U.S. Securities and Exchange
Commission Washington, D.C. 20549
Form 10-QSB/Amendment No. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-27937
DRAGON PHARMACEUTICAL INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-0142474
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1055 West Hastings Street, Suite 1900
Vancouver, British Columbia
Canada V6E 2E9
(Address of principal executive offices)
(604) 669-8817 (Issuer's
telephone number)
(Former address if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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
the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding as of March 31, 2005: 62,878,004
Explanatory Note. Dragon Pharmaceutical is filing this amendment no.1 to its
quarterly report for the quarter ended March 31, 2005 to restate Oriental Wave
Holding Limited's financial statements for the year ended December 31, 2004 and
Dragon's financial statements for the quarterly period ended March 31, 2005.
After review of its accounting policies and applicable accounting
pronouncements, Dragon believes that the reduction of a future retirement
benefit obligation related to the acquisition of a land use right from an
unrelated former state-owned enterprise in China by Oriental Wave in July 2003,
should have been accounted for as a reduction to the recorded cost of the land
use right instead of as a non-operating gain from extinguishment of debt, as
previously disclosed in Oriental Wave's 2004 financial statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
DRAGON PHARMACEUTICAL INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
CONTENTS
PAGE 3 CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 (UNAUDITED)
AND DECEMBER 31, 2004
PAGE 4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
PAGE 5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
PERIODS ENDED MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31,
2004
PAGE 6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)
PAGES 7 TO 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
ASSETS
------
RESTATED RESTATED
(NOTE 18) (NOTE 18)
March 31, 2005 December 31,
Note (Unaudited) 2004
---------- ------------------ --------------
CURRENT ASSETS
Cash and cash equivalents $ 1,785,238 $ 910,425
Accounts receivable, net of allowances 2 8,770,244 6,675,298
Inventories, net 3 16,585,898 16,623,906
Value added tax receivable - 162,443
Prepaid expenses 1,154,013 911,228
------------------ --------------
Total Current Assets 28,295,393 25,283,300
------------------ --------------
PROPERTY AND EQUIPMENT, NET 4 62,765,232 62,396,316
OTHER ASSETS
Intangible assets, net 6 2,650,693 432,769
Other receivables 2,428,564 2,213,842
Investments -cost 12,077 12,077
------------------ --------------
Total Other Assets 5,091,334 2,658,688
------------------ --------------
TOTAL ASSETS $ 96,151,959 $ 90,338,304
------------ ================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,766,797 $ 3,047,485
Accrued retirement benefits 7 114,432 114,432
Other payables and accrued liabilities 8 17,117,072 17,705,163
Notes payable - short-term 9 5,033,816 12,884,057
Due to related companies 11 627,889 4,660,984
------------------ --------------
Total Current Liabilities 27,660,006 38,412,121
------------------ --------------
LONG-TERM LIABILITIES
Long term accounts payable 10 21,904,603 21,873,147
Long term retirement benefits 7 841,713 870,321
Notes payable - long-term 9 14,770,532 6,316,426
Due to related companies 11 - 1,328,502
------------------ --------------
Total Long-Term Liabilities 37,516,848 30,388,396
------------------ --------------
TOTAL LIABILITIES 65,176,854 68,800,517
------------------ --------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Authorized: 200,000,000 common shares at par value of $0.001 each
Issued and outstanding: 62,878,004 (December 31, 2004: 44,502,004)
common shares 62,878 44,502
Additional paid-in capital 22,138,830 13,983,002
Retained earnings
Unappropriated 1,240,756 -
Appropriated 7,562,432 7,562,432
Due from stockholder (29,791) (52,149)
------------------ --------------
Total Stockholders' Equity 30,975,105 21,537,787
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 96,151,959 $ 90,338,304
------------------------------------------ ================== ==============
The accompanying notes are an integral part of these consolidated financial statements.
3
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)
RESTATED
(NOTE 18)
2005 2004
Note (Unaudited) (Unaudited)
---------- -------------------- ------------------
NET SALES 12 $ 11,828,663 $ 7,155,036
COST OF SALES 8,619,484 3,957,103
-------------------- ------------------
GROSS PROFIT 3,209,179 3,197,933
-------------------- ------------------
OPERATING EXPENSES
Selling expense 1,143,967 808,902
General and administrative expenses 1,004,141 422,030
Depreciation and amortization 243,932 12,458
-------------------- ------------------
Total Operating Expenses 2,392,040 1,243,390
-------------------- ------------------
INCOME FROM OPERATIONS 817,139 1,954,543
OTHER INCOME (EXPENSE)
Interest expense (241,051) (14,615)
Other income 11,084 -
Funds Released by Chinese Government Liquidator 13 885,864 -
Other expense (35,534) -
-------------------- ------------------
Total Other Income 620,363 (14,615)
-------------------- ------------------
INCOME FROM OPERATIONS BEFORE TAXES 1,437,502 1,939,928
INCOME TAX EXPENSE 1(M) (196,746) -
-------------------- ------------------
NET INCOME 1,240,756 1,939,928
OTHER COMPREHENSIVE INCOME
Foreign currency translation loss - -
-------------------- ------------------
COMPREHENSIVE INCOME $ 1,240,756 $ 1,939,928
==================== ==================
Net income per share - basic and diluted $ 0.02 $ 0.04
==================== ==================
Weighted average number of shares outstanding during the period -
basic and diluted 60,427,871 44,502,004
==================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
4
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
RESTATED RESTATED
(NOTE 18) (NOTE 18)
Additional Unappropriated Appropriated RESTATED
Common Stock Paid-In Retained Retained Due From (NOTE 18)
Shares Amount Capital Earnings Earnings Stockholder Total
---------- --------- ------------ ------------ ------------ ----------- ------------
Balance, December 31, 2003,
adjusted for the effect of
recapitalization of reverse
acquisition (Note 5(B)) 44,502,004 $ 44,502 $ 7,841,363 $ 6,054,864 $ 1,286,784 $ (228,148) $14,999,365
Registered capital appropriation - - 6,141,639 (6,141,639) - - -
Notes receivable - stockholders - - - - - 175,999 175,999
Net income for the year ended
December 31, 2004 - - - 6,362,423 - - 6,362,423
Transfer to retained earnings for
appropriated statutory and staff
welfare reserves - - - (6,275,648) 6,275,648 - -
----------- --------- ------------ ------------- ------------ ----------- -----------
Balance, December 31, 2004 44,502,004 $ 44,502 13,983,002 - 7,562,432 (52,149) 21,537,787
Reverse acquisition (Note 5(B)) 18,376,000 18,376 5,740,370 - - - 5,758,746
Related party debt forgiveness - - 2,415,458 - - - 2,415,458
Notes receivable - stockholders - - - - - 22,358 22,358
Net income for the three months
ended March 31, 2005 - - - 1,240,756 - - 1,240,756
----------- --------- ---------- ------------- ----------- ---------- -----------
Balance, March 31, 2005 (Unaudited) 62,878,004 $ 62,878 $22,138,830 $ 1,240,756 $7,562,432 $(29,791) $ 30,975,105
=========== ========= =========== ============= =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
5
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)
RESTATED
(NOTE 18)
2005 2004
------------- -------------
ASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,240,756 $ 1,939,928
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,410,985 377,881
Allowance for doubtful accounts 12,610 182,500
Provision for excess and obsolete inventories 476,583 -
Funds Released by Chinese Government Liquidator (note 13) (745,828) -
Changes in operating assets and liabilities, net of effect of reverse
acquisition (Note 5(B)), (increase) decrease in:
Accounts receivable (725,437) (1,493,528)
Inventories 146,990 (368,914)
Value added tax receivable 162,443 -
Prepaid expenses (142,364) (16,363)
Other assets (214,722) -
Deposits - 1,166,953
Increase (decrease) in:
Accounts payable 90,780 8,290,203
Other payables and accrued expenses 160,585 (3,942,683)
-------------- -------------
Net Cash Provided By (Used In) Operating Activities 1,873,381 6,135,977
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (782,134) (13,148,687)
Cash acquired in connection with reverse acquisition (Note 5(B)) 2,103,481 -
-------------- -------------
Net Cash Provided By (Used In) Investing Activities 1,321,347 (13,148,687)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 603,865 7,246,378
Due to related companies (2,946,138) (289,914)
Due from stockholder 22,358 228,148
-------------- -------------
Net Cash Provided By (Used In) Financing Activities (2,319,915) 7,184,612
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 874,813 171,902
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 910,425 515,791
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,785,238 $ 687,693
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 245,373 $ 14,615
============== =============
Cash paid during the period for income taxes $ 166,495 $ -
============== =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During March 2005, $2,415,459 of loans payable to an entity related to a
director of the Company was converted into equity of the Company.
The accompanying notes are an integral part of these consolidated financial statements.
6
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization and Basis of Presentation
The Company was formed on August 22, 1989 as First Geneva Investments Inc.
under the laws of the State of Florida. The Company changed its name to
Dragon Pharmaceutical Inc. on August 31, 1998. Pursuant to a share exchange
agreement, dated July 29, 1998, the Company acquired 100% of the issued and
outstanding shares of Allwin Newtech Ltd. ("Allwin") by issuing 7,000,000
common shares of the Company. This transaction was accounted for as a
reverse acquisition.
Allwin was incorporated under the laws of the British Virgin Islands on
February 10, 1998. Pursuant to a Sino-Foreign Co-operative Company
Contract, dated April 18, 1998, Allwin and a Chinese corporation formed a
limited liability company under the Chinese law, named as Sanhe Kailong
Bio-pharmaceutical Co., Ltd. ("Kailong"), located in Hebei Province, China.
Allwin has a 95% interest in Kailong. Pursuant to another Sino-foreign
Co-operative Company Contract, dated July 27, 1999, Allwin completed the
acquisition of a 75% interest in Nanjing Huaxin Bio-pharmaceutical Co. Ltd.
("Huaxin"). In January 2002, the Company acquired the balance of Huaxin.
Kailong is inactive and Huaxin is in the business of the production and
sales of biopharmaceutical products in China. Allwin Biotrade Inc.
("Biotrade") was incorporated in the British Virgin Islands on June 6, 2000
for the purpose of marketing and distributing biopharmaceutical products
outside China. Dragon Pharmaceuticals (Canada) Inc. ("Dragon Canada") was
incorporated in British Columbia, Canada on September 15, 2000 for the
purpose of researching and developing new biopharmaceutical products.
Pursuant to a share purchase agreement, dated June 11, 2004, the Company
acquired 100% of the issued and outstanding shares of Oriental Wave Holding
Limited ("Oriental Wave") by issuing 44,502,004 common shares of the
Company. This transaction was completed on January 12, 2005 and has been
accounted for as a reverse acquisition (See Note 5(B)).
Oriental Wave was incorporated in the British Virgin Islands on January 7,
2003. Shanxi Weiqida Pharmaceutical Company Limited ("Shanxi Weiqida"), a
People's Republic of China limited liability company was incorporated on
January 22, 2002. Shanxi Weiqida is principally engaged in research and
development, manufacturing, and selling of pharmaceutical products in the
People's Republic of China ("PRC").
During 2003, Shanxi Weiqida's shareholders exchanged 100% of their
ownership of Shanxi Weiqida for 50,000 shares of Oriental Wave under a
reorganization plan. The transfer was accounted for as a reorganization of
entities under common control as the companies were beneficially owned by
identical shareholders and share common management. The financial
statements have been prepared as if the reorganization had occurred
retroactively.
7
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
The consolidated financial statements include the accounts of the Company
and its 100% owned subsidiaries: Oriental Wave, Shanxi Weiqida, Allwin,
Kailong, Huaxin, Biotrade and Dragon Canada. All significant intercompany
balances and transactions have been eliminated in consolidation.
(B) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
(C) Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the
time of purchase to be cash equivalents.
(D) Accounts Receivable
The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated risks by performing credit
checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and recorded based on management's assessment of
the credit history with the customer and current relationships with them.
(E) Investments
During the twelve months ended December 31, 2004, the Company made an
investment in a private company of $12,077. The investment represents less
than 1% of the total equity outstanding of the private company outstanding
as of March 31, 2005. The private company investment is carried at cost and
written down to fair market value when indications exist that this
investment has other than temporarily declined in value. As of March 31,
2005, no impairment in the value of the investment has been recorded.
(F) Inventories
Inventories are stated at the lower of cost or market value, cost being
determined on a first-in, first-out method. The Company provides inventory
8
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
allowances based on excess and obsolete inventories determined principally
by customer demand and product expiration dates.
(G) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to expense as
incurred.
Depreciation is provided on a straight-line basis, less estimated residual
value over the assets estimated useful lives. The estimated useful lives
are as follows:
Buildings 50 Years
Plant and machinery 10 Years
Motor vehicles 8 Years
Furniture, fixtures and equipment 5 Years
Land use rights are stated at cost, less accumulated amortization. The land
use rights are amortized over the term of the relevant rights of 50 years
from the date of acquisition.
Depreciable assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable
based on projected undiscounted cash flows associated with the assets. A
loss is recognized for the difference between the fair value and the
carrying amount of the assets. Fair value is determined based upon market
quote, if available, or is based on valuation techniques.
(H) Fair Value of Financial Instruments
The carrying amount of the Company's cash, receivables and payables and
short-term bank loan approximates their fair value due to the short
maturity of those instruments.
(I) Intangible Assets
Under the Statement of Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets", all goodwill and certain intangible assets
determined to have indefinite lives will not be amortized but will be
tested for impairment at least annually. Intangible assets other than
goodwill will be amortized over their useful lives of 10 years and reviewed
for impairment in accordance with SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets".
(J) Revenue Recognition
The Company recognizes revenue from the sale of pharmaceutical products at
the time when title to the products transfers, the amount is fixed and
determinable, evidence of an agreement exists, and the customer bears the
9
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
risk of loss, net of estimated provisions for returns, rebates and sales
allowances.
(K) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled
$981 and $1,159 for the three months ended March 31, 2005 and 2004,
respectively.
(L) Research and Development
Research and development costs related to both present and future products
are expensed as incurred. Total expenditures on research and development
charged to selling, general and administrative expenses for the three
months ended March 31, 2005 and 2004 were $12,310 and $52,238,
respectively.
(M) Income Taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. The Company
located its factories in a special economic region in China. This economic
region allows foreign enterprises a two-year income tax exemption from
central government tax beginning in the first year after they become
profitable and a 50% income tax reduction for the following three years.
The Company was approved as a wholly owned foreign enterprise in October
2002.
(N) Foreign Currency Translation
The functional currency of the Company is the Chinese Renminbi ("RMB").
Transactions denominated in currencies other than RMB are translated into
United States dollars using period end exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses. Capital
accounts are translated at their historical exchange rates when the capital
transaction occurred. Net gains and losses resulting from foreign exchange
translations are included in the statements of operations and stockholder's
equity as other comprehensive gain (loss).
10
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
(O) Comprehensive Income
The foreign currency translation gain or loss resulting from translation of
the financial statements expressed in RMB to United States Dollar is
reported as other comprehensive income in the statements of operations and
stockholders' equity.
(P) Segments
The Company operates in three reportable segments, Chemical Division,
Pharma Division and Biotech Division.
(Q) Earnings Per Share
Income per share is computed using the weighted average number of shares
outstanding during the period. The Company adopted SFAS No. 128, "Earnings
per share". Diluted earnings per share, as determined using the treasury
method, is equal to the basic income per share as common stock equivalents
consisting of options to acquire 3,128,000 common shares that are
outstanding at March 31, 2005 are not significantly dilutive, however, they
may be dilutive in future.
(R) Reclassifications
Certain 2004 balances have been reclassified to conform to the 2005
presentation.
(S) Stock Based Compensation
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-based Compensation", as amended by SFAS No. 148 "Accounting for
Stock-based Compensation - Transition and Disclosure - An amendment of SFAS
No. 123". SFAS 123 encourages, but does not require, companies to adopt a
fair value based method for determining expense related to stock-based
compensation. The Company continues to account for stock-based compensation
issued to employees and directors using the intrinsic value method as
prescribed under Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.
(T) Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs - an amendment of ARB No. 43, Chapter 4 SFAS No. 152, "Accounting for
Real Estate Time-Sharing Transactions - an amendment of FASB Statements No.
66 and 67," and SFAS No. 153, "Exchanges of Non-monetary Assets - an
amendment of APB Opinion No. 29" were recently issued. SFAS No. 151, 152,
11
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
153 and 123 (revised 2004) have no current applicability to the Company and
have no effect on the financial statements.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable at March 31, 2005 (unaudited) and December 31, 2004
consisted of the following:
March 31, 2005 December 31,
(Unaudited) 2004
-------------- ------------
Trade and other receivables $ 9,208,581 $ 6,799,872
Less: allowance for doubtful accounts 438,337 124,574
-------------- ------------
Accounts receivable, net $ 8,770,244 $ 6,675,298
============== ============
For the periods ended March 31, 2005 and 2004, the Company recorded an
allowance for doubtful accounts of $12,610 and $182,500, respectively, in
the Consolidated Statement of Operations.
NOTE 3 INVENTORIES
Inventories at March 31, 2005 (unaudited) and December 31, 2004 consisted
of the following:
March 31, 2005 December 31,
(Unaudited) 2004
-------------- ------------
Raw materials $ 4,064,998 $ 4,287,604
Work-in-progress 10,855,610 10,994,088
Finished goods 2,720,670 2,302,073
-------------- ------------
17,641,278 17,583,765
Less: provision for obsolescence and impairment 1,055,380 959,859
-------------- ------------
$ 16,585,898 $ 16,623,906
============== ============
For the periods ended March 31, 2005 and 2004, the Company recorded a
provision for obsolete inventories of $476,583 and nil, respectively, in
the Consolidated Statement of Operations.
12
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 4 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at March 31, 2005
(unaudited) and December 31, 2004:
March 31, 2005 (Unaudited) RESTATED (NOTE 18)
---------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
--------------- ----------------- ---------------
Plant and equipment $ 42,770,616 $ 4,384,223 $ 38,386,393
Land and buildings 18,556,072 458,634 18,097,438
Motor vehicles 737,560 164,687 572,873
Furniture and office equipment 2,942,351 819,419 2,122,932
Leasehold improvements 1,083,653 1,028,137 55,516
Idle equipment 555,339 455,339 100,000
Construction in progress 3,430,080 - 3,430,080
--------------- ----------------- ---------------
$ 70,075,671 $ 7,310,439 $ 62,765,232
=============== ================= ===============
December 31, 2004 RESTATED (NOTE 18)
---------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
--------------- ----------------- ---------------
Plant and equipment $ 41,154,014 $ 2,293,918 $ 38,860,096
Land and buildings 18,552,438 370,169 18,182,269
Motor vehicles 611,261 55,166 556,095
Furniture and office equipment 2,499,188 392,511 2,106,677
Construction in progress 2,691,179 - 2,691,179
--------------- ----------------- ---------------
$ 65,508,080 $ 3,111,764 $ 62,396,316
=============== ================= ===============
Depreciation expense for periods ended the March 31, 2005 and 2004 was
$1,280,960 and $362,785 respectively.
13
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 5 ACQUISITIONS
(A) Land Use Rights
During July 2003, the Company acquired Land Use Rights and buildings from a
government liquidator in exchange for assuming certain future employment,
healthcare and Land Use Rights acquisition costs of the factory and its
former employees. The agreement requires the Company to pay certain minimum
wages and health care costs until the date of their employment, retirement
or death, whichever occurs first. The maximum amount of the liabilities
assumed on the closing date was $8,897,685 which approximates the appraised
value of the Land Use Rights acquired. The Company has calculated the
related asset value by computing the estimated fair value of the future
expected payments to the remaining employees assuming an interest rate of
3% and has recorded the Land Use Rights at $3,332,907 (See Notes 7 and
14(D)). Subsequent to the acquisition the Company rehired a number of the
former employees, reducing the expected future payments required. The
Company has accounted for the reduction of the obligation by reducing the
amount of Land Use Rights recorded.
The cost of Land Use Rights as at March 31, 2005 and December 31, 2004 is
as follows:
RESTATED RESTATED
(NOTE 18) (NOTE 18)
March 31, December
2005 31, 2004
-------------- -----------
Original Cost recorded $ 3,332,907 $ 3,332,907
Less: reduction of future accrued retirement
benefit 1,135,238 1,135,238
-------------- -----------
Cost of Land Use Rights $ 2,197,669 $ 2,197,669
============== ===========
The Company intends to reduce the Land Use Rights should the future
payments be further reduced due to additional former employees being
rehired.
14
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
(B) Oriental Wave Holding Limited
The Company completed the acquisition of Oriental Wave on January 12, 2005
whereby the Company issued 44,502,004 common shares in exchange for all of
the issued and outstanding shares of Oriental Wave. The transaction has
been approved by the Company's shareholders and the regulatory authorities,
who also approved an increase in the authorized share capital to
200,000,000 common shares.
This transaction resulted in the former shareholders of Oriental Wave
owning 68.35% of the issued and outstanding shares of the combined entity
at the close of the transaction. Accounting principles applicable to
reverse acquisition has been applied to record the acquisition. Under this
basis of accounting, Oriental Wave is the acquirer and, accordingly, the
consolidated entity is considered to be a continuation of Oriental Wave
with the net assets of the Company deemed to have been acquired and
recorded at its fair market value. The Statement of operations includes the
results of Oriental Wave for the entire period and those of the Company
from January 13, 2005 (unaudited).
The net assets acquired were:
Cash and short term securities $ 2,103,481
Accounts receivable 1,382,119
Inventories 585,565
Prepaid and deposits 100,421
-----------------
Total Current Assets 4,171,586
Fixed Assets 867,742
Intangible and other assets, net 2,349,222
-----------------
Total Assets 7,388,550
Less accounts payables and accrued liabilities (1,629,804)
------------------
Net assets acquired $ 5,758,746
=================
A summarized statement of operations for the Company for the twelve days
ended January 12, 2005 is as follows:
Sales $ 145,435
-----------------
Gross Profit 109,059
-----------------
Total operating expenses 166,881
-----------------
Loss for the period $ (57,822)
=================
15
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 6 INTANGIBLE ASSETS
The Company acquired $603,865 in licenses from a company related to a
director with the balance being recorded pursuant to the reverse
acquisition of Oriental Wave (Note 5(B)).
Intangible assets consist of the following as of March 31, 2005 and
December 31, 2004:
March 31,
2005 December 31,
(Unaudited) 2004
------------- -------------
Licenses $ 2,951,814 $ 603,865
Less: accumulated amortization 301,121 171,096
------------- -------------
$ 2,650,693 $ 432,769
============= =============
Amortization expense for the periods ended March 31, 2005 and 2004 was
$130,025, and $15,096, respectively.
NOTE 7 ACCRUED RETIREMENT BENEFITS
During July 2003, the Company acquired land use rights and buildings from a
government liquidator. The present value of accrued expected retirement
benefits related to the land costs is recorded at March 31, 2005 and
December 31, 2004 as follows:
March 31, 2005 December 31, 2004
(Unaudited)
----------------- -------------------
Total liabilities assumed at closing date $ 8,897,685 $ 8,897,685
Less: net present value of liabilities not expected to be paid 5,564,778 5,564,778
----------------- -------------------
Present value of expected liabilities 3,332,907 3,332,907
Less: amounts paid and liabilities not expected to be paid 2,376,762 2,348,154
----------------- -------------------
956,145 984,753
Less: current portion 114,432 114,432
----------------- -------------------
$ 841,713 $ 870,321
================= ===================
Under the terms of the contract with the liquidator, the Company will
remain contingently liable for these liabilities until the date of
retirement or re-employment for each employee (See Notes 5(A) and 14).
16
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 8 OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities at March 31, 2005 and December 31,
2004 consist of the following:
March 31,
2005 December 31,
(Unaudited) 2004
----------------- ----------------
Machinery and equipment payable $ 6,023,275 $ 7,050,243
Accrued expenses 6,595,401 6,360,198
Value added tax payables 280,805 -
Income taxes payable 196,746 166,495
Other taxes payable 109,994 121,054
Deposits received from customers 3,910,851 4,007,173
--------------- ----------------
$ 17,117,072 $ 17,705,163
=============== ================
NOTE 9 NOTES PAYABLE
Balance at March 31, 2005 and December 31, 2004:
March 31,
2005 December 31,
(Unaudited) 2004
----------------- --------------
Note payable to a bank, interest rate of 6.372% per $ 420,290 $ 420,290
annum, guaranteed by a third party, due June 2005
Note payable to a bank, interest rate of 6.372% per
annum, guaranteed by a third party, due June 2005 386,473 386,473
Note payable to a bank, interest rate of 8.874% per
annum, guaranteed by a third party, due July 2005 603,865 -
Note payable to a bank, interest rate of 6.138% per
annum, guaranteed by a third party, due November 2005 3,623,188 3,623,188
17
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
Note payable to a bank, interest rate of 6.039% per annum, secured by
leasehold land and fixed assets, due
April 2005 - 8,454,106
Note payable to a bank, interest rate of 6.039% per annum, secured by
leasehold land and fixed assets, due
April 2006 1,811,594 -
Note payable to a bank, interest rate of 5.76% per annum,
guaranteed by a third party, due November 2006 6,316,426 6,316,426
Note payable to a bank, interest rate of 6.039% per annum, secured by
leasehold land and fixed assets, due
April 2007 6,642,512 -
----------------- --------------------
19,804,348 19,200,483
Less current maturities 5,033,816 12,884,057
----------------- --------------------
$ 14,770,532 $ 6,316,426
================= ====================
Maturities are as follows:
Fiscal year ended December 31,
2005 $ 5,033,816
2006 8,128,020
2007 6,642,512
-------------------
$ 19,804,348
===================
NOTE 10 LONG TERM ACCOUNTS PAYABLE
Long term accounts payable balances at March 31, 2005 and December 31, 2004
is the final payment of construction contracts which had been finished
through December 31, 2004. According to the contract terms, the final
payments on the contracts will be settled as follows:
March 31,
2005 December 31,
(Unaudited) 2004
------------------- --------------------
Settlement Arrangement
Accounts payable due 2006 $ 21,904,603 $ 21,873,147
=================== ====================
18
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
NOTE 11 DUE TO RELATED PARTIES
The amounts due to related party at March 31, 2005 and December 31, 2004
are unsecured and non-interest bearing:
March 31, 2005 December 31,
(Unaudited) 2004
----------------- -------------------
Due to a company owned by a stockholder and director due
March 2006 $ 402,199 $ 1,328,502
Due to a company owned by a stockholder and director due
March 2006 225,690 4,660,984
----------------- -------------------
627,889 5,989,486
Less: current maturities 627,899 4,660,984
----------------- -------------------
$ - $ 1,328,502
================= ===================
NOTE 12 SEGMENTS
The Company operates in three reportable segments, the Pharma Division,
Chemical Division and Biotech Division. The accounting policies of the
segments are the same as described in the summary of significant accounting
policies. The Company evaluates segment performance based on income from
operations. All intercompany transactions between segments have been
eliminated. As a result, the components of operating income for one segment
may not be comparable to another segment. The following is a summary of the
Company's segment information for the periods ended March 31, 2005 and 2004
and as of March 31, 2005 and December 31, 2004.
Chemical Pharma Biotech
Division Division Division Total
--------------- --------------- -------------- ----------------
2005
Three months ended March 31, 2005 (Unaudited)
Sales $ 5,704,033 $ 5,320,771 $ 803,859 $ 11,828,663
Gross profit 34,425 2,508,222 666,532 3,209,179
Depreciation and amortization
(RESTATED - NOTE 18) 1,057,587 153,804 199,594 1,410,985
19
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
As of March 31, 2005 (Unaudited)
Total assets (RESTATED - NOTE 18) 66,103,360 23,962,434 6,086,165 96,151,959
Additions to long-lived assets 757,262 18,452 6,420 782,134
Intangible assets - 417,672 2,233,021 2,650,693
2004
Three months ended March 31, 2004
Sales $ 849,785 $ 6,305,251 $ - $ 7,155,036
Gross profit 328,173 2,869,760 - 3,197,933
Depreciation and amortization 234,781 143,100 - 377,881
As of December 31, 2004
Total assets (RESTATED - NOTE 18) 66,726,390 23,611,914 - 90,338,304
Additions to long-lived assets 27,295,156 852,773 - 28,147,929
Intangible assets - 432,769 - 432,769
NOTE 13 OTHER INCOME - Funds Released by Chinese Government Liquidator
In July 2003, the Company, through Shanxi Weiqida, acquired out of
bankruptcy the Land Use Rights of a state-owned enterprise. (Please also
refer to Note 5(A)) After entering into this transaction, the Company was
approached by an unrelated state agency to administer certain benefits
payable to former employees of the agency (the government liquidator) as
the Company had already established an infrastructure to make payments to
these employees for settlement of liabilities related to the transaction.
As a result, during 2004, the Company received $1,751,208 from the
government liquidator, for the settlement of human resources related
expenses of the bankrupt enterprise. As well, during the first quarter of
2005, a separate municipal agency, the Datong Municipal Government,
approved the transfer of a fund with a balance of $140,036 originally
reserved for the employee housing welfare as part of the liquidation
process of the state-owned enterprise. The two agencies, unrelated to the
acquisition, allowed the Company to retain the cash balance of $745,828 as
well as the reserve of $140,036 as payment for services provided by the
Company. As a result, the Company recorded other income of $885,864 during
the current period to reflect the above transactions.
NOTE 14 COMMITMENTS AND CONTINGENCIES
(A) Employee Benefits
The full time employees of the Company are entitled to employee benefits
including medical care, welfare subsidies, unemployment insurance and
pension benefits through a Chinese government mandated multi-employer
defined contribution plan. The Company is required to accrue for those
20
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
benefits based on certain percentages of the employees' salaries. The total
provision for such employee benefits was $116,217 and $141,730 for the
periods ended March 31, 2005 and 2004, respectively. The Company is
required to make contributions to the plans out of the amounts accrued for
medical and pension benefits. The Chinese government is responsible for the
medical benefits and the pension liability to be paid to these employees.
(B) Loan Guarantee
The Company has guaranteed bank loans to two suppliers in the amount of
$181,000 (RMB1.5 million) due on August 11, 2005 and $2,415,000 (RMB20
million) due on July 16, 2005.
The Company has also issued a guarantee to a bank as security for loans to
a third party vendor of $2,415,000 (RMB20 million) due on September 26,
2007 and $3,623,000 (RMB30 million) due on October 27, 2007. This vendor
pledged assets totaling $8,484,000 (RMB70.2 million) to the Company for
this guarantee.
(C) Capital Commitments
According to the Articles of Association of Shanxi Weiqida, the Company has
to fulfill registered capital of $19,205,116 (RMB 159,018,360) within five
years from December 16, 2003. As of March 31, 2005, the Company has
fulfilled $14,656,174 (RMB 121,353,123) of registered capital requirement
and has registered capital commitments of $4,548,942 (See Note 15(A)).
(D) Contingent Employment Benefits
During July 2003, the Company acquired land and buildings from a government
liquidator in exchange for assuming certain future employment, healthcare
and land acquisition costs of the factory and its former employees. Under
the terms of the contract with the liquidator, the Company will remain
contingently liable for these liabilities until the date of retirement,
re-employment or death for each employee. As of March 31, 2005, the Company
has rehired 651 former employees, 207 employees have retired and
approximately 200 former employees remain unemployed. If the Company is
unable to provide continued employment to these individuals, it will be
liable to pay each former employee approximately $49 per month until his or
her date of retirement or death, whichever comes first (See Notes 5 & 7).
(E) Operating Leases
The Company has entered into operating lease agreements with respect to
Huaxin's production plant in Nanjing, China for an amount of RMB 2,700,000
(US$326,217) per annum until June 11, 2009 and the Company's administrative
offices in Vancouver for an amount escalating from CDN$200,000 to
CDN$230,000 (US$127,000 to US$146,000) per annum until March 31, 2007. The
21
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
Company decided to close the facility in Nanjing, effective July 31, 2005,
and build a new facility in Datong, China at the site of the manufacturing
facilities of Oriental Wave. The Company has renegotiated the termination
of its lease, without penalty, though the Company may be required to pay up
to approximately RMB 600,000 ($72,500) relating to severance and benefit
costs associated with the closure. Minimum payments required under the
agreements are as follows:
2005 $ 247,989
2006 189,964
2007 47,844
--------------------------------------------------------
Total $485,797
========================================================
(F) Cell Line Development
The Company has contracted with a European Institute of Biotechnology to
develop a high yield proprietary cell line and production process
technology for the Company. Product from this advanced technology will be
used by the Company to enter the European market, once certain competitor's
patents expire. The total cost of development will be $648,800 (EUROS
500,000) of which $387,600 (EUROS 300,000) remains unpaid at March 31,
2005.
NOTE 15 STOCKHOLDERS' EQUITY
(A) Capital Contribution (See note 14(C))
On January 31, 2005 Oriental Wave paid Shanxi Weiqida $479,988 towards its
registered capital requirement under Chinese law.
On February 22, 2005 Oriental Wave paid Shanxi Weiqida $198,682 towards its
registered capital requirement under Chinese law
(B) Appropriated Retained Earnings
Shanxi Weiqida is required to make appropriations to reserves funds,
comprising the statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve, based on after-tax net income determined in
accordance with generally accepted accounting principles of the People's
Republic of China (the "PRC GAAP"). Appropriation to the statutory surplus
reserve should be at least 10% of the after tax net income determined in
accordance with the PRC GAAP until the reserve is equal to 50% of the
entities' registered capital. Appropriations to the statutory public
welfare fund are at 5% to 10% of the after tax net income determined in
accordance with the PRC GAAP. The statutory public welfare fund is
established for the purpose of providing employee facilities and other
22
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
collective benefits to the employees and is non-distributable other than in
liquidation. Appropriations to the discretionary surplus reserve are made
at the discretion of the Board of Directors.
(C) Stock Options
The Company did not grant any options during the year ended December 31,
2004. During the period ended March 31, 2005, the Company granted options
to its directors and employees to purchase 2,260,000 shares at a price of
$1.18 per share (being the market price at the time), expiring January 12,
2010. Options to purchase 1,460,000 shares were exercisable immediately
with 400,000 options becoming available January 12, 2006 and the balance of
400,000 options vesting on January 12, 2007.
The following summarizes stock option information for the period ended
March 31, 2005:
---------------------------------------------------------- ------------------------ -------------------------
Weighted Average
Shares Exercise Price
---------------------------------------------------------- ------------------------ -------------------------
Options outstanding at December 31, 2003 2,599,000 $ 2.04
Forfeited (705,000) $ 1.57
Exercised (145,000) $ 0.50
---------------------------------------------------------- ------------------------ -------------------------
Options outstanding at December 31, 2004 1,749,000 $ 2.36
Granted 2,260,000 $ 1.18
Forfeited (881,000) $ 2.93
---------------------------------------------------------- ------------------------ -------------------------
Options outstanding at March 31, 2005 3,128,000 $ 1.35
========================================================== ======================== =========================
Options Outstanding Options Exercisable
------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------------------------------------------------------------- ----------------------------------
$0.01 - $1.00 350,000 3.01 $ 0.68 325,000 $ 0.68
$1.01 - $2.00 2,478000 4.55 $ 1.23 1,678,000 $ 1.25
$3.01 - $4.00 300,000 0.62 $ 3.13 300,000 $ 3.13
---------- -------- ------- --------- ------
3,128,000 4.00 $ 1.35 2,303,000 $ 1.41
========== ======== ========== ========= ======
The Company accounts for its stock-based compensation plan in accordance
with APB Opinion No. 25, under which no compensation is recognized in
connection with options granted to employees and directors except if
23
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
options are granted with a strike price below fair value of the underlying
stock. The Company adopted the disclosure requirements SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, the Company is
required to calculate and present the pro forma effect of all awards
granted. For disclosure purposes, the fair value of each option granted to
an employee has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 5.5%, dividend yield 0%, volatility of 90%, and
expected lives of approximately 0 to 5 years. The weighted average fair
value of the options granted during the period was $0.69.
Based on the computed option values and the number of the options issued,
had the Company recognized compensation expense, the following would have
been its effect on the Company's net income:
------------------------------------------ --------------- ----------------
2005 2004
------------------------------------------ --------------- ----------------
Net income for the period:
- as reported $1,240,756 $1,939,928
- pro-forma $163,375 $1,939,928
------------------------------------------ ---------------- ---------------
Basic and diluted income per share:
- as reported $0.02 $0.04
- pro-forma $0.00 $0.04
------------------------------------------ ----------------- --------------
NOTE 16 RELATED PARTY TRANSACTIONS
See Notes 6 and 11.
NOTE 17 CONCENTRATIONS AND RISKS
During the three months ended March 31, 2005, 85% of the Company's revenues
were derived from customers located in China and 99% of its assets are
located in China. Comparatively, 100% of the Company's revenues during the
three months ended March 31, 2004 were derived from customers located in
China and 100% of its assets were located in China.
NOTE 18 RESTATEMENT
Oriental Wave determined that the extinguishment of the Accrued Retirement
Benefit that occurred in 2004 should have been accounted for as a reduction
of the Land Use Rights acquired by $1,135,238 rather than as a gain as
previously recorded. The Company has restated the financial statements to
correct for this treatment as though the error was corrected as of June 30,
2004, for all reductions in the Accrued Retirement Benefits that occurred
throughout 2004, as if they were known of at that time.
24
DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
This reduction in Land Use Rights also resulted in a reduction of the
depreciation expense in subsequent periods and will do so in the future.
The changes to the financial statements are as follows:
As at March 31, 2005 As at December 31, 2004
-------------------------------------- -------------------------------------
Previously Previously
Restated Reported Restated Reported
----------------- ----------------- ----------------- ----------------
Current assets $28,295,393 $28,295,393 $25,283,300 $25,283,300
Property and equipment 62,765,232 63,883,442 62,396,316 63,520,202
Other assets 5,091,334 5,091,334 2,658,688 2,658,688
----------------- ----------------- ----------------- ----------------
Total assets $96,151,959 $97,270,169 $90,338,304 $91,462,190
================= ================= ================= ================
Liabilities $65,176,854 $65,176,854 $68,800,517 $68,800,517
----------------- ----------------- ----------------- ----------------
Share capital 22,201,708 22,201,708 14,027,504 14,027,504
Retained earnings 8,803,188 9,921,398 7,562,432 8,686,318
Due from shareholder (29,791) (29,791) (52,149) (52,149)
----------------- ----------------- ----------------- ----------------
Total equity 30,975,105 32,093,315 21,537,787 22,661,673
----------------- ----------------- ----------------- ----------------
Total liabilities and equity $96,151,959 $97,270,169 $90,338,304 $91,462,190
================= ================= ================= ================
Three months ended March 31, 2005
--------------------------------------------
Previously
Restated Reported
------------------ --------------------
Net Sales $ 11,828,663 $11,828,663
Cost of sales 8,619,484 8,619,484
------------------ --------------------
Gross profit 3,209,179 3,209,179
Operating expenses 2,392,040 2,397,716
------------------ --------------------
Income from operations 817,139 811,463
Other income (expenses) 620,363 620,363
------------------ --------------------
Income before taxes 1,437,502 1,431,826
Income tax expense 196,746 196,746
------------------ --------------------
Net income $1,240,756 $ 1,235,080
================== ====================
Net Income per share $ 0.02 $ 0.02
================== ====================
25
Item 6. Exhibits.
(a) Exhibits.
Exhibit No.
31.1 Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2 Certification by the Principal Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act.
32 Certification by the Principal Executive and
Financial Officers Pursuant to Section 906 of the
Sarbanes-Oxley Act.
26
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment no. to report on Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
DRAGON PHARMACEUTICAL INC.
(registrant)
Dated: September 23, 2005 /s/ Garry Wong
---------------------------------
Garry Wong
Chief Financial Officer