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U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
March 25, 2004
NEW DRAGON ASIA CORP.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 88-0404114
- ----------------------------------- ---------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2/F Kam Chung Commercial Building
19-21 Hennessy Road
Wanchai, Hong Kong 33301
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(852) 2520-0220
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
---- ----
The number of shares of Common Stock outstanding as of March 25, 2004 was
45,061,342.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
ITEM 1. FINANCIAL STATEMENTS
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE DATA)
AS OF
-----------------------------
March 25, DECEMBER 25,
A S S E T S 2004 2003
(Unaudited)
------------ ------------
Current Assets:
Cash and cash equivalents $ 603 $ 1,783
Accounts receivable, net of allowance for doubtful
accounts of $1,118 at March 25, 2004 and $993 at
December 25, 2003 5,884 6,936
Other receivables, deposits and prepayments 2,939 1,282
Inventories 1,870 2,763
Due from related companies 120 124
Net assets held for sale 2,340 --
------------ ------------
Total current assets 13,756 12,888
Property, machinery and equipment, net 15,234 17,471
Land use rights, net 3,678 3,998
------------ ------------
Total assets $ 32,668 $ 34,357
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,616 $ 2,845
Accounts payable 3,624 4,565
Other payables and accruals 1,128 1,234
Taxes payable 789 921
Due to related companies 950 1,202
Net liabilities held for sale 646 --
------------ ------------
Total current liabilities 9,753 10,767
Due to an immediate parent company 8 196
Due to joint venture partners 379 1,204
------------ ------------
Total liabilities 10,140 12,167
------------ ------------
Stockholders' equity:
Common stock, par value USD0.0001; authorized -
107,000,000 shares, issued and outstanding -
45,061,342 at March 25, 2004 and
December 25, 2003 4 4
Additional paid-in-capital 9,909 9,909
Retained earnings 12,615 12,277
------------ ------------
Total stockholders' equity 22,528 22,190
------------ ------------
Total liabilities and stockholders' equity $ 32,668 $ 34,357
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE
THREE MONTHS ENDED
MARCH 25,
-------------------------
2004 2003
-------------------------
Net sales $ 7,398 $ 6,548
Cost of goods sold (6,065) (5,701)
-------- --------
Gross profit 1,333 847
Selling and distribution expenses (389) (242)
General and administrative
expenses (661) (233)
-------- --------
Income from operations 283 372
Other income and expenses:
Interest expense (39) (60)
Interest income 12 52
Other income 328 25
-------- --------
Income before provision for
income taxes 584 389
Provision for income taxes (246) (73)
-------- --------
Net income $ 338 $ 316
======== ========
Basic and diluted earnings
per common share $ 0.01 $ 0.01
======== ========
Weighted average shares used
to compute basic and diluted
net income per common share 45,061 40,911
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 25,
------------------
2004 2003
------- -------
Cash flows from operating activities:
Net income $ 338 $ 316
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and Depreciation 310 350
Gain on disposal of machinery and equipment (16) --
Provision for bad debts 396 56
Changes in assets and liabilities:
Accounts receivable 652 (461)
Other receivables, deposits and prepayments (1,661) 300
Inventories 803 353
Accounts payable (654) 382
Other payables and accruals 21 (412)
Taxes payable (105) (195)
------- -------
Net cash provided by operating activities 84 689
------- -------
Cash flows from investing activities:
Due from related companies 4 196
Proceeds from sale of machinery and equipment 22 23
Purchases of property, machinery and equipment (1) (38)
Due to related companies (252) 31
------- -------
Net cash provided by (used in) investing activities (227) 212
------- -------
Cash flows from financing activities:
Proceeds from short-term borrowings 602 723
Payments on short-term borrowings (626) (12)
Net decrease in due to an immediate parent company (188) (1,601)
Net increase (decrease) in due to joint venture partners (825) 337
------- -------
Net cash used in financing activities (1,037) (553)
------- -------
Net increase (decrease) in cash and cash equivalents (1,180) 348
Cash and cash equivalents at the beginning of the period 1,783 628
------- -------
Cash and cash equivalents at the end of the period $ 603 $ 976
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTH PERIOD ENDED MARCH 25, 2004 AND 2003 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
New Dragon Asia Corporation (formerly Bio-Aqua Systems, Inc.) and its
subsidiaries (the "Group" or "NDAC"), a United States corporation
incorporated in the State of Florida, is principally engaged in the
manufacturing, marketing and distribution of instant noodles and flour in
the People's Republic of China ("PRC"). NDAC has its corporate office in
Hong Kong. The group of NDAC is composed of four wholly-owned limited
liability companies, incorporated under the laws of the British Virgin
Islands (BVI). The limited liability companies are Mix Creation Limited
("MC"), Rich Delta Limited ("RD"), Noble Point Limited ("NP"), and Keen
General Limited ("KG"). Each of the wholly owned limited liability
companies owns a majority interest in a contractual joint venture in the
PRC. A contractual joint venture is an entity established between the
wholly-owned subsidiary and another joint venture partner, with the rights
and obligations of each party governed by a contract. If the wholly-owned
subsidiary owns more than 50% of the joint venture and is able to govern
and control its financial and operating policies and its board of
directors, such joint venture is considered a de facto subsidiary and has
been accounted for as a subsidiary of the Group.
Prior to December 2001, Bio-Aqua Systems, Inc. ("Bio-Aqua") owned majority
interests in Tepual, S.A. and Krisel, S.A., Chilean corporations
principally engaged in the business of (1) research, consulting,
development and control of the production of meals for feed used by the
aquaculture, poultry and cattle farming industries, (2) sales of vaccine
products, and (3) krill fishing in Uruguay.
Due to lack of working capital, Bio-Aqua suspended all of its operations
during 2001. On August 7, 2001, it was announced that it would seek to
divest its current operations and acquire a new operating company with the
goal of enhancing shareholder value.
On December 13, 2001 Bio-Aqua entered into a Share Exchange Agreement with
Max Rutman, Flagship Import Export LLC, a Nevada limited liability company
and New Dragon Asia Food Limited, a company organized under the laws of
the British Virgin Islands. Pursuant to the Share Exchange Agreement,
Bio-Aqua acquired from New Dragon Asia Food Limited all of the equity
interests in four companies organized under the laws of the British Virgin
Islands (each a "Subsidiary" and, collectively the "Subsidiaries") each of
which in turn holds an interest in a separate sino-foreign joint venture,
which equity interests constituted all of the issued and outstanding
equity interests of the Subsidiaries in exchange for 37,963,263 shares of
common stock of the Registrant.
The Group is subject to, among others, the following operating risks:
COUNTRY RISK - As all of the Group's operations are conducted in the PRC,
the Group is subject to special considerations and significant risks not
typically associated with companies operating in North America and Western
Europe. These include risks associated with, among others, the political,
economic and legal environments and foreign currency exchange. The Group's
results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among
other things.
In addition, all of the Group's revenue is denominated in Renminbi ("RMB")
which must be converted into other currencies before remittance out of the
PRC. Both the conversion of RMB into foreign currencies and the remittance
of foreign currencies abroad require approvals of the PRC government.
OPERATING RISK - The Group conducts its manufacturing and sales operations
through joint ventures established between the Group and certain PRC
parties. Any deterioration of these strategic relationships may have an
adverse effect on the operations of the Group.
CONCENTRATION OF CREDIT RISK - Concentration of credit risk with respect
to customer receivables are limited due to the large number of customers
comprising the Group's customer base, and their dispersion across the PRC.
In addition, the Group performs ongoing credit evaluations of each
customer's financial condition and maintains reserves for potential credit
losses. Such losses in the aggregate have not exceeded management's
expectations.
Details of the companies comprising the Group are as follows:
Domicile and
Date of Paid-Up Percentage of Principle
Name Incorporation Capital Ownership Activities
- --------------------- ------------------- ------------ -------------- --------------------
Mix Creation The British Virgin US$ 100% Investment holding
Limited Islands 1,500,000
("MC") (a) November 7, 1997
New Dragon Asia Flour The PRC RMB 90% (b) Manufacture,
(Yantai) Company August 13, 1999 28,500,000 marketing and
Limited distribution of
("NDAFLY") flour
Rich Delta Limited The British Virgin US$ 100% Investment holding
("RD") (a) October 28, 1998 1,000,000
New Dragon Asia Food The PRC RMB 90% (c) Manufacture,
(Yantai) Company December 24, 1998 17,462,000 marketing and
Limited ("NDAFY") distribution of
instant noodles
Noble Point Limited The British Virgin US$ 100% Investment holding
("NP") (a) Islands 1,000,000
October 29, 1998
New Dragon Asia The PRC RMB 90% (c) Manufacture,
Food (Dalian) Company December 28, 1998 17,430,000 marketing and
Limited distribution of
("NDAFD") instant noodles
Keen General The British Virgin US$ 100% Investment holding
Limited Islands 1,500,000
("KG") (a) July 20, 1998
Sanhe New Dragon The PRC RMB 79.64% (c) Manufacture,
Asia Food Company December 25, 1998 51,191,432 marketing and
Limited distribution of
("SNDAF") instant noodles
Penglai New Dragon The PRC US$ 100% (d) Manufacture,
Jin Qiao Food December 5, 2003 850,000 marketing and
Company Limited distribution of
("PNDJQ") flour
(a) MC, RD, NP and KG are wholly-owned by New Dragon Asia Corporation.
(b) NDAFLY is a contractual joint venture established in the PRC to be
operated for 50 years until August 13, 2049. In September 2000, MC
contributed 90% of the registered capital to NDAFLY. Under the joint
venture agreement dated June 1, 1999 and the supplemental agreement
dated June 26, 1999, the Chinese joint venture partner is entitled
to receive a pre-determined annual fee and is not responsible for
any profit or loss to NDAFLY effective from June 26, 1999. In view
of the profit sharing arrangement, NDAFLY is regarded for financial
reporting purposes as 100% owned by the Group. The minority interest
component has been included with General and Administrative expenses
for the periods ended March 25, 2004 and 2003.
(c) NDAFY, NDAFD and SNDAF are contractual joint ventures established in
the PRC to be operated for 50 years until December 24, 2048. In
March 1999, RD and NP contributed 90% of the registered capital to
NDAFY and NDAFD, respectively, while KG contributed 79.64% of the
registered capital to SNDAF. Under the joint venture agreements
dated November 28, 1998 and the supplemental agreement dated
December 26, 1998, the PRC joint venture partner is entitled to
receive a pre-determined annual fee and is not responsible for any
profit or loss of NDAFY, NDAFD and SNDAF effective from December 26,
1998. In view of the profit sharing arrangements, NDAFY, NDAFD and
SNDAF are regarded for financial reporting purposes as 100% owned by
the Group. The minority interest component has been included with
General and Administrative expenses for the periods ended March 25,
2004 and 2003.
(d) PNDJQ is a wholly-owned subsidiary of MC established in PRC.
NOTE 2 - BASIS OF PRESENTATION
The interim consolidated financial statements of the Group are unaudited.
All significant intra-group balances and transactions have been eliminated
in consolidation.
The unaudited consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United
States of America ("U.S. GAAP"). The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses
during the report period. Actual results could differ from those
estimates. U.S. GAAP differs from that used in the statutory financial
statements of the major operating subsidiaries of the Group, which were
prepared in accordance with the relevant accounting principles and
financial reporting regulations applicable to joint venture enterprises as
established by the Ministry of Finance of the PRC. Certain accounting
principles stipulated under U.S. GAAP are not applicable in the PRC.
The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on
Form 10-K/A for the year ended December 25, 2003 of New Dragon Asia Corp.
and Subsidiaries, as filed with the Securities and Exchange Commission.
The December 25, 2003 balance sheet was derived from audited consolidated
financial statements, but does not include all disclosures required by
U.S. GAAP.
In the opinion of the Group's management, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of a
normal recurring nature) necessary for a fair presentation of the Group's
consolidated financial position and results of operations. The results for
interim periods are not necessarily indicative of results to be expected
for the complete fiscal year.
NOTE 3 - INVENTORIES
Inventories consist of the following (US $ '000):
March 25, December 25,
2004 2003
--------- ---------
Raw materials $ 945 $ 1,648
Finished goods 925 1,115
--------- ---------
$ 1,870 $ 2,763
========= =========
Inventories are stated at the lower of cost, determined on a weighted
average basis. Finished goods are composed of direct material, direct
labor and manufacturing overhead.
NOTE 4 - NET ASSETS AND LIABILITIES HELD FOR SALE
The Group entered into an agreement with an unrelated third party to sell
certain assets and liabilities of NDAFD. The closing of the transaction is
subject to certain events that have not yet occurred. Included in net
assets held for sale is property, plant, equipment, and land use rights.
NOTE 5 - EARNINGS PER SHARE - BASIC
Basic earnings per common share ("EPS") is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. As of
March 25, 2004 and 2003, the diluted share base excludes incremental
shares relating to stock options and warrants since their effect was
anti-dilutive. The weighted-average number of common shares outstanding
for computing basic EPS was 45,061,342 and 40,911,342 for the three months
ended March 25, 2004 and 2003, respectively.
NOTE 6 - INCOME TAXES
The income of the Company is subject to PRC income taxes at rates ranging
from 27% to 33% of which 24% to 30% is attributable to the central
government and 3% to the provincial government. On application and
approval by the tax bureau, the PRC subsidiaries within the Group are
exempt from state income tax and local tax in respect of income earned for
the first two years of operation, and then subject to a 50% reduction in
state income tax and a full exemption of local income tax for the
following three years. The Company and its subsidiaries are in different
stages of enjoying the above tax incentive program.
The Group's companies that are incorporated under the International
Business Companies Act of the British Virgin Islands are exempt from
payment of the British Virgin Islands income tax.
NOTE 7 - RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the liability,
directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operational
decisions. Parties are also considered to be related if they are subject
to common control or common significant influence.
Particulars of significant transactions between the Group and related
companies are summarized below:
03/25/2004 03/25/2003
(US $ '000) (US $ '000)
Sale of finished goods to:
Joint Venture Partner:
Shandong Longfeng Group Company -- 184
----------- -----------
-- 184
----------- -----------
Purchase of raw materials from:
Related Parties:
Sanhe (Yantai) Food Company Limited -- 5
Longkou City Longfeng Soybean Food Co Limited 1 --
Longkou City Longfeng Packing Manufacturing
Factory 83 300
----------- -----------
84 305
----------- -----------
NOTE 8 - SUBSEQUENT EVENT
The Group has entered into an agreement, subject to completion of due
diligence, to acquire a flour miller to increase production capacity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to historical information, this Quarterly Report contains
forward-looking statements. Generally, the words "believes," "anticipates,"
"may," "will," "should," "expect," "intend," "estimate," "continue," and similar
expressions or the negative thereof or comparable terminology are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this report or other
reports or documents we file with the Securities and Exchange Commission from
time to time, which could cause actual results or outcomes to differ materially
from those projected. Undue reliance should not be place on these
forward-looking statements which speak only as of the date hereof. We undertake
no obligation to update these forward-looking statements. Readers should
carefully review the risks described in other documents the Company files from
time to time with the Securities and Exchange Commission, including the Annual
Report on Form 10-K for the fiscal year ended December 25, 2003, the Quarterly
Reports on Form 10-Q filed by the Company and Current Reports on Form 8-K by the
Company.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto, included as part of
this Quarterly Report.
OVERVIEW
On December 13, 2001, the Company entered into a Share Exchange Agreement with
Max Rutman, Flagship Import Export LLC, a Nevada limited liability company and
New Dragon Asia Food Limited, a company organized under the laws of the British
Virgin Islands. Pursuant to the Share Exchange Agreement, on December 3, 2001
(the "Closing"), the Company acquired from New Dragon Asia Food Limited all of
the equity interests of four companies organized under the laws of the British
Virgin Islands (each a "Subsidiary" and, collectively, the "Subsidiaries") each
of which in turn hold an interest in a separate Sino-foreign joint venture,
which equity interests constituted all of the issued and outstanding equity
interests of the Subsidiaries in exchange for 37,963,263 shares of common stock
of the Registrant. At the closing, the Company transferred all of its assets to
Mr. Rutman and Mr. Rutman assumed all of the Company's liabilities. As such, the
following discussion relates to the consolidated financial results of New Dragon
Asia Limited only.
The consolidated financial statements are presented in US dollars. Transactions
and monetary assets denominated in currencies other than the US dollars are
translated into US dollars at the respective applicable exchange rates. Monetary
assets and liabilities denominated in other currencies are translated into US
dollars at the applicable rate of exchange at the balance sheet date. There are
no material exchange differences as a result of the stability of the Renminbi
("RMB") during the periods covered by the consolidated financial statements.
PLAN OF OPERATIONS
Our current strategy is twofold: (1) expand our customer sales base and
production lines; and (2) impose ongoing strict control on the factories'
hygiene in view of prevention of SARS (Severe acute respiratory syndrome). Plans
for expansion of the existing plants are expected to be funded through current
working capital from ongoing sales.
Our long-term growth strategy includes strategic acquisitions of additional
plants with regional brand recognition to increase our market share in China. A
significant acquisition will require additional funds in the form of debt or
equity, or a combination thereof. However, there can be no assurance these funds
will be available.
In December 2003, the Group's management decided to temporarily idle the
operations of the Company's joint venture in Dalian, New Dragon Asia Food
(Dalian) Company Limited ("NDAFL"). A down payment was received on April 17,
2004. On February 27, 2004, the Group received a letter of intent from an
unrelated party to purchase the assets and assume certain liabilities of NDAFD.
As required by PRC regulations, determination of the final purchase price and
execution of a sales and purchase agreement is contingent upon a completed asset
valuation report which the Group's management expects will result in an amount
approximate to the net carrying value of the assets. Currently, due diligence
and valuation are in progress and the Group's management believes that this
transaction will be completed during the year ended December 25, 2004.
RESULTS OF OPERATIONS
Three months ended March 25, 2004 compared to three months ended March 25, 2003
- -------------------------------------------------------------------------------
Total revenue
Total revenue for the three months ended March 25, 2004 was $7.4 million
compared with $6.5 million, an increase of 13% over the same period last year,
mainly due to our strategy of increasing sales in urban areas. Our goal is to
expand New Dragon's market share in the cities through supermarket and chain
stores, a market not targeted by the Company in the past.
Net income
Net income for the first quarter of 2003 increased to $338,000 from
$316,000 a year ago The increase was primarily due to a change in product sales
mix from flour for general use to flour for specific usage, as well as a tax
refund from the government.
Administrative and general expenses
General and Administrative expenses for the three months ended March 25,
2004 increased by $428,000 to $661,000 , compared with $233,000 for the
corresponding period in 2003. The increase was mainly due to an additional
provision for doubtful debt. Furthermore, professional expenses related to the
Company were previously borne by the ultimate holding company in the group base.
Such expenses are now borne by the Company itself.
Selling and distribution expenses
Selling and distribution expenses for the three months ended March 25,
2004 were $389,000 compared with $242,000 for the corresponding period of the
prior year. The increase in expenses was mainly due to fees associated with the
company's new sales strategy to enter urban areas through supermarkets and
additional expenses incurred in relation to sales to KFC, such as repacking
materials and storage charges. Moreover, expenses were impacted by increased
transportation costs associated with more stringent maximum weight loading
restrictions for truck shipments.
Income taxes
The income of the Company is subject to PRC income taxes at rates from 27%
to 33%, of which 24% to 30% is attributable to the central government and 3% to
the provincial government. On application and approval by the tax bureau, the
PRC subsidiaries within the Group are exempt from state income tax and local tax
with regard to income earned for the first two years of operation, and then
subject to a 50% reduction in state income tax and a full exemption of local
income tax for the following three years. The Company and its subsidiaries are
in different stages of benefiting the above tax incentive program.
The subsidiaries companies of the Group that are incorporated under the
International Business Companies Act of the British Virgin Islands are exempt
from payment of the British Virgin Islands income tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, accounts
receivable and capital expenditures. The Company has financed its working
capital requirements through a combination of internally generated cash,
short-term bank loans and advances from affiliates.
Cash and cash equivalents were $603,000 as of March 25, 2004. This
represents a decrease of $373,000 from March 25, 2003. The decrease was mainly
due to the repayment from customers and reduction in liabilities. Net cash
provided by operating activities for the three months ended March 25, 2004 was
approximately $84,000. Net cash flows from the Company's operating activities
are attributable to the Company's income and changes in operating assets and
liabilities.
Accounts receivable decreased by 15% and accounts payable decreased by
21%, from December 25, 2003 to March 25, 2004. There was a decrease in accounts
receivable due to the repayment from customers. The Company evaluates the
allowance level from time to time by applying the Company's provision policy.
Apart from the above, there has been no other significant change in financial
condition and liquidity since the fiscal year ended December 25, 2003. The
Company believes that internally generated funds together with available bank
credit will be sufficient to satisfy its anticipated working capital needs for
at least the next twelve months.
INFLATION AND CHANGING PRICES
The Company does not foresee any adverse effects on its earnings as a
result of inflation or changing prices.
FOREIGN CURRENCY RISK
Substantially all of the revenues and expenses of the Company are
denominated in Renminbi, which is the official currency of China. However, we
use the United States dollar for financial reporting purposes. With effect from
January 1, 1994, conversion of Renminbi into foreign currencies is regulated by
The People's Bank of China through a unified floating exchange rate system.
Although the PRC government has stated its intention to support the value of
Renminbi, there can be no assurance that such exchange rate will not again
become volatile or that Renminbi will not devalue significantly against the US
dollar. Exchange rate fluctuations may adversely affect the value, in US dollar
terms, of the Group's net assets and income derived from its operations in the
PRC.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that are reasonably
likely to have a current or future effect on the Company's financial condition,
changes in financial condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in financial market conditions in the
normal course of business due to its use of certain financial instruments.
Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates and equity
prices.
Currency Fluctuations and Foreign Currency Risk
As all of the Company's operations are conducted in the PRC except for
some export business and limited foreign purchases of raw materials, most of our
products are sold and raw materials are sourced within the PRC in Chinese
Renminbi ("RMB"). Thus, the effect of the currency fluctuations should be
minimal.
With respect to foreign currency exchange rates, the Company does not
believe that a devaluation or fluctuation of the RMB against the USD would have
a detrimental effect on the Company's operations, since the Company conducts
virtually all of its business in China, and the sale of its products and the
purchase of raw materials and services is settled in RMB. The effect of a
devaluation or fluctuation of the RMB against the USD would affect the Company's
results of operations, financial position and cash flows, when presented in USD
(based on a current exchange rate) as compared to RMB.
Interest Rate Risk
The Company does not have any interest rate risk, as the Company's debt
obligations are primarily short-term in nature, with fixed interest rates.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures Disclosure Controls and
procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure
that information required to be disclosed in the reports filed under 0the
Exchange Act is accumulated and communicated to management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding disclosure.
Within 90 days prior to the filing of this report, the Group carried out
an evaluation, under the supervision and with the participation of the
Group's management, including the Group's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the Group's disclosure controls and procedures. Based upon and as of
the date of that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Group's disclosure control and
procedures are effective to ensure that the information required to be
disclosed in the reports the Group files and submits under the exchange
act is recorded, processed, summarized and reported as and when required.
(b) Change in Internal Controls There were no changes in the Group's internal
controls or in the other factors that could have significantly affected
those controls subsequent to the date of the Group's most recent
evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31.1: Section 302 Sarbanes Oxley Certification of the
Chief Financial Officer
Exhibit 31.2: Section 302 Sarbanes Oxley Certification of the
Chief Executive Officer
Exhibit 32.1: Section 906 Sarbanes Oxley Certification of both
the Chief Financial Officer and the Chief Executive
Officer
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 10, 2004
NEW DRAGON ASIA CORP.
By: /s/ Heng Jing Lu
-------------------------------
Name: Heng Jing Lu
Title: Chief Executive Officer