##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date
of event requiring this shell company report
 Commission file number 001-34380
 DUOYUAN GLOBAL WATER INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Not Applicable  (Translation of Registrants Name Into English)
 BRITISH VIRGIN ISLANDS
  Duoyuan Global Water Inc.
No. 3 Jinyuan Road
Daxing Industrial Development Zone
Beijing 102600
Peoples Republic of China
 Stephen C. Park
Chief Financial Officer
Duoyuan Global Water Inc.
No. 3 Jinyuan Road
Daxing Industrial Development Zone
Beijing 102600
Peoples Republic of China
Tel: +8610-6021-2222
Fax: +8610-6021-2164
 
  Title of each class
    
    Name of each exchange of which registeredORDINARY SHARES, PAR VALUE
$0.000033 PER SHARE*
    
    NEW YORK STOCK EXCHANGEAMERICAN DEPOSITARY SHARES, 
EACH REPRESENTING 
TWO ORDINARY SHARES
    
    NEW YORK STOCK EXCHANGE
 
 *
    
    Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the New York Stock Exchange  None.
  None.
  ORDINARY SHARES, PAR VALUE $0.000033 PERSHARE
    
    43,702,631
  o þ
  o þ
  þ o
  o þ
  o Large accelerated filer
    
    o Accelerated filer
    
    þ Non-accelerated filer
  þ U.S. GAAP
    
    o International Financial Reporting Standards as issued by the International Accounting Standards Board
    
    o Other
  o o
 o þ




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##### 



PART IITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    2ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    2ITEM 3.
    
    KEY INFORMATION
    
    2ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    24ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    42ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    42ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    60ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    67ITEM 8.
    
    FINANCIAL INFORMATION
    
    69ITEM 9.
    
    THE OFFER AND LISTING
    
    69ITEM 10.
    
    ADDITIONAL INFORMATION
    
    70ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    86ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    87PART IIITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    87ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    88ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    88ITEM 16.
    
    [RESERVED]
    
    89ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    89ITEM 16B.
    
    CODE OF BUSINESS
CONDUCT AND ETHICS
    
    89ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    89ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    89ITEM 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    89ITEM 16F.
    
    CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
    
    90ITEM 16G.
    
    CORPORATE GOVERNANCE
    
    90PART IIIITEM 17.
    
    FINANCIAL STATEMENTS

    
    90ITEM 18.
    
    FINANCIAL STATEMENTS
    
    91ITEM 19.
    
    EXHIBITS

    
    92SIGNATURES
    
    93EXHIBIT
INDEX
    
    94EX-12.1EX-12.2EX-13.1EX-13.2EX-23.1




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FORWARD-LOOKING INFORMATION
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PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
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FOR THE YEAR ENDED DECEMBER 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(In thousands, except
share, per share and per ADS data)STATEMENT OF INCOME DATA:Net revenue
    
    
    229,550
    
    
    
    292,863
    
    
    
    423,962
    
    
    
    592,699
    
    
    
    783,411
    
    
    $
    114,770Cost of revenue
    
    
    150,256
    
    
    
    178,125
    
    
    
    272,402
    
    
    
    326,809
    
    
    
    406,177
    
    
    
    59,505Gross profit
    
    
    79,294
    
    
    
    114,738
    
    
    
    151,560
    
    
    
    265,890
    
    
    
    377,234
    
    
    
    55,265Operating expenses:Research and development
expenses
    
    
    12,762
    
    
    
    12,857
    
    
    
    14,405
    
    
    
    16,370
    
    
    
    18,386
    
    
    
    2,694Selling expenses
    
    
    24,333
    
    
    
    27,672
    
    
    
    30,698
    
    
    
    37,076
    
    
    
    68,873
    
    
    
    10,090General and
administrative expenses
    
    
    9,409
    
    
    
    10,242
    
    
    
    11,034
    
    
    
    35,792
    
    
    
    101,837
    
    
    
    14,919Operating income
    
    
    32,790
    
    
    
    63,967
    
    
    
    95,423
    
    
    
    176,652
    
    
    
    188,138
    
    
    
    27,562Impairment loss
    
    
    1,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    7,465
    
    
    
    7,372
    
    
    
    5,759
    
    
    
    3,118
    
    
    
    1,219
    
    
    
    178Other income
    
    
    2,545
    
    
    
    2,507
    
    
    
    4,523
    
    
    
    1,279
    
    
    
    1,347
    
    
    
    197Loss from sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,216
    
    
    
    
    
    
    
    Income from continuing
operations before income
taxes
    
    
    26,607
    
    
    
    59,102
    
    
    
    94,187
    
    
    
    171,597
    
    
    
    188,266
    
    
    
    27,581Provision of income taxes
    
    
    1,318
    
    
    
    7,403
    
    
    
    11,799
    
    
    
    37,830
    
    
    
    71,271
    
    
    
    10,441Income from continuing
operations
    
    
    25,289
    
    
    
    51,699
    
    
    
    82,388
    
    
    
    133,767
    
    
    
    116,995
    
    
    
    17,140Discontinued operationsNet income from
discontinued
operations, net of
taxes
    
    
    667
    
    
    
    1,113
    
    
    
    402
    
    
    
    
    
    
    
    
    
    
    
    Loss on sale of
discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (582
    )
    
    
    
    
    
    
    
    
    
    
    Total income (loss) from
discontinued operations
    
    
    667
    
    
    
    1,113
    
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    25,956
    
    
    
    52,812
    
    
    
    82,208
    
    
    
    133,767
    
    
    
    116,995
    
    
    $
    17,140Earnings per share (basic and
diluted):Income from
continuing
operations
    
    
    
    
    
    
    
    
    
    
    2.75
    
    
    
    4.46
    
    
    
    3.16
    
    
    $
    0.46Loss from
discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    2.74
    
    
    
    4.46
    
    
    
    3.16
    
    
    $
    0.46Earnings per ADS(1):Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.92
    
    
    
    6.33
    
    
    $
    0.93Diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.92
    
    
    
    6.31
    
    
    
    0.92Weighted average number of shares
outstanding:Basic
    
    
    
    
    
    
    
    
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    36,982,711
    
    
    
    36,982,711Diluted
    
    
    
    
    
    
    
    
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    37,064,864
    
    
    
    37,064,864Share-based compensation expense included in:Cost of revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375
    
    
    
    201Selling expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,985
    
    
    
    584General and administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,897
    
    
    
    12,584
 
 (1)
 DECEMBER 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    US$(In thousands)BALANCE SHEET DATA:Cash
    
    
    12,801
    
    
    
    7,430
    
    
    
    28,053
    
    
    
    198,518
    
    
    
    918,667
    
    
    $
    134,586Total assets
    
    
    334,037
    
    
    
    345,789
    
    
    
    420,243
    
    
    
    538,086
    
    
    
    1,372,587
    
    
    
    201,085Total current liabilities
    
    
    159,131
    
    
    
    118,071
    
    
    
    110,316
    
    
    
    94,393
    
    
    
    83,059
    
    
    
    12,168Total
shareholders/owners
equity
    
    
    174,906
    
    
    
    227,718
    
    
    
    309,926
    
    
    
    443,693
    
    
    
    1,289,528
    
    
    $
    188,917
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Dividends
   Exchange Rate Information
  Renminbi per U.S. Dollar Noon Buying RateAverage
    
    High
    
    Low
    
    Period-EndYear ended
December 31,2005
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.0702
    
    
    
    8.07022006
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.8041
    
    
    
    7.80412007
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.2946
    
    
    
    7.29462008
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.7800
    
    
    
    6.82252009
    
    
    6.8295
    
    
    
    6.8470
    
    
    
    6.8176
    
    
    
    6.8259For the months ofDecember 2009
    
    
    6.8275
    
    
    
    6.8299
    
    
    
    6.8244
    
    
    
    6.8259January 2010
    
    
    6.8269
    
    
    
    6.8295
    
    
    
    6.8258
    
    
    
    6.8268February 2010
    
    
    6.8285
    
    
    
    6.8330
    
    
    
    6.8258
    
    
    
    6.8258March 2010
    
    
    6.8262
    
    
    
    6.8270
    
    
    
    6.8254
    
    
    
    6.8258April 2010
    
    
    6.8256
    
    
    
    6.8275
    
    
    
    6.8229
    
    
    
    6.8247May 2010
    
    
    6.8275
    
    
    
    6.8310
    
    
    
    6.8245
    
    
    
    6.8305June 2010
(through June 11, 2010)
    
    
    6.8294
    
    
    
    6.8322
    
    
    
    6.8268
    
    
    
    6.8320
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Risk Factors
 Risks Related to Our Business
 If the market for water treatment equipment does not grow at the rate we expect or at all, our
sales and profitability may be materially and adversely affected.
  If we fail to meet evolving customer demands and requirements for water treatment equipment,
including through product enhancements or new product introductions, or if our products do not
compete effectively, our financial results may be materially and adversely affected.
  We may be unable to successfully expand our manufacturing capacity, which could result in
material delays, quality issues, increased costs and loss of business opportunities, and if we fail
to accurately gauge demand for our products or our product and customer initiatives fail, we may
have overcapacity, which may negatively impact our product margins and profitability.
  If we fail to maintain or improve our market position or respond successfully to changes in
the competitive landscape, our business, financial condition and results of operations may be
materially and adversely affected.
  -5-




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
    
    Circulating Water Treatment Equipment. Our electronic water conditioner
competes primarily with products from three other local companies: Zhejiang Dean New
Technology Development Co. Ltd. (China), Jiangyin Jialong Environment Technology Co.
Ltd. (China) and Beijing Kejingyuan Technology Co. Ltd. (China). Our automatic filter
competes primarily with products from Claude Laval Co. (USA), Amiad Filtration Systems
(Israel) and Beijing Luolun Filtration Equipment Technology Co. Ltd. (China).
    
    Water Purification Equipment. Our ozone generator competes primarily with
products from Ozonia Ltd. (Switzerland), ITT (Sweden) and Jiangsu Koner Ozone Co., Ltd.
(China). Our industry pure water equipment with EDI functions compete primarily with
products from GE Water & Process Technologies, CANPURE Corporation (Canada) and
Zhejiang Omex Environmental Engineering Ltd. (a subsidiary of Dow Chemical).
    
    Wastewater Treatment Equipment. Our microporous aerator competes primarily
with products from REHAU (Germany), ITT (Sweden) and Yixing Nopon Environment Co. Ltd.
(China). Our belt-type thickener-filter press mono-block machine competes primarily
with products from Wuxi Tongyong Machinery Co. Ltd. (China), DWT Project Co. Ltd.
(Finland) and Passavant-Roediger GmbH (Germany).
  Our net income may fluctuate significantly from quarter to quarter, which may cause volatility
in the price of our ADSs.
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Our business is capital-intensive and our growth strategy may require additional capital which
may not be available on favorable terms or at all.
  Our expansion strategy may not prove successful.
  
    
    continued enhancement of our research and development capabilities;
    
    effective coordination and integration of our research facilities and teams,
particularly those located in different facilities, including newly opened sites;
    
    successful hiring and training of personnel;
    
    effective management of a business geographically distributed in China;
    
    effective cost control;
    
    sufficient liquidity;
    
    effective and efficient financial and management control;
    
    increased marketing and sales-support activities;
    
    effective quality control;
    
    management of our distribution network; and
    
    management of our suppliers to leverage our purchasing power.
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We depend on distributors for all of our revenue. Failure to maintain relationships with our
distributors or to otherwise expand our distribution network could negatively affect our ability to
effectively sell our products.
  We may be unable to effectively manage our distribution network, and our business, prospects
and brand may be materially and adversely affected by our distributors actions.
  
    
    sell products that compete with our products, including possibly counterfeit products
utilizing the Duoyuan name;
    
    sell our products outside their designated territory, possibly in violation of the
distribution rights of other distributors;
    
    fail to adequately promote our products;
    
    fail to provide proper training and service to our end-user customers; or
    
    violate the anti-corruption laws of China, the United States or other countries.
  Our failure to adequately protect, or uncertainty regarding the validity, enforceability or
scope of, our intellectual property rights may undermine our competitive position, and litigation
to protect our intellectual property rights may be costly.
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Limitations on our use of the Duoyuan name and third-party use of our trademarks and the
Duoyuan name may dilute their value and materially and adversely affect our reputation, goodwill
and brand.
  We may be exposed to infringement or misappropriation claims by third parties, which, if
determined adversely against us, could disrupt our business and subject us to significant liability
to third parties.
   -9-




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
    
    pay damage awards;
    
    seek licenses from third parties;
    
    pay additional ongoing royalties, which could decrease our profit margins;
    
    redesign our products; or
    
    be restricted by injunctions.
  We may undertake acquisitions, which may have a material adverse effect on our ability to
manage our business, and may end up being unsuccessful.
  
    
    the integration of new operations, services and personnel;
    
    unforeseen or hidden liabilities;
    
    the diversion of resources from our existing businesses and technologies;
    
    our inability to generate sufficient revenue to offset the costs of acquisitions; and
    
    potential loss of, or harm to, relationships with employees or customers, any of which
may have a material adverse effect on our ability to manage our business.
 Failure to manage our growth could strain our management, operational and other resources,
which may materially and adversely affect our business, financial condition and results of
operations.
  
    
    continued enhancement of our research and development capabilities;
    
    continued growth of our manufacturing capacity;
    
    stringent cost controls and sufficient liquidity;
    
    strengthening of financial and management controls;
    
    increased marketing, sales and sales support activities; and
    
    hiring and training of new personnel.
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The slowdown in the Chinese economy may adversely affect our business, results of operations and financial condition.
  If we fail to accurately project demand for our products, we may encounter problems of
inadequate supply or oversupply, which would materially and adversely affect our business,
financial condition and results of operations, as well as damage our reputation and brand.
   If we cannot obtain sufficient raw materials and components that meet our production standards
at a reasonable cost or at all, our ability to produce and market our products, and thus our
business, could suffer.
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Any interruption in our manufacturing operations or production and distribution processes
could impair our financial performance and negatively affect our brand.
  Our insurance coverage may be inadequate to protect us against losses.
  Problems with product quality or product performance could result in a decrease in customers
and revenue, unexpected expenses and loss of market share.
  -12-




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Our products may become subject to recall in the event of defects or other performance related
issues.
  If our end-user customers that use our products successfully assert product liability claims
against us due to defects in our products, our results of operations may suffer and our reputation
may be harmed.
  Environmental claims or failure to comply with any present or future environmental regulations
may require us to spend additional funds and may harm our results of operations.
   -13-




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We may not possess all of the licenses required to operate our business, or we may fail to
maintain the licenses we currently hold. This could subject us to fines and other penalties, which
may have a material adverse effect on our business, financial condition and results of operations.
  We depend heavily on key personnel, and the loss of certain employees and senior management
could harm our business.
   -14-




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Wenhua Guo, our chairman and chief executive officer and 48.6% beneficial owner of our
ordinary shares, has substantial influence over our company, and his interests may not be aligned
with the interests of our other shareholders.
   Concurrent positions held by Wenhua Guo, our chairman and chief executive officer, with other
businesses could impede his ability to devote sufficient time to our business and could pose
conflicts of interest.
  The termination and expiration or unavailability of preferential tax treatments once available
to us may have a material adverse effect on our operating results.
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The newly enacted Chinese enterprise income tax law will affect tax exemptions on the
dividends we receive and increase the enterprise income tax rate applicable to us.
    The contractual arrangements entered into between our Chinese subsidiaries or between us and
one of our Chinese subsidiaries and those arrangements entered into between us or one of our
Chinese subsidiaries and an entity affiliated with us may be subject to audit or challenge by the
Chinese tax authorities. A finding that we, Duoyuan Beijing or Duoyuan Langfang owe additional
taxes could substantially reduce our net earnings and the value of your investment.
  -16-




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We may be unable to ensure compliance with United States economic sanctions laws, especially
when we sell our products to distributors over which we have limited control.
  As a result of being a public company, we incur increased costs that may place a strain on our
resources and our managements attention may be diverted from other business concerns.
   We may be exposed to potential risks relating to our internal controls over financial
reporting and our ability to have those controls attested to by our independent auditors.
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In the course of preparing our consolidated financial statements as of and for
the years ended December 31, 2007, 2008 and 2009, several material weaknesses, significant
deficiencies and control deficiencies have been identified. If we fail to achieve or maintain an
effective system of internal control over financial reporting, our ability to accurately and timely
report our financial results or prevent fraud may be adversely affected.
  Risks Related to Doing Business in China
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Adverse changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could adversely
affect our business.
  Uncertainties with respect to the Chinese legal system could limit the legal protections
available to you and us.
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The Chinese government exerts substantial influence over the manner in which we must conduct
our business activities.
  Restrictions on currency exchange may limit our ability to receive and use our revenue
effectively and limit the ability of our PRC subsidiaries to obtain financing.
   Failure to comply with Chinese regulations relating to the establishment of offshore special
purpose companies by Chinese residents may subject our Chinese resident shareholders to personal
liability, limit our ability to acquire Chinese companies or to inject capital into our Chinese
subsidiaries, limit our Chinese subsidiaries ability to distribute profits to us or otherwise
materially and adversely affect us.
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We may be unable to complete a business combination transaction efficiently or on favorable
terms due to complicated merger and acquisition regulations which became effective on September 8,
2006.
  -21-




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We may be subject to fines and legal sanctions imposed by SAFE or other Chinese government
authorities if we or our Chinese employees or directors fail to comply with recent Chinese
regulations relating to employee share options or shares granted by offshore special purpose
companies or offshore listed companies to Chinese citizens.
  Fluctuations in exchange rates could adversely affect our business and the value of our
securities.
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We rely principally on dividends and other distributions on equity paid by our operating
subsidiary to fund cash and financing requirements, and limitations on the ability of our operating
subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct
our business.
   We face risks related to health epidemics and other outbreaks that may disrupt our operations
and have a material adverse effect on our business and results of operations.
  We face risks related to natural disasters, terrorist attacks or other events in China that
may affect usage of public transportation, which could have a material adverse effect on our
business and results of operations.
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ITEM 4. INFORMATION ON THE COMPANY
 Overview
  
    
    Circulating Water Treatment Equipment.We currently produce 39 products,
including electronic water conditioners, fully automatic filters, circulating water
central processors, cyclone filters and water softeners, used in the process of treating
water and removing buildup in circulating water systems.
    
    Water Purification Equipment.We currently produce 33 products, many of which use
ultraviolet, ozone, membrane-based and electrodeionization, or EDI, technologies, in the
process of treating and purifying water for various applications and end-user customers,
including residential communities and commercial businesses.
    
    Wastewater Treatment Equipment.We currently produce 22 products, including grit
separators, microporous aerators and belt-type thickener-filter press mono-block
machines, used in the process of treating wastewater, such as municipal sewage and
industrial and agricultural wastewater.
     Company History
 -24-




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-25-




---



##### Table of Contents



Duoyuan Beijing.
  Duoyuan Langfang.
 Duoyuan Centrifuge.
 -26-




---



##### Table of Contents



Duoyuan Water Conservation.
 Duoyuan Aeration.
  Office Location
  www.duoyuan-hq.com
 Our Competitive Strengths
  Strong Customer Recognition and Industry Reputation.
 Established Nationwide Distribution Network.
 Proven Research and Development Capabilities.
 -27-




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##### Table of Contents



e.g.
 Comprehensive and High-Quality Product Offerings.
 Vertically Integrated and Local Cost Structure.
 Our Strategies
  Expand Our Manufacturing Capacity and Increase In-House Production.
 Expand our Product Offerings and Increase Sales of Integrated Systems.
 Focus on Advanced Technologies to Enhance Energy Saving and Recycling Features of Our Products
and Reduce Their Operational Costs.
 -28-




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##### Table of Contents



Increase Our Market Share in China.
 Enter New Water Market Segments .
  Our Products
  Circulating Water Treatment
    
    Water Purification
    
    Wastewater TreatmentCommenced Production
    
    1992
    
    1998
    
    2001Number of Products
    
    39
    
    33
    
    222009 Revenue
    
    RMB288.9 million($42.3 million)
    
    RMB169.8 million($24.9 million)
    
    RMB312.2 million($45.7 million)Sample Products Offered
    
    
    
    Fully automatic filter
    
    
    
    Central water purifier
    
    
    
    Belt-type thickener-filter press mono-block machine
    
    Electronic water conditioner
    
    
    
    Industrial pure water equipment
    
    
    
    Microporous aerator
    
    Circulating water central processor
    
    
    
    Ultraviolet water purifier
    
    
    
    Sludge screw
    
    Water softener
    
    
    
    Ozone generator
    
    
    
    Ultraviolet shelving disinfection system
    
    Cyclone filter
    
    
    
    Super clean water tank
    
    
    
    Online testing equipment
    
    Tank water treatment apparatus
    
    
    
    Grit separator
    
    Water decanterSample Applications
    
    
    
    Disinfect water in circulating water systems
    
    
    
    Pre-treatment process
    
    
    
    Separation of sludge and tiny particles from wastewater
    
    Removal and filtration of buildups
    
    
    
    Disinfection process
    
    
    
    Aeration of wastewater to kill or remove organic materials
    
    Production of  industrial-use pure water
    
    
    
    Removal of clear liquid from wastewater storage tanks
    
    Production of pure drinking water
 -29-




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##### Table of Contents



Circulating Water Treatment
    
    Water Purification
    
    Wastewater Treatment
    
    Sterilization and treatment to discharged wastewater
    
    Monitoring of wastewater dischargeSample Industries / Uses
    
    
    
    Industrial cooling
    
    
    
    Pharmaceuticals
    
    
    
    Municipal sewage
    
    Air conditioning and refrigeration
    
    
    
    Chemicals
    
    
    
    Petroleum
    
    Heat exchange systems
    
    
    
    Food and beverage
    
    
    
    Paper
    
    Water boiler systems
    
    
    
    Food processing
    
    
    
    Pharmaceuticals
    
    Hot water supply systems
    
    
    
    Electronics
    
    
    
    Food and beverage
 Circulating water treatment equipment
   Circulating Water Treatment Process:
 
 
 *
    
    Indicates equipment we produce. -30-




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##### Table of Contents




    
    Fully Automatic Filter.Our fully automatic filter measures impurity
concentration levels within the circulating water system and automatically starts the
cleansing process to collect and remove impurities from the water system once the
concentration reaches a pre-set level.
    
    Electronic Water Conditioner.Our electronic water conditioner uses electrodes
for scale removal and prevention, sterilization and algae and corrosion removal.
Additionally, these products, through the use of microcurrents, can prevent rust
formation inside water pipelines by interrupting certain electrochemical reactions in
water and killing microorganisms.
    
    Circulating Water Central Processor.Our circulating water central processor
both disinfects and removes impurities from circulating water without the use of
chemicals. This equipment applies micro-electrolysis technology to remove metal ions and
generates oxidizing particles to kill microorganisms in the circulating water system.
This equipment is also effective in scale and algae removal and prevention.
    
    Water Softener.Our water softener can be connected to the water supply to
remove calcium and magnesium ions in the water by replacing them with sodium ions, which
do not precipitate. Our water softener can automatically regenerate ion-exchange resin,
a key material used for replacement of metal ions. Applications include softening hard
water in hot-water or low-pressure boilers, heat exchangers, refrigerators and
air-conditioning systems.
    
    Cyclone Filter.Our cyclone filter can separate and eliminate tiny solids such
as grits, scale-up, dirt or lime from circulating or non-circulating water systems. This
product can be used at any temperature and can be easily cleaned and automation can be
done easily.
 Water purification equipment
   -31-




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Water Purification Process:
 
 
 *
    
    Indicates equipment we produce.    -32-




---



##### Table of Contents




    
    Central Water Purifier.Our central water purifier uses filtration, ultraviolet
disinfection and separation through reverse osmosis to remove impurities and
microorganisms from raw water. Our central water purifier can monitor water quality,
record data and alert users based on set parameters.
    
    Industrial Pure Water Equipment.Our industrial pure water equipment integrates
a number of processes and technologies, including pre-treatment, softening,
membrane-based separation, disinfection and EDI treatment into one equipment. Water
processed with our industrial pure water equipment meets or exceeds the requirements
mandated by the Ministry of Machinery Industry of PRC in 1995. Our industrial pure water
equipment is a sophisticated product that includes many automated control features. It
also has low maintenance expenses and is an eco-friendly product.
    
    Ultraviolet Water Purifier.Our ultraviolet water purifier is effective in
disinfecting both drinking water and wastewater. Ultraviolet light alters the DNA of
pathogens, killing them or making it impossible for them to reproduce. Our ultraviolet
water purifier uses ultraviolet rays to quickly disinfect contaminated water and improve
its quality up to or beyond the applicable hygienic criteria. It is also suitable for
small-scale water supply systems that use water from rivers, lakes, ponds and wells,
especially when elevated water tanks and water storage tanks are used.
    
    Ozone Generator.Our ozone generator produces large amounts of ozone to
disinfect water by destroying microorganisms in water through oxidization. In addition,
the ozone generated by our products can be used for industrial purposes as an oxidant or
a catalyst. Our ozone generator is compact in design and can produce a high degree of
ozone concentration: 20 mg/L-150 mg/L when an oxygen source is used
and 12 mg/L-50
mg/L when an air source is used.
    
    Super Clean Water Tank.Similar to the tank water treatment apparatus, our super
clean water tank integrates filtration, ultraviolet sterilization, electromagnetic
activation and water storage to eliminate heavy metals and harmful organic materials
from tap water through filtration and absorption by high-quality filtration materials.
Through combination of various water processing techniques, our super-clean water tank
can store sterile super clean water, keep water in good quality, and eliminate secondary
pollution that may arise in connection with the use of a traditional water tank or pool.
    
    Tank Water Treatment Apparatus.Our tank water treatment apparatus integrates
filtration, ultraviolet sterilization and electromagnetic activation to effectively
remove heavy metals and harmful organic materials from tap water. By enhancing the
activation of water molecules through high-frequency electromagnetism, it also makes the
water easier to be absorbed by the human body. Through the combination of different
processing techniques, this product can eliminate secondary pollution in water tanks or
pools. Our tank water treatment apparatus also improves water quality, reduces turbidity
and color of the water and improves the taste of water using the absorption effect of
active carbon.
 Wastewater treatment equipment
  -33-




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Wastewater Treatment Process:
 
 
 *
    
    Indicates equipment we produce.   
    
    Belt-Type Thickener-Filter Press Mono-Block Machine.After the aeration process,
several of our products are used to separate the remaining solids from the wastewater.
Our belt-type thickener-
 -34-




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##### Table of Contents



filter press mono-block machine uses gravity and compression to thicken and dehydrate
sludge, creating a dry cake of separated solids and water ready for disinfection. We have
developed this machine to minimize noise, odor and vibration and have also incorporated
energy saving features to minimize operational costs.
    
    Microporous Aerator.Aeration is a water treatment process that introduces an
optimal level of oxygen to kill harmful microorganisms or to increase the growth of
certain microorganisms that consume organic contaminants remaining in the wastewater.
This product uses numerous dense micro-pores to introduce large amounts of oxygen into
the wastewater.
    
    Sludge Screw.Our sludge screw separates particles as small as 0.005 to 2
millimeters in diameter from the wastewater. This machine uses a fast-rotating helix
that generates a strong centrifugal force to separate solid particles from the
wastewater. It also produces a dry cake of separated solids and water ready for
disinfection. We have developed this machine to minimize noise, odor and vibration and
have also incorporated energy saving features to minimize operational costs.
    
    Ultraviolet Shelving Disinfection System.Our ultraviolet shelving disinfection
system purifies and disinfects wastewater. By using ultraviolet lamps with high
efficiency, high intensity and long lifespan, this system generates C waveband
(wavelength in T254nm) ultraviolet rays to effectively kill bacteria, pathogens and
viruses in wastewater.
    
    Online Testing Equipment.Our online testing equipment monitors water quality.
It is an integrated online automatic monitoring system that employs modern remote
sensing technology and special analyzing software. It can continuously monitor water
quality on a real-time and remote basis, improving the efficiency of the transmission
and analysis of water quality data. It can also quickly obtain the status of the water
quality of key water bodies in major drainage areas. Our online testing equipment can be
widely used in industrial sewage discharge monitor stations, automatic water monitor
stations and wastewater plants.
    
    Grit Separator.Our grit separator is used in a waste water treatment plant to
separate grits from the mixture exhausted from a grit chamber. The grits are fully
dehydrated and then unloaded to barrels through an outlet while the water, after being
separated from grits, is drained into an inlet water channel. With a non-axle spiral and
without bearings in the water, our grit separator is easy to install and maintain.
    
    Water Decanter.Our water decanter is made of corrosion proof stainless steel
and is used to remove clear water from wastewater storage tanks.
 Manufacturing and Assembly
   -35-




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Distribution and Marketing
 Distribution Network
   
 -36-




---



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Marketing
   Suppliers and Raw Materials
  -37-




---



##### Table of Contents



Quality Control
  
    
    Inspection of Raw Materials and Components.We inspect by random sampling our
raw materials and components, including those purchased from or designed by third
parties, to ensure compliance with quality standards. We also evaluate the quality and
delivery performance of each supplier periodically and adjust quantity allocations
accordingly.
    
    In-Process Quality Control.We monitor every stage of our manufacturing
process to verify conformity with specific quality control requirements. We compile
statistical data for analysis and inspect and conduct performance testing to ensure
compliance with quality standards.
    
    Outgoing Quality Control.We inspect each shipment of finished products prior
to delivery. Products that do not meet our quality standards will be re-worked and
subjected again to the same inspection and performance testing process.
  Our Customer Support and Services
  -38-




---



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Research and Development
       -39-




---



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Intellectual Property
      -40-




---



##### Table of Contents



Competition
   
    
    Circulating Water Treatment Equipment. Our electronic water conditioner
competes primarily with products from three other local companies: Zhejiang Dean New
Technology Development Co. Ltd. (China), Jiangyin Jialong Environment Technology Co.
Ltd. (China) and Beijing Kejingyuan Technology Co. Ltd. (China). Our automatic filter
competes primarily with products from Claude Laval Co. (USA), Amiad Filtration Systems
(Israel) and Beijing Luolun Filtration Equipment Technology Co. Ltd. (China).
    
    Water Purification Equipment. Our ozone generator competes primarily with
products from Ozonia Ltd. (Switzerland), ITT (Sweden) and Jiangsu Koner Ozone Co., Ltd.
(China). Our industry pure water equipment with EDI functions compete primarily with
products from GE Water & Process Technologies, CANPURE Corporation (Canada) and
Zhejiang Omex Environmental Engineering Ltd. (a subsidiary of Dow Chemical).
    
    Wastewater Treatment Equipment. Our microporous aerator competes primarily
with products from REHAU (Germany), ITT (Sweden) and Yixing Nopon Environment Co. Ltd.
(China). Our belt-type thickener-filter press mono-block machine competes primarily
with products from Wuxi Tongyong Machinery Co. Ltd. (China), DWT Project Co. Ltd.
(Finland) and Passavant-Roediger GmbH (Germany).
  Properties
  -41-




---



##### Table of Contents



Insurance
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 Overview
   -42-




---



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Outlook
      -43-




---



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Principal Factors Affecting our Financial Performance
  Increasing Demand for Water Treatment Equipment
   Expansion of our Production Capacity
  -44-




---



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Fluctuations in Raw Material and Components Costs
    Changes in Chinese Enterprise Income Tax Law
  Components of Revenue and Expenses
 Revenue
    -45-




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##### Table of Contents



Year Ended December 31,2007
    
    
    2008
    
    
    2009% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofRMB
    
    
    revenue
    
    
    RMB
    
    
    revenue
    
    
    RMB
    
    
    $
    
    
    revenue(In thousands, except percentages)Circulating water
treatment
    
    
    193,259
    
    
    
    45.6
    %
    
    
    245,871
    
    
    
    41.5
    %
    
    
    288,910
    
    
    
    42,326
    
    
    
    36.9
    %Water purification
    
    
    97,899
    
    
    
    23.1
    
    
    
    128,097
    
    
    
    21.6
    
    
    
    169,803
    
    
    
    24,876
    
    
    
    21.7Wastewater treatment
    
    
    135,690
    
    
    
    32.0
    
    
    
    214,557
    
    
    
    36.2
    
    
    
    312,204
    
    
    
    45,738
    
    
    
    39.8Construction
projects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Spare parts
    
    
    
    
    
    
    
    
    
    
    8,717
    
    
    
    1.5
    
    
    
    16,953
    
    
    
    2,483
    
    
    
    2.2Adjustments
    
    
    (2,886
    )
    
    
    (0.7
    )
    
    
    (4,543
    )
    
    
    (0.8
    )
    
    
    (4,459
    )
    
    
    (653
    )
    
    
    (0.6
    )Revenue
    
    
    423,962
    
    
    
    100.0
    %
    
    
    592,699
    
    
    
    100.0
    %
    
    
    783,411
    
    
    
    114,770
    
    
    
    100.0
    %
    Cost of Revenue
    -46-




---



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Gross Margins
    Research and Development Expenses
  -47-




---



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Selling Expenses
    General and Administrative Expenses
     -48-




---



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Employee Share-Based Compensation Expenses
    Interest Expense
  Other Income
  Critical Accounting Policies
  Revenue Recognition
  -49-




---



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Accounts Receivable
       Inventories
  -50-




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##### Table of Contents



Valuation of Share-Based Compensation
  Warranty Costs
  Results of Operations
  Year Ended December 31,2007
    
    2008
    
    2009% of
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % ofRMB
    
    revenue
    
    RMB
    
    revenue
    
    RMB
    
    $
    
    revenue(In thousands, except percentages)Revenue
    
    
    423,962
    
    
    
    100.0
    %
    
    
    592,699
    
    
    
    100.0
    %
    
    
    783,411
    
    
    
    114,770
    
    
    
    100.0
    %Cost of revenue
    
    
    272,402
    
    
    
    64.3
    
    
    
    326,809
    
    
    
    55.1
    
    
    
    406,177
    
    
    
    59,505
    
    
    
    51.8Gross profit
    
    
    151,560
    
    
    
    35.7
    
    
    
    265,890
    
    
    
    44.9
    
    
    
    377,234
    
    
    
    55,265
    
    
    
    48.2Research and
development
expenses
    
    
    14,405
    
    
    
    3.4
    
    
    
    16,370
    
    
    
    2.8
    
    
    
    18,386
    
    
    
    2,694
    
    
    
    2.4Selling expenses
    
    
    30,698
    
    
    
    7.2
    
    
    
    37,076
    
    
    
    6.3
    
    
    
    68,873
    
    
    
    10,090
    
    
    
    8.8General and
administrative
expenses
    
    
    11,034
    
    
    
    2.6
    
    
    
    35,792
    
    
    
    6.0
    
    
    
    101,837
    
    
    
    14,919
    
    
    
    13.0Operating income
    
    
    95,423
    
    
    
    22.5
    
    
    
    176,652
    
    
    
    29.8
    
    
    
    188,138
    
    
    
    27,562
    
    
    
    24.0Loss from sale of
property
    
    
    
    
    
    
    
    
    
    
    (3,216
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (5,759
    )
    
    
    (1.4
    )
    
    
    (3,118
    )
    
    
    (0.5
    )
    
    
    (1,219
    )
    
    
    (178
    )
    
    
    (0.2
    )Other income
    
    
    4,523
    
    
    
    1.1
    
    
    
    1,279
    
    
    
    0.2
    
    
    
    1,347
    
    
    
    197
    
    
    
    0.2Income from
continuing
operations before
income taxes
    
    
    94,187
    
    
    
    22.2
    
    
    
    171,597
    
    
    
    29.0
    
    
    
    188,266
    
    
    
    27,581
    
    
    
    24.0Provision for
income taxes
    
    
    11,799
    
    
    
    2.8
    
    
    
    37,830
    
    
    
    6.4
    %
    
    
    71,271
    
    
    
    10,441
    
    
    
    9.1
 -51-




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##### Table of Contents



Year Ended December 31,2007
    
    2008
    
    2009% of
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % ofRMB
    
    revenue
    
    RMB
    
    revenue
    
    RMB
    
    $
    
    revenue(In thousands, except percentages)Income from
continuing
operations
    
    
    82,388
    
    
    
    19.4
    
    
    
    133,767
    
    
    
    22.6
    %
    
    
    116,995
    
    
    
    17,140
    
    
    
    14.9Total income (loss)
from discontinued
operations
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    82,208
    
    
    
    19.4
    %
    
    
    133,767
    
    
    
    22.6
    %
    
    
    116,995
    
    
    
    17,140
    
    
    
    14.9
    %
 Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008
 Revenue
  Circulating Water Treatment Equipment.
 Water Purification Equipment.
 Wastewater Treatment Equipment.
 Cost of Revenue
  -52-




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Gross Profit
  Research and Development Expenses
   Selling Expenses
   General and Administrative Expenses
   -53-




---



##### Table of Contents



Operating Income
  Interest Expense
  Other Income
  Provision for Income Taxes
  Net Income
  Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
 Revenue
  Circulating Water Treatment Equipment.
 -54-




---



##### Table of Contents



Water Purification Equipment.
 Wastewater Treatment Equipment.
 Cost of Revenue
   Gross Profit
  Research and Development Expenses
   Selling Expenses
  -55-




---



##### Table of Contents



General and Administrative Expenses
   Operating Income
  Interest Expense
  Other Income
  Loss on Sale of Property
  Provision for Income Taxes
  Total Income (loss) from Discontinued Operations
  Net Income
  -56-




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##### Table of Contents



Liquidity and Capital Resources
    Sources and Uses of Cash
  Year Ended December 31,2007
    
    2008
    
    2009RMB
    
    RMB
    
    RMB
    
    $(In thousands)Cash flow data:Net cash provided by
operating
Activities
    
    
    72,070
    
    
    
    241,686
    
    
    
    154,698
    
    
    
    22,663Net cash used in investing
Activities
    
    
    (37,031
    )
    
    
    (22,221
    )
    
    
    (72,132
    )
    
    
    (10,567
    )Net cash (used in)
provided by financing
Activities
    
    
    (15,000
    )
    
    
    (49,000
    )
    
    
    637,583
    
    
    
    93,406Net increase  in
cash of
discontinued operations
    
    
    584
    
    
    
    
    
    
    
    
    
    
    
    Net changes in cash
    
    
    20,623
    
    
    
    170,465
    
    
    
    720,149
    
    
    
    105,502Cash at beginning of period
    
    
    7,430
    
    
    
    28,053
    
    
    
    198,518
    
    
    
    29,083Cash at end of period
    
    
    28,053
    
    
    
    198,518
    
    
    
    918,667
    
    
    
    134,585
  -57-




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##### Table of Contents



Operating Activities
    Investing Activities
  Financing Activities
  Capital Expenditures
  -58-




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##### Table of Contents



Contractual Obligations
  Payments Due by December 31,Total
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter(RMB in thousands)Current debt
    
    
    20,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,744
    
    
    
    2,248
    
    
    
    2,248
    
    
    
    2,248
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    108,942
    
    
    
    108,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    135,686
    
    
    
    131,190
    
    
    
    2,248
    
    
    
    2,248
    
    
    
    
    
    
    
    
    
    
    
    
 Seasonality
  Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
   -59-




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##### Table of Contents



FASB Accounting Standards Codification
  Value Measurements and
Disclosures  Improving Disclosures about Fair value
Measurements Fair Value
Measurements and Disclosures  Overall
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
   -60-




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##### Table of Contents



Name
    
    Age
    
    PositionWenhua Guo
    
    
    48
    
    
    Director, Chairman and Chief Executive OfficerJoan M. Larrea*
    
    
    45
    
    
    DirectorYuefeng Yu
    
    
    64
    
    
    DirectorPing Wei
    
    
    39
    
    
    DirectorCharles V. Firlotte
    
    
    55
    
    
    DirectorA.
David Nickols
    
    
    50
    
    
    DirectorStephen C. Park
    
    
    46
    
    
    Chief Financial OfficerRonglin Qiao
    
    
    43
    
    
    Chief Operating OfficerLixin Wang
    
    
    44
    
    
    Chief Technology Officer
 
 *
    
Initially designated by GEEMF III Holdings MU, an affiliate of Global Environment Fund, pursuant
to the Voting Agreement, dated February 5, 2008, between us, Duoyuan Investments Limited and GEEMF
III Holdings MU. Our Directors
 Wenhua Guo.
 Joan M. Larrea.
 Yuefeng Yu.
 Ping Wei.
 Charles V. Firlotte.
 -61-




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##### Table of Contents



A.
David Nickols.
 Our Executive Officers
 Stephen C. Park.
 Ronglin Qiao.
 Lixin Wang.
 Employment Agreements
    Board of Directors
   Committees of our Board of Directors
  Audit Committee
 -62-




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##### Table of Contents




    
    the appointment, evaluation, compensation, oversight and termination of the work
of our independent auditor (including resolution of disagreements between management and
the independent auditor regarding financial reporting);
    
    an annual performance evaluation of the audit committee;
    
    establishing procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls, auditing matters or potential
violations of law, and the confidential, anonymous submission by our employees of
concerns regarding questionable accounting or auditing matters or potential violations
of law;
    
    ensuring that it receives an annual report from our independent auditor
describing our internal control procedures and any steps taken to deal with material
control deficiencies and attesting to the auditors independence and describing all
relationships between the auditor and us;
    
    reviewing our annual audited financial statements and quarterly financial
statements with management and our independent auditor;
    
    reviewing and approving all proposed related party transactions, as defined in
the Securities and Exchange Commission Form 20-F, Item 7.B.;
    
    reviewing our policies with respect to risk assessment and risk management;
    
    meeting separately and periodically with management and our independent auditor;
and
    
    reporting regularly to our board of directors.
 Compensation Committee
  
    
    reviewing and approving corporate goals and objectives relevant to the
compensation of our chief executive officer, evaluating the performance of our chief
executive officer in light of those goals and objectives and setting the compensation
level of our chief executive officer based on this evaluation;
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
    
    reviewing and making recommendations to the board with respect to the
compensation of our executives, incentive compensation and equity-based plans that are
subject to board approval; and
    
    providing annual performance evaluations of the compensation committee.
 Nominating and Corporate Governance Committee
  
    
    selecting and recommending to our board nominees for election or re-election to
our board, or for appointment to fill any vacancy;
    
    reviewing annually with our board the current composition of the board of
directors with regards to characteristics such as independence, age, skills, experience
and availability of service to us;
    
    selecting and recommending to our board the names of directors to serve as
members of the audit committee and the compensation committee, as well as the corporate
governance and nominating committee itself;
    
    advising our board of directors periodically with regards to significant
developments in the law and practice of corporate governance as well as our compliance
with applicable laws and regulations, and making recommendations to our board of
directors on all matters of corporate governance and on any remedial action to be taken;
and
    
    monitoring compliance with our code of business conduct and ethics, including
reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
 Employees
  Functions
    
    Employees
    
    PercentageManagement
    
    
    41
    
    
    
    3.5
    %Sales and Marketing
    
    
    164
    
    
    
    14.2Production
    
    
    813
    
    
    
    69.6Research and Development
    
    
    148
    
    
    
    12.7Total number of employees
    
    
    1,166
    
    
    
    100.0
    %
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Compensation
   OrdinarySharesUnderlying
    
    ExerciseOutstanding
    
    Price
    
    Date of
    
    Date ofName
    
    Type
    
    Options
    
    (US$/share)
    
    Grant
    
    ExpirationStephen C. Park
    
    Options
    
    
    300,000
    
    
    
    8.00
    
    
    6/24/09
    
    6/24/19Lixin Wang
    
    Restricted shares
    
    80,050 ordinary shares
    
    Not applicable
    
    6/24/09
    
    Not applicableRonglin Qiao
    
    Restricted shares
    
    38,700 ordinary shares
    
    Not applicable
    
    6/24/09
    
    Not applicableYuefeng Yu
    
    Options
    
    
    1,854
    
    
    
    16.18
    
    
    8/12/09
    
    8/12/19Ping Wei
    
    Options
    
    
    2,061
    
    
    
    14.56
    
    
    8/26/09
    
    8/26/19Charles V. Firlotte
    
    Options
    
    
    1,515
    
    
    
    19.80
    
    
    11/26/09
    
    11/26/19A. David Nickols
    
    Options
    
    
    2,307
    
    
    
    13.00
    
    
    3/8/10
    
    3/8/20
 2008 Omnibus Incentive Plan
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Administration
   Eligibility
  Amendment or Termination of the Plan
  Options
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Other Awards
  
    
    ordinary shares subject to restrictions;
    
    deferred ordinary shares, credited as deferred ordinary share units, but ultimately
payable in the form of unrestricted ordinary shares in accordance with the terms of
the grant or with the participants deferral election;
    
    ordinary share units subject to restrictions;
    
    unrestricted ordinary shares, which are ordinary shares issued at no cost or for a
purchase price determined by the compensation committee which are free from any
restrictions under the 2008 Omnibus Incentive Plan;
    
    dividend equivalent rights entitling the grantee to receive credits for dividends
that would be paid if the grantee had held a specified number of ordinary shares; or
    
    a right to receive a number of ordinary shares or, in the discretion of the
compensation committee, an amount in cash or a combination of ordinary shares and
cash, based on the increase in the fair market value of the ADSs
representing ordinary shares underlying the right during a stated period specified by the compensation
committee.
 Share Ownership
  Ordinary shares owned as of
    
    PercentageShareholder
    

May 31, 2010 (1)
    

Ownership (2)Wenhua Guo, our Director, Chairman and Chief Executive Officer
    
    
    24,000,000
    
    
    
    48.6
    %Charles V. Firlotte, our Director
    
    
    1,010
    
    
    
    *A. David Nickols, our Director
    
    
    961
    
    
    
    *Ping Wei, our Director
    
    
    1,889
    
    
    
    *Yuefeng Yu, our Director
    
    
    1,700
    
    
    
    *Stephen C. Park, our Chief Financial Officer
    
    
    156,250
    
    
    
    *Lixin Wang, our Chief Technology Officer
    
    
    80,050
    
    
    
    *Ronglin Qiao, our Chief Operating Officer
    
    
    38,700
    
    
    
    *All directors and executive officers as a group
    
    
    24,280,560
    
    
    
    49.2
    %
 
 *
    
    Less than 1%(1)
    
    Beneficial ownership is determined in accordance with the rules of the SEC.(2)
    
    For each person or
group included in this table, percentage ownership is calculated by
dividing the number of shares beneficially owned by such person or
group by the sum of (1) 49,222,631, being
the number of ordinary shares outstanding as of May 31, 2010, (2) the number of ordinary shares
underlying share options held by such person or group that are exercisable within 60 days after May
31, 2010 and (3) the 1,052,631 fully vested ordinary shares to certain employees granted on June
29, 2009. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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Major Shareholders
  Amount of
    
    Percent ofIdentity of Person or Group
    
    Shares Owned
    
    ClassWenhua Guo, our Director, Chairman and Chief Executive Officer
    
    
    24,000,000
    
    
    
    48.6
    %GEEMF III Holdings MU
    
    
    4,430,000
    
    
    
    9.0
    %
     Related Party Transactions
 Intellectual Property Transfer
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Registration Rights
  
 ITEM 8. FINANCIAL INFORMATION
 Financial Statements
  Legal Proceedings
  Dividend Distributions
  Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
   High
    
    Low2009 (from June 24, 2009)June
    
    $
    25.97
    
    
    $
    20.40July
    
    $
    31.75
    
    
    $
    21.75August
    
    $
    36.00
    
    
    $
    26.51September
    
    $
    36.39
    
    
    $
    29.55October
    
    $
    43.65
    
    
    $
    30.09November
    
    $
    41.96
    
    
    $
    33.10December
    
    $
    44.00
    
    
    $
    33.502010January
    
    $
    40.50
    
    
    $
    27.34February
    
    $
    30.00
    
    
    $
    23.15
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High
    
    LowMarch
    
    $
    27.88
    
    
    $
    25.10April
    
    $
    30.20
    
    
    $
    24.97May
    
    $
    26.46
    
    
    $
    19.40June
(through June 17, 2010)
    
    $
    21.31
    
    
    $
    19.01
  
 ITEM 10. ADDITIONAL INFORMATION
 General
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Registration Rights
  Demand Registration Rights
  Form F-3 Registration Rights
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Piggyback Registration Rights
  Expenses of Registration
  Indemnification
  Description of American Depositary Shares
     Holding the ADSs
 How will I hold my ADSs?
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Dividends and Other Distributions
 How will you receive dividends and other distributions on the shares?
  
    
    Cash.The depositary will convert any cash dividend or other cash distribution we
pay on the shares or any net proceeds from the sale of any shares, rights, securities
or other entitlements into U.S. dollars if it can do so on a reasonable basis, and can
transfer the U.S. dollars to the United States. If that is not possible or lawful or if any
governmental approval is needed and cannot be obtained, the deposit agreement allows
the depositary to distribute the foreign currency only to those ADR holders to whom it
is possible to do so. It will hold the foreign currency it cannot convert for the
account of the ADS holders who have not been paid. It will not invest the foreign
currency and it will not be liable for any interest.
    
    Before making a distribution, any withholding taxes or other governmental charges,
together with fees and expenses of the depositary, that must be paid will be deducted.
See Taxation below. It will distribute only whole U.S. dollars and cents and will
round fractional cents to the nearest whole cent. If the exchange rates fluctuate
during a time when the depositary cannot convert the foreign currency, you may lose
some or all of the value of the distribution.
    
    Shares.The depositary may, upon our timely instruction, distribute additional ADSs
representing any shares we distribute as a dividend or free distribution to the extent
reasonably practicable and permissible under law. The depositary will only distribute
whole ADSs. It will try to sell shares which would require it to deliver a fractional
ADS and distribute the net proceeds in the same way as it does with cash. If the
depositary does not distribute additional ADSs, the outstanding ADSs will also
represent the new shares. The depositary may sell a portion of the distributed shares
sufficient to pay its fees and expenses in connection with that distribution.
    
    Elective Distributions in Cash or Shares.If we offer holders of our shares the
option to receive dividends in either cash or shares, the depositary, after
consultation with us and having received timely notice of such elective distribution
by us, has discretion to determine to what extent such elective distribution will be
made available to you as a holder of the ADSs. We must first instruct the depositary
to make such elective distribution available to you and furnish it with satisfactory
evidence that it is legal to do so. The depositary could decide it is not legal or
reasonably practicable to make such elective distribution available to you, or it
could decide that it is only legal or reasonably practicable to make such elective
distribution available to some but not all holders of the ADSs. In such case, the
depositary shall, on the basis of the same determination as is made in respect of the
shares for which no election is made, distribute either cash in the same way as it
does in a cash distribution, or additional ADSs representing shares in the same way as
it does in a share distribution. The depositary is not obligated to make available to
you a method to receive the elective dividend in shares rather than in ADSs. There can
be no assurance that you will be given the opportunity to receive elective
distributions on the same terms and conditions as the holders of shares.
    
    Rights to Purchase Additional Shares.If we offer holders of our securities any
rights to subscribe for additional shares or any other rights, the depositary may
after consultation with us and having received timely notice of such distribution by
us, make these rights available to you. We must first instruct the depositary to make
such rights available to you and furnish the depositary with satisfactory evidence
that it is legal to do so. If the depositary decides it is not legal and reasonably
practicable to make the rights available but that it is practicable to sell the
rights, the depositary will use reasonable efforts to sell the rights and distribute
the net proceeds in the same way as it does with cash. The depositary will allow
rights that are not distributed or sold to lapse. In that
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case, you will receive no
value for them.If the depositary makes rights available to you, it will exercise the
rights and purchase the shares on your behalf. The depositary will then deposit the shares and deliver ADSs to you. It will only exercise rights if you pay it the
exercise price and any other charges the rights require you to pay. U.S. securities
laws may restrict transfers and cancellation of the ADSs represented by shares
purchased upon exercise of rights. For example, you may not be able to trade these
ADSs freely in the United States. In this case, the depositary may deliver restricted
depositary shares that have the same terms as the ADRs described in this section
except for changes needed to put the necessary restrictions in place.
    
    Other Distributions.Subject to receipt of timely notice from us with the request
to make any such distribution available to you, and provided the depositary has
determined such distribution is lawful and reasonably practicable and feasible and in
accordance with the terms of the deposit agreement, the depositary will send to you
anything else we distribute on deposited securities by any means it thinks is legal,
fair and practicable. If it cannot make the distribution in that way, the depositary
has a choice: it may decide to sell what we distributed and distribute the net
proceeds in the same way as it does with cash; or, it may decide to hold what we
distributed, in which case ADSs will also represent the newly distributed property.
However, the depositary is not required to distribute any securities (other than ADSs)
to you unless it receives satisfactory evidence from us that it is legal to make that
distribution. The depositary may sell a portion of the distributed securities or
property sufficient to pay its fees and expenses in connection with that distribution.
  Deposit, Withdrawal and Cancellation
 How are ADSs issued?
  How do ADS holders cancel an American Depositary Share?
  How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?
  Voting Rights
 How do you vote?
 Otherwise, you wont be able
to exercise your right to vote unless you withdraw the shares your ADSs represent. However, you may
not know about the meeting enough in advance to withdraw the shares.
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This means that you may not be able to exercise your right to vote and there may be
nothing you can do if your shares are not voted as you requested.
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Payment of Taxes
  Reclassifications, Recapitalizations and Mergers
 If we:
    
    Then:Change the nominal or par value of our shares
    
    The cash, shares or
other securities
received by the
depositary will become
deposited securities.Reclassify, split up or consolidate any of the
deposited securities
    
    Each ADS will
automatically represent
its equal share of the
new deposited
securities.Distribute securities on the shares that are not
distributed to you
Recapitalize, reorganize, merge, liquidate, sell
all or substantially all of our assets, or take
any similar action
    
    The depositary may
distribute some or all
of the cash, shares or
other securities it
received. It may also
deliver new ADSs or ask
you to surrender your
outstanding ADRs in
exchange for new ADRs
identifying the new
deposited securities.
 Amendment and Termination
 How may the deposit agreement be amended?
 At the time an amendment becomes effective, you are considered, by
continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit
agreement as amended
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How may the deposit agreement be terminated?
  pro rata
 Books of Depositary
    Limitations on Obligations and Liability
 Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of
ADSs
  
    
    are only obligated to take the actions specifically set forth in the deposit
agreement without gross negligence or willful misconduct;
    
    are not liable if either of us is prevented or delayed by law or circumstances
beyond our control from performing our obligations under the deposit agreement,
including, without limitation, requirements of any present or future law, regulation,
governmental or regulatory authority or share exchange of any applicable jurisdiction,
any present or future provisions of our memorandum and articles of association, on
account of possible civil or criminal penalties or restraint, any provisions of or
governing the deposited securities or any act of God, war or other circumstances beyond
each of our control as set forth in the deposit agreement;
    
    are not liable if either of us exercises, or fails to exercise, discretion permitted
under the deposit agreement;
    
    are not liable for the inability of any holder of ADSs to benefit from any
distribution on deposited securities that is not made available to holders of ADSs
under the terms of the deposit agreement, or for any special, consequential or punitive
damages for any breach of the terms of the deposit agreement;
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
    
    have no obligation to become involved in a lawsuit or other proceeding related to
the ADSs, deposited securities or the deposit agreement on your behalf or on behalf of
any other party;
    
    may rely upon any documents we believe in good faith to be genuine and to have been
signed or presented by the proper party;
    
    disclaim any liability for any action/inaction in reliance on the advice or
information of legal counsel, accountants, any person presenting shares for deposit,
holders and beneficial owners (or authorized representatives) of ADRs, or any person
believed in good faith to be competent to give such advice or information;
    
    disclaim any liability for inability of any holder to benefit from any distribution,
offering, right or other benefit made available to holders of deposited securities but
not made available to holders of ADSs; and
    
    disclaim any liability for any indirect, special, punitive or consequential damages.
  Requirements for Depositary Actions
  
    
    payment of stock transfer or other taxes or other governmental charges and transfer
or registration fees charged by third parties for the transfer of any shares or other
deposited securities and payment of the applicable fees, expenses and charges of the
depositary;
    
    satisfactory proof of the identity and genuineness of any signature or other
information it deems necessary; and
    
    compliance with regulations it may establish, from time to time, consistent with the
deposit agreement, including presentation of transfer documents.
  Your Right to Receive the Shares Underlying Your ADRs
  
    
    when temporary delays arise because: (1) the depositary has closed its transfer
books or we have closed our transfer books; (2) the transfer of shares is blocked to
permit voting at a shareholders meeting; or (3) we are
paying a dividend on our shares;
    
    when you owe money to pay fees, taxes and similar charges; or
    
    when it is necessary to prohibit withdrawals in order to comply with any laws or
governmental regulations that apply to ADSs or to the withdrawal of shares or other
deposited securities.
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Pre-release of ADSs
  Direct Registration System
  Material Contracts
 Form 20-F.
 PRC Regulation of Foreign Currency Exchange and Dividend Distribution
 Foreign currency exchange
   -79-




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Dividend distribution
    SAFE regulations on overseas investment of Chinese residents and employee share options or stock
holding plans
  -80-




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-81-




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Taxation
 The following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax
consequences of an investment in our ordinary shares or ADSs. It is based upon laws and relevant
interpretations thereof in effect as of the date of this annual report, all of which are subject to
change. This discussion does not deal with all possible tax consequences relating to an investment
in our ordinary shares or ADSs, such as the tax consequences under state, local and other tax laws.
 British Virgin Islands Taxation
    Peoples Republic of China Taxation
   -82-




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U.S. Federal Income Taxation
  YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL,
STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES OR
ADSs IN YOUR PARTICULAR SITUATION.
  
    
    dealers in securities or currencies;
    
    traders in securities that elects to use a mark-to-market method of accounting for
your securities holdings;
    
    banks, insurance companies or certain financial institutions;
    
    tax-exempt organizations;
    
    partnerships or other entities treated as partnerships or other pass-through
entities for U.S. federal income tax purposes or persons holding ADSs or ordinary
shares through such entities;
    
    regulated investment companies or real estate investment trusts;
    
    holders liable for alternative minimum tax;
    
    holders that actually or constructively owns 10% or more of the total combined
voting power of all classes of our shares entitled to vote;
    
    holders that holds shares or ADSs as part of a straddle, hedging or conversion
transaction; or
    
    holders whose functional currency is not the U.S. dollar.
   
    
    a citizen or resident of the United States for U.S. federal income tax purposes;
    
    a corporation, or other entity taxable as a corporation, organized under the laws of
the United States, any state thereof or the District of Columbia;
    
    an estate whose income is subject to U.S. federal income tax regardless of its
source; or
    
    a trust, if (a) a U.S. court can exercise primary supervision over the trusts
administration and one or more U.S. persons are authorized to control all substantial
decisions of the trust, or (b) if the
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trust has a valid election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
   Taxation of Dividends and Other Distributions
    Taxation of Dispositions of ADSs or Shares
  Passive Foreign Investment Company
   
    
    at least 75% of our gross income for the taxable year is passive income; or
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
    
    at least 50% of the value, determined on the basis of a quarterly average, of our
assets is attributable to assets that produce or are held for the production of passive
income.
   
    
    any gain you realize on the sale or other disposition of your shares or ADSs; and
    
    any excess distribution that we make to you (generally, any distributions to you
during a single taxable year that are greater than 125% of the average annual
distributions received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the shares or ADSs).
  
    
    the gain or excess distribution will be allocated ratably over your holding period
for the shares and ADSs;
    
    the amount allocated to the taxable year in which you realized the gain or excess
distribution will be taxed as ordinary income;
    
    the amount allocated to each prior year in respect of which we were, or were treated
as, a PFIC generally will be taxed at the highest tax rate in effect for that year; and
    
    the interest charge generally applicable to underpayments of tax will be imposed in
respect of the tax attributable to each such year.
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Information Reporting and Backup Withholding
  PROSPECTIVE PURCHASERS OF OUR ADSS OR SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS
WELL AS ANY ADDITIONAL TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF OUR ADSS
OR SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR NON-U.S.
JURISDICTION, INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS.
 Documents on Display
 
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
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Foreign Exchange Risk
     Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  Persons Depositing or Withdrawing Shares Must Pay:
    
    For:$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
    
    Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other propertyCancellation of
ADSs for the purpose of withdrawal,
including if the deposit agreement
terminates$0.02 (or less) per ADS
    
    Any distribution of cash, shares, rights
or other entitlements to you not made
pursuant to a cancellation or withdrawalA fee equivalent to the fee that would be payable
if securities distributed to you had been shares
and the shares had been deposited for issuance of
ADSs
    
    Distribution of securities distributed to
holders of deposited securities which are
distributed by the depositary to ADS
holders$0.02
(or less) per ADSs per calendar year
    
    Depositary servicesRegistration or transfer fees
    
    Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit
or withdraw sharesExpenses of the depositary
    
    Cable, telex and facsimile transmissions
(when expressly provided in the deposit
agreement)Converting foreign currency to U.S. dollarsTaxes and other governmental charges the
depositary or the custodian have to pay on any
ADS or share underlying an ADS, including any
applicable interest and penalties thereon and any
share transfer or other taxes or governmental
charges, for example, stock transfer taxes, stamp
duty or withholding taxes
    
    As necessaryAny charges incurred by the depositary or its 
agents for servicing the deposited securities
    
    As necessary
   
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
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ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
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Changes in Internal Control over Financial Reporting
  
 ITEM 16. [RESERVED]
 
 ITEM 16A. Audit Committee Financial Expert
  
 ITEM 16B. Code of Business Conduct and Ethics
  
 ITEM 16C. Principal Accountant Fees and Services
   2009
    
    
    2008Thousands of USD
    

Fees
(000)
    
    

Fees (000)Audit Fees
(including annual financial statement audit
and quarterly reviews)
    
    
    170
    
    
    
    190Audit-related
Fees (including review of public offering registration statement)
    
    
    186
    
    
    
    241Tax Fees (including compliance and planning)All Other FeesTotal Fees
    
    
    356
    
    
    
    431
  
 ITEM 16D. Exemptions from the Listing Standards for Audit Committees
  
 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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ITEM 16F. Change in Registrants Certifying Accountant
  
 ITEM 16G. Corporate Governance
 Summary of the Significant Differences Between Our Corporate Governance Practices and the Corporate
Governance Standards of the New York Stock Exchange
  
 ITEM 17. Financial Statements
  -90-




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##### 



ITEM 18. Financial Statements
  PagesDUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES:Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    F-2Consolidated Statements of Income
for the years ended December 31, 2009, 2008 and 2007
    
    F-3Consolidated Statements of Shareholders Equity
for the years ended December 31, 2009, 2008 and 2007
    
    F-4Consolidated Statements of Cash Flows
for the years ended December 31, 2009, 2008 and 2007
    
    F-5Notes to Consolidated Financial Statements
    
    F-6
  -91-




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-1




---



##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$ASSETSCURRENT ASSETS:Cash
    
    
    198,518,061
    
    
    
    918,667,261
    
    
    $
    134,585,514Accounts receivable
    
    
    137,549,786
    
    
    
    197,087,701
    
    
    
    28,873,511Inventories, net of reserve for obsolescence
    
    
    46,726,339
    
    
    
    33,419,900
    
    
    
    4,896,043Other receivables
    
    
    46,500
    
    
    
    676,376
    
    
    
    99,089Other current assets
    
    
    645,376
    
    
    
    1,344,702
    
    
    
    197,000Deposits
    
    
    9,990,000
    
    
    
    5,605,530
    
    
    
    821,215Total current assets
    
    
    393,476,062
    
    
    
    1,156,801,470
    
    
    
    169,472,372PLANT AND EQUIPMENT, net
    
    
    117,681,359
    
    
    
    144,755,275
    
    
    
    21,206,768OTHER ASSETS:Prepaid leases
    
    
    22,481,491
    
    
    
    21,957,806
    
    
    
    3,216,837Deposits  long term
    
    
    
    
    
    
    44,378,173
    
    
    
    6,501,439Deferred tax assets
    
    
    4,446,899
    
    
    
    4,694,347
    
    
    
    687,726Total other assets
    
    
    26,928,390
    
    
    
    71,030,326
    
    
    
    10,406,002Total assets
    
    
    538,085,811
    
    
    
    1,372,587,071
    
    
    $
    201,085,142LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Notes payable
    
    
    20,000,000
    
    
    
    20,000,000
    
    
    $
    2,930,017Accounts payable
    
    
    38,696,788
    
    
    
    27,913,596
    
    
    
    4,089,365Other payables
    
    
    24,927,232
    
    
    
    19,722,465
    
    
    
    2,889,357Income taxes payable
    
    
    10,768,521
    
    
    
    15,423,292
    
    
    
    2,259,525Total current liabilities
    
    
    94,392,541
    
    
    
    83,059,353
    
    
    
    12,168,264SHAREHOLDERS EQUITY:Ordinary shares, US$0.000033 par value: Authorized shares 
1,500,000,000; Issued and outstanding  30,000,000 shares
at December 31, 2008 and 43,702,631 shares at December 31, 2009
    
    
    7,295
    
    
    
    10,384
    
    
    
    1,521Additional paid-in capital
    
    
    132,455,705
    
    
    
    861,292,062
    
    
    
    126,180,000Statutory reserves
    
    
    36,413,141
    
    
    
    57,319,979
    
    
    
    8,397,424Retained earnings
    
    
    274,817,129
    
    
    
    370,905,293
    
    
    
    54,337,933Total shareholders equity
    
    
    443,693,270
    
    
    
    1,289,527,718
    
    
    
    188,916,878Total liabilities and
shareholders equity
    
    
    538,085,811
    
    
    
    1,372,587,071
    
    
    $
    201,085,142
  F-2




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##### Table of Contents



YEAR ENDED DECEMBER 31,2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$REVENUE
    
    
    423,962,115
    
    
    
    592,699,273
    
    
    
    783,411,447
    
    
    $
    114,770,425COST OF REVENUE
    
    
    272,401,958
    
    
    
    326,808,954
    
    
    
    406,177,153
    
    
    
    59,505,289GROSS PROFIT
    
    
    151,560,157
    
    
    
    265,890,319
    
    
    
    377,234,294
    
    
    
    55,265,136RESEARCH AND DEVELOPMENT EXPENSES
    
    
    14,405,106
    
    
    
    16,370,230
    
    
    
    18,386,436
    
    
    
    2,693,628SELLING EXPENSES
    
    
    30,697,853
    
    
    
    37,076,066
    
    
    
    68,873,210
    
    
    
    10,089,982GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    11,033,611
    
    
    
    35,791,561
    
    
    
    101,837,126
    
    
    
    14,919,223OPERATING INCOME
    
    
    95,423,587
    
    
    
    176,652,462
    
    
    
    188,137,522
    
    
    
    27,562,303INTEREST EXPENSE
    
    
    (5,759,416
    )
    
    
    (3,117,818
    )
    
    
    (1,218,745
    )
    
    
    (178,547
    )OTHER INCOME
    
    
    4,522,689
    
    
    
    1,278,478
    
    
    
    1,346,863
    
    
    
    197,316LOSS FROM SALE OF PROPERTY
    
    
    
    
    
    
    (3,215,744
    )
    
    
    
    
    
    
    INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    94,186,860
    
    
    
    171,597,378
    
    
    
    188,265,640
    
    
    
    27,581,072PROVISION FOR INCOME TAXES
    
    
    11,798,748
    
    
    
    37,830,516
    
    
    
    71,270,638
    
    
    
    10,441,207INCOME FROM CONTINUING OPERATIONS
    
    
    82,388,112
    
    
    
    133,766,862
    
    
    
    116,995,002
    
    
    
    17,139,865DISCONTINUED OPERATIONSNet income from discontinued operations, net of taxes
    
    
    401,791
    
    
    
    
    
    
    
    
    
    
    
    Loss on sale of discontinued operations
    
    
    (581,558
    )
    
    
    
    
    
    
    
    
    
    
    TOTAL LOSS FROM DISCONTINUED OPERATIONS
    
    
    (179,767
    )
    
    
    
    
    
    
    
    
    
    
    NET INCOME
    
    
    82,208,345
    
    
    
    133,766,862
    
    
    
    116,995,002
    
    
    $
    17,139,865Earnings per share (basic and diluted):Income from continuing operations
    
    
    2.75
    
    
    
    4.46
    
    
    
    3.16
    
    
    $
    0.46Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    2.74
    
    
    
    4.46
    
    
    
    3.16
    
    
    $
    0.46Earnings per ADS:Basic
    
    
    
    
    
    
    8.92
    
    
    
    6.33
    
    
    $
    0.93Diluted
    
    
    
    
    
    
    8.92
    
    
    
    6.31
    
    
    $
    0.92Weighted average number of shares outstanding:Basic
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    36,982,711
    
    
    
    36,982,711Diluted
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    37,064,864
    
    
    
    37,064,864
  F-3




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##### Table of Contents



Ordinary SharesAdditional Paid-In
    
    
    Statutory
    
    
    RetainedNumber of Shares
    
    
    Par Value
    
    
    Capital
    
    
    Reserves
    
    
    Earnings
    
    
    TotalsRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBALANCE, January 1, 2007
    
    
    
    
    
    
    
    
    
    
    132,463,000
    
    
    
    11,356,256
    
    
    
    83,898,807
    
    
    
    227,718,063Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,208,345
    
    
    
    82,208,345Statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,912,296
    
    
    
    (8,912,296
    )
    
    
    Issuance of ordinary shares
    
    
    30,000,000
    
    
    
    7,295
    
    
    
    (7,295
    )
    
    
    
    
    
    
    
    
    
    
    BALANCE, December 31, 2007
    
    
    30,000,000
    
    
    
    7,295
    
    
    
    132,455,705
    
    
    
    20,268,552
    
    
    
    157,194,856
    
    
    
    309,926,408Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,766,862
    
    
    
    133,766,862Statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,144,589
    
    
    
    (16,144,589
    )
    
    
    BALANCE, December 31, 2008
    
    
    30,000,000
    
    
    
    7,295
    
    
    
    132,455,705
    
    
    
    36,413,141
    
    
    
    274,817,129
    
    
    
    443,693,270Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,995,002
    
    
    
    116,995,002Statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,906,838
    
    
    
    (20,906,838
    )
    
    
    Share-based compensation
    
    
    1,052,631
    
    
    
    237
    
    
    
    91,256,176
    
    
    
    
    
    
    
    
    
    
    
    91,256,413Issuance of ordinary
shares in connection with
Initial Public Offering,
net of offering costs
    
    
    12,650,000
    
    
    
    2,852
    
    
    
    637,580,181
    
    
    
    
    
    
    
    
    
    
    
    637,583,033BALANCE, December 31, 2009
    
    
    43,702,631
    
    
    
    10,384
    
    
    
    861,292,062
    
    
    
    57,319,979
    
    
    
    370,905,293
    
    
    
    1,289,527,718BALANCE, December 31, 2009 (US$)
    
    
    
    
    
    $
    1,521
    
    
    $
    126,180,000
    
    
    $
    8,397,424
    
    
    $
    54,337,933
    
    
    $
    188,916,878
  F-4




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##### Table of Contents



YEAR ENDED DECEMBER 31,2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    
    82,208,345
    
    
    
    133,766,862
    
    
    
    116,995,002
    
    
    $
    17,139,865Less: Net
loss from discontinued operations
    
    
    (179,767
    )
    
    
    
    
    
    
    
    
    
    
    Net income from continuing operations
    
    
    82,388,112
    
    
    
    133,766,862
    
    
    
    116,995,002
    
    
    
    17,139,865Adjustments to reconcile net income to cash provided by operating activities:Depreciation
    
    
    8,254,977
    
    
    
    8,711,905
    
    
    
    10,664,776
    
    
    
    1,562,399Amortization
    
    
    245,833
    
    
    
    384,756
    
    
    
    523,685
    
    
    
    76,720Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    91,256,413
    
    
    
    13,369,140Loss from sale of property
    
    
    
    
    
    
    3,215,744
    
    
    
    4,693
    
    
    
    688(Increase) decrease in assets:Accounts receivable
    
    
    (41,102,815
    )
    
    
    (5,141,423
    )
    
    
    (59,537,915
    )
    
    
    (8,722,354
    )Inventories
    
    
    40,123,010
    
    
    
    (24,194,045
    )
    
    
    13,306,439
    
    
    
    1,949,404Other receivables
    
    
    2,206,304
    
    
    
    178,028
    
    
    
    (629,876
    )
    
    
    (92,277
    )Related party receivables
    
    
    (58,539,020
    )
    
    
    102,010,133
    
    
    
    
    
    
    
    Deposits
    
    
    1,143,085
    
    
    
    (9,990,000
    )
    
    
    (5,605,530
    )
    
    
    (821,215
    )Other current assets
    
    
    
    
    
    
    (645,376
    )
    
    
    (699,326
    )
    
    
    (102,452
    )Deferred tax assets
    
    
    (101,974
    )
    
    
    312,863
    
    
    
    (247,448
    )
    
    
    (36,251
    )Other non-current assets
    
    
    3,500,000
    
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in liabilities:Accounts payable
    
    
    11,528,690
    
    
    
    19,055,433
    
    
    
    (10,783,192
    )
    
    
    (1,579,747
    )Advances from customers
    
    
    (3,893,249
    )
    
    
    
    
    
    
    
    
    
    
    Deferred tax liabilities
    
    
    (742,415
    )
    
    
    
    
    
    
    
    
    
    
    Other payables
    
    
    (2,069,639
    )
    
    
    17,575,474
    
    
    
    (5,204,767
    )
    
    
    (762,503
    )Related party payables
    
    
    622,368
    
    
    
    (622,368
    )
    
    
    
    
    
    
    Taxes payable
    
    
    3,088,475
    
    
    
    (2,932,116
    )
    
    
    4,654,771
    
    
    
    681,928Total operating cash flows provided by
continuing operations
    
    
    46,651,742
    
    
    
    241,685,870
    
    
    
    154,697,725
    
    
    
    22,663,345Discontinued operations
    
    
    25,417,970
    
    
    
    
    
    
    
    
    
    
    
    Total cash flows provided by operating
activities
    
    
    72,069,712
    
    
    
    241,685,870
    
    
    
    154,697,725
    
    
    
    22,663,345CASH FLOWS FROM INVESTING ACTIVITIESDeposits for purchase of land use right
    
    
    
    
    
    
    
    
    
    
    (5,320,000
    )
    
    
    (779,384
    )Deposits for purchase of equipment
    
    
    
    
    
    
    
    
    
    
    (33,823,830
    )
    
    
    (4,955,219
    )Deposits for leasehold improvements
    
    
    
    
    
    
    
    
    
    
    (5,234,343
    )
    
    
    (766,836
    )Purchase of building
    
    
    (38,941,600
    )
    
    
    (6,020,634
    )
    
    
    
    
    
    
    Purchase of equipment and furniture
    
    
    
    
    
    
    (16,200,000
    )
    
    
    (27,753,385
    )
    
    
    (4,065,894
    )Total investing cash flows used in
continuing operations
    
    
    (38,941,600
    )
    
    
    (22,220,634
    )
    
    
    (72,131,558
    )
    
    
    (10,567,333
    )Discontinued operations
    
    
    1,911,057
    
    
    
    
    
    
    
    
    
    
    
    Total cash flows used in investing activities
    
    
    (37,030,543
    )
    
    
    (22,220,634
    )
    
    
    (72,131,558
    )
    
    
    (10,567,333
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of short-term notes, net
    
    
    (15,000,000
    )
    
    
    (49,000,000
    )
    
    
    
    
    
    
    Proceeds from Initial Public Offering, net of offering costs
    
    
    
    
    
    
    
    
    
    
    637,583,033
    
    
    
    93,406,442Total cash flows (used in) provided by
financing activities
    
    
    (15,000,000
    )
    
    
    (49,000,000
    )
    
    
    637,583,033
    
    
    
    93,406,442NET INCREASE IN CASH OF DISCONTINUED OPERATIONS
    
    
    583,524
    
    
    
    
    
    
    
    
    
    
    
    INCREASE IN CASH
    
    
    20,622,693
    
    
    
    170,465,236
    
    
    
    720,149,200
    
    
    
    105,502,454CASH, beginning of period
    
    
    7,430,132
    
    
    
    28,052,825
    
    
    
    198,518,061
    
    
    
    29,083,060CASH, end of period
    
    
    28,052,825
    
    
    
    198,518,061
    
    
    
    918,667,261
    
    
    $
    134,585,514SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Income taxes
    
    
    10,612,162
    
    
    
    40,449,769
    
    
    
    66,863,315
    
    
    $
    9,795,531Interest
    
    
    5,759,416
    
    
    
    3,117,818
    
    
    
    1,218,745
    
    
    $
    178,547
  F-5




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##### Table of Contents



Note 1  Organization and description of business
          F-6




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##### Table of Contents



Note 2  Summary of significant accounting policies
 Basis of presentation and principles of consolidation
    Transfer of net assets
  Use of estimates
  Convenience translation
  Cash and concentration of risk
  F-7




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##### Table of Contents



Accounts receivable, trade and allowance for doubtful accounts
   Year Ended December 31,2008
    
    2009RMB
    
    RMB
    
    US$Balance at beginning of year
    
    
    
    
    
    
    
    
    
    
    Additions (charged to expense)
    
    
    
    
    
    
    
    
    
    
    Adjustments
    
    
    
    
    
    
    
    
    
    
    Deductions
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    
    
    
    
    
    
    
    
    
 Inventories
    Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Balance at beginning of year
    
    
    646,716
    
    
    
    646,716
    
    
    
    128,128
    
    
    $
    18,771Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deductions
    
    
    
    
    
    
    (518,588
    )
    
    
    (25,560
    )
    
    
    (3,745
    )Balance at end of year
    
    
    646,716
    
    
    
    128,128
    
    
    
    102,568
    
    
    $
    15,026
 Plant and equipment
 F-8




---



##### Table of Contents



Buildings and leasehold improvements
    
    
    5-30
    
    
    YearsMachinery and equipment
    
    
    5-20
    
    
    YearsOther equipment
    
    
    5-10
    
    
    YearsFurniture and fixtures
    
    
    2-10
    
    
    YearsMotor vehicles
    
    
    5
    
    
    Years
   Long-lived assets
  Prepaid leases
  Fair value of financial instruments
  Revenue recognition
    F-9




---



##### Table of Contents



Warranty costs
   Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Balance at beginning of year
    
    
    
    
    
    
    
    
    
    
    2,200,000
    
    
    $
    322,302Additions
    
    
    
    
    
    
    2,200,000
    
    
    
    2,736,375
    
    
    
    400,881Deductions
    
    
    
    
    
    
    
    
    
    
    (2,336,375
    )
    
    
    (342,281
    )Balance at end of year
    
    
    
    
    
    
    2,200,000
    
    
    
    2,600,000
    
    
    $
    380,902
 Advertising costs
  Research and development costs
  Shipping and handling costs
  Major suppliers
  F-10




---



##### Table of Contents



Share-based compensation
  Income taxes
   Earnings per share
  Recently issued accounting pronouncements
   F-11




---



##### Table of Contents



FASB Accounting Standards Codification
  Value Measurements and
Disclosures  Improving Disclosures about Fair value
Measurements Fair Value
Measurements and Disclosures  Overall
  F-12




---



##### Table of Contents



Note 3  Stock split
  Note 4  Inventories
  At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Raw materials
    
    
    40,525,410
    
    
    
    23,106,203
    
    
    $
    3,385,078Work in process
    
    
    
    
    
    
    
    
    
    
    Finished goods
    
    
    6,329,057
    
    
    
    10,416,265
    
    
    
    1,525,991Total
    
    
    46,854,467
    
    
    
    33,522,468
    
    
    
    4,911,069Reserve for obsolescence
    
    
    (128,128
    )
    
    
    (102,568
    )
    
    
    (15,026
    )Net total
    
    
    46,726,339
    
    
    
    33,419,900
    
    
    $
    4,896,043
 Note 5  Property and equipment
  At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Buildings
    
    
    91,388,689
    
    
    
    91,388,689
    
    
    $
    13,388,519Leasehold Improvements
    
    
    150,000
    
    
    
    150,000
    
    
    
    21,975Plant and machinery
    
    
    46,419,371
    
    
    
    80,242,836
    
    
    
    11,755,642Office equipment
    
    
    10,914,960
    
    
    
    12,537,925
    
    
    
    1,836,816Motor vehicles
    
    
    2,250,238
    
    
    
    4,447,953
    
    
    
    651,629Total
    
    
    151,123,258
    
    
    
    188,767,403
    
    
    
    27,654,581Less: accumulated depreciation
    
    
    (33,441,899
    )
    
    
    (44,012,128
    )
    
    
    (6,447,813
    )Plant and equipment, net
    
    
    117,681,359
    
    
    
    144,755,275
    
    
    $
    21,206,768
  Note 6  Prepaid leases
  F-13




---



##### Table of Contents



At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Land use rights
    
    
    23,000,000
    
    
    
    23,000,000
    
    
    $
    3,369,519Less: accumulated amortization
    
    
    (518,509
    )
    
    
    (1,042,194
    )
    
    
    (152,682
    )Prepaid leases, net
    
    
    22,481,491
    
    
    
    21,957,806
    
    
    $
    3,216,837
  Note 7  Deposits
  Note 8  Related party transactions
     F-14




---



##### Table of Contents



Note 9  Notes payable
  At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Loan amount from Bank of Agriculture
    
    
    20,000,000
    
    
    
    20,000,000
    
    
    $
    2,930,017Maturity date
    
    January 16, 2009
    
    
    January 15, 2010Interest rate per annum, paid quarterly
    
    
    8.217
    %
    
    5.841%20,000,000
    
    
    
    20,000,000
    
    
    $
    2,930,017
  Note 10  Other payables
  At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Professional fees payable for public offering
    
    
    14,141,518
    
    
    
    2,498,383
    
    
    $
    366,015Housing fund payable
    
    
    5,865,350
    
    
    
    5,865,350
    
    
    
    859,279Warranty reserve
    
    
    2,200,000
    
    
    
    2,600,000
    
    
    
    380,902Accrued wages
    
    
    
    
    
    
    4,596,622
    
    
    
    673,409Accrued transportation costs
    
    
    1,413,038
    
    
    
    2,167,894
    
    
    
    317,598Others
    
    
    1,307,326
    
    
    
    1,994,216
    
    
    
    292,154Total
    
    
    24,927,232
    
    
    
    19,722,465
    
    
    $
    2,889,357
 Note 11  Other income
  F-15




---



##### Table of Contents



At December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Interest income
    
    
    1,318,405
    
    
    
    743,735
    
    
    
    1,346,863
    
    
    $
    197,316Rental income
    
    
    3,204,284
    
    
    
    533,971
    
    
    
    
    
    
    
    Others
    
    
    
    
    
    
    772
    
    
    
    
    
    
    
    Total
    
    
    4,522,689
    
    
    
    1,278,478
    
    
    
    1,346,863
    
    
    $
    197,316
 Note 12  Income taxes
  At December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Current
    
    
    12,643,137
    
    
    
    37,517,653
    
    
    
    71,518,086
    
    
    $
    10,477,459Deferred
    
    
    (844,389
    )
    
    
    312,863
    
    
    
    (247,448
    )
    
    
    (36,252
    )Total
    
    
    11,798,748
    
    
    
    37,830,516
    
    
    
    71,270,638
    
    
    $
    10,441,207
     At December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Depreciation
    
    
    247,737
    
    
    
    (2,887
    )
    
    
    (289,969
    )
    
    $
    (42,481
    )Change in valuation allowance
    
    
    (549,899
    )
    
    
    (39,924
    )
    
    
    6,390
    
    
    
    936Impairment loss
    
    
    (164,190
    )
    
    
    315,750
    
    
    
    
    
    
    
    Staff housing fund
    
    
    (325,996
    )
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    (52,041
    )
    
    
    39,924
    
    
    
    36,131
    
    
    
    5,293(844,389
    )
    
    
    312,863
    
    
    
    (247,448
    )
    
    $
    (36,252
    )
  F-16




---



##### Table of Contents



At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Deferred tax assets:Depreciation
    
    
    2,938,040
    
    
    
    3,228,009
    
    
    $
    472,906Reserve for inventory obsolescence
    
    
    32,032
    
    
    
    25,642
    
    
    
    3,757Accrued expenses
    
    
    1,508,859
    
    
    
    1,466,338
    
    
    
    214,820Deferred tax assets
    
    
    4,478,931
    
    
    
    4,719,989
    
    
    
    691,483Valuation allowance on deferred tax assets
    
    
    (32,032
    )
    
    
    (25,642
    )
    
    
    (3,757
    )Deferred tax assets, net of valuation allowance
    
    
    4,446,899
    
    
    
    4,694,347
    
    
    
    687,726Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    Net deferred tax assets
    
    
    4,446,899
    
    
    
    4,694,347
    
    
    $
    687,726
  Unrecognized tax benefits
  Year Ended December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Balance at beginning of year
    
    
    1,202,277
    
    
    
    1,202,277
    
    
    $
    176,135Additions based on tax positions related to the current year
    
    
    
    
    
    
    
    
    
    
    Additions for tax positions of prior years
    
    
    
    
    
    
    
    
    
    
    Reductions for tax positions of prior years
    
    
    
    
    
    
    (1,202,277
    )
    
    
    (176,135
    )Reductions as result of lapse of applicable statute of limitations
    
    
    
    
    
    
    
    
    
    
    Settlements
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    1,202,277
    
    
    
    
    
    
    $
    
  British Virgin Islands income taxes
  Chinese income taxes
   F-17




---



##### Table of Contents



At December 31,2007
    
    2008
    
    2009BVI income taxes
    
    
    
    
    
    
    
    
    
    
    China income taxes
    
    
    33.0
    
    
    
    25.0
    
    
    
    25.0Local income tax adjustment
    
    
    (7.3
    )
    
    
    
    
    
    
    Tax exemption
    
    
    (13.2
    )
    
    
    (3.0
    )
    
    
    Non-deductible expenses
    
    
    
    
    
    
    
    
    
    
    12.9Effective income tax rates
    
    
    12.5
    %
    
    
    22.0
    %
    
    
    37.9
    %
  Note
13  Share-based compensation
  F-18




---



##### Table of Contents



Share options
    
    
    Restricted shares
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    US$Cost of revenue
    
    
    
    
    
    
    1,374,673
    
    
    
    1,374,673
    
    
    
    201,391Selling expense
    
    
    
    
    
    
    3,984,916
    
    
    
    3,984,916
    
    
    
    583,793Administrative
expense
    
    
    5,124,044
    
    
    
    80,772,780
    
    
    
    85,896,824
    
    
    
    12,583,956Total
    
    
    5,124,044
    
    
    
    86,132,369
    
    
    
    91,256,413
    
    
    
    13,369,140
  Share options
 th
   Weighted-average expected term (in years)
    
    
    4.03Expected volatility
    
    
    59.6% - 66.8%Weighted-average expected dividend yield
    
    
    0.00%Risk-free interest rate
    
    
    2.11% - 2.74%Weighted-average estimated fair value of share options
    
    
    $6.60
    F-19




---



##### Table of Contents



Weighted
    
    Weighted averageaverage
    
    remaining contractual
    
    AggregateOptions
    
    exercise price
    
    life (in years)
    
    intrinsic valueBalance as of January 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    305,430
    
    
    $
    8.15
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2009
    
    
    305,430
    
    
    $
    8.15
    
    
    
    9.50
    
    
    $
    2,977,045Vested and expected to vest after December 31, 2009
    
    
    305,430
    
    
    $
    8.15
    
    
    
    9.50
    
    
    $
    2,977,045Exercisable as of December 31, 2009
    
    
    113,479
    
    
    $
    8.15
    
    
    
    9.50
    
    
    $
    1,115,136
   Weighted averageOptions
    
    grant date fair valueNon-vested as of January 1, 2009
    
    
    
    
    
    
    Granted
    
    
    305,430
    
    
    $
    6.60Vested
    
    
    113,931
    
    
    $
    6.59Forfeited
    
    
    
    
    
    
    Non-vested as of December 31, 2009
    
    
    191,499
    
    
    $
    6.62
 Restricted share awards
   RMB
    
    US$Cost of revenue
    
    
    1,374,673
    
    
    $
    201,391Selling expense
    
    
    3,984,916
    
    
    
    583,793Administrative expense
    
    
    80,772,780
    
    
    
    11,833,279Total
    
    
    86,132,369
    
    
    $
    12,618,463
 Note 14  Earnings per share
   F-20




---



##### Table of Contents



Year Ended December 31,2007
    
    2008
    
    2009
    
    2009Numerator:Income from continuing operations
    
    RMB
    82,388,112
    
    
    RMB
    133,766,862
    
    
    RMB
    116,995,002
    
    
    $
    17,139,865Loss from discontinued operations
    
    
    (179,767
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    RMB
    82,208,345
    
    
    RMB
    133,766,862
    
    
    RMB
    116,995,002
    
    
    $
    17,139,865Denominator:Weighted-average shares outstanding:Basic
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    36,982,711
    
    
    
    36,982,711Diluted
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    37,064,864
    
    
    
    37,064,864Net income per share (basic and
diluted):Income from continuing operations
    
    RMB
    2.75
    
    
    RMB
    4.46
    
    
    RMB
    3.16
    
    
    $
    0.46Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    RMB
    2.74
    
    
    RMB
    4.46
    
    
    RMB
    3.16
    
    
    $
    0.46Net income per ADS:Basic
    
    RMB
    
    
    
    RMB
    8.92
    
    
    RMB
    6.33
    
    
    $
    0.93Diluted
    
    RMB
    
    
    
    RMB
    8.92
    
    
    RMB
    6.31
    
    
    $
    0.92
  Year Ended December 31,2007
    
    2008
    
    2009Equity instruments:Share options
    
    
    
    
    
    
    
    
    
    
    82,153Total common stock equivalent shares
    
    
    
    
    
    
    
    
    
    
    82,153
  Note 15  Statutory reserves
   F-21




---



##### Table of Contents



At December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Beginning of year
    
    
    20,268,552
    
    
    
    36,413,141
    
    
    $
    5,334,555Plus increases
    
    
    16,144,589
    
    
    
    20,906,838
    
    
    
    3,062,869Less reductions (payments)
    
    
    
    
    
    
    
    
    
    
    End of year
    
    
    36,413,141
    
    
    
    57,319,979
    
    
    $
    8,397,424
 Note 16  Segment reporting
      F-22




---



##### Table of Contents



Revenue by Product CategoryYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Circulating Water Treatment
    
    
    193,259,949
    
    
    
    245,870,598
    
    
    
    288,910,256
    
    
    $
    42,325,592Water Purification
    
    
    97,898,726
    
    
    
    128,097,436
    
    
    
    169,803,419
    
    
    
    24,876,341Wastewater Treatment
    
    
    135,689,615
    
    
    
    214,557,564
    
    
    
    312,203,547
    
    
    
    45,738,078Spare Parts
    
    
    
    
    
    
    8,717,088
    
    
    
    16,952,751
    
    
    
    2,483,592Sales Rebates
    
    
    (2,886,175
    )
    
    
    (4,543,413
    )
    
    
    (4,458,526
    )
    
    
    (653,178
    )Total Revenue
    
    
    423,962,115
    
    
    
    592,699,273
    
    
    
    783,411,447
    
    
    $
    114,770,425
 RevenueYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    423,962,115
    
    
    
    592,699,273
    
    
    
    783,411,447
    
    
    $
    114,770,425Duoyuan Langfang
    
    
    272,982,747
    
    
    
    424,449,531
    
    
    
    581,858,357
    
    
    
    85,242,731Elimination
    
    
    (272,982,747
    )
    
    
    (424,449,531
    )
    
    
    (581,858,357
    )
    
    
    (85,242,731
    )Total Revenue
    
    
    423,962,115
    
    
    
    592,699,273
    
    
    
    783,411,447
    
    
    $
    114,770,425
 Operating IncomeYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    66,012,214
    
    
    
    102,268,041
    
    
    
    102,234,453
    
    
    $
    14,977,432Duoyuan Langfang
    
    
    27,317,205
    
    
    
    96,253,974
    
    
    
    176,183,105
    
    
    
    25,810,971Administrative
    
    
    
    
    
    
    (1,685,298
    )
    
    
    (91,108,944
    )
    
    
    (13,347,536
    )Addition (Elimination)
    
    
    2,094,168
    
    
    
    (20,184,255
    )
    
    
    828,908
    
    
    
    121,436Total Operating Income
    
    
    95,423,587
    
    
    
    176,652,462
    
    
    
    188,137,522
    
    
    $
    27,562,303
 Other IncomeYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    7,092,458
    
    
    
    1,464,734
    
    
    
    1,149,497
    
    
    $
    168,402Duoyuan Langfang
    
    
    5,322,293
    
    
    
    127,989
    
    
    
    250,450
    
    
    
    36,691Elimination
    
    
    (7,892,062
    )
    
    
    (314,245
    )
    
    
    (53,084
    )
    
    
    (7,777
    )Total Other Income
    
    
    4,522,689
    
    
    
    1,278,478
    
    
    
    1,346,863
    
    
    $
    197,316
 Interest ExpenseYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    5,749,827
    
    
    
    3,117,818
    
    
    
    1,218,745
    
    
    $
    178,547Duoyuan Langfang
    
    
    9,589
    
    
    
    
    
    
    
    
    
    
    
    Elimination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Interest Expense
    
    
    5,759,416
    
    
    
    3,117,818
    
    
    
    1,218,745
    
    
    $
    178,547
 Depreciation and AmortizationYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    3,855,394
    
    
    
    2,211,345
    
    
    
    387,551
    
    
    $
    56,777Duoyuan Langfang
    
    
    4,645,416
    
    
    
    6,885,316
    
    
    
    10,800,910
    
    
    
    1,582,342Elimination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
Depreciation and Amortization
    
    
    8,500,810
    
    
    
    9,096,661
    
    
    
    11,188,461
    
    
    $
    1,639,119
 F-23




---



##### Table of Contents



Income Before Income TaxesYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    67,354,845
    
    
    
    97,399,213
    
    
    
    102,165,205
    
    
    $
    14,967,287Duoyuan Langfang
    
    
    32,629,909
    
    
    
    96,381,963
    
    
    
    176,433,555
    
    
    
    25,847,662Administrative
    
    
    
    
    
    
    (1,685,298
    )
    
    
    (90,900,891
    )
    
    
    (13,317,056
    )Addition (Elimination)
    
    
    (5,797,894
    )
    
    
    (20,498,500
    )
    
    
    567,771
    
    
    
    83,179Total Income
Before Income Taxes
    
    
    94,186,860
    
    
    
    171,597,378
    
    
    
    188,265,640
    
    
    $
    27,581,072
 Income Tax ExpenseYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    8,398,052
    
    
    
    25,476,423
    
    
    
    26,760,129
    
    
    $
    3,920,381Duoyuan Langfang
    
    
    3,400,696
    
    
    
    12,354,093
    
    
    
    44,510,509
    
    
    
    6,520,826Elimination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Income Tax Expense
    
    
    11,798,748
    
    
    
    37,830,516
    
    
    
    71,270,638
    
    
    $
    10,441,207
 AssetsYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    285,289,298
    
    
    
    322,149,097
    
    
    
    575,167,000
    
    
    $
    84,262,442Duoyuan Langfang
    
    
    158,639,700
    
    
    
    262,280,451
    
    
    
    444,360,732
    
    
    
    65,099,215Administrative
    
    
    117,335,968
    
    
    
    114,019,293
    
    
    
    727,955,028
    
    
    
    106,646,014Elimination
    
    
    (141,022,439
    )
    
    
    (160,363,030
    )
    
    
    (374,895,689
    )
    
    
    (54,922,529
    )Total Assets
    
    
    420,242,527
    
    
    
    538,085,811
    
    
    
    1,372,587,071
    
    
    $
    201,085,142
 Capital ExpendituresYear ended December 31
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Duoyuan Beijing
    
    
    10,000,000
    
    
    
    
    
    
    
    3,716,206
    
    
    $
    544,427Duoyuan Langfang
    
    
    28,941,600
    
    
    
    22,220,634
    
    
    
    34,027,179
    
    
    
    4,985,010Elimination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Capital Expenditures
    
    
    38,941,600
    
    
    
    22,220,634
    
    
    
    37,743,385
    
    
    $
    5,529,437
 Note 17  Discontinued operations
   Year EndedDecember 31, 2007RMBNet Sales
    
    
    3,780,920Income from operations
    
    
    675,748Provision for income taxes
    
    
    273,957Discontinued Operations
    
    
    401,791
 Note 18  Commitments
 F-24




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##### Table of Contents



Lease commitment
  Year ended December 31,
    
    Amount2010
    
    RMB
    2,248,2982011
    
    RMB
    2,248,2982012
    
    RMB
    2,248,298Thereafter
    
    
    
  Capital commitments
  Original Amount
    
    Paid in 2009
    
    Outstanding AmountProduction Line
    
    $
    6,600,000
    
    
    $
    2,000,000
    
    
    $
    4,600,000Leasehold Improvements
    
    RMB
    4,200,000
    
    
    RMB
    2,100,000
    
    
    RMB
    2,100,000Langfang Plant Improvements
    
    RMB
    6,268,686
    
    
    RMB
    3,134,343
    
    
    RMB
    3,134,343Equipment Purchases
    
    RMB
    67,216,100
    
    
    RMB
    20,164,830
    
    
    RMB
    47,051,270
 Other commitments
   Note 19  Subsequent events
    F-25




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##### Table of Contents



ITEM 19. EXHIBITS
  -92-




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##### Table of Contents



SIGNATURES
  Duoyuan Global Water Inc.
(Registrant)By:
    /s/ WENHUA GUOWenhua GuoChief Executive OfficerDated: June 18, 2010 -93-




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description*3.1
    
    Fourth Amended and Restated Memorandum of Association of the
Company (Incorporated by reference to Exhibit 3.1 of the
Companys Registration Statement on Form F-1 (File No.
333-159651))*3.2
    
    Fourth Amended and Restated Articles of Association of the
Company (Incorporated by reference to Exhibit 3.2 of the
Companys Registration Statement on Form F-1 (File No.
333-159651))*4.1
    
    Form of Deposit Agreement among the Company, the Depositary
and holders of the American Depositary Receipts
(Incorporated by reference to Exhibit 4.1 of the Companys
Registration Statement on Form F-1 (File No. 333-159651))*4.2
    
    Form of Certificate representing the Ordinary Shares, par
value $0.000033 per share, of the Company (Incorporated by
reference to Exhibit 4.2 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*4.3
    
    Form of American Depositary Receipt (included in Exhibit 4.1)*4.4
    
    Investors Rights Agreement among the Company and other
parties thereto dated February 5, 2008 (Incorporated by
reference to Exhibit 4.4 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*4.5
    
    Acknowledgement, Amendment and waiver among the Company and
other parties thereto dated June 1, 2009 (Incorporated by
reference to Exhibit 4.5 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*10.1
    
    Duoyuan Global Water Inc. 2008 Omnibus Incentive Plan
(Incorporated by reference to Exhibit 10.1 of the Companys
Registration Statement on Form F-1 (File No. 333-159651))*10.2
    
    Form of Indemnification Agreement between the Company and
its officers and directors (Incorporated by reference to
Exhibit 10.2 of the Companys Registration Statement on Form
F-1 (File No. 333-159651))*10.3
    
    Form of Employment Agreement between the Company and
Executive Officers (Incorporated by reference to Exhibit
10.3 of the Companys Registration Statement on Form F-1
(File No. 333-159651))*10.4
    
    English Translation of Trademark Transfer Agreement
(Duoyuan Trademarks) between Duoyuan Clean Water
Technology Industries (China) Co., Ltd. and Duoyuan
Investments Limited dated December 1, 2007 (Incorporated by
reference to Exhibit 10.4 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*10.5
    
    English Translation of Trademark Transfer Agreement (Pattern
Trademarks) between Duoyuan Clean Water Technology
Industries (China) Co., Ltd. and Duoyuan Investments Limited
dated December 1, 2007 (Incorporated by reference to Exhibit
10.5 of the Companys Registration Statement on Form F-1
(File No. 333-159651))*10.6
    
    English Translation of Trademark Transfer Agreement (MHW
Trademark) between Duoyuan Clean Water Technology Industries
(China) Co., Ltd. and Duoyuan Investments Limited dated
December 1, 2007 (Incorporated by reference to Exhibit 10.6
of the Companys Registration Statement on Form F-1 (File
No. 333-159651))*10.7
    
    English Translation of Trademark Transfer Agreement
(Duoyuan Trademarks) between Duoyuan Clean Water
Technology Industries (China) Co., Ltd. and Duoyuan
Investments Limited dated December 1, 2007 (Incorporated by
reference to Exhibit 10.7 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*10.8
    
    License Agreement, dated as of September 17, 2008, by and
between Duoyuan Investments Ltd. and the Company
(Incorporated by reference to Exhibit 10.8 of the Companys
Registration Statement on Form F-1 (File No. 333-159651))*10.9
    
    License Agreement, dated as of May 27, 2009, by and between
Duoyuan Investments Ltd. and the Company (Incorporated by
reference to Exhibit 10.9 of the Companys Registration
Statement on Form F-1 (File No. 333-159651))*10.10
    
    Amendment Agreement, dated as of January 21, 2010, by and
between Duoyuan Investments Ltd. and the Company
(Incorporated by reference to Exhibit 10.10 of the Companys
Registration Statement on Form F-1 (File No. 333-164275))12.1
    
    Certificate of Principal Executive Officer Pursuant to §302
of the Sarbanes-Oxley Act of 2002 (filed herewith)12.2
    
    Certificate of Principal Financial Officer Pursuant to §302
of the Sarbanes-Oxley Act of 2002 (filed herewith)13.1
    
    Certificate of Principal Executive Officer Pursuant to §906
of the Sarbanes-Oxley Act of 2002 (filed herewith)13.2
    
    Certificate of Principal Financial Officer Pursuant to §906
of the Sarbanes-Oxley Act of 2002 (filed herewith)21.1
    
    List of the Companys
subsidiaries (Incorporated by reference to Exhibit 21.1 of the
Companys Registration Statement on Form F-1 (File
No. 333-164275))23.1
    
    Consent of Grant Thornton, Independent Registered Public
Accounting Firm (filed herewith)
 -94-