com
1992?
1989?
Duoyuan
Global
Water
lists
the
Langfang
facility
as
a
plant
or
area
of
opera@ons.
This
must
be
where
the
company
produces
the
required
materials
and
equipment
to
carry
out
their
“water”
business.
Duoyuan
Digital
Press
also
lists
Langfang
Manufacturing
base
as
an
area
of
opera@ons.
Could
it
be
that
this
plant
creates
water
equipment
and
doubles
as
a
prin@ng
facility?
We
find
it
highly
unlikely.
Contacted investor relations (IR) about who owns the Langfang facility?
Our
team
contacted
IR
on
12.17.10
and
we
spook
to
a
pleasant
woman
named
Ashley
who
listened
to
our
concerns
about
overlap
and
who
owned
the
Langfang
facility.
Our
worry
is
that
the
asset
is
booked
by
both
DYP
and
DGW
on
the
balance
sheet
under
the
property,
plant,
and
equipment
(PPE)
sec@on.
The
other
large
concern
is
with
the
equipment
inside
of
the
plant
and
the
revenues
@ed
to
anything
produced
and
sold.
She
also
acknowledged
that
DYP
&
DGW
have
the
same
address.
We
decided
to
examine
DYP’s
10-‐Ks
to
determine
if
they
men@on
this
facility
and
sure
enough
they
do.
In
a
Form
10-‐Q
for
the
period
ending
March
31,
2010
the
company
states
that
they
have
construc@on-‐in-‐progress
at
the
LangFang
Duoyuan
facility.
Under
the
PPE
sec@on
of
that
10-‐Q,
DYP
claims
to
have
$4,292,379US
associated
with
the
construc@on-‐in-‐progress
at
the
LangFang
facility.
If
DYP
is
taking
construc@on
expenses
associated
with
the
Langfang
facility,
does
that
mean
they
own
it
and
does
DGW
also
Langfang
claim
it
on
their
balance
sheet
as
an
asset?
Why
does
DGW
show
this
facility
on
their
website
as
a
source
of
opera@ons?
This
is
highly
suspect
in
our
opinion
and
fear
the
company
is
double
booking
revenues
&
expenses
associated
with
the
Langfang
plant.
From
DYP’s
Form
10-‐Q
for
the
period
ending
December
31,
2009:
“Langfang
Duoyuan
is
located
in
a
Special
Economic
and
High
Technology
Zone
and
the
PRC
tax
authority
has
offered
a
special
income
tax
rate
to
Langfang
Duoyuan
for
doing
business
in
the
special
zone.
With
the
approval
of
the
local
government,
Langfang
Duoyuan
is
exempt
from
income
taxes
for
five
years,
commencing
with
their
first
profitable
year
of
opera@ons.
Langfang
Duoyuan
has
opera@ng
losses
prior
to
the
calendar
year
ended
December
31,
2002,
and
began
genera@ng
a
net
profit
for
the
calendar
year
ended
December
31,
2003.
Therefore,
Langfang
Duoyuan
had
an
income
tax
exemp@on
for
the
years
ended
December
31,
2003,
through
December
31,
2007.
Langfang
Duoyuan
has
been
subject
to
an
income
tax
rate
of
25%
star@ng
January
1,
2008,
under
the
newly
unified
corporate
income
tax
rate.” 2
2 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed February 11, 2010), page 11
Duoyuan
Global
Water
P a g e
|
5
DL | davianletter.com
With massive overlaps to Duoyuan Digital Press (DYP) investors should be weary.
Earlier
this
year,
DYP
saw
it’s
stock
drop
massively,
aSer
the
company
fired
it’s
auditor
at
the
@me,
DeloiDe
&
Touche
(DeloiDe).
DYP
cited
that
DeloiDe
was
hanging
up
the
company’s
10-‐K
filing
and
we
think
righwully
so.
DeloiDe
was
reques@ng
access
from
DYP
to
certain
expense
reports,
bank
accounts,
etc.,
linked
to
$3MM
in
expenses.
The
company
would
not
grant
the
firm
access
to
these
records
and
DeloiDe
refused
to
sign
off
on
the
report.
A
short
@me
aSer,
DeloiDe
was
fired.
Since
there
is
much
overlap
between
these
two
companies,
DGW
saw
their
stock
sell
off
in
the
wake
of
the
DYP
fiasco.
Management
has
since
hired
a
third
party
audit
commiDee
to
review
their
prac@ces
and
this
will
most
likely
come
back
posi@ve,
which
should
be
no
surprise
and
taken
as
a
grain
of
salt.
Wenhua Guo, the founder and chairman inks deals between his companies. How are investor
interests protected?
Mr.
Guo
is
the
founder,
chairman,
and
at
one
point
the
CEO
of
DYP
and
DGW.
A
recent
10-‐Q
from
DYP
shows
that
Wenhua
Guo
has
related
party
transac@ons
in
between
his
companies.
In
this
example
DYP
rents
office
space
from
Duoyuan
Informa@on
Terminal
Manufacture
Co.,
of
which
Wenhua
Guo
is
the
sole
shareholder.
The
lease
between
DYP
and
Mr.
Guo
is
for
$990,000US
over
three-‐years.
This
property
was
owned
by
Duoyuan
Water
Recycle
Technology
Industry
Co.,
who
was
also
a
related
party.
Mr.
Guo
has
a
lucra@ve
arrangement
in
place
here.
DYP,
a
company
that
he
has
a
significant
interest
in,
leases
from
another
company,
which
Mr.
Guo
is
the
sole
shareholder
of
Duoyuan
Informa@on
Terminal
Manufacture.3
3 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed February 11, 2010), page 18
Duoyuan
Global
Water
P a g e
|
6
DL | davianletter.com
Here was Mr. Guo, DGW’s Chairman and CEO from their last conference call on u@liza@on rates:
“Michael
Cox
of
Piper
Jaffray:
Okay.
Thank
you.
And
then,
I
was
wondering,
if
you
could
talk
about
your
capacity
situa@on
or
where
you
are
from
a
u@liza@on
standpoint
at
your
Langfang
facility?
Wenhua
Guo,
CEO
and
Chairman:
I
want
to
share
three
points
with
you,
firstly,
given
the
current
basic
produc@on
situa@on
we
have
around
the
whole
year,
we
are
opera@ng
at
almost
maximum
capacity
and
at
the
beginning
of
the
given
year
[inaudible]
it
comes
to
the
end
of
the
given
year,
our
capacity
u@liza@on
will
usually
be
lower
than
the
difficult
months
of
the
given
year.
And
secondly
from
a
professional
expert
–
professional
specialist
point
of
view,
we
are
transforming
our
facility
from
a
manually
operated
factory
into
an
automated
assembly
line.
And
thirdly,
we
are
transforming
our
facility
from
a
mul@-‐product
line
into
a
professional
diversified
product
porwolio
based
opera@on.
I
feel
it
is
very
hard
for
me
to
give
you
a
posi@ve
number
to
describe
the
u@liza@on
ra@o
of
our
capacity.
Thank
you.”4
Conclusion
It
is
our
conclusion
that
if
DGW
is
not
commi|ng
fraud
by
double
booking
assets
and
expenses
@ed
to
certain
assets,
we
would
be
surprised.
There
are
simply
too
many
loose
ends
and
small
things
that
do
not
add
up
at
both
DYP
and
DGW.
Mr.
Guo
has
done
everything
to
make
himself
untrustworthy
and
un@l
he
provides
more
clarity
into
his
companies
book,
we
think
both
companies
could
be
a
fraud.
Both
companies
have
become
sloppy
and
have
even
made
errors
on
their
websites.
A
company
should
know
when
it
was
founded
and
ensure
that
the
correct
data
is
on
the
website.
The
fact
that
DYP
is
already
under
scru@ny
for
it’s
accoun@ng
prac@ces
should
make
investors
in
DGW
very
concerned.
Not
only
do
these
companies
share
Mr.
Guo,
but
headquarters,
plants,
etc.
Disclaimer and Independence: As of the publica@on date of this report, The Davian LeDer, LLC has a posi@on or interest in this company.
This
report
does
not
purport
to
be
a
complete
statement
of
all
material
facts
related
to
any
company,
industry,
or
security
men@oned.
The
informa@on
provided,
while
not
guaranteed
as
to
accuracy
or
completeness,
has
been
obtained
from
sources
believed
to
be
reliable.
The
opinions
expressed
reflect
our
judgment
at
this
@me
and
are
subject
to
change
without
no@ce
and
may
or
may
not
be
updated.
Past
performance
should
not
be
taken
as
an
indica@on
or
guarantee
of
future
performance,
and
no
representa@on
or
warranty,
express
or
implied,
is
made
regarding
future
performance.
This
no@ce
shall
not
cons@tute
an
offer
to
sell
or
the
solicita@on
of
an
offer
to
buy,
nor
shall
there
be
any
sale
of
these
securi@es
in
any
state
in
which
said
offer,
solicita@on,
or
sale
would
be
unlawful
prior
to
registra@on
or
qualifica@on
under
the
securi@es
laws
of
any
such
state.
This
research
report
was
originally
prepared
and
distributed
to
clients
of
The
Davian
LeDer,
LLC.