UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON
, D.C.
20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Fiscal year ended December 25, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
File Number: 001-15046
NEW
DRAGON ASIA CORP.
(Exact
name of Registrant as Specified in its Charter)
Florida
|
88-0404114
|
(State
or Other Jurisdiction of
|
(IRS
Employer Identification No.)
|
Incorporation
or Organization)
|
|
10
Huangcheng Road (N), Longkou, Shandong Province, PRC
(Address
of Principal Executive Offices) (Zip Code)
(86
535) 8951-567
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class: Class A Common
Stock, $ 0.0001 par value.
Name of Each Exchange on Which
Registered: NYSE Amex.
Securities
registered pursuant to Section 12(g) of the Exchange Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
x
Indicated
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
¨
No
x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
¨
|
Accelerated filer
¨
|
|
|
Non-accelerated
filer (Do not check if a smaller reporting
company)
¨
|
Smaller reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
As of
June 25, 2009 the aggregate market value of the voting and non-voting equity
held by non-affiliates was approximately $11 million.
As of
March 9, 2010, there were 90,241,559 shares of Class A Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE OF
CONTENTS
|
|
PAGE
|
|
|
|
|
PART
I
|
|
|
|
|
|
|
|
ITEM
1.
|
Business
|
|
1
|
|
|
|
|
ITEM
1A.
|
Risk
Factors
|
|
3
|
|
|
|
|
ITEM
1B.
|
Unresolved
Staff Comments
|
|
4
|
|
|
|
|
ITEM
2.
|
Properties
|
|
4
|
|
|
|
|
ITEM
3.
|
Legal
Proceedings
|
|
4
|
|
|
|
|
ITEM
4
|
(Removed
and Reserved)
|
|
4
|
|
|
|
|
PART
II
|
|
|
|
|
|
|
|
ITEM
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
|
5
|
|
|
|
|
ITEM
6.
|
Selected
Financial Data
|
|
6
|
|
|
|
|
ITEM
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
|
6
|
|
|
|
|
ITEM
7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
|
13
|
|
|
|
|
ITEM
8.
|
Financial
Statements and Supplementary Data
|
|
13
|
|
|
|
|
ITEM
9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
|
14
|
|
|
|
|
ITEM
9A(T).
|
Controls
and Procedures
|
|
14
|
|
|
|
|
ITEM
9B.
|
Other
Information
|
|
15
|
|
|
|
|
PART
III
|
|
|
|
|
|
|
|
ITEM
10.
|
Directors,
Executive Officers and Corporate Governance
|
|
16
|
|
|
|
|
ITEM
11.
|
Executive
Compensation
|
|
18
|
|
|
|
|
ITEM
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
|
19
|
|
|
|
|
ITEM
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
|
20
|
|
|
|
|
ITEM
14.
|
Principal
Accounting Fees and Services
|
|
20
|
|
|
|
|
PART
IV
|
|
|
|
|
|
|
|
ITEM
15.
|
Exhibits,
Financial Statement Schedules
|
|
22
|
|
|
|
|
SIGNATURES
|
|
25
|
|
|
|
FINANCIAL
STATEMENTS
|
|
F-1
|
Forward-Looking
Information
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events or the
Company’s future financial performance. The Company has attempted to identify
forward-looking statements by terminology including “anticipates”, “believes”,
“expects”, “can”, “continue”, “could”, “estimates”, “expects”, “intends”, “may”,
“plans”, “potential”, “predict”, “should” or “will” or the negative of these
terms or other comparable terminology. These statements are only predictions.
Uncertainties and other factors may cause the Company’s actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels or activity, performance or achievements expressed or
implied by these forward-looking statements. Although the Company believes that
the expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or
achievements. The Company expectations are as of the date this Form 10-K is
filed, and the Company does not intend to update any of the forward-looking
statements after the date this Annual Report on Form 10-K is filed to confirm
these statements to actual results, unless required by law.
Availability
of SEC Filings
The
Company files annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy and information statements and amendments
to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended. The public may read and copy these
materials at the Securities and Exchange Commission’s (“SEC”) Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding the Company and other companies that file materials with the SEC
electronically. You may also obtain copies of the Company’s reports filed with
the SEC, free of charge, on our website at
http://www.newdragonasia.com.
PART
I
ITEM
1. BUSINESS
OVERVIEW
New
Dragon Asia Corp. and its subsidiaries (collectively, “New Dragon”, “NWD”, “the
Company”, “we”, “us”, or “our”) are engaged in the milling, sale and
distribution of flour and related products, including instant noodles and
soybean-derived products, to retail and wholesale customers throughout China. We
are headquartered in Shandong Province in the People’s Republic of China (“PRC”
or “China”). With a well-known brand name called “Long Feng”, we market our
well-established product line through a countrywide network of over 200 key
distributors and 16 regional offices in 27 Chinese provinces. We have eight
manufacturing plants in the PRC with an aggregate annual production capacity of
approximately 110,000 tons of flour and approximately 1.1 billion packets of
instant noodles and 4,500 tons of Soybean powder. We were incorporated in the
State of Florida on March 18, 1999 under the name Bio-Aqua Systems,
Inc.
OUR
PRODUCTS AND PRODUCTION
We
produce and market a broad range of wheat flour for use in bread, dumplings,
noodles and confectionary products. Our flour products are marketed under the
“Long Feng” brand name and sold throughout China at both wholesale and retail
levels.
We
provide a wide range of instant noodle products to our customers. Our products
can be separated into two broad categories for selling and marketing purposes:
(i) packet noodles for home preparation and (ii) snacks and cup noodles for
outdoor convenience.
In late
2005, we began producing two types of soybean products – soybean protein powder
and soybean powder. These products are principally supplied to food and beverage
manufacturers.
Our
revenue by product category for the year ended December 25, 2009 was
approximately 56% for flour products, 17% for instant noodles and 27% for
soybean products.
|
|
Year Ended December 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Net
revenue:
|
|
|
|
|
|
|
Instant
noodles
|
|
$
|
3,913
|
|
|
$
|
13,234
|
|
Flour
|
|
|
12,982
|
|
|
|
27,008
|
|
Soybean
|
|
|
6,322
|
|
|
|
9,098
|
|
|
|
$
|
23,217
|
|
|
$
|
49,340
|
|
For more
information, please refer to Note 19 of the accompanying consolidated financial
statements “Segment Information”.
We
believe that we have developed a reputation in China for producing high quality
food products. Our production plants operate at a high level of hygiene and
efficiency and all of our plants are certified under the ISO9002 standards. Most
of our “state of the art” manufacturing equipment is imported from Switzerland,
Japan, and Korea. We also operate strict quality control systems, resulting in a
favorable customer perception of the “Long Feng” brand.
Flour and
water are the two main ingredients used to produce our noodle products. Flour is
extracted from wheat through a milling process. Wheat sourced by our milling
operation in Shandong Province is generally regarded as being the highest
quality available in China. To produce our noodles, we mix flour with water and
other ingredients and then extrude or roll the mixture into the desired shape of
the noodle. The mixture then travels through a series of state-of-the-art dryers
before being stabilized at room temperature. After stabilization, the noodles
are steamed and cooked in deep fryers, cooled and then mixed with various
seasonings and freeze dried additives such as chicken, vegetables or beef, which
are prepared from raw ingredients in a separate building within our production
complex. The finished product is then packed, palletized and
shipped.
MARKETING
AND SALES
Most of
our products are regionally marketed and distributed throughout China. Our sales
and marketing strategy focuses on maintaining our relationships with our
distributors by holding annual sales order meetings and hosting regular
distributor conferences. We also believe that we have an excellent
quality/price dynamic.
Our
domestic distribution system is the key to our continued success in developing
“Long Feng” as one of the leading brands in China. We have more than 200 points
of distribution, of which 10 are our direct sales offices, spread over 27
provinces in China. The remaining 190 sales points are owned and managed by
distributors. Most of our distributors have long-term relationships with us and
are loyal and efficient vendors of our products. During 2009, sales
in China accounted for 89% of our instant noodle sales.
Our
primary customer base for both our flour products and instant noodles consists
of stores in the rural areas throughout China, where we believe our brand has
long been recognized as the highest quality available for the price. The rural
market is rapidly growing, benefiting from increases in rural consumer income.
We believe that brand loyalty is strongest in this sector. The Company also
sells to supermarkets mainly in urban areas.
In
addition to domestic sales, we also export noodles to other countries such as
South Korea, Australia, Malaysia and Indonesia. We also obtained
HACCP (Hazard Analysis Critical Control Point) certification from CCIC
Conformity Assessment Services Co. Ltd., a Chinese quality assurance examination
authority, enabling the Company to begin exports of instant noodles and soybean
powder to Europe. In early 2008, we began exporting noodles to Nigeria, Africa.
During 2009, export sales accounted for approximately 11% of our instant noodle
sales.
COMPETITION
The flour
industry in the PRC is very competitive. Our largest competitors are Shandong
Guang Rao Ban Qiu Flour and Hebei Wu De Li Flour in the Northern market and
Shenzhen Nanshun Flour in the Southern market.
The
instant noodle segment in the PRC is also highly competitive. We compete against
well-established foreign companies, and many smaller companies. Our largest
competitors are the “Master Kang” brand manufactured by Tingyi (Cayman Island)
Holdings Corporation and the “President” brand manufactured by Uni-President
Group, both based in Taiwan. Both are focused predominately in the more
developed and competitive urban markets. We do not face substantial
competition in the “high-quality” soybean powder market.
STRATEGY
Our
strategy for growth is to capitalize on our strong brand name and pursue
strategic partnerships and acquisitions that will enhance our sales. The
following are some of the key elements of our business growth
strategy:
-
|
acquire
additional locations to increase our production capacity;
and
|
-
|
build
strategic alliances with multinational food groups to enhance product
range and capitalize on our distribution network in
China.
|
Plans for
expansion of the existing plants are expected to be funded through current
working capital from ongoing sales. Acquisitions of plants will require an
additional infusion of funds in the form of debt or equity, or a combination of
both. However, there can be no assurance these funds will be
available.
EMPLOYEES
We employ
approximately 1,500 employees. All of them are located in the eight plants and
our corporate office located in Shandong Province, Sichuan Province and Beijing.
We have maintained good relationships with our employees and no major disputes
have incurred since our inception.
GOVERNMENTAL
REGULATIONS ON OUR OPERATIONS IN CHINA
All of
our PRC subsidiary companies operate in facilities that are located in China.
Accordingly, our PRC subsidiaries’ operations have to conform to the
governmental regulations and rules of China.
We are
subject to the PRC’s national Environmental Protection Law, which was enacted on
December 26, 1989, as well as a number of other national and local laws and
regulations regulating air, water, and noise pollution and setting pollutant
discharge standards. Violation of such laws and regulations could result in
warnings, fines, orders to cease operations, and even criminal penalties,
depending on the circumstances of such violation. We believe that all
manufacturing operations comply with applicable environmental laws, including
those laws relating to air, water, and noise pollution.
We are
also subject to various laws and regulations administered by various local
governments relating to the operation of our production facilities. We believe
that we are in compliance with all governmental laws and regulations related to
our products and facilities.
THE
CHINESE LEGAL SYSTEM
The
practical effect of the PRC’s legal system on our business operations in China
can be viewed from two separate but intertwined considerations.
First, as
a matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full enjoyment of the benefits of corporate articles and contracts
to Foreign Invested Enterprise participants. These laws, however, do impose
standards concerning corporate formation and governance, which are not
qualitatively different from the General Corporation Laws of the several states.
Therefore, as a practical matter, a Foreign Invested Enterprise needs to retain
or have ready access to a local Chinese law firm for routine compliance
purposes.
Similarly,
the PRC accounting laws mandate accounting practices, which are not co-existent
with U.S. Generally Accepted Accounting Principles. The China accounting laws
require that an annual “statutory audit” be performed in accordance with PRC
accounting standards and that the books of account of Foreign Invested
Enterprises are maintained in accordance with Chinese accounting laws. Article
14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law
requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
reports and statements to designated financial and tax authorities, at the risk
of business license revocation. As a practical matter, a Foreign Invested
Enterprise must retain a local Chinese accounting firm that has experience with
both the Chinese standards and U.S. Generally Accepted Accounting Principles.
This type of accounting firm can serve the dual function of performing the
annual Chinese statutory audit and preparing the Foreign Invested Enterprise’s
financial statements in a form acceptable for an independent U.S. certified
public accountant to issue an audit report in accordance with U.S. Generally
Accepted Auditing Standards.
Second,
while the enforcement of substantive rights may appear less clear than United
States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned
Enterprises are Chinese registered companies, which enjoy the same status as
other Chinese registered companies in business-to-business dispute resolution.
Because the terms of the respective Articles of Association provide that all
business disputes pertaining to Foreign Invested Enterprises are to be resolved
by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
Sweden applying Chinese substantive law, the Chinese minority partner in our
joint venture companies will not assume a privileged position regarding such
disputes. Any award rendered by this arbitration tribunal is, by the express
terms of the respective Articles of Association, enforceable in accordance with
the “United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (1958).” Therefore, as a practical matter, although no
assurances can be given, the Chinese legal infrastructure, while different in
operation from its United States counterpart, should not present any significant
impediment to the operation of Foreign Invested Enterprises.
CURRENCY
CONVERSION AND EXCHANGE
Substantially
all our revenues and expenses are denominated in the Chinese Renminbi. However,
we use the United States dollar for financial reporting purposes. The value of
Chinese Renminbi against the United States dollar and other currencies may
fluctuate as a result of changes in two countries’ economic conditions. To date,
we have not engaged in any currency hedging transactions in connection with our
operations.
CUSTOMERS
We have
approximately 560 customers for our products. None of our customers individually
accounts for more than 5% of our revenue.
We source
our wheat and soybean from approximately 50 suppliers. None of the suppliers
individually accounts for more than 5% of our purchases. Historically, our
fourth quarter revenue is much higher than the other three quarters due to
preparations for the Chinese New Year holiday, which begins in January or
February.
ITEM
1A. RISK FACTORS
This
information has been omitted based on our status as a smaller reporting
company.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not
applicable.
ITEM
2. PROPERTIES.
Our
corporate office is located in Shandong. Our eight manufacturing plants, at five
locations in Shandong, Beijing and Chengdu, consist of 30 noodle production
lines and flour milling lines, located in Yantai, Penglai, Longkou and Beijing.
Manufacturing operations are vertically integrated, with the flour production
utilized in the noodle manufacturing process. All of our manufacturing
facilities have been awarded ISO9002 quality certification. All of
our properties are suitable and adequate for the purposes for which they are
used in our business.
Facility
|
|
Address
|
|
Owned/Rented
|
|
Size (Sq meters)
|
|
|
|
|
|
|
|
|
|
Yantai
Flour Mill, Yantai Noodle
Factory
& Soybean Plants
|
|
No.
10 Huancheng Road (N), Longkou, Shandong
|
|
Owned
|
|
|
41,268
|
|
|
|
|
|
|
|
|
|
|
Sanhe
Noodle Factory*
|
|
1
Yanjiao Jing Ha Road (N), Beijing
|
|
Owned
|
|
|
26,274
|
|
|
|
|
|
|
|
|
|
|
Penglai
Flour Mill
|
|
Xiao
Men Town, Penglai, Shandong
|
|
Owned
|
|
|
16,715
|
|
|
|
|
|
|
|
|
|
|
Longyuan
Plant
|
|
Donglai
Street Lige Village East, Longkou, Shandong
|
|
Owned
|
|
|
12,029
|
|
|
|
|
|
|
|
|
|
|
Chengdu
Plant
|
|
Chengdu
Economic & Technical Development Zone, Chengdu,
Sichuan
|
|
Owned
|
|
|
35,922
|
|
*
|
The
Sanhe plant was idle at December 25, 2009 and had not been in use the
prior year. The Company had sold the property on December 29, 2008 for a
total of $5.78 million.
|
ITEM
3. LEGAL PROCEEDINGS.
We are
not a party to any material pending legal proceedings.
ITEM
4. (REMOVED AND RESERVED).
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
MARKET
PRICES OF COMMON STOCK
Our Class
A Common Stock is traded on NYSE Amex under the symbol NWD. The high
and low sale prices of the Class A Common Stock as reported on NYSE
Amex for the periods indicated are set forth on the table below.
|
|
PRICE
RANGE OF COMMON STOCK
|
|
|
|
HIGH
|
|
|
LOW
|
|
|
|
|
|
|
|
|
Year
Ended December 25, 2008:
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.09
|
|
|
$
|
0.67
|
|
Second
Quarter
|
|
$
|
0.86
|
|
|
$
|
0.61
|
|
Third
Quarter
|
|
$
|
0.68
|
|
|
$
|
0.31
|
|
Fourth
Quarter
|
|
$
|
0.42
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 25, 2009:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.27
|
|
|
$
|
0.15
|
|
Second
Quarter
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
Third
Quarter
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
Fourth
Quarter
|
|
$
|
0.16
|
|
|
$
|
0.12
|
|
SHAREHOLDERS
As of
March 9, 2010, there were 90,241,559 shares of our Class A Common Stock
outstanding and we had approximately 6,700 shareholders of record. American
Stock Transfer & Trust Company is the registrar and transfer agent for our
Class A Common Stock.
DIVIDEND
POLICY
Under
current PRC regulations, wholly foreign-owned enterprises and Sino-foreign
equity joint ventures in the PRC may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and
regulations. Additionally, these foreign-invested enterprises are required to
set aside certain amounts of their accumulated profits each year, if any, to
fund certain reserve funds. These reserves are not distributable as cash
dividends.
We have
never declared or paid any cash dividends on our Class A Common Stock and we do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be based upon our
financial condition, operating results, capital requirements, plans for
expansion, restrictions imposed by any financing arrangements and any other
factors that the board of directors deems relevant.
RECENT
SALES OF UNREGISTERED SECURITIES
There
were no sales of unregistered sales of equity securities during the fiscal year
ended December 25, 2009.
ISSUER
PURCHASES OF EQUITY SECURITIES
None.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth aggregate information regarding the Company’s equity
compensation plans, including individual compensation arrangements, in effect as
of December 25, 2009.
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
(a)
|
|
|
Weighted - average
exercise price of
outstanding
options, warrants,
and rights
(b)
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
6,000,000
|
(1)
|
|
$
|
1.82
|
|
|
|
—
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
6,000,000
|
|
|
$
|
1.82
|
|
|
|
—
|
|
(1)
Represents options to purchase 6,000,000 shares of our common stock issued to
Peter Mak, the former CFO, pursuant to individual compensation
arrangements.
ITEM
6. SELECTED FINANCIAL DATA
This
information has been omitted based on our status as a smaller reporting
company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This
report includes 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
placed on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.
To
supplement our consolidated financial statements presented in accordance with
GAAP, we discuss our results in terms of financial measures that may be deemed
to be “non-GAAP financial measures” under the rules and regulations of the
Securities and Exchange Commission. Our management believes that
these measures provide meaningful information regarding the Company’s
performance and liquidity by excluding certain expenses that may not be
indicative of its core operating results and facilitate comparisons to its
historical operations and competitors’ operating results. To the
extent such measures are not readily reconcilable to the comparable GAAP
financial measures contained in its consolidated financial statements, we
provide detailed reconciliations that permit investors to determine how such
non-GAAP financial measures have been derived.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-K.
OVERVIEW
Headquartered
in Shandong Province, PRC, New Dragon Asia Corp. is engaged in the milling, sale
and distribution of flour and related products, including instant noodles and
soybean-derived products, to retail and wholesale customers throughout China.
With a well-known brand name called “Long Feng”, we market our well-established
product line through a countrywide network of more than 200 key distributors and
16 regional offices in 27 Chinese provinces. We have eight manufacturing plants
in the PRC with an aggregate production capacity of approximately 110,000 tons
of flour and approximately 1.1 billion packets of instant noodles and 4,500 tons
of soybean powder.
OPERATION
PLAN
Our
strategy for growth is to capitalize on our strong brand name and pursue
strategic partnerships and acquisitions that will enhance our sales. The
following are some of the key elements of our business growth
strategy:
-
|
Acquire
additional locations to increase our production
capacity
|
-
|
Build
strategic alliances with multinational food groups to enhance product
range and capitalize on our China distribution
network
|
Plans for
expansion of the existing plants are expected to be funded through current
working capital from ongoing sales. Acquisitions of plants will require an
additional infusion of funds in the form of debt or equity, or a combination of
both. However, there can be no assurance these funds will be
available.
ESTABLISHMENT
AND ACQUISITIONS
Longyuan
Packaging Plant
On
January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
Materials Company Limited (“NDAPM”), a wholly-owned subsidiary in Longkou,
Shandong Province. NDAPM is principally engaged in the manufacturing and sale of
packing materials, with a registered capital of $3.60 million. During the year
ended December 25, 2009, the Company has spent approximately $2.40 million on
the construction at the new plant and has committed to further capital
expenditures of $1.46 million for the completion of the plant. The construction
was basically completed and was at the stage of acceptance examination and final
settlement.
YEAR
ENDED DECEMBER 25, 2009 COMPARED TO YEAR ENDED DECEMBER 25, 2008
Selected
Information from the Consolidated Statements of Operations (in
thousands)
|
|
For the years ended December
25,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
23,217
|
|
|
$
|
49,340
|
|
Cost
of goods sold
|
|
|
(24,518
|
)
|
|
|
(41,989
|
)
|
Gross
(loss) profit
|
|
|
(1,301
|
)
|
|
|
7,351
|
|
Selling
and distribution expenses
|
|
|
(944
|
)
|
|
|
(1,275
|
)
|
General
and administrative expenses
|
|
|
(6,381
|
)
|
|
|
(3,896
|
)
|
Gain
on fair value adjustments to embedded derivatives
|
|
|
177
|
|
|
|
2,047
|
|
VAT
refund
|
|
|
59
|
|
|
|
60
|
|
Net
loss
|
|
|
(11,103
|
)
|
|
|
(1,517
|
)
|
Net
Revenue
Net
revenue for the year ended December 25, 2009 was $ 23.22 million, a decrease of
$26.12 million, or 52.94%, as compared to $49.34 million for the prior year.
Revenues declined in all segments with instant noodles decreasing 70.43 %, flour
products decreasing 51.93% and soybeans declining only 30.51%. The demand for
our products decreased significantly and was responsible for 90% of the revenue
decline. The price of our instant noodle also decreased and attributed to 10% of
the revenue decline. Although the global economy is recovering, the level of
recovery is different from country to country and industry to industry. As our
products like flour, soybean powder and packing materials are upstream goods for
the food industry, the recovery and growth of business is dependant on the
recovery and growth of the downstream business to a great extent, which was
reversing slowly. In addition, the overseas market has not recovered as strongly
as the domestic Chinese market, which substantially affected our export sales
and export price.
Cost
of goods sold
For the
year ended December 25, 2009, cost of goods sold was $24.52 million, a decrease
of $17.47 million, or 41.61%, as compared to $41.99 million for 2008. The
decrease was in line with the decrease in sales of our
products.
For the
year ended December 25, 2009, as a percentage of revenue, cost of goods sold
increased to 105.60% of sales as compared to 85.10% of sales for that of the
prior year. For the year ended December 25, 2009, gross margin (loss) decreased
to (5.60)% as compared to 14.90% for the prior year. The loss in 2009 is due to
the significant reduction in sales and a sustained decline on our higher end
noodle products, as a result of the weakened economy.
Selling
and distribution expenses
Selling
and distribution expenses consist primarily of salaries, commissions and
associated employee benefits, travel expenses of sales and marketing personnel
and promotional expenses.
For the
year ended December 25, 2009, selling and distribution expenses decreased
slightly 27.34% to $0.93 million from $1.28 million in 2008. The decrease was in
line with the decrease in sales of our products.
General
and administrative expenses
For the
year ended December 25, 2009, general and administrative expenses increased
$2.48 million to $6.38 million from $3.90 million of 2008. The increase was
primarily due to bad debt provision for accounts receivables over 1 year and the
stock-based compensation granted to the Chief Accounting Officer.
Gain/(loss)
on Fair Value Adjustments to Embedded Derivatives
The
Company issued Series A Redeemable Convertible Preferred Stock in July 2005,
together with 3,157,895 warrants to purchase Class A Common Stock resulting in
aggregate proceeds of $6 million. The Company also issued Series B Redeemable
Convertible Preferred Stock in December 2005, together with 2,968,750 warrants
to purchase Class A Common Stock resulting in aggregate proceeds of $9.5
million. The fair value of each instrument was recorded as a derivative
liability on our balance sheet. The corresponding gain or loss, which was
non-cash in nature, from changes in the fair values of these instruments was
recorded in our statement of income. For the year ended December 25,
2009, the gain in this regard was $0.18 million. For the
corresponding period of 2008, the gain in this regard was $2.05 million. The
determination of the change in the value of the derivatives requires the use of
a complex valuation model and can fluctuate significantly between periods based
on changes in the price of our shares and the time remaining in the life of the
underlying financial instruments. Increase in our stock’s market value increases
the value of the derivative creating losses in our income statements and
decrease in the stock’s market value reduces the value of the derivatives
creating gains in our income statements.
VAT
refund
VAT
refund was $0.06 million for both of the year ended December 25, 2009 and
2008.
Net
(Loss) Attributable to Common Shareholders
For the
year ended December 25, 2009, net loss was $11.10 million, a decrease of $9.58
million, or 630.26% as compared to $1.52 million for 2008. As a percentage of
revenue, net loss was 47.82% for the year ended December 25, 2009 as compared to
3.08% for the prior year. The decrease was primarily due to (i) a
reduction of revenue, which we attribute to the downturn in the economy in
general, (ii) the year to year decrease of $1.87
million in the gain on the
fair value adjustment to embedded derivatives, and (iii) losses on disposal of
spoiled raw material.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
On July
11, 2005, we issued 6,000 shares of Series A Preferred Stock, convertible into
an aggregate of 6,315,789 shares of Class A Common Stock at a conversion price
of $0.95 per share (subject to anti-dilution adjustments and interest payments),
raising $6.0 million in gross proceeds.
On
December 22, 2005, we issued 9,500 shares of Series B Preferred Stock,
convertible into an aggregate of 5,937,500 shares of Class A Common Stock at a
conversion price of $1.60 per share (subject to anti-dilution adjustments and
interest payments), raising $9.5 million in gross proceeds.
The key
terms of the Series A Preferred Stock and Series B Preferred Stock are as
follows:
|
|
Series A Preferred Stock
|
|
Series B Preferred Stock
|
|
|
|
|
|
Preferred
Dividend
|
|
7%
per annum, payable quarterly in arrears in cash or, at the Company’s
option subject to satisfaction of certain conditions, shares of Class A
Common Stock valued at 95% of the volume-weighted current market
price.
|
|
7%
per annum, payable quarterly in arrears in cash or, at the Company’s
option subject to satisfaction of certain conditions, shares of Class A
Common Stock valued at 95% of the volume-weighted current market
price.
|
Redemption
|
|
July
11, 2010
Beginning
on the 24th month following closing and each month thereafter, the Company
shall redeem 1/37th of the face value of the Preferred Stock in either
cash or Class A Common Stock valued at 90% of the volume-weighted current
market price.
|
|
December
22, 2010
Beginning
at the end of the 24th month following closing and on each third monthly
anniversary of that date (quarterly) thereafter, the Company shall redeem
1/13th of the face value of the Preferred Stock in either cash or Class A
Common Stock valued at 90% of the volume-weighted current market
price.
|
Mandatory
Conversion
|
|
The
Company may at any time force the conversion of the Preferred Stock if the
volume-weighted current market price of the Class A Common Stock exceeds
300% of the then applicable conversion price.
|
|
The
Company may at any time force the conversion of the Preferred Stock if the
volume-weighted current market price of the Class A Common Stock exceeds
200% of its price at issuance of the Preferred Stock.
|
Registration
|
|
The
Company shall file to register the underlying Class A common shares within
30 days of the closing date and make its best efforts to have the
Registration declared effective at the earliest date. In the
event such Registration is not continuously effective during the period
such shares are subject to transfer restrictions under the U.S. federal
securities laws, then (subject to certain exceptions) the holders are
entitled to receive liquidated damages equal to 2.0% of the purchase price
of the Preferred Stock per month.
|
|
The
Company shall file to register the underlying Class A common shares with
30 days of the closing date and make its best efforts to have the
Registration declared effective at the earliest date. In the
event such Registration is not continuously effective during the period
such shares are subject to transfer restrictions under the U.S. federal
securities laws, then (subject to certain exceptions) the holders are
entitled to receive liquidated damages equal to 2.0% of the purchase price
of the Preferred Stock per month.
|
Anti-dilution
|
|
In
the event the Company issues, at any time while Preferred Stock are still
outstanding, Common Stock or any type of securities giving rights to
Common Stock at a price below the Issue Price, the Company agrees to
extend full-ratchet anti-dilution protection to the
investors.
|
|
In
the event the Company issues, at any time while Preferred Stock are still
outstanding, Common Stock or any type of securities giving rights to
Common Stock at a price below the Issue Price, the Company agrees to
extend full-ratchet anti-dilution protection to the
investors.
|
As of
December 25, 2009, the Company had long-term debt obligations that resulted from
the mandatorily redeemable convertible preferred stock through December 2010 and
the pre-determined annual fee charged by joint venture partners through August
2049 as follows:
|
|
Payment
Obligations By Period
|
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
Redeemable
convertible preferred stock
|
|
$
|
3,494
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,494
|
|
Pre-determined
annual fee charged by joint venture partners
|
|
|
129
|
|
|
|
129
|
|
|
|
129
|
|
|
|
129
|
|
|
|
129
|
|
|
|
4,399
|
|
|
|
5,044
|
|
Total
|
|
$
|
3,623
|
|
|
$
|
129
|
|
|
$
|
129
|
|
|
$
|
129
|
|
|
$
|
129
|
|
|
$
|
4,399
|
|
|
$
|
8,538
|
|
Reconciliation
of the outstanding payment obligations of redeemable convertible preferred
stock:
|
|
(In thousands)
|
|
Aggregated
balance as of the issue date
|
|
$
|
15,500
|
|
Partial
redemption of Series A Preferred Stock in 2005
|
|
|
(1,900
|
)
|
Partial
redemption of Series A and B Preferred Stock in 2006
|
|
|
(3,438
|
)
|
Partial
redemption of Series A Preferred Stock in 2007
|
|
|
(728
|
)
|
Partial
redemption of Series A and B Preferred Stock in 2008
|
|
|
(2,933
|
)
|
Partial
redemption of Series A and B Preferred Stock in 2009
|
|
|
(3,007
|
)
|
|
|
$
|
3,494
|
|
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The
Company’s primary liquidity needs are for the purchase of inventories and
funding accounts receivable and capital expenditures. Historically, the Company
has financed its working capital requirements through a combination of
internally generated cash and advances from related companies.
Our
working capital decreased $19.98 million to $29.84 million at December 25, 2009
as compared to $49.82 million at December 25, 2008, which was primarily due to
the disposal of the assets held for disposal, provision for bad debt and
disposal of spoiled raw material.
Cash and
cash equivalents were $3.44 million as of December 25, 2009, a decrease of $0.94
million from December 25, 2008. The Company believes that it has enough cash
available and expects to have enough income and cash flow from operations to
operate for the next 12 months.
Off-balance
sheet arrangements
We have
never entered into any off-balance sheet financing arrangements and have not
formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
INFLATION
AND CHANGING PRICES
The
Company does not foresee any material adverse effects on its earnings as a
result of inflation or changing prices.
CRITICAL
ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimates are made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur, could materially impact the consolidated financial
statements. We believe the following critical accounting policies
reflect the more significant estimates and assumptions used in the preparation
of the consolidated financial statements.
Revenue
recognition
Our
revenues are generated from sales of flour, soybean products and instant
noodles. All of our revenue transactions contain standard business terms and
conditions. We determine the appropriate accounting for these transactions after
considering (1) whether a contract exists; (2) when to recognize revenue on the
deliverables; and (3) whether all elements of the contract have been fulfilled
and delivered. In addition, our revenue recognition policy requires an
assessment as to whether collection is reasonably assured, which inherently
requires us to evaluate the creditworthiness of our customers. Changes in
judgments on these assumptions and estimates could materially impact the timing
or amount of revenue recognition.
Stock-Based
Compensation
On
December 16, 2004, the FASB issued SFAS 123R, “Share-Based Payment,” (now
Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock
Compensation”) which replaces SFAS 123, “Accounting for Stock-Based
Compensation” and supercedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees.” ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on the grant date fair value of the award. Under ASC 718, we
must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive options,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of ASC 718, while the retroactive
methods would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. We have adopted the
requirements of ASC 718 for the fiscal year beginning on December 26, 2005, and
recorded the compensation expense for all unvested stock options.
Contractual joint
ventures
A
contractual joint venture is an entity established between the Company and
another joint venture partner, with the rights and obligations of each party
governed by a contract. Currently, the Company has established three
contractual joint ventures with three Chinese partners in China, with percentage
of ownership ranging from 79.64% to 90%. Pursuant to each Chinese
joint venture agreement, each Chinese joint venture partner is entitled to
receive a pre-determined annual fee and is not responsible for any profit or
loss, regardless of the ownership in the contractual joint
venture. In view of such contracted profit sharing arrangement, the
three contractual joint ventures are regarded as 100% owned by the
Company. Hence, the Company’s consolidated financial statements
include the financial statements of the contractual joint ventures.
Recent
accounting pronouncements
In April
2009, FASB issued FSP 115-2 and FSP 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (now codified within ASC 320,
“Investments—Debt and Equity Securities”). ASC 320 provides greater clarity
about the credit and noncredit component of an other-than-temporary impairment
event and more effectively communicates when an other-than-temporary impairment
event has occurred. ASC 320 amends the other-than-temporary impairment model for
debt securities. The impairment model for equity securities was not affected.
Under ASC 320, an other-than-temporary impairment must be recognized through
earnings if an investor has the intent to sell the debt security or if it is
more likely than not that the investor will be required to sell the debt
security before recovery of its amortized cost basis. This standard was
effective for interim periods ending after June 15, 2009. The adoption of
ASC 320 did not have a material impact on the Company's results of operations or
financial position.
In April
2009, the FASB issued guidance on determining fair value when the volume and
level of activity for an asset or liability has significantly decreased and
identifying transactions that are not orderly (originally issued as FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly”, and subsequently codified within FASB ASC Topic 820). The
guidance provides additional guidance to expand on the factors that should be
considered in estimating fair value when there has been a significant decrease
in market activity for an asset or liability. The guidance is effective for
interim and annual periods ending after June 15, 2009. The adoption did not
have any impact on the Company’s financial position or results of operations at
the date of adoption.
In April
2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (now codified within ASC
825, “Financial Instruments”). ASC 825 requires disclosures about fair value of
financial instruments in interim financial statements as well as in annual
financial statements. ASC 825 was effective for interim periods ending after
June 15, 2009. The adoption of ASC 825 did not have a material impact on
the Company's consolidated results of operations or financial
position.
In May
2009, the FASB issued guidance on subsequent events (originally issued as SFAS
165, “Subsequent Events”, and subsequently codified into FASB ASC Topic 855).
Topic 855 addresses the accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued. Topic 855 is
effective for interim or annual periods ending after June 15, 2009. The
adoption of Topic 855 did not have any impact on the Company’s financial
position or results of operations at the date of adoption.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification), “Generally
Accepted Accounting Principles - Overall” (ASC Topic 105-10). The Codification
established one source for all U.S. GAAP. The Codification supersedes, but does
not change, all then-existing non-SEC accounting and reporting standards.
Throughout this report, references provided to applicable portions of the
Codification also include reference to the original FASB standard (SFAS), staff
position (FSP) or consensus of the Emerging Issues Task Force
(EITF).
In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162” (subsequently codified into FASB ASC Topic 105) which
established the FASB ASC as the single source of authoritative accounting
principles for U.S. GAAP issued by the FASB. The Codification supersedes all
existing non-SEC accounting and reporting standards and subsequent to adoption,
the FASB will issue new standards in the form of ASUs, and no longer as SFASs,
FASB Staff Positions or Emerging Issues Task Force Abstracts. The Codification
is effective for reporting periods ending on or after September 15, 2009.
The adoption of the Codification did not have any impact on the Company’s
financial position or results of operations at the date of
adoption.
In
August 2009, FASB issued Accounting Standards Updates (“ASU”) 2009-5, “Fair
Value Measurements and Disclosures - Measuring Liabilities at Fair Value”. ASU
2009-5 provides amendments to Subtopic 820-10, “Fair Value Measurements and
Disclosures-Overall”, for the fair value measurement of liabilities. ASU 2009-5
clarifies that in circumstances in which a quoted price in an active market for
the identical liability is not available, a reporting entity is required to
measure fair value. ASU 2009-5 was effective for the Company for interim
and annual periods ending after October 3, 2009. The adoption of
ASU 2009-5 did not have a material impact on the Company's results of
operations or financial position.
In
August 2009, FASB issued ASU 2009-4, “Accounting for Redeemable Equity
Instruments—an Amendment to Section 480-10-S99”). ASU 2009-4 represents a
SEC update to Section 480-10-S99, Distinguishing Liabilities from Equity.
The adoption of guidance within ASU 2009-4 did not have an impact on the
Company's results of operations or financial position.
In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
(amendments to ASC Topic 470, “Debt”)”, and provides guidance for accounting and
reporting for own-share lending arrangements issued in contemplation of a
convertible debt issuance. At the date of issuance, a share-lending
arrangement entered into on an entity’s own shares should be measured at fair
value in accordance with Topic 820 and recognized as an issuance cost, with an
offset to additional paid-in capital. Loaned shares are excluded from
basic and diluted earnings per share unless default of the share-lending
arrangement occurs. The amendments also require several disclosures
including a description and the terms of the arrangement and the reason for
entering into the arrangement. The effective dates of the amendments
are dependent upon the date the share-lending arrangement was entered into and
include retrospective application for arrangements outstanding as of the
beginning of fiscal years beginning on or after December 15,
2009. The Company is currently evaluating the potential impact
of ASU 2009-15 on its financial statements.
In
December 2009, FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860):
Accounting for Transfers of Financial Assets”. ASU 2009-16 amends the FASB ASC
for the issuance of SFAS 166, “Accounting for Transfers of Financial
Assets—an amendment of SFAS 140”. The amendments in ASU 2009-16 improve
financial reporting by eliminating the exceptions for qualifying special-purpose
entities from the consolidation guidance and the exception that permitted sale
accounting for certain mortgage securitizations when a transferor has not
surrendered control over the transferred financial assets. In addition, the
amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its continuing involvement in transferred
financial assets. ASU 2009-16 is effective as of the beginning of each reporting
entity's first annual reporting period that begins after November 15,
2009. The Company expects the adoption of ASU 2009-16 will have a
material impact on the Company’s results of operations or financial
position.
In
December 2009, FASB issued ASU 2009-17, “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities”. ASU 2009-17 amends the FASB ASC for the issuance of
SFAS 167, “Amendments to FASB Interpretation No. 46(R”). The
amendments in ASU 2009-17 replace the quantitative-based risks and rewards
calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entity's economic
performance and (1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity. ASU 2009-17 also
requires additional disclosures about an enterprise's involvement in variable
interest entities. ASU 2009-17 is effective as of the beginning of each
reporting entity's first annual reporting period that begins after
November 15, 2009. The Company expects the adoption of ASU 2009-17 will not
have a material impact on the Company’s results of operations or financial
position.
In
January 2010, FASB issued ASU 2010-2, “Accounting and Reporting for Decreases in
Ownership of a Subsidiary- a Scope Clarification”. ASU 2010-2 addresses
implementation issues related to the changes in ownership provisions in the
Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB ASC, originally
issued as SFAS 160, “Noncontrolling Interests in Consolidated Financial
Statements”. Subtopic 810-10 establishes the accounting and reporting guidance
for noncontrolling interests and changes in ownership interests of a subsidiary.
An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, an entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. The gain or
loss includes any gain or loss associated with the difference between the fair
value of the retained investment in the subsidiary and its carrying amount at
the date the subsidiary is deconsolidated. In contrast, an entity is required to
account for a decrease in ownership interest of a subsidiary that does not
result in a change of control of the subsidiary as an equity transaction.
ASU 2010-2 is effective for the Company starting January 3, 2010. The
Company expects the adoption of ASU 2010-2 will not have a material impact on
the Company's results of operations or financial position.
In
January 2010, FASB issued ASU 2010-6, “Improving Disclosures about Fair
Measurements". ASU 2010-6 provides amendments to subtopic 820-10 that require
separate disclosure of significant transfers in and out of Level 1 and
Level 2 fair value measurements and the presentation of separate
information regarding purchases, sales, issuances and settlements for
Level 3 fair value measurements. Additionally, ASU 2010-6 provides
amendments to subtopic 820-10 that clarify existing disclosures about the level
of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective
for financial statements issued for interim and annual periods ending after
December 15, 2010. The Company expects the adoption of ASU 2010-06 will not
have a material impact on the Company’s results of operations or financial
position.
In
February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements”. ASU 2010-9 amends
disclosure requirements within Subtopic 855-10. An entity that is an SEC filer
is not required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company expects the adoption of ASU
2010-06 will not have a material impact on the Company’s results of operations
or financial position.
In March
2008, FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities” (now codified within ASC 815, “Derivatives and Hedging”).
ASC 815 requires enhanced disclosures about an entity's derivative and hedging
activities aimed at improving the transparency of financial reporting. ASC 815
was effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The adoption of ASC 815 did not
have any impact on the Company's results of operations or financial position and
no additional disclosure was required.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This
information has been omitted based on our status as a smaller reporting
company.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
following financial statements and the footnotes thereto are included in the
section beginning on page F-1.
1.
|
Reports
of Independent Registered Public Accounting
Firms.
|
2.
|
Consolidated
Balance Sheets as of December 25, 2009 and
2008.
|
3.
|
Consolidated
Statements of Operations for each of the two years in the period ended
December 25, 2009 and 2008.
|
4.
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income for each of
the two years in the period ended December 25, 2009 and
2008.
|
5.
|
Consolidated
Statements of Cash Flows for each of the two years in the period ended
December 25, 2009 and 2008.
|
6.
|
Notes
to Consolidated Financial
Statements.
|
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On
January 9, 2009, the Company was notified that effective December 8, 2008, the
personnel of Grobstein Horwath & Company LLP (“GHC”) have joined with Crowe
Horwath LLP (“Crowe”) resulting in the resignation of GHC as
independent registered public accounting firm for the Company. Crowe was
appointed as the Company’s new independent registered public accounting
firm. The audit reports of GHC on the financial statements of the
Company as of and for the years ended December 25, 2007 and 2006 did
not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to engage Crowe was approved by the board of
directors on January 15, 2009. In connection with the audits of the
Company’s financial statements for the fiscal year ended December 25, 2007 and
2006 and through the date of this Current Report, there were: (i) no
disagreements between the Company and GHC on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of GHC,
would have caused GHC to make reference to the subject matter of the
disagreement in their reports on the Company’s financial statements for such
years, and (ii) no reportable events within the meaning set forth in Item
304(a)(1)(v) of Regulation S-K.
On
November 25, 2009, the Audit Committee Chairman of the Company was notified that
the auditor-client relationship between the Company and Crowe had ceased due to
Crowe’s resignation. The audit report of Crowe on the financial statements of
the Company as of and for the year ended December 25, 2008 (Crowe did
not audit any periods prior to such fiscal year) did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with
the audit of the Company’s financial statements for the fiscal year ended
December 25, 2008 (Crowe did not audit any periods prior to such fiscal year),
there were: (i) no disagreements between the Company and Crowe on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Crowe, would have caused Crowe to make reference to the subject matter of the
disagreement in their report on the Company’s financial statements for such
year, and (ii) no reportable events within the meaning set forth in Item
304(a)(1)(v) of Regulation S-K.
On
December 21, 2009, the Company engaged Jimmy C.H. Cheung & Co. (“JCHC”) to
serve as its independent auditor, effective December 21, 2009. The
decision to engage JCHC as the Company’s principal independent accountant was
approved by the Audit Committee of the Company on December 21,
2009.
On
February 3, 2010, the Company was notified that effective immediately, the US
audit practice of JCHC had merged with Baker Tilly Hong Kong Limited (“BTHK”)
resulting in the resignation of JCHC as independent registered public accounting
firm for the Company. On February 5, 2010, the Chairman of the Audit Committee
appointed BTHK as the Company’s new independent registered public accounting
firm. JCHC was recently appointed by the Company and did not provide
an audit report on the financial statements of the Company as of and for the
years ended December 25, 2009 and 2008. During the Company’s most two
recent fiscal years ended December 25, 2009 and 2008 and through February 8,
2010, there were: (i) no disagreements between the Company and JCHC on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of JCHC, would have caused JCHC to make reference to the subject
matter of the disagreement in their reports on the Company’s financial
statements for such years, and (ii) no reportable events within the meaning set
forth in Item 304(a)(1)(v) of Regulation S-K.
ITEM
9A(T). CONTROLS AND PROCEDURES.
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness, as of December 25,
2008, of the design and operation of our disclosure
controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e)
and 15d-15(e). Based on this evaluation, our principal executive officer and
principal financial officer have concluded that, as of such date, our disclosure
controls and procedures are effective to ensure that
information required to be disclosed by us in
our Exchange Act reports is recorded, processed, summarized, and reported within
the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Management
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the
process designed by, or under the supervision of, our principal executive
officer and principal financial officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures
that:
(1)
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
(2)
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorization of our management and
directors; and
|
(3)
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisitions, use or disposition of our assets that could
have a material effect on the financial
statements.
|
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company.
Management
has used the framework set forth in the report entitled Internal Control
Integrated Framework published by the Committee of Sponsoring Organizations of
the Treadway Commission, known as COSO, to evaluate the effectiveness of our
internal control over financial reporting. Based on this assessment, management
has concluded that our internal control over financial reporting was effective
as of December 25, 2009.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only our management report in this Annual
Report. We are not required to include in our Annual Report an attestation
report by our independent auditors under the Public Company Accounting Oversight
Board, auditing Standard No. 2 until the filing of the Annual Report for the
fiscal year ending December 25, 2010.
Changes
in Internal Control over Financial Reporting
There has
been no change in our internal control over financial reporting during the
fourth quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
The
following table sets forth certain information concerning each of our directors
continuing in office and each of our current executive officers:
NAME
|
|
AGE
|
|
POSITION
|
|
DIRECTOR
SINCE
|
|
|
|
|
|
|
|
Heng
Jing Lu
|
|
58
|
|
Chairman
|
|
2003
|
|
|
|
|
|
|
|
Li
Xia Wang
|
|
51
|
|
Director
and Chief Executive Officer
|
|
2003
|
|
|
|
|
|
|
|
Ling
Wang
|
|
45
|
|
Chief
Accounting Officer
|
|
2003
|
|
|
|
|
|
|
|
Zhi
Yong Jiang
|
|
43
|
|
Independent
Non-Executive Director
|
|
2003
|
|
|
|
|
|
|
|
De
Lin Yang
|
|
55
|
|
Independent
Non-Executive Director
|
|
2003
|
|
|
|
|
|
|
|
Qi
Xue
|
|
57
|
|
Independent
Non-Executive Director
|
|
2003
|
|
|
|
|
|
|
|
Feng
Ju Chen
|
|
54
|
|
Independent
Non-Executive Director
|
|
2004
|
The
business experience during at least the last five years of each of these
individuals is as follows:
Mr. Heng Jing Lu
, Chairman of
the Company, graduated from The Shandong Institute of Economics in accounting
and is a PRC qualified accountant. Before joining the Company on December 15,
2003, he had been working in the oil and grain industry for over 30
years. Prior to joining the Company, he was the director of the Oil
and Grain Bureau of Longkou, Shandong PRC where he had worked since 1975. He has
extensive experience in the management of agricultural and food related
enterprises and strategic planning. He is primarily responsible for business
development and overall company management.
Ms. Li Xia Wang
, director and
Chief Executive Officer of the Company, graduated from The Shandong Institute of
Economics in accounting and is a PRC qualified accountant. She joined the
Longkou Oil & Grain Group Company in 1980 where she has remained, her last
position being Deputy General Manager. She has over 20 years of extensive
experience in the field of finance and accounting. She became a director of the
Company on December 15, 2003, and its Chief Executive Officer in
2004.
Ms. Ling Wang
, director and
Chief Accounting Officer of the Company, graduated from Shandong Television
Broadcast University in economics management. She has been working with the
subsidiary of the Company since 1981 and her main responsibilities are in
operation control and internal audit.
Mr. Zhi Yong Jiang
,
independent non-executive director of the Company since December 15, 2003,
currently serves on the audit committee, acting as Chairman. He graduated from
Yantai Oil & Grain College with a degree in finance & accounting. He had
been working with Longkou Jinsheng Electronics Co. Ltd since 2000 and prior to
joining the Company, his last position was Vice President of Longkou Soybean
Food Co., Ltd. He has been working in the accounting and financing field for
more than 19 years in different industries. He has extensive experience in the
field of finance and accounting.
Mr. De Lin Yang
, independent
non-executive director of the Company since December 15, 2003, is currently the
chairman of the Yantai Hong Yuan CPA, a public accounting firm. Mr. Yang
graduated from Shandong Gan Bu Distance Learning University with a bachelor
degree in Accounting. He joined the Longkou City Ceramics Factory as an
accountant in 1975 and was promoted to Chief Accountant in 1982. From 1989 to
1999, Mr. Yang served as the deputy chairman of the Longkou City CPA. In 2000,
Mr. Yang joined the Yantai Hong Yuan CPA as the deputy chairman and was promoted
to the chairman of the firm in 2002.
Mr. Qi Xue
, independent
non-executive director of the Company since March 15, 2003, graduated in 1987
from The Official Institute of Beijing Chemical Industry Management with a
diploma of higher education specializing in industrial accounting. He is an
associate member of The Chinese Institute of Certified Public Accountants. Since
1999, he has been the Principal of the Longkou Huayu Certified Public
Accountants Co. Ltd.
Ms. Feng Ju Chen
, independent
non-executive director of the Company, graduated from Yantai University in
business management and is a member of The Chinese Institute of Certified Public
Accountants. She has been the accounting manager of the Audit Bureau of Longkou
City for more than 20 years. She has extensive experience in the field of
accounting and joined the Company as a director on April 15, 2004.
There are
no family relationships between the directors and executive
officers.
Code
of Ethics
Our Board
of Directors has adopted a Code of Conduct and Ethics (the “Code”) that applies
to all of our employees, officers and directors. The Code covers compliance with
law, fair and honest dealings with the Company, with competitors and with
others, fair and honest disclosure to the public, and procedures for compliance
with the Code. You can obtain a copy of the Code free of charge by sending a
written request to the attention of Ms. Ling Wang, New Dragon Asia Corp., 10
Huangcheng Road (N), Longkou, Shandong Province, PRC.
Board
Leadership Structure
Mr. Heng
Jing Lu serves as the Chairman of the Board of Directors of our
company. Ms. Li Xia Wang serves as the Chief Executive Officer of our
company. We believe that the separation of the positions of principal
executive officer and chairman of the board is in the best interest of our
company and our stockholders because Mr. Lu focuses solely on board activities
and oversees the management activities led by Ms. Wang, which is in line with
the accepted corporate governance standards and practices.
Board
Committees and Designated Directors
The Board
of Directors has a Compensation Committee, a Nominating Committee and an Audit
Committee.
Compensation
Committee.
The Compensation Committee makes recommendations
to the Board of Directors concerning salaries and incentive compensation for our
officers, including our Chief Executive Officer, and employees and administers
our stock option plans. Our Compensation Committee consists of Qi Xue, Feng Ju
Chen and Zhi Yong Jiang. Compensation decisions during the fiscal year ended
December 25, 2009 were made by all of the directors of the Committee. Each of
the members of the Committee is independent and none has served as an officer or
employee of the Company.
Nominating
Committee
. Under the rules of NYSE Amex (on which our Class A
Common Stock is listed for trading), nominees for our Board must be selected
either by a nominating committee consisting entirely of independent directors or
by a majority of the independent directors, acting pursuant to a standing
resolution governing the nominating process. Given the size of our company and
the significant committee responsibilities that many directors already have, we
have chosen to assign this function to the independent directors rather than to
a nominating committee. Consequently, our three independent directors, Qi Xue,
Feng Ju Chen and Zhi Yong Jiang, are responsible for nominations. They act
pursuant to a standing resolution. To date, the independent directors have not
engaged any third parties to assist them in identifying candidates for the
Board.
Among the
tasks that our independent directors may undertake in this capacity are
these:
-
|
Identifying
and selecting those persons who will be nominees for
director.
|
-
|
Considering
factors relevant to the selection of nominees, including requirements of
law, stock exchange listing standards, matters of character, judgment,
business experience and areas of expertise, the diversity of the Board,
and other factors.
|
-
|
Recruiting
appropriate candidates when necessary, and reviewing the qualifications of
any candidates nominated by
shareholders.
|
-
|
Evaluating
from time to time the size and composition of the Board and its
committees.
|
-
|
Evaluating
the function and performance of the Board and its
directors.
|
There
have been no material changes to the procedures by which security holders may
recommend nominees to the Company’s board of directors.
Audit Committee
.
The Audit Committee operates under a written charter. The Audit Committee
consists of three directors, Qi Xue, Zhi Yong Jiang and Feng Ju Chen, each of
whom meets the independence requirements and standards currently established by
NYSE Amex and the SEC. In addition, the Board of Directors has determined that
Mr. Qi Xue is an “audit committee financial expert” and “independent” as
defined under the relevant rules of the SEC and NYSE Amex. The Audit
Committee assists the Board of Directors in fulfilling its oversight of the
quality and integrity of the Company’s financial statements and the Company’s
compliance with legal and regulatory requirements. The Audit Committee is
responsible for retaining (subject to stockholder ratification) and, as
necessary, terminating, the independent auditors, annually reviewing the
qualifications, performance and independence of the independent auditors and the
audit plan, fees and audit results, and pre-approving audit and non-audit
services to be performed by the auditors and related fees. The Audit Committee
also oversees the performance of the Company’s internal audit and compliance
functions.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our executive officers and directors and persons who own more than 10%
of a registered class of our equity securities to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of common
stock and other of our equity securities, on Forms 3, 4 and 5 respectively.
Based on Company records and other information, we believe that all SEC filing
requirements applicable to our directors and executive officers were complied
with for the fiscal year ended December 25, 2009, except Ling Wang who did not
timely file two Form 4s disclosing reportable transactions, which she later
reported on Form 4s.
ITEM
11. EXECUTIVE COMPENSATION.
Summary
Compensation Table
Name and Principal Position
|
Year
|
|
Salary
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Total
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Li Xia Wang
(i)
|
2009
|
|
|
20,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
Chief
Executive Officer
|
2008
|
|
|
20,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
and
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ling
Wang
|
2009
|
|
|
—
|
|
|
320,000
|
(ii)
|
|
|
—
|
|
|
|
320,000
|
|
Chief
Accounting Officer
|
2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(i)
|
Li
Xia Wang was promoted to CEO of the Company in 2004. She is a Chinese
national. Her annual base salary is
$20,000.
|
(ii)
|
On
May 5, 2009, we granted 2 million shares of our Class A Common Stocks to
Ling Wang in connection with her employment agreement dated as of April 1,
2009 with the Company appointing Ms. Wang as the Company’s Chief Financial
Officer. The closing sale price for our Class A Common Stock on May 5,
2009 was $0.16 per share.
|
Outstanding
Equity Awards At Fiscal Year-end
Name
|
|
Number of
Securities Underlying
Unexercised Options (#)
Exercisable
|
|
|
Number of
Securities Underlying
Unexercised Options (#)
Unexercisable
|
|
|
Option
Exercise
Price ($)
|
|
Option Expiration
Date
|
Li
Xia Wang
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Peter
Mak
|
|
|
6,000,000
|
|
|
|
—
|
|
|
$
|
1.82
|
|
February
12,
2010
|
Pension
Benefits
We do not
sponsor any qualified or non-qualified defined benefit plans.
Nonqualified
Deferred Compensation
We do not
maintain any non-qualified defined contribution or deferred compensation plans.
Our Compensation Committee, which is comprised solely of “outside directors” as
defined for purposes of Section 162(m) of the Code, may elect to provide our
officers and other employees with non-qualified defined contribution or deferred
compensation benefits if the Compensation Committee determines that doing so is
in our best interests.
Compensation
of Directors
We do not
provide cash or other compensation to our directors for their services as
members of the Board or for attendance at Board or committee meetings. However,
our directors will be reimbursed for reasonable travel and other expenses
incurred in connection with attending meetings of the Board and its
committees.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
The
following table sets forth, as of March 9, 2010, certain information concerning
the beneficial ownership of Common Stock by (i) each stockholder known to us to
beneficially own five percent or more of our outstanding Common Stock; (ii) each
director; (iii) each executive officer; and (iv) all of our executive officers
and directors as a group, and their percentage ownership and voting power. As of
March 9, 2010, there were 90,241,559 shares of Common Stock
outstanding.
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent of
Class
|
|
New
Dragon Asia Food Ltd.
10
Huangcheng Road (N), Longkou, Shandong Province, PRC
|
|
|
18,576,154
|
|
|
|
20.58
|
%
|
Heng
Jing Lu†
Chairman
|
|
|
18,576,154
|
(1)
|
|
|
20.58
|
%
|
Li
Xia Wang
†
Chief
Executive Officer and Director
|
|
|
-0-
|
|
|
|
*
|
|
Ling
Wang†
Chief
Accounting Officer
|
|
|
-0-
|
|
|
|
*
|
|
Zhi
Yong Jiang†
Director
|
|
|
-0-
|
|
|
|
*
|
|
De
Lin Yang†
Director
|
|
|
-0-
|
|
|
|
*
|
|
Qi
Xue†
Director
|
|
|
-0-
|
|
|
|
*
|
|
Feng
Ju Chen†
Director
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers (7 people)
|
|
|
18,576,154
|
|
|
|
20.58
|
%
|
* Less
than one percent.
† Address
of referenced person is c/o New Dragon Asia Corp. 10 Huangcheng Road (N),
Longkou, Shandong Province, PRC.
(1)
Represents shares owned by New Dragon Asia Food Ltd. Mr. Heng Jing Lu, our
Chairman, is the holder of record and beneficial holder of 100% of the equity
interests of New Dragon Asia Food Ltd.
Change
in Control
There
were no arrangements, known to the Company, including any pledge by any person
of securities of the Company the operation of which may at a subsequent date
result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
Related
Party Transactions
Parties
are considered to be related if one party has the ability, 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. For a summary of certain related party
transactions, please refer to Note 17 of the Consolidated Financial Statements
under the heading “Related Party Transactions” for significant details. The
comprehensive summary of information required by Item 13 is set forth in our
Proxy Statement under the caption “certain relationships and related
transactions” and is incorporated herein by this reference.
Director
Independence
The NYSE
Amex marketplace rules (the “NYSE Amex Rules”) require that a majority of our
Board of Directors must be “independent” and no director qualifies as
independent until the Board makes an affirmative determination to that effect.
In making this determination about a director, the Board must affirmatively
conclude that the director does not have a material relationship with us that
would interfere with the exercise of his or her independent judgment in carrying
out the responsibilities of a director. Under the NYSE Amex Rules, the Board
considered, among other factors, the director’s current and historic
relationships with us and our competitors, suppliers, customers and auditors,
including compensation directly or indirectly paid to the director; the
director’s professional and family relationships with management and other
directors; the relationships that the director’s current and former employers
may have with us; and the relationships between us and other companies of which
the director may be a director or executive officer. The NYSE Amex Rules require
that the independent directors meet on a regular basis as often as necessary to
fulfill their responsibilities, including at least annually in executive
session.
As a
result of this review, the Board has determined that the following directors,
comprising a majority of the entire Board, are independent: De Lin
Yang, Qi Xue, Zhi Yong Jiang and Feng Ju Chen.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Crowe
Horwath LLP (“Crowe”) was our independent accountants for the fiscal year ending
December 25, 2008 and the period from December 26, 2009 through November 25,
2009. On November 25, 2009, the Audit Committee Chairman of the Company was
notified that the auditor-client relationship between the Company and Crowe had
ceased due to Crowe’s resignation. The Audit Committee engaged Jimmy C.H. Cheung
& Co. (“JCHC”) to serve as its independent auditor, effective December 21,
2009.
On
February 3, 2010, the Company was notified that effective immediately, the US
audit practice of JCHC had merged with Baker Tilly Hong Kong Limited (“BTHK”)
resulting in the resignation of JCHC as independent registered public accounting
firm for the Company. On February 5, 2010, the Chairman of the Audit Committee
appointed BTHK as the Company’s new independent registered public accounting
firm. JCHC was recently appointed by the Company and did not provide
an audit report on the financial statements of the Company as of and for the
years ended December 25, 2009 and 2008.
Public
Accountants’ fees
For
fiscal years ended December 25, 2009 and 2008, fees for services provided by
Crowe Horwath LLP were as follows:
|
|
2009
|
|
|
2008
|
|
Audit
Fees
|
|
$
|
61,000
|
|
|
$
|
228,471
|
|
Audit
Related Fees
|
|
|
6,000
|
|
|
|
-
|
|
Tax
Fees
|
|
$
|
-
|
|
|
$
|
9,000
|
|
All
other fees
|
|
|
-
|
|
|
|
-
|
|
For
fiscal year ended December 25, 2009, fees for services provided by Jimmy C.H.
Cheung & Co. were as follows:
|
|
2009
|
|
Audit
Fees
|
|
$
|
120,000
|
|
Audit
Related Fees
|
|
|
-
|
|
Tax
Fees
|
|
$
|
-
|
|
All
other fees
|
|
|
-
|
|
Audit
Fees were for professional services rendered for the audit of the Company’s
annual financial statements, the review of quarterly financial statements, and
the preparation of statutory and regulatory filings. Audit-Related Fees relate
to professional services rendered in connection with accounting consultations
relating to SEC reviews on filings. Tax fees consist of fees billed for
professional services for tax compliance, tax planning and tax advice. These
services include assistance regarding federal, state and international tax
compliance and planning, tax audit defense, and mergers and
acquisitions.
Pre-Approval
Policies and Procedures
In
accordance with the SEC’s auditor independence rules, the Audit Committee has
established the following policies and procedures by which it approves in
advance any audit or permissible non-audit services to be provided to the
Company by its independent auditor.
Prior to
the engagement of the independent auditor for any fiscal year’s audit,
management submits to the Audit Committee for approval lists of recurring audit,
audit-related, tax and other services expected to be provided by the auditor
during that fiscal year. The Audit Committee adopts pre-approval schedules
describing the recurring services that it has pre-approved, and is informed on a
timely basis, and in any event by the next scheduled meeting, of any such
services rendered by the independent auditor and the related fees.
The fees
for any services listed in a pre-approval schedule are budgeted, and the Audit
Committee requires the independent auditor and management to report actual fees
versus the budget periodically throughout the year. The Audit Committee will
require additional pre-approval if circumstances arise where it becomes
necessary to engage the independent auditor for additional services above the
amount of fees originally pre-approved. Any audit or non-audit service not
listed in a pre-approval schedule must be separately pre-approved by the Audit
Committee on a case-by-case basis.Every request to adopt or amend a pre-approval
schedule or to provide services that are not listed in a pre-approval schedule
must include a statement by the independent auditors as to whether, in their
view, the request is consistent with the SEC’s rules on auditor
independence.
The Audit
Committee will not grant approval for:
-
|
any
services prohibited by applicable law or by any rule or regulation of
the SEC or other regulatory body applicable to the
Company;
|
-
|
provision
by the independent auditor to the Company of strategic consulting services
of the type typically provided by management consulting firms;
or
|
-
|
the
retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the tax treatment of
which may not be clear under the Internal Revenue Code and related
regulations and which it is reasonable to conclude will be subject to
audit procedures during an audit of the Company’s financial
statements.
|
Tax
services proposed to be provided by the auditor to any director, officer or
employee of the Company who is in an accounting role or financial reporting
oversight role must be approved by the Audit Committee on a case-by-case basis
where such services are to be paid for by the Company, and the Audit Committee
will be informed of any services to be provided to such individuals that are not
to be paid for by the Company.
In
determining whether to grant pre-approval of any non-audit services in the “all
other” category, the Audit Committee will consider all relevant facts and
circumstances, including the following four basic guidelines
:
-
|
whether
the service creates a mutual or conflicting interest between the auditor
and the Company;
|
-
|
whether
the service places the auditor in the position of auditing his or her own
work;
|
-
|
whether
the service results in the auditor acting as management or an employee of
the Company; and
|
-
|
whether
the service places the auditor in a position of being an advocate for the
Company.
|
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The
following are filed with this Annual Report:
(1) The financial statements
listed on the Financial Statements Table of Contents.
(2) Not
applicable.
(3) The exhibits referred to
below, which include the following managerial contracts or compensatory plans or
arrangements:
|
o
|
Amended
and Restated Equity Incentive Plan
|
|
o
|
Employment
Agreement dated April 1, 2009 between New Dragon Asia Corp. and Ling
Wang
|
(b) The
exhibits listed on the Exhibit Index are filed as part of this Annual
Report.
(c) Not
applicable.
|
|
|
2.1
|
|
Share
Exchange Agreement dated as of December 18, 2001 (incorporated herein by
reference from our filing on the Definitive Proxy 14/A filed on October
11, 2001).
|
|
|
|
3.1
|
|
Amended Articles of Incorporation
(incorporated herewith by reference to Exhibit 3.1 to our Definitive Proxy
14/A filed on October 11, 2001).
|
|
|
|
3.2
|
|
By-laws
(incorporated herewith by reference to Exhibit 3.2 to our Definitive Proxy
14/A filed on October 11, 2001).
|
|
|
|
3.3
|
|
Certificate
of Designations of Preferences, Rights and Limitations of the Series A 7%
Convertible Preferred Stock (incorporated herewith by reference to Exhibit
3.1 of our Form 8-K filed on July 12, 2005).
|
|
|
|
3.4
|
|
Certificate
of Designations of Preferences, Rights and Limitations of the Series B 7%
Convertible Preferred Stock (incorporated herewith by reference to Exhibit
3.1 of our Form 8-K filed on December 23, 2005).
|
|
|
|
4.1
|
|
Subscription
Agreement, dated September 4, 2003 (incorporated herewith by
reference to Exhibit 4.1 to our Registration Statement on Form S-3 filed
on October 3, 2003).
|
|
|
|
4.2
|
|
Subscription
Agreement, dated October 3, 2003 (incorporated herewith by reference to
Exhibit 4.2 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
4.3
|
|
Common
Stock Purchase Warrants for the September 4, 2003 Private Placement
(incorporated herewith by reference to Exhibit 4.3 to our Registration
Statement on Form S-3 filed on October 3, 2003).
|
|
|
|
4.4
|
|
Common
Stock Purchase Warrants for the October 3, 2003 Private Placement
(incorporated herewith by reference to Exhibit 4.4 to our Registration
Statement on Form S-3 filed on October 3, 2003).
|
|
|
|
4.5
|
|
Form
of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
(incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
on July 12,
2005).
|
4.6
|
|
Form
of Warrant issued to Alliance Financial, LLC, Renaissance Advisors BVI,
John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
(incorporated herewith by reference to Exhibit 4.2 to our Registration
Statement on Form S-3 filed on August 11, 2005).
|
|
|
|
4.7
|
|
Securities
Purchase Agreement, dated July 11, 2005, relating to the sale of the
Series A 7% Convertible Preferred Stock (incorporated herewith by
reference to Exhibit 10.1 to our Form 8-K filed on July 12,
2005).
|
|
|
|
4.8
|
|
Registration
Rights Agreement, dated July 11, 2005, by and among New Dragon Asia Corp.
and the investors named therein (incorporated herewith by reference to
Exhibit 10.2 to our Form 8-K filed on July 12, 2005).
|
|
|
|
4.9
|
|
Form
of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
(incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
on December 23, 2005).
|
|
|
|
4.10
|
|
Form
of Warrant issued to Alliance Financial, LLC, Renaissance Advisors, Inc.,
John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
(incorporated herewith by reference to Exhibit 4.2 to our Registration
Statement on Form S-3 filed on January 20, 2006).
|
|
|
|
4.11
|
|
Securities
Purchase Agreement, dated December 22, 2005, relating to the sale of the
Series B 7% Convertible Preferred Stock (incorporated herewith by
reference to Exhibit 10.1 to our Form 8-K filed on December 23,
2005).
|
|
|
|
4.12
|
|
Registration
Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
Corp. and the investors named therein (incorporated herewith by reference
to Exhibit 10.2 to our Form 8-K filed on December 23,
2005).
|
|
|
|
4.13
|
|
Registration
Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
Corp. and New Dragon Food Ltd. (incorporated herewith by reference to
Exhibit 4.5 to our Registration Statement on Form S-3 filed on January 20,
2006).
|
|
|
|
10.1
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
Limited, dated June 1, 1999 (incorporated herewith by reference to Exhibit
10.1 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.2
|
|
Subcontracting
Agreement, for the New Dragon Asia Flour (Yantai) Company Limited, dated
June 26, 1999 (incorporated herewith by reference to Exhibit
10.2 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.3
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
Limited, dated November 28, 1998 (incorporated herewith by
reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed
on October 3, 2003).
|
|
|
|
10.4
|
|
Subcontracting
Agreement, for the New Dragon Asia Food (Yantai) Company Limited, dated
December 26, 1998 (incorporated herewith by reference to
Exhibit 10.4 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.5
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
Limited, dated November 28, 1998 (incorporated herewith by reference to
Exhibit 10.5 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.6
|
|
Subcontracting
Agreement, for the New Dragon Asia Food (Dalian) Company Limited, dated
December 26, 1998 (incorporated herewith by reference to Exhibit 10.6 to
our Registration Statement on Form S-3 filed on October 3,
2003).
|
10.7
|
|
Sino-Foreign
Joint Venture Contract for the Sanhe New Dragon Asia Food Company Limited,
dated November 28, 1998 (incorporated herewith by reference to Exhibit
10.7 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.8
|
|
Subcontracting
Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated
December 26, 1998 (incorporated herewith by reference to
Exhibit 10.8 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.9
|
|
Employment
Agreement between New Dragon Asia Corp. and Peter Mak, dated November 2,
2004 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
filed on June 29, 2005).
|
|
|
|
10.10
|
|
Employment
Supplement between New Dragon Asia Corp. and Peter Mak, dated June 22,
2005 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
filed on June 29, 2005).
|
|
|
|
10.11
|
|
Supplementary
Agreement to Employment Agreement between New Dragon Asia Corp. and Peter
Mak, dated January 20, 2006 (incorporated herewith by reference to Exhibit
10.10 to our Form 8-K filed on January 24, 2006).
|
|
|
|
10.12
|
|
Amended
and Restated Equity Incentive Plan (incorporated herewith by reference to
Exhibit C to our Definitive Information Statement on Schedule 14C filed on
May 4, 2009).
|
|
|
|
10.13
|
|
Stock
Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
December 13, 2006 (incorporated herewith by reference to Exhibit 10.1 to
our Form 8-K filed on December 15, 2006).
|
|
|
|
10.14
|
|
Settlement
Agreement and General Release between New Dragon Asia Corp and Berry-Shino
Securities Inc., dated August 15, 2007 (incorporated by reference to
Exhibit 10.1 to our Form 8-K filed on August 15, 2007).
|
|
|
|
10.15
|
|
Employment
Agreement dated April 1, 2009 between New Dragon Asia Corp. and Ling Wang
(incorporated herewith by reference to Exhibit 10.1 to our Registration
Statement on Form S-8 filed on May 8, 2009).
|
|
|
|
21.1
|
|
Subsidiaries
of New Dragon Asia Corp., filed herewith.
|
|
|
|
23.1
|
|
Consent
of
Baker
Tilly Hong Kong Limited
,
Independent Registered Public Accounting Firm, filed
herewith.
|
|
|
|
23.2
|
|
Consent
of
Crowe
Horwath LLP
, Independent Registered Public Accounting Firm, filed
herewith.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002), filed herewith.
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of
the Sarbanes-Oxley Act of 2002), filed
herewith.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: April
6, 2010
|
NEW
DRAGON ASIA CORP.
|
|
|
|
|
By:
|
/s/ Li Xia Wang
|
|
|
Name:
Li Xia Wang
|
|
|
Title:
Chief Executive Officer (Principal Executive
|
|
|
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Dated:
April 6, 2010
|
By:
|
/s/ Heng Jing Lu
|
|
|
Name:
|
Heng
Jing Lu
|
|
|
Title:
|
Chairman
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ Li Xia Wang
|
|
|
Name:
|
Li
Xia Wang
|
|
|
Title:
|
Chief
Executive Officer (Principal Executive
|
|
|
|
Officer)
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ Ling Wang
|
|
|
Name:
|
Ling
Wang
|
|
|
Title:
|
Chief
Financial Officer (Principal
|
|
|
|
Financial
and Accounting Officer)
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ De Lin Yang
|
|
|
Name:
|
De
Lin Yang
|
|
|
Title:
|
Director
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ Zhi Yong Jiang
|
|
|
Name:
|
Zhi
Yong Jiang
|
|
|
Title:
|
Director
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ Qi Xue
|
|
|
Name:
|
Qi
Xue
|
|
|
Title:
|
Director
|
|
|
|
|
Dated: April
6, 2010
|
By:
|
/s/ Feng Ju Chen
|
|
|
Name:
|
Feng
Ju Chen
|
|
|
Title:
|
Director
|
NEW
DRAGON ASIA CORP.
FINANCIAL
STATEMENTS
TABLE
OF CONTENTS
Reports
of Independent Registered Public Accounting Firms
|
|
F-2
|
|
|
|
Consolidated
Balance Sheets as of December 25, 2009 and 2008
|
|
F-4
|
|
|
|
Consolidated
Statements of Operations for the years ended December 25, 2009 and
2008
|
|
F-5
|
|
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income for the years
ended December 25, 2009 and 2008
|
|
F-6
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 25, 2009 and
2008
|
|
F-7
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-8
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
New
Dragon Asia Corp. and Subsidiaries
We have
audited the accompanying consolidated balance sheet of New Dragon Asia Corp. and
Subsidiaries (the “Company”) as of December 25, 2009 and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the 2009 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Dragon Asia Corp. and Subsidiaries as of December 25, 2009, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
Hong
Kong
|
/s/
Baker Tilly Hong Kong
Limited
|
April
6, 2010
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
New
Dragon Asia Corp. and Subsidiaries
We have
audited the accompanying consolidated balance sheet of New Dragon Asia Corp. and
Subsidiaries (the “Company”) as of December 25, 2008 and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the 2008 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Dragon Asia Corp. and Subsidiaries as of December 25, 2008, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 3 to the consolidated financial statements,
in 2009 the Company changed the manner in which it accounts for non-controlling
interests in subsidiaries. This change was made retrospectively to the 2008
financial statements.
Sherman
Oaks, California
|
/s/
Crowe Horwath
LLP
|
April
6, 2009 except for Note 3,
|
|
as
to which the date is April 6, 2010
|
|
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES (“NWD”)
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands, except share data)
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,440
|
|
|
$
|
4,383
|
|
Accounts
receivable, net
|
|
|
13,437
|
|
|
|
8,888
|
|
Deposits
and prepayments, net
|
|
|
5,632
|
|
|
|
13,056
|
|
Inventories,
net
|
|
|
14,466
|
|
|
|
27,124
|
|
Assets
held for disposal
|
|
|
—
|
|
|
|
5,778
|
|
Total
current assets
|
|
|
36,975
|
|
|
|
59,229
|
|
|
|
|
|
|
|
|
|
|
Property,
machinery and equipment, net
|
|
|
30,263
|
|
|
|
20,139
|
|
Land
use rights, net
|
|
|
4,332
|
|
|
|
4,529
|
|
Due
from related companies
|
|
|
952
|
|
|
|
981
|
|
Total
assets
|
|
$
|
72,522
|
|
|
$
|
84,878
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,808
|
|
|
$
|
4,980
|
|
Other
payables and accruals
|
|
|
2,062
|
|
|
|
3,845
|
|
Taxes
payable
|
|
|
186
|
|
|
|
294
|
|
Embedded
derivatives at fair value
|
|
|
76
|
|
|
|
287
|
|
Total
current liabilities
|
|
|
7,132
|
|
|
|
9,406
|
|
|
|
|
|
|
|
|
|
|
Due
to shareholder
|
|
|
3,700
|
|
|
|
2,780
|
|
Due
to joint venture partners
|
|
|
463
|
|
|
|
767
|
|
Total
liabilities
|
|
|
11,295
|
|
|
|
12,953
|
|
|
|
|
|
|
|
|
|
|
Series
A & B Redeemable Convertible Preferred Stock, $0.0001 par
value:
Authorized
shares – 5,000,000
Issued
and outstanding – 3,494 shares and 6,501 shares at December 25, 2009 and
2008, respectively
|
|
|
3,008
|
|
|
|
4,645
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Class
A Common Stock, $0.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized
shares – 102,000,000
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 86,364,229 in 2009 and 60,922,981 in
2008
|
|
|
8
|
|
|
|
6
|
|
Class
B Common Stock, $0.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized
shares – 2,000,000 – none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
35,569
|
|
|
|
32,521
|
|
Deferred
stock compensation
|
|
|
(75
|
)
|
|
|
—
|
|
Retained
earnings
|
|
|
9,187
|
|
|
|
21,321
|
|
Accumulated
other comprehensive income
|
|
|
13,405
|
|
|
|
13,310
|
|
Total
NWD stockholders’ equity
|
|
|
58,094
|
|
|
|
67,158
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
125
|
|
|
|
122
|
|
Total
equity
|
|
|
58,219
|
|
|
|
67,280
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
72,522
|
|
|
$
|
84,878
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts
in thousands, except per share data)
|
|
For the years ended December 25
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
23,217
|
|
|
$
|
49,340
|
|
Cost
of goods sold
|
|
|
(24,518
|
)
|
|
|
(41,989
|
)
|
Gross
profit /(loss)
|
|
|
(1,301
|
)
|
|
|
7,351
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling
and distribution expenses
|
|
|
(944
|
)
|
|
|
(1,275
|
)
|
General
and administrative expenses
|
|
|
(6,381
|
)
|
|
|
(3,896
|
)
|
Impairment
reserves
|
|
|
—
|
|
|
|
(4,925
|
)
|
Loss
from operations
|
|
|
(8,626
|
)
|
|
|
(2,745
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(3,145
|
)
|
|
|
100
|
|
Interest
income
|
|
|
82
|
|
|
|
36
|
|
Gain
on fair
value adjustments to
e
mbedded
derivatives
|
|
|
177
|
|
|
|
2,047
|
|
VAT
refund
|
|
|
59
|
|
|
|
60
|
|
Loss
before income taxes and non-controlling interests
|
|
|
(11,453
|
)
|
|
|
(502
|
)
|
Benefit
(provision) for income taxes
|
|
|
347
|
|
|
|
(1,205
|
)
|
Net
loss
|
|
|
(11,106
|
)
|
|
|
(1,707
|
)
|
Net
loss attributable to non-controlling interests
|
|
|
3
|
|
|
|
190
|
|
Net
loss attributable to controlling interests
|
|
$
|
(11,103
|
)
|
|
$
|
(1,517
|
)
|
Accretion
of redeemable preferred stock
|
|
|
(704
|
)
|
|
|
(1,196
|
)
|
Preferred
stock dividends
|
|
|
(324
|
)
|
|
|
(534
|
)
|
Loss
attributable to common stockholders
|
|
$
|
(12,131
|
)
|
|
$
|
(3,247
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.17
|
)
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.06
|
)
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
73,016
|
|
|
|
58,262
|
|
Diluted
|
|
|
73,016
|
|
|
|
58,262
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(Amounts
in the thousands)
|
|
Class A Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Deferred
Stock
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Total
NWD
Stockholders'
|
|
|
Non
Controlling
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Interests
|
|
|
Total Equity
|
|
|
Income
|
|
Balance
at December 25, 2007
|
|
|
55,195
|
|
|
$
|
5
|
|
|
$
|
29,982
|
|
|
$
|
-
|
|
|
$
|
24,568
|
|
|
$
|
7,767
|
|
$
|
62,322
|
|
|
$
|
294
|
|
|
$
|
62,616
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,517
|
)
|
|
|
-
|
|
|
(1,517
|
)
|
|
|
(190
|
)
|
|
|
(1,707
|
)
|
|
|
(1,517
|
)
|
Accretion
of Redeemable Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,196
|
)
|
|
|
-
|
|
|
(1,196
|
)
|
|
|
-
|
|
|
|
(1,196
|
)
|
|
|
|
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(534
|
)
|
|
|
-
|
|
|
(534
|
)
|
|
|
-
|
|
|
|
(534
|
)
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,543
|
|
|
5
.543
|
|
|
|
18
|
|
|
|
5,561
|
|
|
|
5,543
|
|
Conversion
of preferred stocks and related dividend payments made in Class A Common
Stock
|
|
|
5,728
|
|
|
|
1
|
|
|
|
2,539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
2,540
|
|
|
|
-
|
|
|
|
2,540
|
|
|
|
|
|
Balance
at December 25, 2008
|
|
|
60,923
|
|
|
|
6
|
|
|
|
32,521
|
|
|
|
-
|
|
|
|
21,321
|
|
|
|
13,310
|
|
|
67,158
|
|
|
|
122
|
|
|
$
|
67,280
|
|
|
|
4,026
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,106
|
)
|
|
|
-
|
|
|
(11,106
|
)
|
|
|
3
|
|
|
|
(11,103
|
)
|
|
|
(11,106
|
)
|
Accretion
of Redeemable Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(704
|
)
|
|
|
-
|
|
|
(704
|
)
|
|
|
-
|
|
|
|
(704
|
)
|
|
|
|
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(324
|
)
|
|
|
-
|
|
|
(324
|
)
|
|
|
-
|
|
|
|
(324
|
)
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
95
|
|
Conversion
of preferred stock and related dividend payments made in Class A Common
Stock
|
|
|
20,441
|
|
|
|
2
|
|
|
|
2,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
2,750
|
|
|
|
-
|
|
|
|
2,750
|
|
|
|
|
|
Share-based
compensation to CFO
|
|
|
2,000
|
|
|
|
—
|
|
|
|
300
|
|
|
|
(75
|
)
|
|
|
-
|
|
|
|
-
|
|
|
225
|
|
|
|
-
|
|
|
|
225
|
|
|
|
|
|
Balance
at December 25, 2009
|
|
|
83,364
|
|
|
$
|
8
|
|
|
$
|
35,569
|
|
|
$
|
(75
|
)
|
|
$
|
9,187
|
|
|
$
|
13,405
|
|
$
|
58,094
|
|
|
$
|
125
|
|
|
$
|
58,219
|
|
|
|
(11,011
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
|
For the years ended December 25,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,106
|
)
|
|
$
|
(1,707
|
)
|
Adjustments
to reconcile net income loss to net cashprovided by operating
activities:
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
1,541
|
|
|
|
229
|
|
Provision
for inventory reserve
|
|
|
460
|
|
|
|
433
|
|
Property
and equipment impairment
|
|
|
—
|
|
|
|
4,410
|
|
Provision
for land use rights impairment
|
|
|
—
|
|
|
|
390
|
|
Impairment
of goodwill
|
|
|
—
|
|
|
|
125
|
|
Depreciation
and amortization of land use rights
|
|
|
1,788
|
|
|
|
1,955
|
|
Loss
on sale of machinery and equipment
|
|
|
215
|
|
|
|
12
|
|
Gain
on fair
value adjustments to embedded derivatives
|
|
|
(177
|
)
|
|
|
(2,047
|
)
|
Stock-based
compensation expense
|
|
|
225
|
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,073
|
)
|
|
|
700
|
|
Deposits
and prepayments
|
|
|
7,781
|
|
|
|
(1
|
)
|
Inventories
|
|
|
12,215
|
|
|
|
(3,695
|
)
|
Due
from related companies
|
|
|
30
|
|
|
|
(2
|
)
|
Accounts
payable
|
|
|
(178
|
)
|
|
|
1,665
|
|
Other
payables and accruals
|
|
|
(1,732
|
)
|
|
|
882
|
|
Taxes
payable
|
|
|
(108
|
)
|
|
|
(3,256
|
)
|
Due
to related companies
|
|
|
—
|
|
|
|
(36
|
)
|
Deferred
tax asset
|
|
|
(350
|
)
|
|
|
—
|
|
Net
cash provided by operating activities
|
|
|
4,531
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property, machinery and equipment
|
|
|
5,848
|
|
|
|
3
|
|
Purchases
of property, machinery and equipment
|
|
|
(11,963
|
)
|
|
|
(1,172
|
)
|
Net
cash used in investing activities
|
|
|
(6,115
|
)
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payment
for preferred stock redemption
|
|
|
—
|
|
|
|
(84
|
)
|
Proceeds
from shareholder loan
|
|
|
916
|
|
|
|
1,189
|
|
(Repayment
to) proceeds from joint venture partners
|
|
|
(305
|
)
|
|
|
444
|
|
Net
cash provided by financing activities
|
|
|
611
|
|
|
|
1,549
|
|
Impact
of foreign currency translation on cash
|
|
|
30
|
|
|
|
300
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(943
|
)
|
|
|
737
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
4,383
|
|
|
|
3,646
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
3,440
|
|
|
$
|
4,383
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock into common stock
|
|
$
|
3,007
|
|
|
$
|
1,947
|
|
|
|
|
|
|
|
|
|
|
Dividend
payments on preferred stock in the form of common stock
|
|
$
|
376
|
|
|
$
|
593
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
374
|
|
|
$
|
3,106
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. ORGANIZATION AND NATURE OF OPERATIONS
New
Dragon Asia Corporation, a corporation incorporated in the State of Florida, is
principally engaged in the milling, sale and distribution of flour and related
products, including instant noodles and soybean-derived products, to retail and
wholesale customers throughout China through its foreign subsidiaries in China
(collectively the “Company”). The Company is headquartered in Shandong Province,
the People’s Republic of China (“PRC”) and has its corporate office in Shenzhen,
and eight manufacturing plants in Yantai, Beijing, Penglai and
Chengdu.
Details
of the subsidiaries are as follows:
Name
|
|
Domicile and date of
incorporation
|
|
Paid-in capital
|
|
Percentage of
ownership
|
|
|
Principal activities
|
|
|
|
|
|
|
|
|
|
|
Mix
Creation Limited (“MC”)
|
|
The
British Virgin Islands
November
7, 1997
|
|
US$1,500,000
|
|
|
100
|
%
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
|
|
|
Rich
Delta Limited (“RD”)
|
|
The
British Virgin Islands
October
28, 1998
|
|
US$1,000,000
|
|
|
100
|
%
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
|
|
|
Hero
Treasure Limited (“HT”)
|
|
The
British Virgin Islands
April
19, 2004
|
|
US$1
|
|
|
100
|
%
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
|
|
|
Keen
General Limited
(“KG”)
|
|
The
British Virgin Islands
July
20, 1998
|
|
US$1,500,000
|
|
|
100
|
%
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
|
|
|
Delta
Link Limited
(“DL”)
|
|
The
British Virgin Islands
October
29, 1998
|
|
US$1
|
|
|
100
|
%
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia Flour (Yantai) Company Limited (“NDAFLY”)
|
|
The
PRC
August
13, 1999
|
|
RMB28,500,000
|
|
|
90
|
%(a)
|
|
Manufacture,
marketing and distribution of flour
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia Food (Yantai) Company Limited (“NDAFY”)
|
|
The
PRC
December
24, 1998
|
|
RMB17,462,000
|
|
|
90
|
%(b)
|
|
Manufacture,
marketing and distribution of instant noodles
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia Food (Sanhe) Company Limited (“NDAFS”)
|
|
The
PRC
December
25, 1998
|
|
RMB51,191,432
|
|
|
79.64
|
%(b)
|
|
Manufacture,
marketing and distribution of instant noodles
|
|
|
|
|
|
|
|
|
|
|
|
Penglai
New Dragon Jin Qiao Food Company Limited (“PNDJQ”)
|
|
The
PRC
December
5, 2003
|
|
US$850,000
|
|
|
100
|
%
|
|
Manufacture,
marketing and distribution of flour
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia (Longkou) Packing Materials Company Limited
(“NDALPM”)
|
|
The
PRC
January
10, 2006
|
|
US$3,600,000
|
|
|
100
|
%
|
|
Manufacture
and sale of packing materials
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia (LongKou) Food Company Limited (“NDALS”)
|
|
The
PRC
March
17, 2005
|
|
RMB16,996,980
|
|
|
100
|
%
|
|
Manufacture,
marketing and distribution of soybean products
|
|
|
|
|
|
|
|
|
|
|
|
Shandong
Xinlongya Industry and Trade Company Limited (“SXDC”)
|
|
The
PRC
September
27, 2005
|
|
US$404,400
|
|
|
100
|
%
|
|
Marketing
and distribution of instant noodles, flour and soybean
products
|
|
|
|
|
|
|
|
|
|
|
|
New
Dragon Asia Food (Chengdu) Company Limited (“NDAFC)
|
|
The
PRC
February
24, 2006
|
|
RMB17,430,000
|
|
|
90
|
%
|
|
Manufacture,
marketing and distribution of instant
noodles
|
(a)
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 of NDAFLY effective from June 26, 1999. In
view of the profit sharing arrangement, NDAFLY is regarded as 100% owned by the
Company. The annual fee has been charged to General and Administrative Expenses
for the years ended December 25, 2009 and 2008.
(b) NDAFY
and NDAFS are contractual joint ventures established in the PRC to be operated
for 50 years until December 24, 2048. In March 1999, RD contributed 90% of the
registered capital to NDAFY, while KG contributed 79.64% of the registered
capital to NDAFS. 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 and NDAFS effective from December
26, 1998. In view of the profit sharing arrangements, NDAFY and NDAFS are
regarded as 100% owned by the Company. The annual fees have been charged to
General and Administrative Expenses for the years ended December 25, 2009 and
2008.
NOTE
2. BASIS OF PRESENTATION
The
consolidated financial statements include the financial statements of New Dragon
Asia Corp. and all of its wholly and majority owned subsidiaries (Note
1). Intercompany balances and transactions have been eliminated in
consolidation.
Accounting
Standards Codification (“ASC”) Topic 810, “Consolidation of Variable Interest
Entities” (formerly Standards of Financial Accounting Standards (“SFAS”) 167,
“Amendments to FASB Interpretation No. 46(R))” an investor with a
majority of the variable interests (primary beneficiary) in a variable interest
entity (“VIE”) to consolidate the entity. A VIE is an entity in which
the voting equity investors do not have a controlling financial interest or the
equity investment at risk is insufficient to finance the entity’s activities
without receiving additional subordinated financial support from other parties.
VIEs are required to be consolidated by their primary beneficiaries if they do
not effectively disperse risks among the parties involved. The
primary beneficiary of a VIE is the party that absorbs a majority of the
entity’s expected losses or receives a majority of its expected residual
returns. The Company has completed a review of its investments in
both non-marketable and marketable equity interests as well as other
arrangements to determine whether it is the primarily beneficiary of any
VIEs. The review did not identify any VIEs.
The
consolidated financial statements have been prepared in accordance with ASC
Topic 810 in the United States. These Consolidated Financial
Statements for interim periods are unaudited. In the opinion of
management, the consolidated financial statements include all adjustments,
consisting only of normal, recurring adjustments, necessary for their fair
presentation. The results reported in these Consolidated Financial
Statements are not necessarily indicative of the results that may be reported
for the entire year. The preparation of financial statements in
conformity with ASC Topic 810 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
reporting period. The Company regularly evaluates estimates and
assumptions related to allowances for doubtful accounts, sales returns and
allowance, and inventory reserves. Although management believes these estimates
and assumptions are adequate and reasonable under the circumstances, actual
results could differ from those estimates.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
recognition
The
Company recognizes sales in accordance with the United States ASC Topic 605,
“Revenue Recognition” (formerly Securities and Exchange Commission (“SEC”) Staff
Accounting Bulletin (“SAB”) 104, “Revenue Recognition”). The Company
recognizes revenue when the following fundamental criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) delivery
has occurred or services have been rendered, (iii) the price to the customer is
fixed or determinable and (iv) collection of the resulting receivable is
reasonably assured. Revenue is not recognized until title and risk of
loss is transferred to the customer, which occurs upon delivery of goods, and
objective evidence exists that customer acceptance provisions have been
met. Provisions for discounts and returns are provided for at the
time the related sales are recorded, and are reflected as a reduction of sales.
The Company bases its estimates on historical experience taking into
consideration the type of products sold, the type of customer, and the type of
specific transaction in each arrangement. Revenues represent the
invoiced value of goods, net of value added tax (“VAT”).
The
Company does not offer promotional payments, customer coupons, rebates or other
cash redemption offers to its customers.
All of
the Company’s sales made in Mainland China are subject to the Mainland Chinese
value-added tax at rates ranging from 13% to 17% (“output VAT”). Such
output VAT is payable after offsetting VAT paid by the Company on purchases
(“input VAT”).
Deposits
or advance payments from customers prior to delivery of goods and passage of
title of goods are recorded as deposits from customers.
Shipping
and Handling Costs
Shipping
and handling costs are included in selling expenses for all periods presented.
For the year ended December 25, 2009 and 2008, shipping and handling costs were
all related to exports of noodle and included in selling expenses amounting to
$0.09 million and $0.35 million.
Cash
and cash equivalents
The
Company considers cash on hand, deposits in banks, and short-term investments
purchased with an original maturity date of three months or less to be cash and
cash equivalents.
Accounting
for Derivative Instruments
Derivatives
are recorded on the Company’s balance sheet at fair value. These derivatives,
including embedded derivatives in the Company’s Series A and B Redeemable
Convertible Preferred Stock are separately valued and accounted for on the
Company’s balance sheet.
The Company has determined that the conversion features of its
redeemable convertible preferred stock and warrants to purchase common stock are
derivatives that the Company is required to account for as if they were
free-standing instruments.. The Company has also determined that it is required
to designate these derivatives as liabilities in its financial statements. As a
result, the Company reports the value of these embedded derivatives as current
liabilities on its balance sheet and reports changes in the value of these
derivatives as non-operating gains or losses on its statement of operations. The
value of the derivatives is required to be recalculated (and resulting
non-operating gains or losses reflected in the statement of operations and
resulting adjustments to the associated liability amounts reflected on the
balance sheet) on a quarterly basis, and is based on the market value of the
Company’s common stock. Due to the nature of the required calculations and the
large number of shares of the Company’s common stock involved in such
calculations, changes in the Company’s common stock price may result in
significant changes in the value of the derivatives and resulting gains and
losses on the Company’s statement of operations.
The
pricing models the Company uses for determining fair values of its derivatives
are a combination of the Black-Scholes and Binomial Pricing Models. Valuations
derived from this model are subject to ongoing internal and external review. The
model uses market-sourced inputs such as interest rates and option volatilities.
Selection of these inputs involves management’s judgment and may impact net
earnings. The Company has obtained a valuation report from a valuation firm to
support its estimates as of December 25, 2009 and 2008.
The
consolidated financial statements also reflect additional non-operating gains
and losses related to the classification of and accounting for: (1) the
conversion features of the Series A and B Preferred Stock and associated
warrants, (2) the amortization associated with the discount recorded with
respect to the Series A and B Preferred Stock as a preferred stock dividend, and
(3) the conversion features associated with the preferred stock issued by
the Company and associated warrants.
Fair
Value of Financial Instruments
The
Company adopted ASC Topic 820, “Fair Value Measurements and Disclosure”
(formerly SFAS 157, “Fair Value Measurements”) on January 1, 2008 to
account for and record fair values of financial instruments. This ASC
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. The ASC establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value
into three levels as follows:
Level
1 -
|
quoted
prices (unadjusted) in active markets for identical asset or
liabilities that the Company has the ability to access as of the
measurement date. Financial assets and liabilities utilizing Level 1
inputs include active exchange-traded securities and exchange-based
derivatives.
|
Level
2 -
|
inputs
other than quoted prices included within Level 1 that are directly
observable for the asset or liability or indirectly observable through
corroboration with observable market data. Financial assets and
liabilities utilizing Level 2 inputs include fixed income securities,
non-exchange-based derivatives, mutual funds, and fair-value
hedges.
|
Level
3 -
|
unobservable
inputs for the asset or liability only used when there is little, if any,
market activity for the asset or liability at the measurement date.
Financial assets and liabilities utilizing Level 3 inputs include
infrequently-traded, non-exchange-based derivatives and commingled
investment funds, and are measured using present value pricing
models.
|
The
Company determines the level in the fair value hierarchy within which each fair
value measurement in its entirety falls, based on the lowest level input that is
significant to the fair value measurement in its entirety.
The
following table presents the embedded derivatives, the Company’s only financial
liabilities measured and recorded at fair value on the Company’s Consolidated
Balance Sheets on a recurring basis and its level within the fair value
hierarchy during the years ended December 25, 2009 and 2008:
(In
thousands)
|
|
Fair
Value
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative liabilities as of December 25, 2009
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
76
|
|
Embedded
derivative liabilities as of December 25, 2008
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
287
|
|
|
$
|
287
|
|
Financial
instruments
The
carrying amounts for cash and cash equivalents, accounts receivable, deposits
and prepayments, accounts payable, shareholder and joint venture partner debts,
and other payables and accruals approximate their fair values because of their
nature and respective duration.
Accounts
receivable
Accounts
receivable is stated at cost, net of an allowance for doubtful accounts. The
Company provides for an allowance for doubtful accounts for those third party
trade accounts that are not collected within one year.
Financial
instruments, which potentially subject the Company to concentration of credit
risk, consist primarily of trade receivables. However, concentrations of credit
risk are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across different businesses and geographic
areas. The Company monitors its exposure to credit losses and maintains an
allowance for anticipated losses. Such losses historically have not been
significant and have been within management’s expectations. To reduce credit
risk, the Company performs periodic credit valuations of its
customers.
Inventories
valuation
Inventories
are stated at the lower of cost, determined on a weighted average basis, or net
realizable value. Costs of work-in-progress and finished goods are composed of
direct material, direct labor and an attributable portion of manufacturing
overhead. Net realizable value is the estimated selling price, in the ordinary
course of business, less estimated costs to complete and dispose.
Property,
machinery and equipment
Property,
machinery and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the related assets that
range from 5 to 50 years. Leasehold improvements are amortized using
the straight-line method over the estimated useful life of the asset or the term
of the lease, whichever is shorter. Costs for normal repairs and
maintenance are expensed to operations as incurred, while renewals and major
refurbishments are capitalized.
The
Company accounts for long-lived assets, such as property, machinery and
equipment and purchased intangible assets with finite lives, in accordance with
ASC Topic 360-10, “Impairment or Disposal of Long Lived Assets” (formerly SFAS
144, “Accounting for the Impairment or Disposal of Long-Lived Assets”), which
requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present. Determination of
recoverability is based on an estimate of undiscounted future cash follows
resulting from the use of the asset and its eventual disposition. Measurement of
any impairment loss for long-lived assets that management expects to hold and
use is based on the amount the carrying value exceeds the fair value of the
assets.
Assessments
of whether there has been a permanent impairment in the value of property,
machinery and equipment are periodically performed by considering factors such
as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other economic factors. The
Company has made adequate provision for the impairment occurred as of December
25, 2009.
Land
use rights
Land use
rights are stated at cost, less accumulated amortization. Amortization is
computed using the straight-line method over the contractual lives ranging from
27 to 50 years.
Income
taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes” (formerly SFAS 109, “Accounting for Income Taxes” and FIN 48
“Uncertainty in Income Taxes”). Under this method, deferred income taxes are
recognized for the estimated tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts and each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established to reduce deferred tax
assets to the amount expected to be realized when, in management’s opinion; it
is more likely than not that some portion of the deferred tax assets will not be
realized. The provision for income taxes represents current taxes payable net of
the change during the period in deferred tax assets and liabilities. The Company
accounts , for uncertainty in tax positions, under the requirement of ASC
740.
Operating
leases
Operating
leases represent those leases under which substantially all the risks and
rewards of ownership of the leased assets remain with the lessors. Rental
payments under operating leases are charged to expense on the straight-line
basis over the period of the leases.
Comprehensive
Income
The
Company reports and displays comprehensive income and its components
in the consolidated financial statements. Accumulated other comprehensive income
(loss) includes foreign currency translation adjustments.
Foreign
currency translation
The
functional currency of the Company is the Chinese Renminbi. However, the Company
reports in U.S. dollars. The financial statements of the Company’s
foreign subsidiaries have been translated into U.S. dollars in accordance with
ASC Topic 830-20, “Foreign Currency Transactions” (formerly SFAS 52, “Foreign
Currency Translation”). All asset and liability accounts have been translated
using the exchange rate in effect at the balance sheet date. Equity
accounts have been translated at their historical exchange rates when the
capital transaction occurred. Statements of Operations amounts have been
translated using the average exchange rate for the year. At December 25, 2009,
the revenues and expenses of the Company were translated to U.S. dollars based
on an average rate of US$1.00 = RMB 6.8312 and the assets and liabilities of the
Company maintained in Renminbi translated to U.S. dollars at US$1.00 = RMB
6.8283. The foreign currency translation adjustment of $13,405 and $13,310 have
been reported as comprehensive income in the consolidated statement of
stockholders’ equity and comprehensive income for 2009 and
2008.
Although
the Chinese government regulations now allow convertibility of RMB for current
account transactions, significant restrictions still remain. Hence,
such translations should not be construed as representations that RMB could be
converted into U.S. dollars at that rate or any other rate.
Substantially
all our revenue and expenses are denominated in RMB. Our RMB cash
inflows are sufficient to service our RMB obligations. For financial
reporting purposes, we use U.S. dollars. The value of RMB against
U.S. dollars and other currencies may fluctuate and is affected by, among other
things, changes in China’s political and economic conditions. Any
significant revaluation of RMB may materially affect our financial condition in
terms of U.S. dollar reporting.
Earnings
per share
The
Company computes earnings per share (“EPS’) in accordance with ASC Topic 260,
“Earnings per Share” (formerly SFAS 128, “Earnings per Share”). Companies
with complex capital structures are required to present basic and diluted
EPS. Basic EPS is measured as the income or loss available to common
shareholders divided by the weighted average common shares outstanding for the
period. Diluted EPS is similar to basic EPS but presents the dilutive
effect on a per share basis of potential common shares (e.g., convertible
securities, options and warrants) as if they had been converted at the beginning
of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted
EPS. Approximately 27,091 dilutive shares on an “as converted” basis for the
Redeemable Convertible Preferred stock for the year ended December 25, 2009 were
excluded from the calculation of diluted earnings per share since their effect
would have been anti-dilutive. Approximately 29,667 dilutive shares
on an “as converted” basis for the Redeemable Convertible Preferred stock for
the year ended December 25, 2008 were excluded from the calculation of diluted
earnings per share since their effect would have been
anti-dilutive.
Warrants
to purchase totaling 6,482,895 shares of Class A Common Stock at weighted
average exercise price $1.4093 per share and options to purchase totaling
6,000,000 shares of Class A Common Stock at weighted average exercise price
$1.82 per share were outstanding as of December 25, 2009 and 2008, but were
excluded from the calculation of diluted earnings per share because the effects
of stock warrants and stock options were anti-dilutive.
The
calculation of diluted weighted average common shares outstanding for the year
ended December 25, 2009 and 2008 is based on the average of the closing price of
the Company’s common stock during such periods applied to warrants and options
using the treasury stock method to determine if they are dilutive. The
Redeemable Convertible Preferred stock is included on an “as converted “basis
when these shares are dilutive.
The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted earnings per share for the periods presented
(amounts in thousands, except per share data):
|
|
Year Ended December 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per-Share
|
|
|
Loss
|
|
|
Shares
|
|
|
Per-Share
|
|
Earnings
per share – basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to common stockholders
|
|
$
|
(12,131
|
)
|
|
|
73,016
|
|
|
$
|
(0.17
|
)
|
|
$
|
(3,247
|
)
|
|
|
58,262
|
|
|
$
|
(0.06
|
)
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Convertible Preferred Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Options
and Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Earnings
per share – diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to common stockholders
|
|
$
|
(12,131
|
)
|
|
|
73,016
|
|
|
$
|
(0.17
|
)
|
|
$
|
(3,247
|
)
|
|
|
58,262
|
|
|
$
|
(0.06
|
)
|
Stock-Based
Compensation
The
Company accounts for Stock Based
Compensation by measuring the cost of services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. For stock options, the Company used the Black-Scholes
option-pricing model to estimate the fair value of the options at the date of
grant.
Recent
accounting pronouncements
In
December 2008, FASB issued Staff Position (“FSP”) amends FAS 132(R),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits” to
provide guidance on an employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. This FSP is effective for fiscal
years ending after December 15, 2009. The new standard expands disclosures
for assets held by employer pension and other postretirement benefit plans. It
will not affect the Company’s financial position or results of
operations.
Effective
January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160,
“Non-controlling Interests in Consolidated Financial Statements — an amendment
of ARB No. 51”), which amends previously issued guidance to establish accounting
and reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as minority interest,
is an ownership interest in the consolidated entity that should be reported as
equity. Among other requirements, this Statement requires that the consolidated
net income attributable to the parent and the non-controlling interest be
clearly identified and presented on the face of the consolidated income
statement. The presentation and disclosure requirements of the ASC Topics have
been applied retrospectively for all periods presented in the accompanying
consolidated balance sheets, statements of operations and statements of cash
flows. The adoption of this pronouncement resulted in a change in the
description and presentation of “minority interest” to “non-controlling
interest”. However there was no impact on the Company’s financial condition or
net income (loss) attributable to stockholders for any periods
presented.
In April
2009, FASB issued FSP 115-2 and FSP 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (now codified within ASC 320,
“Investments—Debt and Equity Securities”). ASC 320 provides greater clarity
about the credit and noncredit component of an other-than-temporary impairment
event and more effectively communicates when an other-than-temporary impairment
event has occurred. ASC 320 amends the other-than-temporary impairment model for
debt securities. The impairment model for equity securities was not affected.
Under ASC 320, an other-than-temporary impairment must be recognized through
earnings if an investor has the intent to sell the debt security or if it is
more likely than not that the investor will be required to sell the debt
security before recovery of its amortized cost basis. This standard was
effective for interim periods ending after June 15, 2009. The adoption of ASC
320 did not have a material impact on the Company's results of operations or
financial position.
In April
2009, the FASB issued guidance on determining fair value when the volume and
level of activity for an asset or liability has significantly decreased and
identifying transactions that are not orderly (originally issued as FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly”, and subsequently codified within FASB ASC Topic 820). The
guidance provides additional guidance to expand on the factors that should be
considered in estimating fair value when there has been a significant decrease
in market activity for an asset or liability. The guidance is effective for
interim and annual periods ending after June 15, 2009. The adoption did not have
any impact on the Company’s financial position or results of operations at the
date of adoption.
In April
2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (now codified within ASC
825, “Financial Instruments”). ASC 825 requires disclosures about fair value of
financial instruments in interim financial statements as well as in annual
financial statements. ASC 825 was effective for interim periods ending after
June 15, 2009. The adoption of ASC 825 did not have a material impact on
the Company's consolidated results of operations or financial
position.
In May
2009, the FASB issued guidance on subsequent events (originally issued as SFAS
165, “Subsequent Events”, and subsequently codified into FASB ASC Topic 855).
Topic 855 addresses the accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued. Topic 855 is
effective for interim or annual periods ending after June 15, 2009. The
adoption of Topic 855 did not have any impact on the Company’s financial
position or results of operations at the date of adoption.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification), “Generally
Accepted Accounting Principles - Overall” (ASC Topic 105-10). The Codification
established one source for all U.S. GAAP. The Codification supersedes, but does
not change, all then-existing non-SEC accounting and reporting standards.
Throughout this report, references provided to applicable portions of the
Codification also include reference to the original FASB standard (SFAS), staff
position (FSP) or consensus of the Emerging Issues Task Force
(EITF).
In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162” (subsequently codified into FASB ASC Topic 105) which
established the FASB ASC as the single source of authoritative accounting
principles for U.S. GAAP issued by the FASB. The Codification supersedes all
existing non-SEC accounting and reporting standards and subsequent to adoption,
the FASB will issue new standards in the form of ASUs, and no longer as SFASs,
FASB Staff Positions or Emerging Issues Task Force Abstracts. The Codification
is effective for reporting periods ending on or after September 15, 2009.
The adoption of the Codification did not have any impact on the Company’s
financial position or results of operations at the date of
adoption.
In August
2009, FASB issued Accounting Standards Updates (“ASU”) 2009-5, “Fair Value
Measurements and Disclosures - Measuring Liabilities at Fair Value”. ASU 2009-5
provides amendments to Subtopic 820-10, “Fair Value Measurements and
Disclosures-Overall”, for the fair value measurement of liabilities. ASU 2009-5
clarifies that in circumstances in which a quoted price in an active market for
the identical liability is not available, a reporting entity is required to
measure fair value. ASU 2009-5 was effective for the Company for interim
and annual periods ending after October 3, 2009. The adoption of
ASU 2009-5 did not have a material impact on the Company's results of
operations or financial position.
In
August 2009, FASB issued ASU 2009-4, “Accounting for Redeemable Equity
Instruments—an Amendment to Section 480-10-S99”). ASU 2009-4 represents a
SEC update to Section 480-10-S99, Distinguishing Liabilities from Equity.
The adoption of guidance within ASU 2009-4 did not have an impact on the
Company's results of operations or financial position.
In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
(amendments to ASC Topic 470, “Debt”)”, and provides guidance for accounting and
reporting for own-share lending arrangements issued in contemplation of a
convertible debt issuance. At the date of issuance, a share-lending
arrangement entered into on an entity’s own shares should be measured at fair
value in accordance with Topic 820 and recognized as an issuance cost, with an
offset to additional paid-in capital. Loaned shares are excluded from
basic and diluted earnings per share unless default of the share-lending
arrangement occurs. The amendments also require several disclosures
including a description and the terms of the arrangement and the reason for
entering into the arrangement. The effective dates of the amendments
are dependent upon the date the share-lending arrangement was entered into and
include retrospective application for arrangements outstanding as of the
beginning of fiscal years beginning on or after December 15,
2009. The Company expects the adoption of ASU 2009-15 will have
a material impact on the Company’s results of operations or financial
position..
In
December 2009, FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860):
Accounting for Transfers of Financial Assets”. ASU 2009-16 amends the FASB ASC
for the issuance of SFAS 166, “Accounting for Transfers of Financial
Assets—an amendment of SFAS 140”. The amendments in ASU 2009-16 improve
financial reporting by eliminating the exceptions for qualifying special-purpose
entities from the consolidation guidance and the exception that permitted sale
accounting for certain mortgage securitizations when a transferor has not
surrendered control over the transferred financial assets. In addition, the
amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its continuing involvement in transferred
financial assets. ASU 2009-16 is effective as of the beginning of each reporting
entity's first annual reporting period that begins after November 15,
2009. The Company expects the adoption of ASU 2009-16 will have a
material impact on the Company’s results of operations or financial
position.
In
December 2009, FASB issued ASU 2009-17, “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities”. ASU 2009-17 amends the FASB ASC for the issuance of
SFAS 167, “Amendments to FASB Interpretation No. 46(R”). The
amendments in ASU 2009-17 replace the quantitative-based risks and rewards
calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entity's economic
performance and (1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity. ASU 2009-17 also
requires additional disclosures about an enterprise's involvement in variable
interest entities. ASU 2009-17 is effective as of the beginning of each
reporting entity's first annual reporting period that begins after
November 15, 2009. The Company expects the adoption of ASU 2009-17 will not
have a material impact on the Company’s results of operations or financial
position.
In
January 2010, FASB issued ASU 2010-2, “Accounting and Reporting for Decreases in
Ownership of a Subsidiary- a Scope Clarification”. ASU 2010-2 addresses
implementation issues related to the changes in ownership provisions in the
Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB ASC, originally
issued as SFAS 160, “Noncontrolling Interests in Consolidated Financial
Statements”. Subtopic 810-10 establishes the accounting and reporting guidance
for noncontrolling interests and changes in ownership interests of a subsidiary.
An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, an entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. The gain or
loss includes any gain or loss associated with the difference between the fair
value of the retained investment in the subsidiary and its carrying amount at
the date the subsidiary is deconsolidated. In contrast, an entity is required to
account for a decrease in ownership interest of a subsidiary that does not
result in a change of control of the subsidiary as an equity transaction.
ASU 2010-2 is effective for the Company starting January 3, 2010. The
Company expects the adoption of ASU 2010-2 will not have a material impact on
the Company's results of operations or financial position.
In
January 2010, FASB issued ASU 2010-6, “Improving Disclosures about Fair
Measurements". ASU 2010-6 provides amendments to subtopic 820-10 that require
separate disclosure of significant transfers in and out of Level 1 and
Level 2 fair value measurements and the presentation of separate
information regarding purchases, sales, issuances and settlements for
Level 3 fair value measurements. Additionally, ASU 2010-6 provides
amendments to subtopic 820-10 that clarify existing disclosures about the level
of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective
for financial statements issued for interim and annual periods ending after
December 15, 2010. The Company expects the adoption of ASU 2010-06 will not
have a material impact on the Company’s results of operations or financial
position.
In
February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements”. ASU 2010-9 amends
disclosure requirements within Subtopic 855-10. An entity that is an SEC filer
is not required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company expects the adoption of ASU
2010-06 will not have a material impact on the Company’s results of operations
or financial position.
In March
2008, FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities” (now codified within ASC 815, “Derivatives and Hedging”).
ASC 815 requires enhanced disclosures about an entity's derivative and hedging
activities aimed at improving the transparency of financial reporting. ASC 815
was effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The adoption of ASC 815 did not
have any impact on the Company's results of operations or financial position and
no additional disclosure was required.
Business
Acquisition and Combination
Longyuan
Packaging Plant
On
January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
Materials Company Limited (“NDAPM”), a wholly-owned subsidiary in Longkou,
Shandong Province. NDAPM is principally engaged in the manufacturing and sale of
packing materials, with a registered capital of $3.60 million. During the year
ended December 25, 2009, the Company has spent approximately $2.40 million on
the construction at the new plant and has committed to further capital
expenditures of $1.46 million for the completion of the plant.
NOTE 4. ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Accounts
receivable
|
|
$
|
16,162
|
|
|
$
|
10,072
|
|
Less:
Allowance for doubtful accounts
|
|
|
(2,725
|
)
|
|
|
(1,184
|
)
|
|
|
$
|
13,437
|
|
|
$
|
8,888
|
|
The
activity in the Company’s allowance for doubtful accounts is summarized as
follows:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Balance
at the beginning of the year
|
|
$
|
1,184
|
|
|
$
|
944
|
|
Add:
provision during the year
|
|
|
1,551
|
|
|
|
308
|
|
Less:
write-offs during the year
|
|
|
(10
|
)
|
|
|
(68
|
)
|
Balance
at the end of the year
|
|
$
|
2,725
|
|
|
$
|
1,184
|
|
NOTE 5. DEPOSITS AND PREPAYMENTS
Deposits
and prepayments consist of the following:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Deposits
for raw materials
|
|
$
|
4,794
|
|
|
$
|
12,414
|
|
Prepayments
and advances
|
|
|
913
|
|
|
|
642
|
|
|
|
$
|
5,707
|
|
|
$
|
13,056
|
|
NOTE
6. INVENTORIES
Inventories
consist of the following:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Raw
materials (including packing materials)
|
|
$
|
13,488
|
|
|
$
|
26,047
|
|
Finished
goods
|
|
|
1,490
|
|
|
|
1,642
|
|
|
|
|
14,978
|
|
|
|
27,689
|
|
Less:
Inventory reserve
|
|
|
(512
|
)
|
|
|
(565
|
)
|
|
|
$
|
14,466
|
|
|
$
|
27,124
|
|
The
activity in the Company’s provision for inventory reserve is summarized as
follows:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Balance
at the beginning of the year
|
|
$
|
565
|
|
|
$
|
96
|
|
Add:
provision during the year
|
|
|
510
|
|
|
|
471
|
|
Less:
write-offs during the year
|
|
|
(563
|
)
|
|
|
(2
|
)
|
Balance
at the end of the year
|
|
$
|
512
|
|
|
$
|
565
|
|
NOTE
7. DUE FROM RELATED COMPANIES
Due from
related companies consist of the following:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
Xinlong
Asia Food (Dalian) Co., Ltd.*
|
|
|
899
|
|
|
|
929
|
|
Xinlong
Asia Food (Luoyang) Co., Ltd.*
|
|
|
53
|
|
|
|
52
|
|
Due
from affiliated companies for sales
|
|
$
|
952
|
|
|
$
|
981
|
|
*
Subsidiaries of Shandong
Longfeng Group Company.
NOTE
8. PROPERTY, MACHINERY AND EQUIPMENT
Property,
machinery and equipment consist of the following:
|
|
Useful Life
|
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Buildings
|
|
40
|
|
|
$
|
13,437
|
|
|
$
|
9,379
|
|
Machinery
and equipment
|
|
5-
12
|
|
|
|
23,680
|
|
|
|
16,298
|
|
Construction
in process
|
|
|
|
|
|
2,397
|
|
|
|
2,216
|
|
|
|
|
|
|
|
39,514
|
|
|
|
27,893
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
|
(9,251
|
)
|
|
|
(7,754
|
)
|
|
|
|
|
|
$
|
30,263
|
|
|
$
|
20,139
|
|
Depreciation
and amortization expense was approximately $1,581,000, and $1,847,000 for the
years ended December 25, 2009 and 2008, respectively.
NOTE
9. LAND USE RIGHTS
Land use
rights consist of the following:
|
December 25,
2009
|
|
December 25,
2008
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
Land
use rights
|
|
$
|
5,256
|
|
|
$
|
5,250
|
|
Less:
Accumulated amortization
|
|
|
(924
|
)
|
|
|
(721
|
)
|
|
|
$
|
4,332
|
|
|
$
|
4,529
|
|
Private
ownership of land is not allowed in Mainland China. Rather, entities acquire the
right to use land for a designated term. As of December 25, 2009 and 2008, the
land use rights consisted of six parcels of land located in Mainland China held
under land use rights of 27 to 50 years through 2025 to 2047.
Amortization
expense was approximately $203,000 and $335,000 for the years ended December 25,
2009 and 2008, respectively. Amortization expense in each of the next 5 years is
expected to be $200,000.
NOTE
10. OTHER PAYABLES AND ACCRUALS
Other
payables and accruals consist of the following:
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
Deposits
from customers
|
|
$
|
465
|
|
|
$
|
591
|
|
Accruals
for payroll, bonus and benefits
|
|
|
413
|
|
|
|
1,173
|
|
Utilities
and accrued expenses
|
|
|
1,184
|
|
|
|
2,081
|
|
|
|
$
|
2,062
|
|
|
$
|
3,845
|
|
NOTE
11. TAXATION
The PRC
subsidiaries within the Company are subject to PRC income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
operate. The group 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.
For the
years ended December 25, 2009 and 2008, substantially all of the Company’s
income was generated in the PRC, which is subject to PRC income taxes at rates
of 24% to 25%. Two of the PRC subsidiaries of the Company are eligible to be
exempt from income taxes for a two-year period commencing with the year in which
their operations are profitable and then subject to a 50% reduction in income
taxes for the next three years, starting from their first profitable year.
Several PRC subsidiaries receive preferential tax rates in regions in which they
operated and are also entitled to partial tax refunds from those tax
bureaus.
New
Dragon Asia Corp. is a Florida corporation with wholly-owned operating
subsidiaries. As a result, the Company is not subject to PRC tax for the
activities at the Florida company level. Costs or expenses incurred at the
Florida company level, such as the stock-based compensation and the amortization
of financing costs and derivative accounting related to Series A Preferred Stock
and Series B Preferred Stock, cannot be used to offset any income derived in the
PRC when measuring the PRC income tax liabilities. As of December 25, 2009 and
2008, there were no material deferred tax assets or deferred tax liabilities.
The deferred tax asset amounting to $350,000 relates to tax over payment for
2008 that will be applied against the tax provision for 2009 and beyond. The
expenses of the United States company are not recoverable against future taxable
income in the United States or the PRC and meet the definition of permanent
differences for tax accounting purposes. The Company has never been audited by
the taxing authority in the United States or the PRC. The Company believes that
it has filed properly in all required jurisdictions.
A
reconciliation of the provision for income taxes determined at the statutory
average state and local income tax rate to the Company’s effective income tax
rate is as follows:
|
|
2009
|
|
|
2008
|
|
Expected
tax provision (benefit)
|
|
|
(25
|
)%
|
|
|
(25
|
)%
|
Non
deductible expenses:
|
|
|
|
|
|
|
|
|
Impairment
for fixed assets and intangible assets
|
|
|
(1
|
)%
|
|
|
245
|
%
|
Change
in fair value of derivatives
|
|
|
—
|
|
|
|
(102
|
)%
|
Expenses
outside of China
|
|
|
2
|
%
|
|
|
42
|
%
|
Governmental
tax rate effects:
|
|
|
|
|
|
|
|
|
Prepayment
of income tax
|
|
|
27
|
%
|
|
|
—
|
|
Reduction
for preferential tax rate
|
|
|
—
|
|
|
|
(17
|
)%
|
Impact
of effective tax holiday and lower factory rates
|
|
|
—
|
|
|
|
97
|
%
|
Effective
tax rate
|
|
|
3
|
%
|
|
|
240
|
%
|
Accounting
for Uncertainty in Income Taxes
Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation was
performed for the tax years ended December 31, 2009 and 2008, the tax years,
which remain subject to examination by major tax jurisdictions (PRC) as of
December 31, 2009.
We may
from time to time be assessed interest or penalties by major tax jurisdictions.
In the event we receive an assessment for interest and/or penalties, it will be
classified in the financial statements as tax expense.
NOTE
12. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On July
11, 2005, the Company issued 6,000 shares of Series A 7% Redeemable Convertible
Preferred Stock (“Series A Preferred Stock”); initially convertible into an
aggregate of 6,315,789 shares of Class A Common Stock at a conversion price of
$0.95 per share, raising $6 million in gross proceeds. Six-year warrants to
purchase an aggregate of 3,157,895 shares of Class A Common Stock at an exercise
price of $1.04 per share were also issued to the investors. As part of the
compensation to the placement agent, five-year warrants to purchase an aggregate
of 378,947 shares of Class A Common Stock at an exercise price of $1.04 share
were also issued. As of December 25, 2009, all of the warrants issued to the
placement agent have been exercised cashless, and 5,601 shares of Series A
Preferred Stock have been converted into 8,737,874 shares of Class A Common
Stock.
On
December 22, 2005, the Company issued 9,500 shares of Series B 7% Redeemable
Convertible Preferred Stock (“Series B Preferred Stock”), initially convertible
into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion
price of $1.60 per share, raising $9.5 million in gross proceeds. Six-year
warrants to purchase an aggregate of 2,968,750 shares of Class A Common Stock at
an exercise price of $1.76 per share were also issued to the investors. As part
of the compensation to the placement agent, five-year warrants to purchase an
aggregate of 356,250 shares of Class A Common Stock at an exercise price of
$1.76 per share were also issued. As of December 25, 2009, 6,405
shares of Series B Preferred Stock have been converted into 18,908,388 shares of
Class A Common Stock, and no warrants have been exercised.
The key
terms of the Series A Preferred Stock and Series B Preferred Stock are as
follows:
|
|
Series A Preferred Stock
|
|
Series B Preferred Stock
|
|
|
|
|
|
Preferred
Dividend
|
|
7%
per annum, payable quarterly in arrears in cash or, at the Company’s
option subject to satisfaction of certain conditions, shares of Class A
Common Stock valued at 95% of the volume-weighted current market
price.
|
|
7%
per annum, payable quarterly in arrears in cash or, at the Company’s
option subject to satisfaction of certain conditions, shares of Class A
Common Stock valued at 95% of the volume-weighted current market
price.
|
|
|
|
|
|
Redemption
|
|
July
11, 2010
Beginning
on the 24th month following closing and each month thereafter, the Company
shall redeem 1/37th of the face value of the Preferred Stock in either
cash or Class A Common Stock valued at 90% of the volume-weighted current
market price.
|
|
December
22, 2010
Beginning
at the end of the 24th month following closing and on each third monthly
anniversary of that date (quarterly) thereafter, the Company shall redeem
1/13th of the face value of the Preferred Stock in either cash or Class A
Common Stock valued at 90% of the volume-weighted current market
price.
|
|
|
|
|
|
Mandatory
Conversion
|
|
The
Company may at any time force the conversion of the Preferred Stock if the
volume-weighted current market price of the Class A Common Stock exceeds
300% of the then applicable conversion price.
|
|
The
Company may at any time force the conversion of the Preferred Stock if the
volume-weighted current market price of the Class A Common Stock exceeds
200% of its price at issuance of the Preferred Stock.
|
|
|
|
|
|
Registration
|
|
The
Company shall file to register the underlying Class A common shares within
30 days of the closing date and make its best efforts to have the
Registration declared effective at the earliest date. In the
event such Registration is not continuously effective during the period
such shares are subject to transfer restrictions under the U.S. federal
securities laws, then (subject to certain exceptions) the holders are
entitled to receive liquidated damages equal to 2.0% of the purchase price
of the Preferred Stock per month.
|
|
The
Company shall file to register the underlying Class A common shares with
30 days of the closing date and make its best efforts to have the
Registration declared effective at the earliest date. In the
event such Registration is not continuously effective during the period
such shares are subject to transfer restrictions under the U.S. federal
securities laws, then (subject to certain exceptions) the holders are
entitled to receive liquidated damages equal to 2.0% of the purchase price
of the Preferred Stock per month.
|
|
|
|
|
|
Anti-dilution
|
|
In
the event the Company issues, at any time while Preferred Stock are still
outstanding, Common Stock or any type of securities giving rights to
Common Stock at a price below the Issue Price, the Company agrees to
extend full-ratchet anti-dilution protection to the
investors.
|
|
In
the event the Company issues, at any time while Preferred Stock are still
outstanding, Common Stock or any type of securities giving rights to
Common Stock at a price below the Issue Price, the Company agrees to
extend full-ratchet anti-dilution protection to the
investors.
|
In
connection with the issuance of the Redeemable Convertible Series A Preferred
Stock and Series B Preferred Stock, the Company paid professional fees,
placement agent fees and associated expenses amounting to $1.83 million since
the issuance of the Redeemable Convertible Preferred Stocks. The Company also
identified freestanding financial instruments included in the issuances that
were required to be recorded as liabilities. These included the embedded
conversion feature and warrants included in the Series A & B Preferred Stock
issuances. The Company has evaluated the fair value of these liabilities using
combination of the Black Scholes and Binomial Pricing Models. The summary of
activity in the Series A & B Preferred Stock is as follows:
Redeemable Convertible Preferred Stock
|
|
Preferred shares
|
|
|
Balance
|
|
2008
|
|
|
|
|
(in
thousands)
|
|
Series
A
|
|
|
931
|
|
|
$
|
931
|
|
Series
B
|
|
|
5,570
|
|
|
|
5,570
|
|
Less
unamortized discount
|
|
|
-
|
|
|
|
(1,856
|
)
|
Balance
December 25, 2008
|
|
|
6,501
|
|
|
$
|
4,645
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
399
|
|
|
$
|
399
|
|
Series
B
|
|
|
3,095
|
|
|
|
3,095
|
|
Less
unamortized discount
|
|
|
-
|
|
|
|
(
486
|
)
|
Balance
December 25, 2009
|
|
|
3,494
|
|
|
$
|
3,008
|
|
Embedded
derivatives relate to redeemable convertible preferred stock. We determined that
the conversion features of our redeemable convertible preferred stock and
warrants to purchase our common stock are derivatives that we are required to
account for as freestanding instruments under U.S. GAAP. We have also determined
that we are required to designate these derivatives as liabilities in our
financial statements. As a result, we report the value of these embedded
derivatives as current liabilities on our balance sheet and we report changes in
the value of these derivatives as non-operating gains or losses on our statement
of operations. The value of the derivatives is required to be recalculated (and
resulting non-operating gains or losses reflected in our statement of operations
and resulting adjustments to the associated liability amounts reflected on our
balance sheet) on a quarterly basis, and is based on the market value of our
common stock. Due to the nature of the required calculations and the large
number of shares of our common stock involved in such calculations, changes in
our common stock price may result in significant changes in the value of the
derivatives and resulting gains and losses on our statements of operations. Our
common stock price ranged from a low of $0.12 to a high $0.18 during last six
months of 2009. We were required to report a change of $177 as gain on the
embedded derivative liability in other income on our statement of operations for
the year ended December 25, 2009 and a change of $2,047 as gain for
2008.
The
pricing model we use for determining fair values of our derivatives is a
combination of the Black Scholes and Binomial Pricing Models. Valuations derived
from this model are subject to ongoing internal and external review. The model
uses market-sourced inputs such as interest rates and option volatilities.
Selection of these inputs involves management’s judgment and may impact net
income. The Company has obtained a valuation report from a third-party valuation
firm to support its estimates. The principal assumptions used to value these
complex freestanding financial instruments were as follows:
|
|
Warrants
|
|
Embedded Conversion Feature
|
Expected
life (in years)
|
|
Remaining
term at valuation
date
|
|
Remaining
Term to conversion or
redemption
date at each valuation date
|
Expected
volatility
|
|
95%
to 100%
|
|
95%
to 105%
|
Risk-free
interest rate
|
|
0.69%
to 0.97%
|
|
0.02%
to 0.41%
|
Dividend
yield
|
|
0
|
|
0
|
The
Company considered all of the other minor features of the conversion option
associated with the Company’s Preferred shares, including adjustments for: (i)
stock dividends and splits, (ii) the sale of the Company’s securities, (iii) the
subsequent issuance of rights, options, or warrants to Common shareholders, and
(iv) forced conversion and redemption features. We ultimately determined that
these features were insignificant and did not have a material impact on the
concluded values of the Series A and Series B Preferred Stock.
The
changes in the derivative liabilities during the period are as
follows:
Fair
Value at December 25, 2007
|
|
$
|
2,493
|
|
Gain
on change in value of derivatives during the period
|
|
|
(2,047
|
)
|
Conversion
of 3,685 shares of Series A & B Preferred Stock to common stock during
2008
|
|
|
(159
|
)
|
Fair
Value at December 25, 2008
|
|
$
|
287
|
|
Gain
on change in value of derivatives during the period
|
|
|
(177
|
)
|
Conversion
of 3,007 shares of Series A & B Preferred Stock to common stock during
2009
|
|
|
(34
|
)
|
Fair
Value at December 25, 2009
|
|
$
|
76
|
|
NOTE
13. COMMON STOCK
During
the years ended December 25, 2009 and 2008, 532 shares and 452 shares of Series
A Preferred Stock have been converted into 2,916,525 shares and 962,402 shares
of Class A Common Stock respectively.
During
the years ended December 25, 2009 and 2008, 3,015 shares and 1,940 shares of
Series B Preferred Stock have been converted into 13,973,033 shares and
4,029,105 shares of Class A Common Stock respectively.
The
Company issued 2,000,000 Class A Common Shares to the CFO as annual compensation
for the service term from April 1, 2009 to March 31, 2010. The market value of
such common shares was $300,000. The Company recognized $225,000 as compensation
expense for the year ended December 25, 2009. The remaining $75,000 has been
recognized as a deferred stock compensation and will be charged to income on the
straight-line basis over the remaining service term.
NOTE
14. WARRANTS
The
following table summarizes activity regarding the Company’s outstanding
warrants:
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
Outstanding
at December 25, 2008
|
|
|
6,482,895
|
|
|
|
1.4093
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 25, 2009
|
|
|
6,482,895
|
|
|
|
1.4093
|
|
The
number of shares of Class A Common Stock issuable under warrants related to the
private placements and respective exercise prices are summarized as
follows:
|
|
Shares of Class A Common Stock
Issuable Under Warrants
|
|
|
Exercise
Price
|
|
July
2005 private placement
|
|
|
|
|
|
|
6-year
warrants
|
|
|
3,157,895
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
December
2005 private placement
|
|
|
|
|
|
|
|
|
6-year
warrants
|
|
|
2,968,750
|
|
|
|
1.76
|
|
5-year
warrants
|
|
|
356,250
|
|
|
|
1.76
|
|
Warrants
exercisable at December 25, 2009
|
|
|
6,482,895
|
|
|
|
|
|
As of
December 25, 2009, these warrants had no intrinsic value.
NOTE
15. STOCK-BASED COMPENSATION
The
Company measures the cost of services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. The Company
used the Black-Scholes option-pricing model to estimate the fair value of the
options at the date of grant.
On
January 20, 2006, options to purchase 2,000,000 shares of Class A Common Stock
were issued to an officer at an exercise price of $1.60 per share with a term of
6 years. The market price of the Class A Common Stock as of the grant date was
$1.54 per share. The Company recorded compensation expense of $2,320,000 based
on an estimated fair value of the options of $1.16 per share on January 20,
2006. The per share fair value of the stock options granted has been estimated
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
January 20, 2006
|
Life
(years)
|
|
|
6
|
|
Dividend
yield
|
|
|
None
|
|
Risk
- free interest rate
|
|
|
4.36
|
%
|
Volatility
|
|
|
89
|
%
|
None of
these options were exercised, and as of December 25, 2009, all of these options
had expired as the employment contract with the officer expired.
On
December 13, 2006, options to purchase an additional 6,000,000 shares of Class A
Common Stock were granted to the same officer at an exercise price of $1.82 per
share with a term of 10 years. The options were fully vested upon grant. The
market price of the Class A Common Stock as of the grant date was $1.82 per
share. The Company recorded compensation expense of $5,820,000 based on an
estimated fair value of the options of $0.97 per share on December 13, 2006, the
grant date. The per share fair value of the stock options granted has been
estimated using the Black-Scholes option-pricing model with the following
assumptions:
|
|
December 13, 2006
|
Life
(years)
|
|
|
10
|
|
Dividend
yield
|
|
|
None
|
|
Risk
- free interest rate
|
|
|
4.55
|
%
|
Volatility
|
|
|
50
|
%
|
As of
December 25, 2009, these options were fully vested. According to the employment
contract with the officer, all of these options will expire in January 2010, one
year after the expiration of the employment contract.
The
following table summarizes outstanding options as at December 25, 2009, related
weighted average fair value and life information:
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
Exercise
Price Per Share
|
|
|
Number Outstanding
at December 25,
2009
|
|
|
Weighted
Average
Fair Value
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
|
Number Exercisable
at December 25,
2009
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.82
|
|
|
|
6,000,000
|
|
|
$
|
0.97
|
|
|
|
0.33
|
|
|
|
6,000,000
|
|
|
$
|
1.82
|
|
The
Company has no future compensation expense to record from this option
outstanding at December 25, 2009 because they were fully vested upon grant and
compensation cost was recorded as of that date. As of December 25, 2009, the
options had no intrinsic value.
The
Company issued 2,000,000 Class A Common Shares to the CFO as annual compensation
for the service term from April 1, 2009 to March 31, 2010. The market value of
such common shares was $300,000. The Company recognized $225,000 as compensation
expense for the year ended December 25, 2009. The remaining $75,000 has been
recognized as a deferred stock compensation and will be charged to income on the
straight-line basis over the remaining service term.
NOTE
16. COMMITMENTS
(a)
Annual fees
Under the
supplementary joint venture agreements, the Company has committed to pay
predetermined annual fees of $129,000 to the Chinese joint venture partners for
each of the years in the period from December 26, 1998 to 2049 as long as the
joint venture continues to operate. As of December 25, 2009, total commitments
under these arrangements were as follows (in thousands):
2010
|
|
|
129
|
|
2011
|
|
|
129
|
|
2012
|
|
|
129
|
|
2013
|
|
|
129
|
|
2014
|
|
|
129
|
|
Thereafter
|
|
|
4,399
|
|
Total
|
|
$
|
5,044
|
|
(b)
Capital commitment
Capital
commitments not provided in the consolidated financial statements include the
followings (in thousands):
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Construction
of factory premises
|
|
$
|
1,464
|
|
|
$
|
1,457
|
|
NOTE
17. RELATED PARTY TRANSACTIONS
Parties
are considered to be related if one party has the ability, 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.
Transactions
between the New Dragon Asia Corp. and related companies are summarized below (in
thousands):
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Pre-determined
annual fees charged by joint venture partners:
|
|
|
|
|
|
|
Shandong
Longfeng Group Company (a)
|
|
$
|
26
|
|
|
$
|
87
|
|
Shandong
Longfeng Flour Company Limited (b)
|
|
|
47
|
|
|
|
43
|
|
|
|
$
|
73
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
Rental
income from a joint venture partner:
|
|
|
|
|
|
|
|
|
Shandong
Longfeng Group Company
|
|
$
|
—
|
|
|
$
|
76
|
|
(a)
Shandong Longfeng Group Company is a joint venture partner of the
Company.
(b)
Subsidiary(ies) of Shandong Longfeng Group Company.
Loans
from the major shareholder New Dragon Asia Food Limited are for working capital
are unsecured and bear no interest, is payable if requested, and funds are
available. The Company and the major shareholder have agreed that no repayments
will take place in 2010. The joint venture partner’s amounts are similar to the
condition of New Dragon Asia Food Limited loans and no repayment is expected in
2010.
NOTE
18. CONDENSED GEOGRAPHIC FINANCIAL INFORMATION
Condensed
balance sheet information as of December 25, 2009 consisted of the following (in
thousands):
|
|
Inside China
|
|
|
Outside China
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
-
Cash and cash equivalents
|
|
$
|
3,366
|
|
|
$
|
74
|
|
|
$
|
3,440
|
|
-
Others
|
|
|
69,045
|
|
|
|
37
|
|
|
|
69,082
|
|
Total
Assets
|
|
|
72,411
|
|
|
|
111
|
|
|
|
72,522
|
|
Liabilities
|
|
|
8,050
|
|
|
|
3,245
|
|
|
|
11,295
|
|
Non-controlling
interests
|
|
|
125
|
|
|
|
—
|
|
|
|
125
|
|
Intercompany
|
|
|
14,360
|
|
|
|
(14,360
|
)
|
|
|
—
|
|
Equity
|
|
|
45,481
|
|
|
|
12,738
|
|
|
|
58,219
|
|
Assets
located outside of China consist primarily of cash and cash equivalents and
prepayment. Liabilities located outside of China consist primarily of
non-interest loans from the parent company.
Condensed
statement of operation information for the year ended December 25, 2009
consisted of the following (in thousands):
|
|
Inside China
|
|
|
Outside China
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
23,217
|
|
|
$
|
—
|
|
|
$
|
23,217
|
|
Cost
of goods sold
|
|
|
(24,518
|
)
|
|
|
—
|
|
|
|
(24,518
|
)
|
General
and administrative expenses
|
|
|
(5,291
|
)
|
|
|
(1,090
|
)
|
|
|
(6,381
|
)
|
Loss
from operation
|
|
|
(7,536
|
)
|
|
|
(1,090
|
)
|
|
|
(8,626
|
)
|
Other
income (expenses)
|
|
|
(3,004
|
)
|
|
|
177
|
|
|
|
(2,827
|
)
|
Benefit
for income taxes
|
|
|
347
|
|
|
|
—
|
|
|
|
347
|
|
Net
loss
|
|
|
(10,190
|
)
|
|
|
(913
|
)
|
|
|
(11,103
|
)
|
See Note
23 for condensed parent company financial information.
Condensed
balance sheet information as of December 25, 2008 consisted of the following (in
thousands):
|
|
Inside China
|
|
|
Outside China
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
-
Cash and cash equivalents
|
|
$
|
4,337
|
|
|
$
|
46
|
|
|
$
|
4,383
|
|
-
Others
|
|
|
80,449
|
|
|
|
46
|
|
|
|
80,495
|
|
Total
Assets
|
|
|
84,786
|
|
|
|
92
|
|
|
|
84,878
|
|
Liabilities
|
|
|
10,299
|
|
|
|
2,654
|
|
|
|
12,953
|
|
Non-controlling
interests
|
|
|
122
|
|
|
|
—
|
|
|
|
122
|
|
Intercompany
|
|
|
14,343
|
|
|
|
(14,343
|
)
|
|
|
—
|
|
Equity
|
|
|
55,576
|
|
|
|
11,704
|
|
|
|
67,280
|
|
Assets
located outside of China consist primarily of cash and cash equivalents and
deposits. Liabilities located outside of China consist primarily of
preferred stock, net of the related beneficial conversion feature and fair value
of the warrants.
Condensed
statement of operation information for the year ended December 25, 2008
consisted of the following (in thousands):
|
|
Inside China
|
|
|
Outside China
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
49,340
|
|
|
$
|
—
|
|
|
$
|
49,340
|
|
Cost
of goods sold
|
|
|
(41,989
|
)
|
|
|
—
|
|
|
|
(41,989
|
)
|
General
and administrative expenses
|
|
|
(3,062
|
)
|
|
|
(834
|
)
|
|
|
(3,896
|
)
|
Loss
from operation
|
|
|
(1,911
|
)
|
|
|
(834
|
)
|
|
|
(2,745
|
)
|
Other
income
|
|
|
196
|
|
|
|
2,047
|
|
|
|
2,243
|
|
Provision
for income taxes
|
|
|
(1,205
|
)
|
|
|
—
|
|
|
|
(1,205
|
)
|
Net
loss
|
|
|
(1,000
|
)
|
|
|
(517
|
)
|
|
|
(1,517
|
)
|
NOTE
19. SEGMENT INFORMATION
The
Company classifies its products into three core business segments, namely
instant noodles, flour and soybean. In view of the fact that the Company
operates principally in Mainland China, no geographical segment information is
presented.
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Net
revenue:
|
|
|
|
|
|
|
Instant
noodles
|
|
$
|
3,913
|
|
|
$
|
13,234
|
|
Flour
|
|
|
12,982
|
|
|
|
27,008
|
|
Soybean
|
|
|
6,322
|
|
|
|
9,098
|
|
|
|
$
|
23,217
|
|
|
$
|
49,340
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations:
|
|
|
|
|
|
|
|
|
Instant
noodles
|
|
$
|
(1,773
|
)
|
|
$
|
(5,574
|
)
|
Flour
|
|
|
(5,087
|
)
|
|
|
3,106
|
|
Soybean
|
|
|
(1,766
|
)
|
|
|
(277
|
)
|
|
|
$
|
(8,626
|
)
|
|
$
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Instant
noodles
|
|
$
|
783
|
|
|
$
|
1,034
|
|
Flour
|
|
|
370
|
|
|
|
716
|
|
Soybean
|
|
|
547
|
|
|
|
432
|
|
|
|
$
|
1,700
|
|
|
$
|
2,182
|
|
|
|
|
|
|
|
|
|
|
Identifiable
long-term assets:
|
|
|
|
|
|
|
|
|
Instant
noodles
|
|
$
|
17,510
|
|
|
$
|
13,084
|
|
Flour
|
|
|
8,268
|
|
|
|
8,667
|
|
Soybean
|
|
|
9,769
|
|
|
|
3,898
|
|
|
|
$
|
35,547
|
|
|
$
|
25,649
|
|
NOTE
20. MAJOR CUSTOMERS
No single
customer accounted for more than 5% of sales for the years ended December 25,
2009 and 2008.
NOTE
21. RETIREMENT PLAN
As
stipulated by the regulations of the PRC government, companies operating in the
PRC have defined contribution retirement plans for their employees. The PRC
government is responsible for the pension liability to these retired employees.
Commencing from January 1, 2002, the Company was required to make specified
contributions to the state-sponsored retirement plan at 20% of the basic salary
cost of their staff. Each of the employees of the PRC subsidiaries is required
to contribute 6% of his/her basic salary. For the years ended December 25, 2009
and 2008, contributions made by the Company were approximately $648,000 and
$446,000, respectively.
NOTE
22. CONDENSED U.S. PARENT COMPANY FINANCIAL INFORMATION
BASIS
OF PRESENTATION
These
condensed parent company financial statements have been prepared in accordance
with Rule 12-04 of Regulation S-X. New Dragon Asia Corp. is a holding company
that conducts its operations through its subsidiaries, which are more fully
described in Note 1.
The
parent company financial statements have been prepared using the same accounting
principles and policies described in the notes to the consolidated financial
statements, with the only exception being that the parent company accounts for
its subsidiaries using the equity method. Refer to the footnotes to
the consolidated financial statements presented above for additional information
and disclosures with respect to these financial statements.
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONDENSED
PARENT COMPANY BALANCE SHEETS
(Amounts
in thousands, except share data)
|
|
December 25,
2009
|
|
|
December 25,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
74
|
|
|
$
|
46
|
|
Other
receivable
|
|
|
20
|
|
|
|
20
|
|
Deferred
expenses, net
|
|
|
17
|
|
|
|
26
|
|
Total
current assets
|
|
|
111
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Investment
in and advances to subsidiaries
|
|
|
64,714
|
|
|
|
74,814
|
|
Total
assets
|
|
$
|
64,825
|
|
|
$
|
74,906
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Other
payables and accruals
|
|
$
|
796
|
|
|
$
|
762
|
|
Dividend
payable on preferred shares
|
|
|
61
|
|
|
|
114
|
|
Embedded
derivatives at fair value
|
|
|
76
|
|
|
|
287
|
|
Total
current liabilities
|
|
|
933
|
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
Due
to New Dragon Asia Food Limited
|
|
|
2,790
|
|
|
|
1,940
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,723
|
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
Series
A & B Redeemable Convertible Preferred Stock, $0.0001 par
value:
|
|
|
|
|
|
|
|
|
Authorized
shares – 5,000,000
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 3,494 shares and 6,501 shares at December 25, 2009 and
2008, respectively
|
|
|
3008
|
|
|
|
4,645
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Class
A Common Stock, $0.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized
shares – 102,000,000
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 83,364,229 in 2009 and 60,922,981 in
2008
|
|
|
8
|
|
|
|
6
|
|
Class
B Common Stock, $0.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized
shares – 2,000,000 – none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
35,569
|
|
|
|
32,521
|
|
Deferred
stock compensation
|
|
|
(75
|
)
|
|
|
—
|
|
Retained
earnings
|
|
|
9,187
|
|
|
|
21,321
|
|
Accumulated
other comprehensive income
|
|
|
13,405
|
|
|
|
13,310
|
|
Total
stockholders’ equity
|
|
|
58,094
|
|
|
|
67,158
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
64,825
|
|
|
$
|
74,906
|
|
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONDENSED
PARENT COMPANY STATEMENTS OF OPERATIONS
(Amounts
in thousands)
|
|
For the years ended December 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
(1,090
|
)
|
|
$
|
(834
|
)
|
Loss
from operations
|
|
|
(1,090
|
)
|
|
|
(834
|
)
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on fair
value adjustments to
e
mbedded
derivatives
|
|
|
177
|
|
|
|
2,047
|
|
Total
parent only gain (loss)
|
|
|
(913
|
)
|
|
|
1,212
|
|
Equity
in subsidiary earnings, net of taxes
|
|
|
(10,190
|
)
|
|
|
(2,729
|
)
|
Net
loss
|
|
$
|
(11,103
|
)
|
|
$
|
(1,517
|
)
|
Accretion
of redeemable preferred stock
|
|
|
(704
|
)
|
|
|
(1,196
|
)
|
Preferred
stock dividends
|
|
|
(324
|
)
|
|
|
(534
|
)
|
Loss
attributable to common stockholders
|
|
$
|
(12,131
|
)
|
|
$
|
(3,247
|
)
|
NEW
DRAGON ASIA CORP. AND SUBSIDIARIES
CONDENSED
PARENT COMPANY STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
|
For the years ended December 25,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Total
parent only gain (loss)
|
|
$
|
(913
|
)
|
|
$
|
1,212
|
|
Adjustments
to reconcile total parent only gain (loss) to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Gain
on fair
value adjustments to
e
mbedded
derivatives
|
|
|
(177
|
)
|
|
|
(2,047
|
)
|
Stock-based
compensation expense
|
|
|
225
|
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other
receivable
|
|
|
9
|
|
|
|
3
|
|
Other
payables and accruals
|
|
|
34
|
|
|
|
(30
|
)
|
Net
cash used in operating activities
|
|
|
(822
|
)
|
|
|
(862
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment
and advances to subsidiaries
|
|
|
26
|
|
|
|
(292
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
26
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends
|
|
|
—
|
|
|
|
(84
|
)
|
Increase
in due to parent company
|
|
|
850
|
|
|
|
850
|
|
Net
cash provided by financing activities
|
|
|
850
|
|
|
|
766
|
|
Foreign
currency translation adjustment
|
|
|
26
|
|
|
|
293
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
28
|
|
|
|
(95
|
)
|
Cash
and cash equivalents at the beginning of the period
|
|
|
46
|
|
|
|
141
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
74
|
|
|
$
|
46
|
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
|
|
|
2.1
|
|
Share
Exchange Agreement dated as of December 18, 2001 (incorporated herein by
reference from our filing on the Definitive Proxy 14/A filed on October
11, 2001).
|
|
|
|
3.1
|
|
Amended Articles of Incorporation
(incorporated herewith by reference to Exhibit 3.1 to our Definitive Proxy
14/A filed on October 11, 2001).
|
|
|
|
3.2
|
|
By-laws
(incorporated herewith by reference to Exhibit 3.2 to our Definitive Proxy
14/A filed on October 11, 2001).
|
|
|
|
3.3
|
|
Certificate
of Designations of Preferences, Rights and Limitations of the Series A 7%
Convertible Preferred Stock (incorporated herewith by reference to Exhibit
3.1 of our Form 8-K filed on July 12, 2005).
|
|
|
|
3.4
|
|
Certificate
of Designations of Preferences, Rights and Limitations of the Series B 7%
Convertible Preferred Stock (incorporated herewith by reference to Exhibit
3.1 of our Form 8-K filed on December 23, 2005).
|
|
|
|
4.1
|
|
Subscription
Agreement, dated September 4, 2003 (incorporated herewith by
reference to Exhibit 4.1 to our Registration Statement on Form S-3 filed
on October 3, 2003).
|
|
|
|
4.2
|
|
Subscription
Agreement, dated October 3, 2003 (incorporated herewith by reference to
Exhibit 4.2 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
4.3
|
|
Common
Stock Purchase Warrants for the September 4, 2003 Private Placement
(incorporated herewith by reference to Exhibit 4.3 to our Registration
Statement on Form S-3 filed on October 3, 2003).
|
|
|
|
4.4
|
|
Common
Stock Purchase Warrants for the October 3, 2003 Private Placement
(incorporated herewith by reference to Exhibit 4.4 to our Registration
Statement on Form S-3 filed on October 3, 2003).
|
|
|
|
4.5
|
|
Form
of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
(incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
on July 12, 2005).
|
|
|
|
4.6
|
|
Form
of Warrant issued to Alliance Financial, LLC, Renaissance Advisors BVI,
John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
(incorporated herewith by reference to Exhibit 4.2 to our Registration
Statement on Form S-3 filed on August 11, 2005).
|
|
|
|
4.7
|
|
Securities
Purchase Agreement, dated July 11, 2005, relating to the sale of the
Series A 7% Convertible Preferred Stock (incorporated herewith by
reference to Exhibit 10.1 to our Form 8-K filed on July 12,
2005).
|
|
|
|
4.8
|
|
Registration
Rights Agreement, dated July 11, 2005, by and among New Dragon Asia Corp.
and the investors named therein (incorporated herewith by reference to
Exhibit 10.2 to our Form 8-K filed on July 12, 2005).
|
|
|
|
4.9
|
|
Form
of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
(incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
on December 23, 2005).
|
|
|
|
4.10
|
|
Form
of Warrant issued to Alliance Financial, LLC, Renaissance Advisors, Inc.,
John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
(incorporated herewith by reference to Exhibit 4.2 to our Registration
Statement on Form S-3 filed on January 20,
2006).
|
4.11
|
|
Securities
Purchase Agreement, dated December 22, 2005, relating to the sale of the
Series B 7% Convertible Preferred Stock (incorporated herewith by
reference to Exhibit 10.1 to our Form 8-K filed on December 23,
2005).
|
|
|
|
4.12
|
|
Registration
Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
Corp. and the investors named therein (incorporated herewith by reference
to Exhibit 10.2 to our Form 8-K filed on December 23,
2005).
|
|
|
|
4.13
|
|
Registration
Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
Corp. and New Dragon Food Ltd. (incorporated herewith by reference to
Exhibit 4.5 to our Registration Statement on Form S-3 filed on January 20,
2006).
|
|
|
|
10.1
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
Limited, dated June 1, 1999 (incorporated herewith by reference to Exhibit
10.1 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.2
|
|
Subcontracting
Agreement, for the New Dragon Asia Flour (Yantai) Company Limited, dated
June 26, 1999 (incorporated herewith by reference to Exhibit
10.2 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.3
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
Limited, dated November 28, 1998 (incorporated herewith by
reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed
on October 3, 2003).
|
|
|
|
10.4
|
|
Subcontracting
Agreement, for the New Dragon Asia Food (Yantai) Company Limited, dated
December 26, 1998 (incorporated herewith by reference to
Exhibit 10.4 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.5
|
|
Sino-Foreign
Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
Limited, dated November 28, 1998 (incorporated herewith by reference to
Exhibit 10.5 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.6
|
|
Subcontracting
Agreement, for the New Dragon Asia Food (Dalian) Company Limited, dated
December 26, 1998 (incorporated herewith by reference to Exhibit 10.6 to
our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.7
|
|
Sino-Foreign
Joint Venture Contract for the Sanhe New Dragon Asia Food Company Limited,
dated November 28, 1998 (incorporated herewith by reference to Exhibit
10.7 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.8
|
|
Subcontracting
Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated
December 26, 1998 (incorporated herewith by reference to
Exhibit 10.8 to our Registration Statement on Form S-3 filed on October 3,
2003).
|
|
|
|
10.9
|
|
Employment
Agreement between New Dragon Asia Corp. and Peter Mak, dated November 2,
2004 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
filed on June 29, 2005).
|
|
|
|
10.10
|
|
Employment
Supplement between New Dragon Asia Corp. and Peter Mak, dated June 22,
2005 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
filed on June 29, 2005).
|
|
|
|
10.11
|
|
Supplementary
Agreement to Employment Agreement between New Dragon Asia Corp. and Peter
Mak, dated January 20, 2006 (incorporated herewith by reference to Exhibit
10.10 to our Form 8-K filed on January 24, 2006).
|
|
|
|
10.12
|
|
Amended
and Restated Equity Incentive Plan (incorporated herewith by reference to
Exhibit C to our Definitive Information Statement on Schedule 14C filed on
May 4, 2009).
|
|
|
|
10.13
|
|
Stock
Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
December 13, 2006 (incorporated herewith by reference to Exhibit 10.1 to
our Form 8-K filed on December 15,
2006).
|
10.14
|
|
Settlement
Agreement and General Release between New Dragon Asia Corp and Berry-Shino
Securities Inc., dated August 15, 2007 (incorporated by reference to
Exhibit 10.1 to our Form 8-K filed on August 15, 2007).
|
|
|
|
10.15
|
|
Employment
Agreement dated April 1, 2009 between New Dragon Asia Corp. and Ling Wang
(incorporated herewith by reference to Exhibit 10.1 to our Registration
Statement on Form S-8 filed on May 8, 2009).
|
|
|
|
21.1
|
|
Subsidiaries
of New Dragon Asia Corp., filed herewith.
|
|
|
|
23.1
|
|
Consent
of
Baker
Tilly Hong Kong Limited
, Independent Registered Public Accounting
Firm, filed herewith.
|
|
|
|
23.2
|
|
Consent
of
Crowe
Horwath LLP
, Independent Registered Public Accounting Firm, filed
herewith
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002), filed herewith.
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of
the Sarbanes-Oxley Act of 2002), filed
herewith.
|
Nwd Group (AMEX:NWD)
Historical Stock Chart
From May 2024 to Jun 2024
Nwd Group (AMEX:NWD)
Historical Stock Chart
From Jun 2023 to Jun 2024