x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Nevada
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20-5526104
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(State
or other jurisdiction of incorporation
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(IRS
Employer Identification No.)
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or
organization)
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Area
2, 1/F, Building M-6,
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||
Central
High-Tech Industrial Park,
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||
Nanshan, Shenzhen, China
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518057
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(Address
of principal executive offices)
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(Zip
Code)
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(86) 755-8602-8285
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(Registrant’s
telephone number, including area
code)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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(do not check if a smaller
reporting company)
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Page
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PART I.
FINANCIAL INFORMATION
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||
Item 1.
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Financial
Statements
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3
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Item 2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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24
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Item 4.
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Controls
and Procedures
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24
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PART
II. OTHER INFORMATION
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||
Item 1.
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Legal
Proceedings
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25
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Item 1A.
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Risk
Factors
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25
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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25
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Item 3.
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Defaults
Upon Senior Securities
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25
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Item 5.
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Other
Information
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25
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Item 6.
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Exhibits
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25
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SIGNATURES
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26
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September 30,
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December 31,
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|||||||
2010
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2009
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|||||||
(unaudited)
|
||||||||
ASSETS
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||||||||
CURRENT
ASSETS:
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||||||||
Cash
and cash equivalents
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$ | 54,377,822 | $ | 79,333,729 | ||||
Restricted
cash
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1,128,314 | 35,701 | ||||||
Accounts
receivable
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42,119,937 | 17,070,781 | ||||||
Advances
to suppliers
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8,576,188 | 3,299,107 | ||||||
Other
receivables
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170,526 | 213,487 | ||||||
Inventories
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21,811,223 | 18,061,282 | ||||||
Other
current assets
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159,583 | 12,500 | ||||||
Total
current assets
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128,343,593 | 118,026,587 | ||||||
PROPERTY
AND EQUIPMENT, net
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12,020,769 | 11,325,999 | ||||||
CONSTRUCTION
IN PROGRESS
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6,035,101 | 3,724,337 | ||||||
INTANGIBLE
ASSETS, net
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22,997,999 | 394,684 | ||||||
OTHER
ASSETS
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448,129 | 20,073 | ||||||
TOTAL
ASSETS
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$ | 169,845,591 | $ | 133,491,680 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
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||||||||
Accounts
payable
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$ | 22,168,819 | $ | 13,055,110 | ||||
Other
payables
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1,441,269 | 1,061,460 | ||||||
Unearned
revenue
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2,092,634 | 1,719,761 | ||||||
Accrued
payroll
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1,459,646 | 1,148,663 | ||||||
Notes
payable
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9,393,419 | 6,212,911 | ||||||
Tax
and welfare payable
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2,065,358 | 862,332 | ||||||
Total
current liabilities
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38,621,145 | 24,060,237 | ||||||
STOCKHOLDERS'
EQUITY:
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||||||||
Common
Stock, $0.001 par value; 75,000,000 shares authorized;
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||||||||
33,590,116
and 32,631,748 shares issued and outstanding
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||||||||
at
September 30, 2010 and December 31, 2009
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33,590 | 32,632 | ||||||
Additional
paid-in capital
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91,055,073 | 91,111,661 | ||||||
Development
funds
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2,205,163 | 1,185,859 | ||||||
Statutory
reserve
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4,410,327 | 2,371,718 | ||||||
Other
comprehensive income
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4,860,662 | 2,335,216 | ||||||
Retained
earnings
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28,659,631 | 12,394,357 | ||||||
Total
stockholders' equity
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131,224,446 | 109,431,443 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 169,845,591 | $ | 133,491,680 |
Three Months Ended September 30,
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Nine Months Ended September 30,
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|||||||||||||||
2010
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2009
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2010
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2009
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|||||||||||||
(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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|||||||||||||
Revenue
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$ | 55,263,309 | $ | 26,541,039 | $ | 113,616,453 | $ | 48,723,758 | ||||||||
Cost
of Revenue
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39,417,477 | 20,670,731 | 81,011,120 | 37,403,300 | ||||||||||||
Gross
profit
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15,845,832 | 5,870,308 | 32,605,333 | 11,320,458 | ||||||||||||
Operating
expenses
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||||||||||||||||
Selling
expenses
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2,756,357 | 960,013 | 6,004,777 | 1,871,266 | ||||||||||||
General
and administrative expenses
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1,480,948 | 429,656 | 3,245,637 | 1,607,560 | ||||||||||||
Total
operating expenses
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4,237,305 | 1,389,669 | 9,250,414 | 3,478,826 | ||||||||||||
Income
from operations
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11,608,527 | 4,480,639 | 23,354,919 | 7,841,632 | ||||||||||||
Non-operating
income (expense):
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||||||||||||||||
Interest
expense and financing costs
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(35,977 | ) | (50,174 | ) | (85,438 | ) | (275,527 | ) | ||||||||
Interest
income
|
188,754 | 63,698 | 519,814 | 66,354 | ||||||||||||
Other
income
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9,227 | 8,894 | 17,450 | 4,998 | ||||||||||||
Foreign
exchange gain (loss)
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(758,621 | ) | 288,461 | (884,431 | ) | 207,958 | ||||||||||
Total
non-operating income (expense)
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(596,617 | ) | 310,879 | (432,605 | ) | 3,783 | ||||||||||
Income
before income tax
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11,011,910 | 4,791,518 | 22,922,314 | 7,845,415 | ||||||||||||
Income
tax
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1,746,286 | 668,745 | 3,599,127 | 1,350,892 | ||||||||||||
Net
income
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9,265,624 | 4,122,773 | 19,323,187 | 6,494,523 | ||||||||||||
Other
comprehensive income
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||||||||||||||||
Foreign
currency translation gain (loss)
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2,127,010 | 57,012 | 2,525,446 | (5,428 | ) | |||||||||||
Comprehensive
Income
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$ | 11,392,634 | $ | 4,179,785 | $ | 21,848,633 | $ | 6,489,095 | ||||||||
Weighted
average shares outstanding :
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||||||||||||||||
Basic
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33,585,553 | 22,730,722 | 33,082,481 | 21,462,056 | ||||||||||||
Diluted
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33,591,108 | 23,266,256 | 33,654,774 | 21,908,490 | ||||||||||||
Earnings
per share:
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||||||||||||||||
Basic
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$ | 0.28 | $ | 0.18 | $ | 0.58 | $ | 0.30 | ||||||||
Diluted
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$ | 0.28 | $ | 0.18 | $ | 0.57 | $ | 0.30 |
Nine Months Ended September 30,
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||||||||
2010
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2009
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|||||||
(unaudited)
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(unaudited)
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|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||
Net
income
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$ | 19,323,187 | $ | 6,494,523 | ||||
Adjustments
to reconcile net income to net cash provided
by operating activities:
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||||||||
Depreciation
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1,084,183 | 1,072,586 | ||||||
Amortization
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102,243 | 7,076 | ||||||
Stock
based compensation
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250,042 | - | ||||||
(Increase)
/ decrease in assets:
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||||||||
Accounts
receivable
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(24,271,068 | ) | (3,194,307 | ) | ||||
Other
receivables
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46,505 | 294,584 | ||||||
Inventories
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(3,321,876 | ) | (4,650,620 | ) | ||||
Due
from related party
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- | 331,019 | ||||||
Advances
to suppliers
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(5,119,133 | ) | 1,247,216 | |||||
Other
assets
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(567,302 | ) | 25,695 | |||||
Increase
/ (decrease) in current liabilities:
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||||||||
Accounts
payable
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11,693,505 | 719,113 | ||||||
Unearned
revenue
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331,838 | (47,897 | ) | |||||
Other
payables
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344,756 | 901,444 | ||||||
Due
to related party
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- | (194,529 | ) | |||||
Accrued
payroll
|
282,499 | 859,787 | ||||||
Tax
and welfare payable
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1,164,803 | 101,915 | ||||||
Net
cash provided by operating activities
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1,344,182 | 3,967,605 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisition
of property and equipment
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(1,539,295 | ) | (1,486,891 | ) | ||||
Acquisition
of intangible assets
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(22,305,052 | ) | - | |||||
Construction
in process
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(2,195,791 | ) | (1,319,539 | ) | ||||
Changes
in restricted cash
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(1,072,919 | ) | 199,948 | |||||
Sale
of short-term investments
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- | 29,318 | ||||||
Net
cash used in investing activities
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(27,113,057 | ) | (2,577,164 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||
Proceeds
from issuance of notes payable
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- | 1,724,933 | ||||||
Proceeds
from sale of common stock
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- | 17,678,000 | ||||||
Offering
costs paid
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(320,000 | ) | (2,213,892 | ) | ||||
Proceeds
from the exercise of warrants
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6,960,278 | 22,387 | ||||||
Payment
on short term loans
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- | (3,550,177 | ) | |||||
Purchase
of treasury shares
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(6,945,950 | ) | - | |||||
Net
cash provided by (used in) financing activities
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(305,672 | ) | 13,661,251 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
1,118,640 | (535 | ) | |||||
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
(24,955,907 | ) | 15,051,157 | |||||
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
79,333,729 | 2,782,026 | ||||||
CASH
& CASH EQUIVALENTS, ENDING BALANCE
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$ | 54,377,822 | $ | 17,833,183 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Interest
paid
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$ | - | $ | 116,315 | ||||
Income
taxes paid
|
$ | 2,170,198 | $ | 565,418 |
Buildings
|
5-20
years
|
Equipment
|
5-10
years
|
Vehicles
|
5
years
|
Office
equipment
|
5-10
years
|
September 30, 2010
|
December 31, 2009
|
|||||||
(audited)
|
||||||||
Building
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$ | 3,466,862 | $ | 3,294,109 | ||||
Equipment
|
15,841,670 | 14,312,145 | ||||||
Vehicle
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218,905 | 34,735 | ||||||
Office
equipment
|
469,507 | 420,106 | ||||||
19,996,944 | 18,061,095 | |||||||
Less
accumulated depreciation
|
(7,976,175 | ) | (6,735,096 | ) | ||||
$ | 12,020,769 | $ | 11,325,999 |
September 30, 2010
|
December 31, 2009
|
|||||||
(audited)
|
||||||||
Right
to use land
|
$ | 23,158,839 | $ | 450,335 | ||||
Computer
software
|
78,478 | 76,906 | ||||||
Total
|
23,237,317 | 527,241 | ||||||
Less
accumulated amortization
|
(239,318 | ) | (132,557 | ) | ||||
Intangibles,
net
|
$ | 22,997,999 | $ | 394,684 |
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§
|
Level
1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active
markets.
|
|
§
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Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
§
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
Three months ended
September 30,
|
2010
|
2009
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||||||||||||||
Per Share
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Per Share
|
|||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||
Basic
earnings per share
|
33,585,553 | $ | 0.28 | 22,730,722 | $ | 0.18 | ||||||||||
Effect
of dilutive stock options and warrants
|
5,555 | - | 535,534 | - | ||||||||||||
Diluted
earnings per share
|
33,591,108 | $ | 0.28 | 23,266,256 | $ | 0.18 |
Nine months ended
September 30,
|
2010
|
2009
|
||||||||||||||
Per Share
|
Per Share
|
|||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||
Basic
earnings per share
|
33,082,481 | $ | 0.58 | 21,462,056 | $ | 0.30 | ||||||||||
Effect
of dilutive stock options and warrants
|
572,293 | (0.01 | ) | 446,434 | - | |||||||||||
Diluted
earnings per share
|
33,654,774 | $ | 0.57 | 21,908,490 | $ | 0.30 |
September 30, 2010
|
December 31, 2009
|
|||||||
(audited)
|
||||||||
Raw
material
|
$ | 8,123,122 | $ | 11,113,055 | ||||
Work
in process
|
10,743,961 | 5,236,692 | ||||||
Finished
goods
|
2,944,140 | 1,711,535 | ||||||
Total
|
$ | 21,811,223 | $ | 18,061,282 |
Options
outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
average
remaining
contractual life
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding,
December 31, 2009
|
130,000 | $ | 10.96 | 4.98 | $ | 45,500 | ||||||||||
Granted
|
- | - | ||||||||||||||
Forfeited
|
- | - | ||||||||||||||
Exercised
|
- | - | ||||||||||||||
Outstanding,
September 30, 2010
|
130,000 | $ | 10.96 | 4.23 | $ | - | ||||||||||
Exercisable,
September 30, 2010
|
56,666 | $ | 10.96 | 4.23 | $ | - |
Number of
Options
|
Exercise
Price
|
|||
130,000
|
$ | 10.96 | ||
130,000
|
Warrants
outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
average
remaining
contractual life
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding,
December 31, 2009
|
1,759,114 | $ | 3.96 | 2.61 | $ | 12,931,146 | ||||||||||
Granted
|
- | - | ||||||||||||||
Forfeited
|
- | - | ||||||||||||||
Exercised
|
(1,756,668 | ) | $ | 3.96 | ||||||||||||
Outstanding,
September 30, 2010
|
2,446 | $ | 1.73 | 1.50 | $ | 19,287 | ||||||||||
Exercisable,
September 30, 2010
|
2,446 | $ | 1.73 | 1.50 | $ | 19,287 |
Number of
Warrants
|
Exercise
Price
|
|||
2,446
|
$ | 1.73 | ||
2,446
|
|
i.
|
Making
up cumulative prior years’ losses, if
any;
|
|
ii.
|
Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the fund
amounts to 50% of the Company’s registered
capital;
|
iii.
|
Allocations
of 5-10% of income after tax, as determined under PRC accounting rules and
regulations, to the Company’s “Statutory common welfare fund” (“SCWF”),
which is established for the purpose of providing employee facilities and
other collective benefits to the Company’s employees;
and
|
iv.
|
Allocations
to the discretionary surplus reserve, if approved in the stockholders’
general meeting. The Company allocates 5% of income after tax as
development fund. The fund is for enlarging its business and increasing
capital.
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
Geographical Areas
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
China
|
$ | 23,344,687 | $ | 2,888,011 | $ | 41,116,099 | $ | 5,017,482 | ||||||||
South
America
|
8,292,216 | 3,845,583 | 19,719,641 | 7,126,393 | ||||||||||||
Asia
|
9,293,129 | 2,364,182 | 19,319,193 | 4,933,763 | ||||||||||||
Europe
|
5,768,105 | 4,047,740 | 13,064,512 | 7,929,475 | ||||||||||||
Middle
East
|
5,534,332 | 3,601,564 | 12,185,623 | 6,950,609 | ||||||||||||
North
America
|
2,369,655 | 9,456,088 | 6,955,375 | 16,334,869 | ||||||||||||
Africa
|
661,185 | 337,871 | 1,256,010 | 431,167 | ||||||||||||
$ | 55,263,309 | $ | 26,541,039 | $ | 113,616,453 | $ | 48,723,758 |
5-20
years
|
|
Equipment
|
5-10
years
|
Vehicles
|
5
years
|
Office
equipment
|
5-10
years
|
Three Months Ended September 30,
|
$
|
%
|
||||||||||||||
2010
|
2009
|
Change
|
Change
|
|||||||||||||
Revenue
|
$ | 55,263,309 | $ | 26,541,039 | $ | 28,722,270 | 108.2 | |||||||||
Cost
of revenue
|
39,417,477 | 20,670,731 | 18,746,746 | 90.7 | ||||||||||||
Gross
profit
|
15,845,832 | 5,870,308 | 9,975,524 | 169.9 | ||||||||||||
Selling,
general and administrative expenses
|
4,237,305 | 1,389,669 | 2,847,636 | 204.9 | ||||||||||||
Interest
and financing costs
|
35,977 | 50,174 | (14,197 | ) | (28.3 | ) | ||||||||||
Interest
income
|
188,754 | 63,698 | 125,056 | 196.3 | ||||||||||||
Foreign
exchange gain (loss)
|
(758,621 | ) | 288,461 | (1,047,082 | ) | (363.0 | ) | |||||||||
Income
tax expense
|
1,746,286 | 668,745 | 1,077,541 | 161.1 | ||||||||||||
Net
income
|
9,265,624 | 4,122,773 | 5,142,851 | 124.7 |
Nine Months Ended September 30,
|
$
|
%
|
||||||||||||||
2010
|
2009
|
Change
|
Change
|
|||||||||||||
Revenue
|
$ | 113,616,453 | $ | 48,723,758 | $ | 64,892,695 | 133.2 | |||||||||
Cost
of revenue
|
81,011,120 | 37,403,300 | 43,607,820 | 116.6 | ||||||||||||
Gross
profit
|
32,605,333 | 11,320,458 | 21,284,875 | 188.0 | ||||||||||||
Selling,
general and administrative expenses
|
9,250,414 | 3,478,826 | 5,771,588 | 165.9 | ||||||||||||
Interest
and financing costs
|
85,438 | 275,527 | (190,089 | ) | (69.0 | ) | ||||||||||
Interest
income
|
519,814 | 66,354 | 453,460 | 683.4 | ||||||||||||
Foreign
exchange gain (loss)
|
(884,431 | ) | 207,958 | (1,092,389 | ) | (525.3 | ) | |||||||||
Income
tax expense
|
3,599,127 | 1,350,892 | 2,248,235 | 166.4 | ||||||||||||
Net
income
|
19,323,187 | 6,494,523 | 12,828,664 | 197.5 |
Exhibit No.
|
Description of Exhibit
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, as signed by the Chief Executive
Officer
|
|
32.2
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, as signed by the Chief Financial
Officer
|
DEER CONSUMER PRODUCTS,
INC.
|
||
(Registrant)
|
||
Date:
November 10, 2010
|
By:
|
/s/ Ying He
|
Ying
He
|
||
Chief
Executive Officer
|
||
(Principal
Executive
Officer)
|