SHENZHEN, China, Aug. 8, 2006 (PRIMEZONE) -- New Dragon Asia Corp. (AMEX:NWD), one of China's leading producers of instant noodles, flour-related products and soybean derived products, today announced its financial results for the second quarter and first half of fiscal 2006.
Li Xia Wang, Chief Executive Officer of New Dragon Asia Corp. said, "We are very pleased with our financial results and strategic progress in the second quarter of 2006. New Dragon Asia delivered substantial increases in revenue and gross profit for the quarter, and management believes that our balance sheet is the strongest it has ever been. In fact, our operating income for the quarter soared 250% over the second quarter of last year, and we recorded 28% and 57% increases in revenue and gross profit, respectively. Our soybean business continues to make a significant contribution to growth, as we pursue opportunities to diversify our product offering and revenue mix to generate higher overall margins.
"We also completed an important step in the execution of our growth strategy with the receipt of HACCP Certification in June 2006, enabling us to commence exports of our high quality products to Europe. We have already begun processing orders and shipping our products to this region, including sales within Sweden and Greece. In fact, noodle exports to Europe accounted for approximately 8% of our instant noodle sales for the first six month of 2006."
Peter Mak, Chief Financial Officer of New Dragon Asia Corp. stated, "With our strong cash position and revenue expansion opportunities both in China and abroad, we believe that we are well positioned for continued growth in the second half of 2006. Based on our six month results, we now anticipate full year revenues of approximately $60 million, which would represent an increase of over 30% compared to the full year 2005. The options-related accounting treatment that impacted our bottom line last quarter did not have a similar impact in this quarter's results and, as a result, investors can more clearly see our financial and operational progress."
Second Quarter 2006 financial highlights
Net revenue for the three months ended June 25, 2006 was $11.5 million, a 28% increase compared to $9.0 million in the same period in 2005. The rise in revenues was driven by our soybean business, which accounts for approximately 60% of this increase, supplemented by 11% growth in the instant noodle and flour businesses.
Gross profit rose $0.8 million to $2.2 million for the second quarter of 2006 compared to $1.4 million in the second quarter of 2005, an increase of 57%. Gross margin increased to 19%, as compared to 16% in the second quarter of 2006, primarily as a result of a higher margin product mix resulting from soybean sales and exports.
Income from operations for the second quarter of 2006 was $1.4 million compared to $0.4 million in the second quarter of 2005, an increase of approximately 250% year over year. This considerable increase is the result of the shift to a higher margin product mix, combined with successful reductions in our selling and distribution expenses.
Net income for the second quarter of 2006 was $0.5 million compared to net income of $1.0 million in the same period of 2005. This decrease was due to an increase in interest expenses arising from a primarily non-cash charge of $1.3 million from the amortization of the fair value of warrants and beneficial conversion feature and deferred financing costs relating to preferred stock issuances in the private placements closed during the 2005 fiscal year. This charge was partially offset by a VAT refund of $1.0 million.
Earnings per common share were $0.01 basic and fully diluted for the second quarter of 2006, compared to earnings of $0.02 basic and fully diluted in the same period of 2005.
First Half 2006 financial highlights
Net revenue for the six months ended June 25, 2006 was $22.6 million, a 31% increase compared to $17.3 million in the same period of 2005, driven in part by a $2.5 million revenue contribution from our soybean business during the first half as well as steady growth in both the instant noodle and flour businesses.
Gross profit rose $1.1 million to $4.0 million for the first half of 2006 compared to $2.9 million in the first half of 2005, an increase of 38%. Gross margin as a percentage of revenue increased to 18% as compared to 17% in the first half of 2006, primarily as a result of a higher margin product mix resulting from soybean sales and noodle exports.
Income from operations for the first six months of 2006 was $0.3 million compared to $1.2 million for the first six months of 2005. The 2006 figure incorporates a $2.3 million non-cash charge related to stock-based compensation incurred in the first quarter of this year.
Net loss for the first half of 2006 was $2.0 million compared to net income of $1.6 million in the same period of 2005. This decrease was primarily due to the impact of the aforementioned $2.3 million non-cash charge, as well as an increase in interest expenses arising from a primarily non-cash charge of $2.2 million from the amortization of the fair value of warrants and beneficial conversion feature and deferred financing costs relating to preferred stock issuances in the private placements closed during the 2005 fiscal year.
Balance Sheet Information
New Dragon Asia's cash and cash equivalents as of June 25, 2006 were $12.5 million, yielding a cash to total asset ratio of 19.5%, compared with $1.1 million of cash and cash equivalents at June 25, 2005.
It is important to note that despite the expenditure of $8.3 million of cash for acquisitions and other investing activities during the first half of 2006, New Dragon Asia only recorded a net decrease of $1.8 million in cash, with the majority of expenditures funded by $5.1 million of cash generated from operations. "Our strong cash position and improved working capital provides a solid foundation to execute our strategic plan during the remainder of the year," said Mak.
Second Quarter 2006 Strategic Developments
Our domestic growth strategy remains the pursuit of strategic partnerships and acquisitions offering synergistic potential to enhance growth and strengthen our production and distribution capabilities. However, with the receipt of HACCP (Hazard Analysis Critical Control Point) certification in June 2006, from CCIC Conformity Assessment Services Co. Ltd., a Chinese quality assurance examination authority, New Dragon Asia is now permitted to export its instant noodles and soybean powder to Europe. We have already begun shipping products to customers in Sweden and Greece, and our goal is to continually expand our customer base in Europe in the coming periods.
Conference Call
Peter Mak, Chief Financial Officer, will host a conference call on Tuesday, August 8, 2006 at 10:00 AM (New York) / 3:00 PM (London) / 10:00 PM (China) to review the results. The conference call will also be available via webcast at: http://www.irconnect.com/nwd/pages/news.html, and will be archived on the Company's website for one year from the date of broadcast.
The dial-in information for the call is as follows:
North America: Dial-in: +1 718 354 1157 Replay: +1 718 354 1112 Europe: Dial-in: +44 (0)20 7365 1832 Replay: +44 (0)20 7806 1970 Asia: Dial-in: +81 (0)3 3570 8241 Replay: +81 (0)3 3570 8212 Passcode: 2954163
The replay will be available for one year following the conclusion of the live call.
New Dragon Asia Corp., a Florida corporation (AMEX: NWD), is headquartered in Shandong Province, China, and is engaged in the milling, sale and distribution of flour and related products, including instant noodles and soybean-derived products, to retail and commercial customers. As the fourth largest instant noodle manufacturer in China, New Dragon Asia markets its well-established Long Feng brand through a network of more than 200 key distributors and 16 regional offices in 27 Chinese provinces with an aggregate production capacity of approximately 195,000 tons of flour and more than 1.1 billion packages of instant noodles per year. Instant noodles are also exported to a growing number of countries. For more information, visit the Company's website at www.newdragonasia.com.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, its success with acquisitions, anticipated synergies, and overseas expansion. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the impact of competitive products and pricing; changes in consumer preferences and tastes or perceptions; effectiveness of advertising or market-spending programs; changes in laws and regulations; fluctuations in costs of production, foreign exchange and interest rates; and other factors as may be discussed in the Company's reports as periodically filed with the Securities and Exchange Commission.
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data; unaudited)
Three months ended Six months ended
June 25, June 25,
--------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Net revenue $ 11,544 $ 8,993 $ 22,640 $ 17,275
Cost of goods sold (9,372) (7,584) (18,614) (14,374)
-------- -------- -------- --------
Gross profit 2,172 1,409 4,026 2,901
Selling and
distribution
expenses (216) (561) (446) (682)
General and
administrative
expenses
(Including
stock-based
compensation of
$2,320 for the
six months ended
June 25, 2006) (552) (405) (3,309) (978)
-------- -------- -------- --------
Income from
operations 1,404 443 271 1,241
Other income
(expense):
Interest expense (1,477) (1) (2,648) (1)
Interest income 7 -- 23 --
Other income
(expense) (1) 1 4 3
VAT refund 998 795 1,099 795
-------- -------- -------- --------
Income (loss) before
income taxes and
minority interests 931 1,238 (1,251) 2,038
Provision for income
taxes (376) (258) (634) (511)
-------- -------- -------- --------
Income (loss) before
minority interests 555 980 (1,885) 1,527
Minority interests (57) (8) (133) 33
-------- -------- -------- --------
Net income (loss) $ 498 $ 972 $ (2,018) $ 1,560
======== ======== ======== ========
Earnings (loss) per
common share
Basic $ 0.01 $ 0.02 $ (0.04) $ 0.03
-------- -------- -------- --------
Diluted $ 0.01 $ 0.02 $ (0.04) $ 0.03
-------- -------- -------- --------
Weighted average
number of common
shares outstanding
Basic 51,470 45,061 50,610 45,061
-------- -------- -------- --------
Diluted 59,978 45,061 50,610 45,061
-------- -------- -------- --------
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
June 25, December 25,
2006 2005
------------ -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,523 $ 14,332
Accounts receivable, net 7,536 6,515
Deposits and prepayments, net 4,326 4,970
Inventories, net 6,996 7,630
Due from related companies 838 679
-------- --------
Total current assets 32,219 34,126
Deposit for property, machinery and
equipment -- 1,000
Property, machinery and equipment, net 23,570 18,315
Land use rights, net 6,875 3,980
Deferred financing cost, net 1,589 1,713
Goodwill 125 --
-------- --------
Total assets $ 64,378 $ 59,134
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,509 $ 2,696
Other payables and accruals 2,144 2,298
Taxes payable 2,558 1,854
Due to related companies 398 598
-------- --------
Total current liabilities 8,609 7,446
Due to New Dragon Asia Food Limited 71 137
Due to joint venture partners 133 54
Mandatorily redeemable convertible preferred
stock, net of discount of $6,657 on
June 25, 2006 and $8,655 on December 25,
2005 5,525 4,945
-------- --------
Total liabilities 14,338 12,582
-------- --------
Minority interests 366 91
-------- --------
Commitments
Stockholders' equity:
Preferred Stock, $0.0001 par value:
Authorized shares -- 5,000,000
Issued and outstanding -- 12,182 in 2006
and 13,600 in 2005 -- --
Class A Common Stock, $0.0001 par value:
Authorized shares -- 102,000,000
Issued and outstanding -- 51,867,062
in 2006 and 49,322,291 in 2005 5 5
Class B Common Stock, $0.0001 par value:
Authorized shares -- 2,000,000 -- none
issued and outstanding -- --
Additional paid-in capital 29,813 24,790
Receivable from stockholder (49) (49)
Retained earnings 18,899 20,917
Accumulated other comprehensive income 1,006 798
-------- --------
Total stockholders' equity 49,674 46,461
-------- --------
Total liabilities and stockholders' equity $ 64,378 $ 59,134
======== ========
NEW DRAGON ASIA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
Six months ended
June 25,
------------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (2,018) $ 1,560
Adjustments to reconcile net income (loss)
to net cash provided by/used in operating
activities:
Allowance for doubtful accounts (244) 49
Provision for inventory reserve 9 (11)
Depreciation and amortization of property,
machinery, equipment and land use rights 1,144 582
Loss (gain) on sale of property,
machinery and equipment -- 3
Amortization of deferred financing costs,
value of warrants and beneficial
conversion feature 2,182 --
Minority interests 133 (32)
Stock-based compensation expense 2,320 --
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (714) 133
Deposits and prepayments 644 (1,007)
Inventories 625 (1,477)
Due from related companies (159) 361
Increase (decrease) in:
Accounts payable 800 (139)
Other payables and accruals (86) 470
Taxes payable 704 165
Due to related companies (200) (679)
-------- --------
Net cash provided by/(used in) operating
activities 5,140 (22)
-------- --------
Cash flows from investing activities:
Acquisition of Chengdu plant (2,300) --
Proceeds from disposal of property,
machinery and equipment -- 2
Purchases of property, machinery and
equipment (4,253) (8)
Purchases of land use rights (1,943) --
Minority interests 142 --
-------- --------
Net cash used in investing activities (8,354) (6)
-------- --------
Cash flows from financing activities:
Payments of issuance costs related to
preferred stock (60) --
Proceeds from/repayment to parent company (66) 884
Proceeds from/repayment to joint venture
partners 79 (22)
Proceeds from exercise of stock options 1,120 --
-------- --------
Net cash provided by (used in) financing
activities 1,073 (862)
-------- --------
Foreign currency translation adjustment 332 --
-------- --------
Net increase (decrease) in cash and cash
equivalents (1,809) 834
Cash and cash equivalents at the beginning
of the period 14,332 219
-------- --------
Cash and cash equivalents at the end of the
period $ 12,523 $ 1,053
======== ========
Non-cash Investing and Financing Activities
Conversion of preferred stock to common
stock $ 1,418 $ --
Interest payments on preferred stock in
form of common stock $ 164 $ --