries in the PRC, the Company manufactures one product under the pre-press product category (a CTP system) and many products across four product lines under the press product category (single color small format presses, single color large format presses, multicolor small format presses and multicolor large format presses).

Duoyuan Investments Limited (“Duoyuan BVI”) is a British Virgin Islands company that owns 100% of the equity interest of Duoyuan Digital Press Technology Industries (China) Co., Ltd. (“Duoyuan China”). Duoyuan China has two subsidiaries, a 99.4% ownership in Hunan Duoyuan Printing Machinery Co., Ltd. and 95% ownership in Langfang Duoyuan Digital Technology Co., Ltd (collectively referred to as the “Duoyuan Interest”).

On November 6, 2009, the Company completed an initial public offering (“IPO”) of 5,500,000 common shares at a price of $8.50 per share. This represented 18.0% of the 30,563,217 total outstanding shares at December 31, 2009. The net proceeds from the IPO, after deducting a total of $4,834,464 of underwriting discounts, commissions and offering expenses, totaled $41,915,536.

Duoyuan Digital Press Technology Industries (China) Co., Ltd. (“Duoyuan China”) was originally established and wholly-owned by Duoyuan Industries (Holding) Inc. (“Duoyuan Industries”), a British Virgin Islands company. In September 2002, Duoyuan Industries entered into an Equity Transfer Agreement with Duoyuan BVI, whereby Duoyuan BVI acquired 100% of the equity in Duoyuan China from Duoyuan Industries. Mr. Wenhua Guo is the sole shareholder of Duoyuan Industries. Duoyuan China was incorporated in the PRC in 2001 with the registered capital of $6,000,000. Subsequently, Duoyuan China increased its registered capital to $19,000,000. As of June 30, 2007, $18,000,000 was contributed to Duoyuan China from the Company, and the remaining $1,000,000 was received in July and August 2007. The capital was raised through a private placement to accredited investors (see Note 15). On August 21, 2007, Duoyuan China received its business license requiring $25,000,000 registered capital. As of December 31, 2009, Duoyuan China owns 95.0% of Langfang Duoyuan Digital Technology Co., Ltd. and 88.0% of Hunan Duoyuan Printing Machinery Co., Ltd.

Langfang Duoyuan Digital Technology Co., Ltd. (“Langfang Duoyuan”) is located in the city of Langfang, China, and it produces primarily pre-press and small format offset printing presses (in both single and multi colors). Langfang Duoyuan is 95% owned by Duoyuan China and 5% by Beijing Huiyuan Duoyuan Research Institute Co., Ltd. Langfang Duoyuan owns 12% of Hunan Duoyuan Printing Machinery Co. Ltd.

Hunan Duoyuan Printing Machinery Co., Ltd. (“Hunan Duoyuan”) is located in Hunan, China, and it mainly produces large format offset printing presses (in both single and multi colors). Hunan Duoyuan was established on March 10, 2006, and is 88% owned by Duoyuan China and 12% by Langfang Duoyuan.

Note 2 — Summary of significant accounting policies

The reporting entity and principles of consolidation

The consolidated financial statements of Duoyuan Printing, Inc. and subsidiaries (“the Company”) reflect the activities of Duoyuan Printing and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied.

While management has included all normal recurring adjustments considered necessary to give a fair presentation of the operating results for the periods presented, interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with information included in the 2009 annual report filed on Form 10-K.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America 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 revenues and expenses during the reporting period. The significant estimates made in the preparation of the Company’s consolidated financial statements relate to allowance for doubtful accounts, reserves for inventory obsolescence, as well as the fair value of its warrants carried as derivative instruments marked to market each reporting period. Management believes that the estimates used in preparing its financial statements are reasonable and prudent. Actual results could materially differ from these estimates upon which the carrying values were based.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The Company uses their local currency Chinese Renminbi (“RMB”), as their functional currency. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period, and equity is translated at historical exchange rates.

Translation adjustments amounted to $10,973,612 and $10,788,585 as of December 31, 2009 and June 30, 2009, respectively. Asset and liability accounts at December 31, 2009 were translated at RMB6.82 to $1.00, as compared to RMB6.83 to $1.00 at June 30, 2009. The average translation rates applied to the consolidated statements of income for the six months ended December 31, 2009 and 2008 were RMB6.82 to $1.00 and RMB6.83 to $1.00, respectively.

Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Gains and losses from foreign currency transactions are included in the results of operations for the periods presented. There were no material transaction gains or losses for the six months ended December 31, 2009 and 2008.

Comprehensive income

Financial Accounting Standards Board’s (“FASB”) accounting standard regarding comprehensive income establishes requirements for reporting and display of comprehensive income and its components in financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in financial statements that are displayed with the same prominence as other financial statements. The accompanying consolidated financial statements include the provisions of this accounting standard.

Revenue recognition

The Company follows the accounting standard regarding revenue recognition which specifies that revenue should be realized or realizable and earned when four criteria are met:

	•		Persuasive evidence of an arrangement exists. (The Company considers its sales contracts to be persuasive evidence of an arrangement.)
	•		Product is shipped or services have been rendered.

	•		The seller’s price to the buyer is fixed or determinable.
	•		Collectability of payment is reasonably assured.

The Company records revenue net of an estimate of markdowns, price concessions and warranty costs. Markdowns represent price adjustments on sale of units whose model is nearing the end of its cycle and the model is planned to be discontinued; price concessions represent price adjustments on contractual agreements for the sale of units; and warranty costs represent costs to repair previously sold units still under warranty for manufacturer’s defects. Such amounts are based on management’s evaluation of historical experience, current industry trends and estimated costs.

The Company sells its products solely to its distributors. Master distribution agreements are signed with each distributor. The agreements list all terms and conditions with the exception of delivery, price and quantity terms, which are evidenced separately in purchase orders. Title transfers when products are shipped. There are no instances where receivables from distributors are not due and payable until goods purchased from the Company are sold by the distributors. The Company does not sell products to distributors on a consignment basis. Its distributors have a right of return within one month after shipping only if the Company’s products exhibit any manufacturing defects and it cannot be repaired. The Company had no returns during the six months ended December 31, 2009 and 2008, and the Company did not provide for any allowance for sales returns.

The Company recognizes revenue when the goods are shipped and title has passed. Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). All of the Company’s products that are sold in the PRC are subject to a Chinese VAT at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by the VAT paid by the Company on raw materials and other materials included in the cost of producing their finished products. The VAT on sales may also be offset by the VAT paid on equipment purchases. The Company’s distributors are all equipped to install the Company’s products and the Company is not contractually obligated to perform any installation services. As a result, there is no substantial performance required on the Company’s part and there is no impact on the Company’s recognition of revenues.

Purchase prices of products are generally fixed and customers are not allowed to renegotiate pricing after the contracts are signed. The Company’s agreements with its distributors do not include cancellation or termination clauses.

Credit limits are assigned to each distributor. As a distributor builds a sales and credit history with the Company, the credit limit can be increased. Credit limits are periodically reviewed by management and reductions to credit limits are made if deemed necessary.

The Company estimates sales rebates to distributors based on the projected annual sales and corresponding cash receipts. These rebates are assessed at the end of each calendar year. Sales rebates are included as a reduction of revenue and accounts receivable to be received by the Company.

For the three and six months ended December 31, 2009 and 2008, the aggregate amount of the aforementioned markdowns, price concessions, warranty costs, and sales rebates were immaterial to the consolidated financial statements taken as a whole for each of those periods.

Accounts receivable

The Company’s business operations are conducted in the PRC. During the normal course of business, the Company extends unsecured credit to its customers by selling on various credit terms from six to nine months. Management reviews its accounts receivable on a quarterly basis to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is recorded in the period of the related sales. The Company’s existing reserve is consistent with its historical experience and considered adequate by management. Known bad debts are written off against allowance for doubtful accounts when identified. The Company records an allowance for doubtful accounts for trade accounts receivables aged between nine months and one year at 15%, and currently the Company does not have any outstanding balance aged over one year.

The following represents the changes of allowance for doubtful accounts:

		December 31, 2009
		(Unaudited)				June 30, 2009
Balance, beginning of period		$	1,401,689			$	1,178,328
Provision for bad debts			208,718				218,516
Foreign currency translation adjustments			1,999				4,845
Balance, end of period		$	1,612,406			$	1,401,689

Inventories

Inventories are stated at the lower of cost (weighted average method) or market. The Company reviews its inventory on a regular basis for possible obsolete goods to determine if any reserves are necessary. As of December 31, 2009 and June 30, 2009, the Company determined that no reserves were necessary.

Intangible assets

All land in the PRC is owned by the government. However, the government grants rights to use the land. Land use rights are valid for a limited period of time, depending on their use. Under PRC regulations, the term of land use rights is 50 years for industrial property. As such, the Company has the right to use the land for 50 years and has elected to amortize the cost of rights over 50 years using the straight-line method.

Intangible assets of the Company are reviewed each reporting period to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 2009, the Company expects these assets to be fully recoverable.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation. Major renewals are charged directly to the plant and equipment accounts, while replacements, maintenance, and repairs which do not improve or extend the respective lives of the assets are expensed currently. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with 5% residual value. Estimated useful lives of the assets are as follows:

		Estimated Useful Life
Buildings		30 Years
Office equipment		3-10 Years
Motor vehicles		4-10 Years
Machinery and equipment		5-10 Years

Construction-in-progress represents the costs incurred in connection with the construction of buildings or additions to the Company’s plant facilities. Interest incurred during construction is capitalized. All other interest is expensed as incurred. No depreciation is provided for construction-in-progress until such time as the assets are completed and are placed into service. The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in operations.

Long-lived assets of the Company are reviewed each reporting period to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of the remaining useful lives of the assets. As of December 31, 2009, the Company expects these assets to be fully recoverable.

Advances on equipment purchases

The Company makes advances to certain vendors for equipment purchases. The Company transfers the amounts advanced to the equipment accounts upon receipt of the equipment purchased. These advances are classified as noncurrent, as the advances relate to equipment accounts and the ultimate delivery of the equipment may exceed one year from the date the advances are made.

Concentration of risk

Cash includes cash on hand and demand deposits in accounts maintained with state-owned and private banks within the PRC. Cash deposits at financial institutions outside of the United States are not covered by insurance from the U.S. government. Total cash in these banks at December 31, 2009 and June 30, 2009 amounted to approximately $96,776,000 and $31,036,000, respectively. To date, the Company has not experienced any losses in such accounts.

For the three and six months ended December 31, 2009 and 2008, no customer accounted for more than 10% of the Company’s sales. For the three and six months ended December 31, 2009, one supplier accounted for more than 10% of the Company’s purchases. For the three and six months ended December 31, 2008, no supplier accounted for more than 10% of the Company’s purchases.

As of December 31, 2009 and June 30, 2009, no customer accounted for more than 10% of the Company’s receivables. As of December 31, 2009 and June 30, 2009, one supplier accounted for 20% and 12% of the Company’s payables, respectively.

The Company’s operations are carried out 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 specific 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 environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments

The accounting standards regarding fair value of financial instruments and related fair value measurements define financial instruments, define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement, and enhance disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and payables qualify as financial instruments and reflect reasonable estimates of fair value because of the short period of time between the origination of such instruments and their expected realization. The three levels of valuation hierarchy are defined as follows:

	•		Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•		Level 2 inputs to the valuation methodology that includes quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, substantially for the full term of the financial instrument.
	•		Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity, pursuant to which the Company’s warrants were required to be recorded as a liability at fair value and marked to market each reporting period.

As of December 31, 2009, the outstanding principal on the Company’s short term loans amounted to $14,376,600. Management concluded the carrying value of the short term loans is a reasonable estimate of fair value because the amounts are due within one year and the stated interest rate approximates current rates available.

As of December 31, 2009, the Company’s management determined that certain inputs significant to the fair value measurement of the Company’s warrant liability falls under level 2 of the valuation hierarchy (i.e., the lowest level of input to the fair value measurement), and therefore it rendered the fair value measurement of the warrant liability under the same classification. Through to the Company’s IPO on November 6, 2009, the fair value measurement of the warrant liability fell under Level 3 of the valuation hierarchy, primarily as a result of the lowest level of input significant to the fair value measurement falling under Level 3 of the valuation hierarchy. In conjunction with the change in the valuation hierarchy of the fair value of the warrants, the fair value of the warrant liability was

required to be marked to market at each reporting period in accordance with accounting standards governing fair value of financial instruments.

The Company’s warrant liability is carried at fair value totaling $5,136,268 as of December 31, 2009.

Fair Value as of December 31,

Fair Value Measurement at December 31, 2009

2009

using Fair Value Hierarchy

Liabilities

Level 1

Level 2

Level 3

Warrant liability

$

5,136,268

$

5,136,268

Except for the derivative liabilities and the short term loans, the Company did not identify any other non-recurring assets and liabilities that are required to be presented on the consolidated balance sheets at fair value.

The accounting standard regarding the fair value option for financial assets and financial liabilities provides the Company with the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis with the difference between the carrying value before election of the fair value option and the fair value recorded upon election as an adjustment to beginning retained earnings. The Company chose not to elect the fair value option.

Income taxes

The Company accounts for income taxes in accordance with the accounting standard for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. Since the Company’s operations are domiciled in the PRC, and the PRC taxable income mirrors that of PRC GAAP income, there are no material temporary differences that would result in deferred tax assets or liabilities. As such, no valuation allowances were necessary at December 31, 2009 and June 30, 2009 for taxable income from the PRC. However, the Company has certain deferred taxes as a result of net operating losses for U.S. income tax purposes. (See Note 11)

The accounting standard for accounting for uncertainty in income taxes clarifies the accounting and disclosure for uncertain tax positions. It prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. Further, this accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under this accounting standard, evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The adoption of this accounting standard did not have a material effect on the Company’s consolidated financial statements.

China income tax

The Company’s subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (the “Income Tax Laws”).

Beginning on January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Investment Enterprises (“FIEs”).

The key changes are:

	a.		The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DES and FIEs, except for High Tech companies, as defined in the PRC Income Tax Law, who pay a reduced rate of 15%;
	b.		Companies established before March 16, 2007, will continue to enjoy tax holiday treatment approved by local government for a grace period of either for the next five years or until the tax holiday term is completed, whichever is sooner. These companies will pay the standard tax rate as defined in point “a” above when the grace period expires.

Duoyuan China was established before March 16, 2007, and therefore qualifies to continue to enjoy the reduced tax rate as described below.

Prior to March 16, 2007, upon approval by the PRC tax authorities, FIEs scheduled to operate for a period of 10 years or more and engaged in manufacturing and production may be exempt from income taxes for two years, commencing with their first profitable year of operations, after taking into account any losses brought forward from prior years and thereafter with a 50% reduction for the subsequent three years.

Duoyuan China has been a wholly foreign-owned enterprise since its inception. This entity status allowed Duoyuan China a two-year income tax exemption and a 50% income tax reduction for the following three years. Duoyuan China also had operating losses prior to the calendar year ended December 31, 2003, and started to generate a net profit for the calendar year ended December 31, 2004. Therefore Duoyuan China had an income tax exemption for the calendar years ended December 31, 2004 and 2005, and 50% income tax reduction for the calendar years ended December 31, 2006, 2007, and 2008. Thus, income tax rate for Duoyuan China for the calendar years ended December 31, 2006 and 2007 was 16.5%, and 12.5% for the calendar year ended December 31, 2008. Duoyuan China is subject to an income tax rate of 25% starting January 1, 2009, under the newly unified corporate income tax rate.

Langfang Duoyuan is located in a Special Economic and High Technology Zone and the PRC tax authority has offered a special income tax rate to Langfang Duoyuan for doing business in the special zone. With the approval of the local government, Langfang Duoyuan is exempt from income taxes for five years, commencing with their first profitable year of operations. Langfang Duoyuan has operating losses prior to the calendar year ended December 31, 2002, and began generating a net profit for the calendar year ended December 31, 2003. Therefore, Langfang Duoyuan had an income tax exemption for the years ended December 31, 2003, through December 31, 2007. Langfang Duoyuan has been subject to an income tax rate of 25% starting January 1, 2008, under the newly unified corporate income tax rate.

Prior to acquiring Hunan Duoyuan, the shareholders negotiated with the Hunan Shaoyang Treasury Department (the “Treasury Department”) to obtain an income tax exemption benefit. The Treasury Department granted the company a five-year income tax exemption commencing with the first profitable year of operations. In addition, the Treasury Department granted a 50% refund of income taxes based upon the amount of income taxes paid by Hunan Duoyuan. Hunan Duoyuan had an operating loss in the first year of operations ended December 31, 2004, and began generating a net profit for the calendar year ended December 31, 2005. Therefore, Hunan Duoyuan has an income tax exemption for the years ended December 31, 2005 through December 31, 2009. Hunan Duoyuan will become subject to income tax at a rate of 25% beginning on January 1, 2010, under the newly unified corporate income tax rate.

PRC laws require that before a foreign invested enterprise can legally distribute profits to its partners, it must satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions made at the discretion of the board of directors, after the statutory reserve. The statutory reserves include the surplus reserve fund and the common welfare fund, and represent restricted retained earnings.

During the three months ended December 31, 2009 and 2008, the provision for income taxes amounted to approximately $2,850,000 and $1,604,000, respectively. During the six months ended December 31, 2009 and 2008, the provision for income taxes amounted to approximately $5,258,000 and $2,531,000, respectively. The estimated tax savings due to this tax exemption for the three months ended December 31, 2009 and 2008 amounted to approximately $1,071,000 and $1,642,000, respectively. The estimated tax savings due to this tax exemption for the six months ended December 31, 2009 and 2008 amounted to approximately $2,038,000 and $3,162,000, respectively. The net effect on earnings per share had the income tax been applied would decrease basic and diluted earnings per share from $0.29 to $0.25 and $0.51 to $0.44 for the three months ended December 31, 2009, and 2008, respectively, and from $0.67 to $0.59 and $0.85 to $0.72 for the six months ended December 31, 2009 and 2008, respectively.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rates for the six months ended December 31, 2009, and 2008:

		Six Months Ended December 31,
		2009				2008
U.S. statutory rates			34.0	%			34.0	%
Foreign income not recognized in the U.S.			(34.0	)			(34.0	)
China income taxes			25.0				25.0
China income tax exemption			(6.9	)			(12.8	)
Other(a)			4.2				(1.6	)
Effective income tax rates			22.3	%			10.6	%

Value added tax

Enterprises or individuals who sell commodities, engage in repair and maintenance or import goods in the PRC are subject to a value added tax in accordance with PRC laws. The VAT standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished products. A credit is also available for VAT paid on the purchases of equipment.

VAT on sales and VAT on purchases amounted to approximately $12,864,000 and $8,692,000, respectively, for the three months ended December 31, 2009, and approximately $11,037,000 and $7,658,000, respectively, for the three months ended December 31, 2008, respectively.

VAT on sales and VAT on purchases amounted to approximately $23,018,000 and $15,189,000, respectively, for the six months ended December 31, 2009 and approximately $19,115,000 and $13,111,000, respectively, for the six months ended December 31, 2008, respectively.

Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent because the VAT is not impacted by the income tax holiday.

Shipping and handling

Shipping and handling costs related to goods sold are included in selling expenses. Shipping and handling costs were approximately $423,000 and $524,000 for the three months ended December 31, 2009, and 2008, respectively. Shipping and handling costs were approximately $746,000 and $834,000 for the six months ended December 31, 2009 and 2008, respectively.

Advertising costs

Advertising costs are expensed as incurred and included in selling expenses. Advertising costs were approximately $751,000 and $361,000 for the three months ended December 31, 2009, and 2008, respectively, and approximately $1,401,000 and $754,000 for the six months ended December 31, 2009 and 2008, respectively.

Research and development costs

Research and development costs are expensed as incurred. The costs of material and equipment acquired or constructed for research and development activities, and have alternative future uses, either in research and development, marketing, or sales, are capitalized as plant and equipment and depreciated over their estimated useful lives.

Warrant liabilities

Effective July 1, 2009, the Company adopted the provisions of an accounting standard regarding instruments that are indexed to an entity’s own stock. This accounting standard specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. It provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception within the standards.

As a result, 650,547 warrants previously treated as equity pursuant to the derivative treatment exemption are no longer afforded equity treatment because the strike price of the warrants is denominated in the U.S. dollar, a currency other than the Company’s functional currency, the Chinese Renminbi. As a result, the warrants are not considered indexed to the Company’s own stock, and as such, all changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised or expire.

Therefore, effective July 1, 2009, the Company reclassified the fair value of these warrants from equity to liability as if these warrants were treated as a derivative liability since their issuance in October 2006. On July 1, 2009, the Company reclassified from additional paid-in capital, as a cumulative effect adjustment, $502,633 to beginning retained earnings and $1,731,905 to warrant liabilities to recognize the fair value of such warrants. As of December 31, 2009, the fair value of these warrants amounted to approximately $3,422,000, and is included in derivative instrument liabilities.

The fair value of these warrants as of December 31, 2009 was calculated using the Cox-Ross-Rubinstein (“CRR”) binomial model with the following assumptions: market price $8.05, range of 1.25 to 3.50 year terms, volatility of 70%, risk free interest rates ranging from 0.64% to 1.95%, and no dividends.

Noncontrolling interest

Noncontrolling interest consists of the 5% interest of the noncontrolling shareholders in Langfang Duoyuan and 0.6% interest of the noncontrolling shareholders in Hunan Duoyuan. Effective July 1, 2009, the Company adopted an accounting standard regarding noncontrolling interests. Certain provisions of this standard are required to be adopted retrospectively for all periods presented. Such provisions include a requirement that the carrying value of noncontrolling interests (previously referred to as minority interests) be removed from the mezzanine section of the balance sheet and reclassified as equity and consolidated net income to be recast to include net income attributable to the noncontrolling interest. As a result of this adoption, the Company reclassified noncontrolling interests in the amounts of $2,146,178 and $1,761,712 from the mezzanine section to equity in the December 31, 2009 and June 30, 2009 consolidated balance sheets, respectively.

Stock-based compensation

The Company accounts for stock-based compensation under the accounting standard regarding stock compensation. The expense for all stock-based awards granted represents the grant-date fair value that was estimated in accordance with the provisions of the accounting standard. Compensation expense for options is recorded in the consolidated statements of income using the graded vesting method over the requisite service period.

Recent accounting pronouncements

In April 2009, the FASB issued an accounting standard that makes the other-than-temporary impairments guidance more operational and improves the presentation of other-than-temporary impairments in the financial statements. This standard replaced the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This standard provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this standard does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. On July 1, 2009, the Company adopted this accounting standard, but it did not have a material impact on its consolidated financial statements.

In April 2009, the FASB issued an accounting standard that requires disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this accounting

standard, fair values for these assets and liabilities were only disclosed annually. This standard applies to all financial instruments within its scope and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This standard does not require disclosures for earlier periods presented for comparative purposes at initial adoption, but in periods after the initial adoption, this standard requires comparative disclosures only for periods ending after initial adoption. On July 1, 2009, the Company adopted this accounting standard, but it did not have a material impact on the disclosures related to its consolidated financial statements.

In June 2009, the FASB issued an accounting standard amending the accounting and disclosure requirements for transfers of financial assets. This accounting standard requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and changes the requirements for derecognizing financial assets. In addition, it eliminates the concept of a qualifying special-purpose entity (“QSPE”). This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and the Company does not expect this standard to have a material effect on its consolidated financial statements.

In June 2009, the FASB also issued an accounting standard amending the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes the exception from applying the consolidation guidance within this accounting standard. Further, this accounting standard requires a company to perform a qualitative analysis when determining whether or not it must consolidate a VIE. It also requires a company to continuously reassess whether it must consolidate a VIE. Additionally, it requires enhanced disclosures about a company’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the company’s financial statements. Finally, a company will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and the Company does not expect this standard to have a material effect on its consolidated financial statements.

In August 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available. Under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU, and the adoption of this guidance did not have a material impact on the accompanying consolidated financial statements.

In October 2009, the FASB issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company is currently evaluating the impact of this ASU, however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Reclassification

Certain prior period amounts have been reclassified for consistent presentation with the current period.

Note 3 — Stock-based compensation

On October 16, 2009, the Board of Directors adopted the 2009 Omnibus Incentive Plan (the “Plan”) to provide additional incentives to the Company’s employees. The Plan provides for the grant of a share option and restricted common shares.

Under the Plan, the Company granted an option to its Chief Financial Officer (“CFO”) to purchase 100,000 common shares on November 6, 2009. In addition, the Company granted 875,000 restricted share awards to certain executives and employees on November 6, 2009.

Share option

The share option was granted at an exercise price of $8.50, vests over 4 years of continuous service, with 25% of the option to be vested on each of the second, third, fourth and fifth anniversaries of the CFO’s employment start date, and expire in ten years. Compensation expense is recognized on a graded vesting schedule for each tranche. This expense is calculated using the CRR binomial model based on the assumptions in the following table:

Exercise price		$	8.50
Expected term		4 years
Expected volatility			70	%
Expected dividend yield			0	%
Risk-free interest rate			2.45	%
Estimated fair value of common shares		$	8.50

Since the Company did not have a trading history at the time the share option was granted, the expected volatility was based on the historical volatilities of comparable publicly traded companies engaged in a similar industry and/or operating in a similar region with a three to ten-year look back period, depending on the trading history of each comparable publicly traded company. Accordingly, related compensation expense of $23,004 is included in general and administrative expenses for the three and six months ended December 31, 2009. The unrecognized compensation cost related to these options as of December 31, 2009 amounted to approximately $520,000, which will be recognized ratably over the weighted average period of approximately 3.75 years.

The following is a summary of the option activity:

														Weighted
										Weighted				Average
										Average				Remaining
		Number of				Options				Exercise				Contractual				Aggregate Intrinsic
		Options				Exercisable				Price				Life (Years)				Value
Outstanding, June 30, 2009			—				—			$	—				—				—
Granted			100,000				—				8.50				—				—
Forfeited			—				—				—				—				—
Exercised			—				—				—				—				—
Outstanding, December 31, 2009			100,000				—			$	8.50				9.85				—

Restricted share awards

The value of the restricted share awards was based on the initial public offering price of the Company’s stock on the date of the grant. The common shares under this grant are subject to a six-month cliff vesting period. Accordingly, the compensation expense is recognized ratably over this vesting period, and compensation expense of $2,301,105 is recorded according to where the grantee’s regular compensation is recorded as follows:

Cost of revenues		$	51,019
Research and development expenses			95,989
Selling expenses			139,831
General and administrative expenses			2,014,266
		$	2,301,105

As of December 31, 2009, the unrecognized compensation cost related to the restricted share awards amounted to approximately $5,136,000, which will be recognized ratably over the weighted average period of approximately 0.35 years.

Note 4 — Earnings per share

The Company reports earnings per share in accordance with the provisions of the related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

The following is a reconciliation of the basic and diluted earnings per share computation:

		2009				2008
		(Unaudited)				(Unaudited)
For the three months ended December 31, 2009 and 2008
Net income for earnings per share		$	8,087,916			$	12,641,904
Weighted average shares used in basic computation
Basic			28,367,934				25,000,050
Dilutive effect of common stock granted to employees			532,608				—
Dilutive effect of warrants			301,953				—
Diluted			29,202,495				25,000,050
Earnings per share:
Basic		$	0.29			$	0.51
Diluted		$	0.28			$	0.51
For the six months ended December 31, 2009 and 2008
Net income for earnings per share		$	17,924,989			$	21,156,736
Weighted average shares used in basic computation
Basic			26,683,992				25,000,050
Dilutive effect of common stock granted to employees			266,305				—
Dilutive effect of warrants			150,976				—
Diluted			27,101,273				25,000,050
Earnings per share:
Basic		$	0.67			$	0.85
Diluted		$	0.66			$	0.85

At December 31, 2009, 1,012,252 warrants were included in the calculation of diluted earnings per share because the average fair value of common stock exceeded weighted average exercise price of warrants of $4.95. At June 30, 2009, 1,226,972 warrants, whose weighted average exercise price is $4.95, were excluded from the calculation of diluted earnings per share because of their anti-dilutive effect.

Note 5 — Supplemental disclosure of cash flow information

Cash paid for interest amounted to $446,126 and $598,019 for the six months ended December 31, 2009, and 2008, respectively.

Cash paid for income taxes amounted to $4,150,890 and $2,176,731 for the six months ended December 31, 2009, and 2008, respectively.

Note 6 — Inventories

Inventories consist of the following:

		December 31, 2009
		(Unaudited)				June 30, 2009
Raw materials		$	6,817,146			$	6,494,433
Work-in-process			13,941,911				13,125,837
Finished goods			4,391,835				6,262,972
Totals		$	25,150,892			$	25,883,242

Note 7 — Plant and equipment

Plant and equipment consist of the following:

		December 31, 2009
		(Unaudited)				June 30, 2009
Buildings		$	13,717,893			$	13,699,189
Office equipment			929,318				928,051
Motor vehicles			546,963				382,372
Plant and machinery			32,353,079				32,008,907
Construction-in-progress			4,292,379				4,286,527
Total			51,839,632				51,305,046
Less: accumulated depreciation			(10,013,211	)			(8,181,893	)
Plant and equipment, net		$	41,826,421			$	43,123,153

Depreciation expense for the three months ended December 31, 2009, and 2008 amounted to approximately $912,000 and $678,000, respectively. Depreciation expense for the six months ended December 31, 2009, and 2008 amounted to approximately $1,819,000 and $1,345,000, respectively.

Interest costs totaling $86,414 was capitalized into construction-in-progress for the three months ended December 31, 2008. Interest costs totaling $172,438 was capitalized into construction-in-progress for the six months ended December 31, 2008. No interest costs were capitalized during the three months and six months ended December 31, 2009.

Note 8 — Intangible assets

Intangible assets consist of the following:

		December 31, 2009
		(Unaudited)				June 30, 2009
Intangible — land use rights		$	4,463,962			$	4,457,876
Less: accumulated amortization			(559,220	)			(518,400	)
Total		$	3,904,742			$	3,939,476

Total amortization expense for the three months ended December 31, 2009, and 2008 amounted to $20,052 and $20,024, respectively. Total amortization expense for the six months ended December 31, 2009 and 2008 amounted to $40,096 and $40,038, respectively.

Note 9 — Related party transactions

The Company leased office space from Duoyuan China Water Recycle Technology Industry Co., a related party. On June 30, 2008, the Company and Duoyuan Water Recycle Technology Industry Co. terminated the lease pursuant to a termination agreement. The title of property transferred to Duoyuan Information Terminal Manufacture (Langfang) Co., Ltd., a related party, which Mr. Wenhua Guo is the sole shareholder. On July 1, 2008, the Company entered into a lease agreement with Duoyuan Information Terminal Manufacture (Langfang) Co., Ltd., from July 1, 2008 to December 31, 2009. For the three months ended December 31, 2009 and 2008, rental expense related to this office lease amounted to $41,102 and $41,164, respectively. For the six months ended December 31, 2009 and 2008, rental expense related to this office lease amounted to $82,305 and $82,305, respectively.

On December 15, 2009, the Company renewed its lease agreement with Duoyuan Information Terminal Manufacture (Langfang) Co., Ltd., from January 1, 2010 to December 31, 2012. Total lease expense for the three-year term will be $988,987 (See Note 13).

Note 10 — Lines of credit

The lines of credit represent short-term loans due to a bank that are due normally within one year. These loans can be renewed with the bank. The loans are comprised of the following:

		December 31, 2009
		(Unaudited)				June 30, 2009
Loan from Bank of Agriculture, due March 12, 2010, interest rate of 5.841% per annum, interest only paid quarterly, secured by land use rights and buildings		$	1,467,000			$	1,465,000
Loan from Bank of Agriculture, due July 2, 2010, interest rate of 5.841% per annum, interest only paid quarterly, secured by land use rights and buildings			2,934,000				2,930,000

		December 31, 2009
		(Unaudited)				June 30, 2009
Loan from Bank of Agriculture, due July 9, 2010, interest rate of 5.841% per annum, interest only paid quarterly, secured by land use rights and buildings			2,934,000				2,930,000
Loan from Bank of Agriculture, due July 16, 2010, interest rate of 5.841% per annum, interest only paid quarterly, secured by land use rights and buildings			4,107,600				4,102,000
Loan from Bank of Agriculture, due July 23, 2010, interest rate of 5.841% per annum, interest only paid quarterly, secured by land use rights and buildings			2,934,000				2,930,000
Total		$	14,376,600			$	14,357,000

As of December 31, 2009 and June 30, 2009, the carrying value of the collateralized fixed assets amounted to approximately $4,103,000 and $4,206,000, respectively.

Total interest expense for the above short term loans, net of capitalized interest, amounted to approximately $212,000 and $213,000 for the three months ended December 31, 2009, and 2008, respectively. Total interest expense, net of capitalized interest, amounted to approximately $446,000 and $426,000 for the six months ended December 31, 2009 and 2008, respectively.

Note 11 — Taxes payable

Duoyuan Printing, Inc. was incorporated in the U.S. and has incurred net operating losses for income tax purposes for the six months ended December 31, 2009. As of December 31, 2009, the net operating loss carryforwards for U.S. income taxes is $2,712,849 which may be available to reduce future years’ taxable income. These carryforwards will expire, if not utilized, starting in 2027 through 2029. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews the valuation allowance periodically and makes adjustments as warranted.

Taxes payable consisted of the following:

		December 31, 2009
		(Unaudited)				June 30, 2009
VAT payable (credit)		$	1,594,573			$	(313,382	)
Income tax payable			2,850,506				1,740,765
Others			376,292				85,344
Total taxes payable		$	4,821,371			$	1,512,727

The Company has cumulative undistributed earnings of foreign subsidiaries of approximately $109.1 million as of December 31, 2009, which is included in retained earnings on the consolidated balance sheets and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor has it been determined to be practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2009 were as follows (tax-effected amounts shown):

		U.S.				China				Total
Deferred tax assets:
Net operating loss carryforwards		$	922,369			$	—			$	922,369
Deferred tax assets, net			922,369				—				922,369
Valuation allowance			(922,369	)			—				(922,369	)
Net deferred tax assets		$	—			$	—			$	—

Significant components of the Company’s deferred tax assets and liabilities at June 30, 2009 were as follows (tax-effected amounts shown):

		U.S.				China				Total
Deferred tax assets:
Net operating loss carryforwards		$	761,923			$	—			$	761,923
Deferred tax assets, net			761,923				—				761,923
Valuation allowance			(761,923	)			—				(761,923	)
Net deferred tax assets		$	—			$	—			$	—

Note 12 — Statutory reserves and dividends

The laws and regulations of the PRC require that before a foreign-invested enterprise can legally distribute profits, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the board of directors, after the statutory reserve. The statutory reserves include the surplus reserve fund and the enterprise fund. Additionally, the Chinese government restricts distributions of registered capital and the additional investment amounts required by a foreign-invested enterprise. Approval by the Chinese government must be obtained before distributions of these amounts can be returned to the shareholders.

Statutory surplus reserve fund

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The transfer to this reserve must be made before distribution of any dividends to shareholders. For the three months ended December 31, 2009 and 2008, the Company transferred $724,331 and $2,147,826, respectively, to this reserve. For the six months ended December 31, 2009 and 2008, the Company transferred $1,750,564 and $3,558,242, respectively, to this reserve. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any. It may also be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

The remaining reserve to fulfill the 50% registered capital requirement amounted to approximately $6,966,000 and $8,704,000 as of December 31, 2009 and June 30, 2009, respectively.

Enterprise fund

The enterprise fund may be used to acquire fixed assets or to increase the working capital to expend on production and operation of the business. No minimum contribution is required and, to date, the Company has not made any contributions to this fund.

Note 13 — Operating leases

On July 1, 2008, the Company entered into a lease agreement (see Note 9) with Duoyuan Information Terminal Manufacture (Langfang) Co. Ltd. with annual lease payments totaling $164,610. On December 15, 2009, the Company renewed its lease agreement with Duoyuan Information Terminal Manufacture (Langfang) Co., Ltd., from January 1, 2010 to December 31, 2012 with fixed annual lease payments totaling $329,664.

In addition, the Company leases sixteen sales offices in sixteen different Chinese provinces with various terms with latest office lease due to expire in December 2010. The monthly lease amounts for these offices are de minimis.

Total lease expense for the three months ended December 31, 2009, and 2008 was $81,440, and $84,738, respectively. Total lease expense for the six months ended December 31, 2009 and 2008 was $162,847 and $194,374, respectively. Total future minimum lease payments at December 31, 2009, are as follows:

Years ending June 30,		Amount
2010		$	442,958
2011			329,664
2012			329,659

Note 14 — Retirement plan

The Company’s retirement plan includes two parts. The first to be paid by the Company is 20% of the employee’s actual salary in the prior year. The other part, paid by the employee, is 8% of the actual salary. The Company’s contributions amounted to approximately $272,000, and $255,000 for the three months ended December 31, 2009, and 2008, respectively. The Company’s contributions amounted to approximately $546,000, and $513,000 for the six months ended December 31, 2009, and 2008, respectively.

Note 15 — Shareholders’ equity

On October 25, 2006, the Company entered into a definitive Security Purchase Agreement with unrelated investors (the “Purchase Agreement”). The transaction closed on November 2, 2006. In accordance with the Purchase Agreement, Asian Financial, Inc. issued 6,132,622 shares of common stock for a purchase price of approximately $3.84 per share or a total of $23,549,200.

The financing was conducted through a private placement to accredited investors and is exempted from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). In conjunction with the private placement, the Company agreed to register the shares with the SEC within 90 days of the closing. The Company also agreed to make the registration statement effective no later than the 150th day following the closing date or the fifth trading day following the date on which the Company is notified by the SEC that such registration statement will not be reviewed or is no longer subject to further review and comments, whichever date is earlier. If the registration statement is not filed or declared effective pursuant to the above timeline or if the registration statement ceases to be effective for more than an aggregate of 45 trading days, the Company is required to pay the investors monthly liquidated damages equal to 1% of the aggregate investment amount. The total amount of the liquidated damages payable by the Company was capped at 8% of the total investment amount paid by the investors. Additionally, pursuant to the Purchase Agreement, the Company agreed to cease all related party transactions and to settle all outstanding balances due to or from related parties by December 31, 2006. Failure to terminate the related party transactions was to result in a monthly cash penalty of 1% of the proceeds with a cap of 4%. Penalties were expensed as incurred and totaled $2,119,428 through December 31, 2007. During the year ended June 30, 2008, the Company paid cash of $436,000 and issued 576,425 warrants valued at $1,447,936, and the investors agreed to waive all future penalties under the registration rights related to obtaining timely effectiveness of the registration statement. The warrants explicitly provide the holder with the right to request the Company to cash-settle the warrants. Therefore, the warrants did not meet the criteria established under the governing accounting standards for the above warrants and triggered liability accounting. As such, the Company recorded liability of $1,447,936 on December 31, 2007, the grant date. As of December 31, 2009, the fair value of these warrants was $1,713,911 and a loss of $1,543,544 was recognized for the six months ended December 31, 2009. The fair value of warrants at December 31, 2009 was calculated using the CRR binomial model with the following assumptions: market price of $8.05, 3.5 year term, volatility of 70%, risk free rate of 1.95% and no dividends.

During the six months ended December 31, 2009, 214,720 warrants were exercised using the cashless exercise option. The cashless exercise formula was as follows:

X = Y [(A - B) / A]

     Where:

     X = the number of shares of common stock to be issued.

     Y = the number of warrants with respect to which this warrant is being exercised.

     A = the average closing prices for the five trading days immediately prior to (but not including) the date of exercise.

     B = the exercise price.

Based on the above formula, 63,167 shares of common stock were issued to the warrant holders and the liability value of $1,010,110 was transferred to additional paid in capital.

The changes in the fair value of derivative instrument liabilities were as follows:

		Amount
Balance, June 30, 2008		$	1,374,824
Change in fair value of derivative instruments			(194,347	)
Balance, June 30, 2009			1,180,477
Transfer to additional paid in capital for warrants exercised			(1,010,110	)
Change in fair value of derivative instruments			1,543,544
Balance, December 31, 2009 (Unaudited)		$	1,713,911

At closing of the purchase agreement, as part of the compensation to the placement agent, Roth Capital Partners, LLC (“Roth Capital”), the Company issued to Roth Capital warrants to acquire 613,260 shares of common stock, exercisable at any time after June 30, 2008. The warrants have a strike price equal to $4.21 per share of common stock. In addition, the Company issued to CCG, an investor relations firm, warrants to acquire 37,287 shares of common stock. The warrants have a strike price equal to $4.61 per common share. The warrants have terms ranging from four to five years, and permit cashless or net exercise at all times. The shares underlying the warrants will have registration rights. The warrants contain a standard anti-dilution provision for stock dividends, stock splits, stock combination, recapitalization and a change of control transaction.

As discussed in Note 2 under warrant liabilities, the 613,260 warrants issued to Roth Capital and 37,287 warrants issued to CCG were reclassified as a liability effective July 1, 2009.

These warrants were revalued to $3,422,357 as of December 31, 2009, and the Company recorded a loss of $1,690,452 for the change of fair value for the six months then ended.

The changes in the fair value of the warrants were as follows:

		Amount
Balance, June 30, 2009		$	—
Cumulative effect of reclassification of warrants			1,731,905
Balance, July 1, 2009, as adjusted			1,731,905
Change in fair value			1,690,452
Balance, December 31, 2009 (unaudited)		$	3,422,357

		Warrants				Warrants				Weighted Average				Average Remaining
		Outstanding				Exercisable				Exercise Price				Contractual Life
Balance, June 30, 2008			1,226,972				1,226,972			$	4.95				5.00
Granted			—				—				—				—
Forfeited			—				—				—				—
Exercised			—				—				—				—
Balance, June 30, 2009			1,226,972				1,226,972			$	4.95				4.25
Granted			—				—				—				—
Forfeited			—				—				—				—
Exercised			214,720				214,720				—				—
Balance, December 31, 2009 (Unaudited)			1,012,252				1,012,252			$	4.95				3.42

Note 16 — Commitments and contingencies

Construction-in-progress

Construction-in-progress relates to the building and equipment improvement initiative at the Langfang Duoyuan facility. As of December 31, 2009, an estimate of approximately $30 million is required to be further expended in the building and equipment construction project for completion. This project is expected to be completed in September 2010.

Equipment purchase agreement

In August 2008, Langfang Duoyuan entered into a packing material equipment purchase agreement with Beijing Jingneng Mechanical & Electrical Equipments Ltd. As of December 31, 2009, $378,696, or 5% of the total commitment, remains outstanding on this agreement.

Litigation

The Company is subject to various legal matters in the ordinary course of business. After taking into consideration the Company’s legal counsels’ evaluation of these matters, the Company has determined that the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial statements.

Note 17 — Subsequent events

The Company has performed an evaluation of subsequent events through February 11, 2010, the date these consolidated financial statements were issued.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q for the quarter ended December 31, 2009 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Generally, the words “believe,” “anticipate,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “predict,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements which include, but are not limited to, statements concerning expectations of us and our directors and officers regarding, among other things, working capital requirements, financing requirements, business prospects, trends affecting us and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this quarterly report on Form 10-Q or other reports or documents we file with the Securities and Exchange Commission, or the SEC, from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We do not ordinarily make projections of our future operating results and undertake no obligation (and expressly disclaim any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by us with the SEC. In addition, the forward-looking statements in this quarterly report on Form 10-Q for the quarter ended December 31, 2009 involve known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of us to differ materially from those expressed in or implied by the forward-looking statements contained herein. Please see the “Risk Factors” in Item 1A of Part II of this quarterly report on Form 10-Q.

General Overview

Business

We are a leading offset printing equipment supplier in China, headquartered in Beijing. We design, manufacture and sell offset printing equipment used in the offset printing process. The offset printing process includes the following three stages: (1) “pre-press,” which is the transfer of images to printing plates; (2) “press,” which is the transfer of images from printing plates to another media, such as paper; and (3) “post-press,” which is the last step of the offset printing process that includes cutting, folding, binding, collating and packaging. We manufacture one product under the pre-press product category (a computer-to-plate system, or CTP system) and sixteen products across four product lines under the press product category (single color small format presses, single color large format presses, multicolor small format presses and multicolor large format presses). We plan to begin commercial production and sale of certain post-press products, including cold-set corrugated paper machines, which make corrugated cardboard paper, by the end of 2010. Through our technical innovation and precision engineering, we offer a broad range of quality and durable offset printing equipment at competitive prices. With over 85 distributors in over 65 cities and 28 provinces, we have one of the largest distribution networks for offset printing equipment suppliers in China. We believe our extensive network allows us to be closer to our end-user customers and enables us to be more responsive to local market demand.

Corporate History

We are organized under the law of the State of Wyoming. On October 6, 2006, we closed an equity transfer agreement with Duoyuan Investments Limited, or Duoyuan Investments, pursuant to which we acquired Duoyuan Digital Press Technology Industries (China) Co., Ltd., or Duoyuan China, and commenced our present line of offset printing equipment business. We conduct all of our business through our principal operating subsidiary, Duoyuan China, and its two manufacturing subsidiaries, Langfang Duoyuan Digital Technology Co., Ltd., or Langfang Duoyuan, and Hunan Duoyuan Printing Machinery Co., Ltd., or Hunan Duoyuan. Duoyuan China’s principal business activities include marketing and sale of our offset printing equipment, technical support to our distributors, as well as overall strategic planning and management of our business. Langfang Duoyuan’s principal business activities include the manufacturing of our CTP system, and two of our press products, namely our single color small format presses and multicolor small format presses. Hunan Duoyuan’s principal business activities include the manufacturing of two of our press products, namely our single color large format presses and multicolor large format presses. Our majority shareholder is Duoyuan Investments, which is a British Virgin Islands company wholly owned by Wenhua Guo, our chairman of the board.

On November 2, 2006, we closed the transactions contemplated by a securities purchase agreement by and between us and certain investors, and issued an aggregate of 6,132,622 shares of common stock to certain investors for an aggregate purchase price of $23.5 million. This private placement was made pursuant to the exemption from the registration provisions of the Securities Act provided by Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated thereunder, for issuances not involving a public offering.

In November 2009, we completed our initial public offering of 6,455,918 common shares, including 5,500,000 common shares offered by us and 955,918 common shares offered by the selling shareholders, at an initial public offering price of $8.50 per common share. Our shares are listed on the New York Stock Exchange under the symbol “DYP.”

Changes in PRC Tax Regulations

Our Chinese subsidiaries have enjoyed significant tax preferential treatments. These preferential tax treatments were applicable to foreign invested manufacturing enterprises scheduled to operate for a period of not less than ten years in accordance with the Foreign Invested Enterprise Income Tax Law, or FIE Income Tax Law, which was effective until December 31, 2007. The additional tax that would otherwise be payable without such preferential tax treatments totaled $7.9 million for the year ended June 30, 2008 and $4.3 million for the year ended June 30, 2009. The additional tax that would otherwise be payable without such preferential tax treatments totaled $2.0 million for the six months ended December 31, 2009. The additional tax that would otherwise be payable without such preferential tax treatment totaled $3.2 million for the six months ended December 31, 2008.

As a result of recent changes in the FIE Income Tax Law, we expect that our tax expenses in the future will be significantly higher. In addition, as explained below, some of the tax preferences we previously received were granted by local governments and not supported by relevant state laws and regulations. As a result, our Chinese subsidiaries may be ordered by relevant authorities to refund these tax benefits. In addition, as a result of the changes in Chinese tax laws, our historical operating results will not be indicative of our operating results for future periods.

Revenue by Product Categories

Our revenue is reported net of value-added taxes, or VAT, that are levied on our products. As of December 31, 2009, all of our products were subject to a VAT at a rate of 17% of the gross sales price. We also offer sales rebates as an incentive for large purchase orders. These sales rebates are recorded as a reduction of our revenue.

We derive all of our revenue from the sale of our offset printing equipment to distributors in China. We sell products in the pre-press and press product categories of offset printing equipment with substantially all our revenue being derived from the sale of our press printing equipment. Pre-press printing equipment comprised approximately 2.4% of our revenue and press printing equipment comprised approximately 97.6% of our revenue for the three months ended December 31, 2009, as adjusted for sales rebates. For the three months ended December 31, 2009, within the press product category of printing equipment, we derived 87.1% of our revenue from the sale of our multicolor (small and large format) presses, before adjustment for sales rebates.

Our multicolor (small and large format) presses were our best selling products for the three months ended December 31, 2009. For the three months ended December 31, 2009, our multicolor large format presses accounted for approximately 52.0% of our revenue and our multicolor small format presses accounted for approximately 35.1% of our revenue, before adjustment for sales rebates. The following table provides a breakdown of our revenue, by product category:

		Three Months Ended December 31,																Six Months Ended December 31,
		2009								2008								2009								2008
						% of								% of								% of								% of
		$				revenue				$				revenue				$				revenue				$				revenue
		(dollars in thousands)																(dollars in thousands)
Pre-press
Computer-to-plate systems		$	1,028				2.4	%		$	1,026				2.8	%		$	1,953				2.6	%		$	1,847				2.9	%
Press
Single color small format			1,793				4.2	%			1,617				4.4	%			2,792				3.7	%			2,496				4.0	%
Single color large format			3,241				7.6	%			4,181				11.4	%			5,700				7.5	%			6,780				10.8	%
Multicolor small format			14,870				35.1	%			12,642				34.3	%			23,722				31.3	%			19,454				30.9	%
Multicolor large format			22,063				52.0	%			17,251				46.8	%			42,588				56.3	%			33,103				52.5	%
Adjustments			(587	)			(1.3	%)			120				0.3	%			(1,052	)			(1.4	%)			(663	)			(1.1	%)
Total Revenue		$	42,408				100.0	%		$	36,837				100.0	%		$	75,703				100.0	%		$	63,017				100.0	%

Sales to distributors in China account for all of our revenue. We use an extensive distribution network to reach a broad end-user customer base. We generally make sales on a purchase order and short-term agreement basis. We do not have long-term volume purchase contracts with any of our distributors. No single distributor accounted for more than 3% of our revenue during the three months ended December 31, 2009.

Adjustments to revenue accounted for 1.3% for the three months ended December 31, 2009, for sales rebates paid to distributors as part of our incentive program that rewards those distributors who meet or exceed their sales targets in the prior year. We provide sales rebates, or discounts of 2% to 6%, to distributors who place large purchase orders with us. The greater the dollar amount of the purchase order, the higher the percentage rebate we offer to our distributors. These sales rebates are paid at the end of each calendar year. We intend to continue this incentive program.

Raw Material Costs

Our principal raw materials are steel, iron and electronic components. We produce a substantial majority of our key components in-house at our Hunan Duoyuan facility. We purchase all other raw materials and components from Chinese suppliers. The relatively low operation, labor and raw material costs in China have historically allowed us to maintain our low cost of revenue. However, as the global economy continues to recover, we expect our raw material costs will increase.

As we focus on manufacturing more advanced products and new product lines, we may find it necessary to use more expensive raw materials and components. We plan to mitigate future increases in raw material and component costs by using more common resources across our product lines, increasing in-house manufacturing of our key components and adopting more uniform manufacturing and assembly practices. In addition, to minimize and control raw material waste and increase production efficiency, we continue to make investments to improve and further automate our manufacturing process.

Employee Share-Based Compensation Expenses

We account for employee share-based compensation expenses at the fair value of the share awards on the date of grant and recognize over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock.

On November 6, 2009, we granted certain employees, including members of our executive management team, but excluding our chief executive officer and chief financial officer, 875,000 common shares, for no consideration, other than par value, which was deemed paid by services already rendered to us. All of the common shares subject to these grants will vest six months following the grant. The compensation expense is recognized ratably over the vesting period. As a result of these common share grants to our employees, we incurred employee share-based compensation charges of $2.3 million during the three months ended December 31, 2009, based on the initial public offering price of $8.50 per common share on the New York Stock Exchange on November 6, 2009.

During the three months ended December 31, 2009, the compensation expense of $2,301,105 was recorded according to where the grantee’s regular compensation was recorded as follows:

Cost of revenues		$	51,019
Research and development expense			95,989
Selling expense			139,831
General and administrative expense			2,014,266
		$	2,301,105

We currently estimate that we will record compensation expense of $3.7 million during the three months ended March 31, 2010 and $1.4 million during the three months ended June 30, 2010 in line with the six month vesting schedule as discussed above.

In addition, on November 6, 2009, we granted our chief financial officer an option to purchase up to 100,000 common shares at the initial public offering price. One quarter of these options will vest on October 1, 2010, with the remainder of the options vesting ratably on a monthly basis through October 1, 2013. This grant resulted in additional stock-based compensation expense of $0.02 million for the three months ended December 31, 2009.

Results of Operations

The following table sets forth selected data from our consolidated statements of income for the periods indicated as a percentage of revenue:

		Three Months Ended December 31,																Six Months Ended December 31,
		2009								2008								2009								2008
		$				%				$				%				$				%				$				%
		(dollars in thousands)																(dollars in thousands)
Revenue, net			42,408				100	%			36,837				100	%			75,703				100	%			63,017				100	%
Cost of revenue			19,565				46	%			16,609				45	%			35,353				47	%			28,940				46	%
Gross profit			22,843				54	%			20,228				55	%			40,350				53	%			34,077				54	%
Research and development			629				1	%			490				1	%			993				1	%			1,185				1	%
Selling expenses			3,908				9	%			2,952				8	%			7,065				9	%			5,499				9	%
General and administrative expenses			3,628				9	%			1,345				4	%			5,119				7	%			2,276				4	%
Income from operations			14,678				34	%			15,441				42	%			27,173				36	%			25,117				40	%
Change of the fair value of derivative instruments			(3,345	)			-8	%			109				0	%			(3,234	)			-4	%			164				0	%
Other income (expense):
Non-operating expenses											(957	)			-3	%							—				(957	)			-2	%
Interest expense and other charges			(211	)			-1	%			(214	)			-1	%			(446	)			-1	%			(426	)			-1	%
Interest income			40				0	%			36				0	%			72				0	%			69				0	%
Other expense, Net			(171	)			-1	%			(1,135	)			-3	%			(374	)			-1	%			(1,314	)			-2	%
Income before provision for income taxes and noncontrolling interest			11,162				26	%			14,415				39	%			23,565				31	%			23,967				38	%
Provision for income taxes			2,850				7	%			1,604				4	%			5,258				7	%			2,531				4	%
Net income			8,312				19	%			12,811				35	%			18,307				24	%			21,436				34	%
Less: Net income attributable to noncontrolling interest			224				0	%			169				1	%			382				0	%			279				0	%
Net income attributable to Duoyuan Printing, Inc.			8,088				19	%			12,642				34	%			17,925				24	%			21,157				34	%
Other comprehensive income:
Foreign currency translation adjustment			2				0	%			308				1	%			185				0	%			564				1	%
Comprehensive income			8,090				19	%			12,950				35	%			18,110				24	%			21,721				35	%

Comparison of Three Months Ended December 31, 2009 and December 31, 2008

Revenue

Our revenue increased by $5.6 million, or 15.1%, from $36.8 million for the three months ended December 31, 2008 to $42.4 million for the three months ended December 31, 2009, primarily as a result of an increase in sale of our higher priced and higher margin multicolor presses during this period. Revenue for our pre-press printing equipment stayed constant at $1.0 million for the three months ended December 31, 2008 and 2009, respectively. However, revenue for our press printing equipment for the three months ended December 31, 2009 increased by $6.3 million, or 17.6%, when compared to the three months ended December 31, 2008.

Pre-press Printing Equipment. Revenue from our CTP system equipment stayed constant at $1.0 million for both the three months ended December 31, 2008 and 2009. Sales of our CTP system equipment were relatively constant.

Press Printing Equipment.

Revenue from the sale of our press printing equipment increased by $6.3 million, or 17.6%, from $35.7 million during the three months ended December 31, 2008 to $42.0 million for the three months ended December 31, 2009, before adjustment for sales rebates. This increase was primarily due to an increase in sales of our multicolor (small and large format) presses.

Single color small format press. Revenue for our single color small format presses increased by $0.2 million, or 10.9%, from $1.6 million during the three months ended December 31, 2008 to $1.8 million during the three months ended December 31, 2009, before adjustment for sales rebates. Overall, we sold more single color small format presses during the three months ended December 31, 2009 when compared to the three months ended December 31, 2008 as we increased promotion of our new single color small format press, Model DY56T, which was introduced in April 2009. However, the increase from the sale of this new model was offset by the decrease in sales of our other single color small format presses as we participated in fewer exhibitions and tradeshows for promotion of these other models during the three months ended December 31, 2009 compared to the three months ended December 31, 2008. During the three months ended December 31, 2009, our promotional efforts were mostly focused on multicolor (small and large format) presses.

Single color large format press. Revenue for our single color large format presses decreased by $1.0 million, or 22.5%, from $4.2 million during the three months ended December 31, 2008 to $3.2 million during the three months ended December 31, 2009, before adjustment for sales rebates. Our promotional efforts in advertising and exhibitions and tradeshows were more focused on multicolor presses during the three months ended December 31, 2009. Overall, we participated in more exhibitions and trade shows during the three months ended December 31, 2009 compared to the three months ended December 31, 2008. However, we increased the promotion of multicolor (small and large format) presses and decreased the promotion of single color large format presses at these events.

Multicolor small format press. Revenue for our multicolor small format presses increased by $2.3 million, or 17.6%, from $12.6 million during the three months ended December 31, 2008 to $14.9 million during the three months ended December 31, 2009, before adjustment for sales rebates. We believe the increased sales of our multicolor small format press were partially a result of our increased marketing activities. We promoted our multicolor small format press through four additional exhibitions and trade shows during the three months ended December 31, 2009 when compared to three months ended December 31, 2008. Specifically, we increased promotion of model DY456, mostly used by commercial printers that print books, magazines, corporate brochures, product catalogues, labels and small packages. Furthermore, we introduced a new model, DY552, in September 2009, which generated additional revenue of $3.0 million for us.

Multicolor large format press. Revenue for our multicolor large format presses increased by $4.8 million, or 27.9%, from $17.3 million during the three months ended December 31, 2008 to $22.1 million during the three months ended December 31, 2009, before adjustment for sales rebates. We believe the increased sales of our multicolor large format presses were partially a result of our increased marketing activities. In the three months ended December 31, 2009, we participated in 16 exhibitions and trade shows, an increase of 4 exhibitions and trade shows when compared with the three months ended December 31, 2008. We increased the sale of