U.S. Securities and Exchange
Commission Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
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 September 30, 2004:
20,582,000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars)
September 30, 2004
Index
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2004 and December 31, 2003
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
September 30, December 31,
2004 2003
--------------------------------------------------------------------------------
ASSETS
Current
Cash and short term securities $ 2,383,072 $ 3,126,667
Accounts receivable 1,571,659 1,265,676
Inventories 1,127,597 1,090,464
Due from director 500,100 -
Prepaid and deposits 106,855 139,595
--------------------------------------------------------------------------------
Total current assets 5,689,283 5,622,402
Fixed assets 1,829,946 2,089,352
Due from related party - Hepatitis B vaccine project - 100
Patent rights - related party - 500,000
Licence and permit and other assets 2,740,193 2,924,198
--------------------------------------------------------------------------------
Total assets $ 10,259,422 $ 11,136,052
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current
Accounts payable and accrued liabilities 1,341,471 1,428,257
--------------------------------------------------------------------------------
Commitments (Note 12)
Stockholders' Equity
Share capital
Authorized: 50,000,000 common shares at
par value of $0.001 each
Issued and outstanding: 20,582,000 common shares 20,582 20,462
Additional paid in capital 26,768,750 26,708,870
Accumulated other comprehensive (loss) (32,275) (32,007)
Accumulated deficit (17,839,106) (16,989,530)
--------------------------------------------------------------------------------
Total stockholders' equity 8,917,951 9,707,795
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,259,422 $ 11,136,052
================================================================================
The accompanying notes are an integral part of these financial statements.
3
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other Total
Common stock Additional hensive compre- Stock-
--------------------- paid-in income Deficit hensive holders'
Shares Amount capital (loss) accumulated income equity
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 20,334,000 $ 20,334 $ 26,644,998 - $(14,994,795) $(35,011) $11,635,526
Exercise of stock options for cash 128,000 128 63,872 - - - 64,000
Components of comprehensive income (loss)
- foreign currency translation - - - 3,004 - 3,004 3,004
- net (loss) for the year - - - (1,994,735) (1,994,735) - (1,994,735)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) $(1,991,731)
============
Balance, December 31, 2003 20,462,000 $ 20,462 $ 26,708,870 $(16,989,530) $(32,007) $9,707,795
================================================================================ ========================================
The accompanying notes are an integral part of these financial statements.
4
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other Total
Common stock Additional hensive compre- Stock-
--------------------- paid-in income Deficit hensive holders'
Shares Amount capital (loss) accumulated income equity
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 20,462,000 $20,462 $ 26,708,870 - $(16,989,530) $(32,007) $9,707,795
Exercise of stock options for cash 120,000 120 59,880 60,000
Components of comprehensive income (loss)
- foreign currency translation - - - (268) - (268) (268)
- net (loss) for the period - - - (849,576) (849,576) - (849,576)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) $ (849,844)
============
Balance, September 30, 2004 20,582,000 $20,582 $ 26,768,750 $(17,839,106) $(32,275) $8,917,951
================================================================================ ========================================
The accompanying notes are an integral part of these financial statements.
5
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Consolidated Statement of Operations
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
-----------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
-----------------------------------------------------------------------------------------------------------------------------------
Sales $ 1,057,254 $ 1,151,646 $ 2,843,669 $ 2,823,654
Cost of sales 281,536 353,998 723,033 882,267
-----------------------------------------------------------------------------------------------------------------------------------
Gross profit 775,718 797,648 2,120,636 1,941,387
Selling, general and
administrative expenses (810,870) (861,160) (2,273,807) (2,553,462)
Depreciation of fixed assets and
amortization of licence and
permit (179,612) (186,674) (538,466) (555,869)
Research and development expenses (4) (25,884) (152,011) (25,884)
New market development (1,588) (6,577) (13,993) (30,291)
Provision for doubtful debts - (3,257) (20,816) (44,668)
Loan interest expense (638) (862) (2,154) (5,251)
Stock-based compensation - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (216,994) (286,766) (880,611) (1,274,038)
Interest income 4,846 4,185 31,035 21,004
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) for the period (212,148) $ (282,581) (849,576) $ (1,253,034)
===================================================================================================================================
(Loss) per share
Basic and diluted $ (0.01) $ (0.01) $ (0.04) $ (0.06)
===================================================================================================================================
Weighted average number of
common shares outstanding
Basic and diluted 20,582,000 20,344,652 20,534,847 20,337,590
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
6
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2004 and 2003
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
-----------------------------------------------------------------------------------------------------------------------------
2004 2003
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) operating activities
Net (loss) for the year $ (849,576) $ (1,253,034)
Adjustments to reconcile net loss to
net cash used in operating activities:
- depreciation of fixed assets and amortization of
licence and permit 708,024 719,100
- net write off of land-use right and fixed assets -
- provision for doubtful debts 20,816 44,668
Changes in non-cash working capital items:
- accounts receivable (326,799) (383,032)
- inventories (37,133) 114,224
- prepaid expenses and deposits 32,739 (35,716)
- accounts payable and accrued liabilities (86,786) (157,987)
- management fees payable - related parties - -
-----------------------------------------------------------------------------------------------------------------------------
(538,715) (951,777)
-----------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities
Purchase of property and equipment (34,655) (123,732)
(Increase) in other assets (230,000) -
(Increase) decrease in restricted funds - 510,000
-----------------------------------------------------------------------------------------------------------------------------
(264,655) 386,268
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Loan proceeds (483,162)
Proceeds from issuance of shares 60,000 12,500
-----------------------------------------------------------------------------------------------------------------------------
60,000 (470,662)
-----------------------------------------------------------------------------------------------------------------------------
Foreign exchange (gain) loss on cash
held in foreign currency (225) 17,986
-----------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (743,595) (1,018,185)
Cash and cash equivalents, beginning of period 3,126,667 4,425,766
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,383,072 $ 3,407,581
=============================================================================================================================
The accompanying notes are an integral part of these financial statements.
7
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
1. Basis of Presentation
The accompanying unaudited interim consolidated balance sheets, statements
of operations and cash flows reflected all adjustments, consisting of
normal recurring adjustments and other adjustments, that are, in the
opinion of management, necessary for a fair presentation of the financial
position of the Company, at September 30, 2004, and the results of
operations and cash flows for the interim periods ended September 30, 2004
and 2003.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instruction for Form 10-QSB pursuant to the
rules and regulations of Securities and Exchange Commission and, therefore,
do not include all information and notes normally provided in audited
financial statements and should be read in conjunction with the Company's
consolidated financial statements for the year ended December 31, 2003
included in the annual report previously filed on Form 10-KSB.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Proposed Business Combination
The Company has entered into a definitive Share Purchase Agreement with
Oriental Wave Holding Ltd. ("Oriental") whereby the Company would issue its
common shares in exchange for all the issued and outstanding shares of
Oriental. The transaction is subject to approval by the Company's
shareholders and the regulatory authorities.
If the acquisition is consummated, the former shareholders of Oriental will
own 68.35% of the issued and outstanding shares of the combined Company
resulting in accounting principles applicable to reverse acquisition being
applied to record the transaction. Under this basis of accounting, Oriental
would be the acquirer and, accordingly, the consolidated entity would be
considered to be a continuation of Oriental with the net assets of the
Company deemed to have been acquired and recorded at fair market value.
3. Accounts Receivable
---------------------------------------------------------------------------
September 30, December 31,
2004 2003
---------------------------------------------------------------------------
Trade receivables $ 1,849,101 $ 1,524,465
(326,968) (298,284)
Allowance for doubtful accounts
---------------------------------------------------------------------------
1,522,133 1,226,181
Other receivables 49,526 39,495
---------------------------------------------------------------------------
$ 1,571,659 $ 1,265,676
===========================================================================
8
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
4. Inventories
---------------------------------------------------------------------------
September 30, December 31,
2004 2003
---------------------------------------------------------------------------
Raw materials $ 86,679 $ 129,650
110,955 107,833
Finished goods
929,962 852,981
Work in progress
---------------------------------------------------------------------------
$ 1,127,597 $ 1,090,464
===========================================================================
5. Due from director
The Company entered into an agreement with Dr. Longbin Liu, a director of
the Company, to settle the amount owing to the Company from his acquisition
of the Hepatitis B Project (note 7) as well as cancel the Patent (note 8)
and Project Development (note 12) agreements between the parties. Under the
terms of the settlement agreement, the G-CSF, Insulin and Hepatitis B
Projects, including the rights of ownership and development obligations
would revert to Dr. Liu.
In exchange, Dr Liu will pay to the Company the $3,710,000 in principal and
interest owing under the Hepatitis B Project as well as reimburse the
Company $1,330,000 that had been paid previously under the Patent and
Project Development agreements. All amounts are due December 31, 2004 and
Dr. Liu has agreed to provide 2,600,000 common shares of the Company, to be
held in escrow, as security for the amounts owing, of which 2,200,000
common shares have been placed in escrow as of June 30, 2004. The warrants
granted to Dr. Liu under the Patent Development agreement havel been
cancelled.
The carrying value of the amount due from Dr. Liu is equivalent to the
previous carrying value of the Patent Rights and the Hepatitis B Project
amount owing.
6. Property and equipment
---------------------------------------------------------------------------
September 30, 2004
---------------------------------------
Accumulated Net book
Cost depreciation value
---------------------------------------------------------------------------
Motor vehicles $ 126,444 $ 82,818 $ 43,626
Office equipment and furniture 420,973 276,644 144,329
Leasehold improvements 1,089,231 510,393 578,838
Production and lab equipment 1,639,822 838,754 801,068
Idle equipment 555,339 293,254 262,085
---------------------------------------------------------------------------
$ 3,831,809 $ 2,001,863 $ 1,829,946
===========================================================================
9
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
6. Property and equipment (continued)
---------------------------------------------------------------------------
December 31, 2003
---------------------------------------
Accumulated Net book
Cost depreciation value
---------------------------------------------------------------------------
Motor vehicles $140,423 $ 75,996 $ 64,427
Office equipment and furniture 414,759 221,076 193,683
Leasehold improvements 1,089,006 418,888 670,118
Production and lab equipment 1,595,450 708,841 886,609
Idle equipment 555,339 280,824 274,515
---------------------------------------------------------------------------
$ 3,794,977 $ 1,705,625 $ 2,089,352
===========================================================================
For the nine-months ended September 30, 2004, depreciation expenses
totalled $294,061 (2003 - $305,038). The majority of fixed assets are
located in China.
7. Due from Related Party - Hepatitis B Vaccine Project
---------------------------------------------------------------------------
September 30, December 31,
2004 2003
---------------------------------------------------------------------------
Hepatitis B Vaccine Project $ - $4,000,000
Less : Repayment - (500,000)
Valuation allowance - (3,499,900)
---------------------------------------------------------------------------
$ - $ 100
===========================================================================
(a) Pursuant to an agreement dated October 6, 2000, the Company paid
$4,000,000 for the acquisition of certain assets and technology
relating to the production of Hepatitis B vaccine. The vendor of the
transaction was a company named Alphatech Bioengineering Limited,
incorporated in Hong Kong, with two shareholders who are both
directors of the Company.
(b) Pursuant to an amended agreement dated June 5, 2001, in the event that
the Company failed to find a joint venture partner, establish a
production facility for the vaccine project or sell the project to a
third party within nine months from the date of the amended agreement,
Dr. Longbin Liu, a director of the Company (and President and CEO of
the Company at the time of the transaction) and one of the
shareholders of Alphatech, demanded to repurchase the project from the
Company. The repurchase price of $4.0 million is payable as follows:
(i) $500,000 at the date of repurchase; and
(ii) the balance to be paid within eighteen (18) months of the date of
repurchase with interest at 6% per annum. The interest will be
accrued from six months after the date of repurchase.
10
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
7. Due from Related Party - Hepatitis B Vaccine Project (continued)
In April 2002, the Company decided not to pursue the project and Dr. Liu
has repurchased the project on the agreed terms.
The amount owing by Dr. Liu to the Company was unsecured. The Company
chose, given the significant amount involved and the lack of security, to
conservatively value the amount owing and set up a provision in fiscal 2002
for the full amount, less a nominal amount of $100. Dr. Liu defaulted on
repayment in September 2003 but subsequently renegotiated repayment terms
with the Company (see note 5).
8. Patent Rights - Related Party
Pursuant to an agreement dated January 14, 2002, the Company entered into a
Patent Development Agreement with the Dr. Longbin Liu, a director of the
Company (and President and CEO of the Company at the time of the
transaction) and a company controlled by the Dr. Liu entitling the Company
to acquire one patent filed in the United States related to the discovery
of a new gene or protein. Consideration for the right to acquire the patent
was payment of $500,000 (paid) and the issuance of warrants to acquire
1,000,000 common shares of the Company at a price of $2.50 per share for a
period of five years. The patent may be acquired prior to January 14, 2005
at no additional cost other than the reasonable legal costs of obtaining
the patent.
The issuance and exercise of the warrants to acquire 1,000,000 common stock
of the Company is contingent upon the success of the patent applications.
The $500,000 will be refunded to the Company if no patent applications have
been filed by January 14, 2005. The Company has reached settlement with Dr.
Liu on this and other projects (note 5) and the warrants have been
cancelled
9. Licence and permit and other assets
---------------------------------------------------------------------------
September 30, December 31,
2004 2003
---------------------------------------------------------------------------
Original cost $5,012,582 $5,012,582
Accumulated amortization (2,502,389) (2,088,384)
---------------------------------------------------------------------------
Licence and permit 2,510,193 2,924,198
Other assets 230,000 -
---------------------------------------------------------------------------
$ 2,740,19 $ 2,924,198
===========================================================================
Amortization expense for the licence and permit for the nine-months ended
September 30, 2004 was $413,963 (2003 - $414,062).
11
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
9. Licence and permit and other assets (continued)
The estimated amortization expense for each of the five succeeding fiscal
years is as follows:
2004 (balance of the year) $138,000
2005 $552,000
2006 $552,000
2007 $552,000
2008 $552,000
The above amortization expense forecast is an estimate. Actual amounts of
amortization expense may differ from estimated amounts due to additional
intangible asset acquisitions, changes in foreign currency exchange rates,
impairment of intangible assets, accelerated amortization of licence and
permit, and other events.
10. Income Taxes
(a) Kailong and Huaxin are subject to income taxes in China on its taxable
income as reported in its statutory accounts at a tax rate in
accordance with the relevant income tax laws.
Allwin and Biotrade are not subject to income taxes. As at September
30, 2004, $3.9 million of unremitted earnings attributable to
international companies were considered to be indefinitely invested.
No provision has been made for taxes that might be payable if these
earnings were remitted to the United States. The Company's intention
is to reinvest these earnings permanently or to repatriate the
earnings when it is tax effective to do so. It is not practicable to
determine the amount of incremental taxes that might arise were these
earnings to be remitted.
As at September 30, 2004, the Company has estimated losses, for tax
purposes, totalling approximately $10,518,000, which may be applied
against future taxable income. The potential tax benefits arising from
these losses have not been recorded in the financial statements. The
Company evaluates its valuation allowance requirements on an annual
basis based on projected future operations. When circumstances change
and this causes a change in management's judgement about the
realizability of deferred tax assets, the impact of the change on the
valuation allowance is generally reflected in current income.
12
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
10. Income Taxes (continued)
(b) The tax effect of temporary differences that give rise to the
Company's deferred tax asset (liability) are as follows:
----------------------------------------------------------------------
September 30, December 31,
2004 2003
----------------------------------------------------------------------
Tax losses carried forward $ 3,576,000 $ 3,237,000
Stock-based compensation 6,400 6,400
Provision for amount owing from
Hepatitis B Vaccine Project 1,118,000 1,118,000
Less: valuation allowance (4,700,400) (4,361,400)
----------------------------------------------------------------------
$ - $ -
======================================================================
A reconciliation of the federal statutory income tax to the Company's
effective income tax rate, for the three months ended September 30,
2004 and 2003 are as follows:
----------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------
Federal statutory income tax rate 34% 34%
Benefit of loss carry forward (34%) (34%)
----------------------------------------------------------------------
Effective income tax rate - -
======================================================================
11. Stock Options and Warrants
(a) Stock Options Plans
There were no options granted during the nine months ended September
30, 2004.
The following is a summary of the employee stock option information
for the period ended September 30, 2004:
----------------------------------------------------------------------
Weighted Average
Shares Exercise Price
----------------------------------------------------------------------
Options outstanding at December 31, 2002 3,288,000 $ 1.82
Granted 500,000 $ 0.68
Forfeited (1,061,000) $ 0.90
Exercised (128,000) $ 0.50
----------------------------------------------------------------------
Options outstanding at December 31, 2003 2,599,000 $ 2.04
Forfeited (482,500) $ 1.96
Exercised (120,000) $ 0.50
----------------------------------------------------------------------
Options outstanding at September 30, 2004 1,996,500 $ 2.16
======================================================================
13
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
11. Stock Options and Warrants (continued)
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 - $1.00 588,500 2.13 $ 0.61 563,500 $ 0.60
$1.01 - $2.00 308,000 2.57 $ 1.70 308,000 $ 1.70
$2.01 - $3.00 25,000 0.11 $ 2.50 25,000 $ 2.50
$3.01 - $4.00 1,075,000 1.12 $ 3.13 1,075,000 $ 3.13
------------ -------- ---------- --------- ----------
1,996,500 1.63 $ 2.16 1,971,500 $ 2.17
============ ========= ========= ========= ==========
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 except if
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.
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 loss:
----------------------------------------------------------------------
September 30, 2004 September 30, 2003
----------------------------------------------------------------------
Net (loss) for the period:
- as reported $ (849,576) $(1,253,034)
- pro-forma $ (849,576) $(1,253,034)
----------------------------------------------------------------------
Basic and diluted (loss) per share:
- as reported $(0.04) $(0.06)
- pro-forma $(0.04) $(0.06)
----------------------------------------------------------------------
(b) Warrants
Share purchase warrants outstanding as at September 30, 2004:
Number Underlying Exercise Price
of Warrants Shares Per Share Expiry Date
50,000 50,000 $1.70 November 15, 2004
14
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
12. Related Party Transactions
(a) The Company incurred the following expenses to a director of the
Company:
----------------------------------------------------------------------
September 30, September 30,
2004 2003
----------------------------------------------------------------------
Management fees $- $40,000
======================================================================
(b) Pursuant to an agreement dated January 14, 2002, the Company entered
into a Project Development Agreement with Dr. Longbin Liu ("Dr. Liu"),
a director of the Company (and President and CEO of the Company at the
time of the transaction) to continue the research and development of
G-CSF and Insulin for the Company. The Company will make payment for
the development of G-CSF as follows:
(i) $500,000 to be provided at the commencement of the research in
the G-CSF Project (paid);
(ii) $500,000 to be provided when cell-line and related technology is
established and animal experimentation commences in the G-CSF
Project; and
(iii)$300,000 to be provided when a permit for clinical trials for
G-CSF has been issued by the State Drug Administration of China
("SDA");
(iv) $200,000 to be provided when a new drug license for G-CSF is
issued to Dragon by the SDA; and
(v) $500,000 to be paid as a bonus if the SDA issues the new drug
license for G-CSF to Dragon before January 14, 2005.
The Company will make payment for the development of Insulin as
follows:
(i) $750,000 to be provided by at the commencement of the research in
the Insulin Project (paid);
(ii) $750,000 to be provided when cell-line and related technology is
established and animal experimentation commences in the Insulin
Project (paid);
(iii)$300,000 to be provided when a permit for clinical trials for
Insulin has been issued by the SDA;
(iv) $200,000 to be provided when a new drug license for Insulin is
issued to Dragon by the SDA; and
(v) $500,000 to be paid as a bonus if the SDA issues the new drug
license for Insulin to Dragon before January 14, 2005.
15
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
12. Related Party Transactions (continued)
For both the G-CSF and Insulin Projects:
(i) If the Company elects to cease development of the project it will
forfeit any payments made and lose ownership of the Project, but
it will not be obligated to make any further payments toward the
Project;
(ii) if an application for permit for clinical trials is not submitted
within three years with respect to the G-CSF Project or four
years with respect to the Insulin Project or if the SDA rejects
the Projects for technical or scientific reasons or If
development of the Project is terminated by Dr. Liu, then Dr. Liu
will refund to the Company all amounts paid, without interest or
deduction, with respect to the Project within six months.
As at September 30, 2004, the Company has paid a total of
$1,500,000 and $500,000 towards the Insulin and G-CSF Projects,
respectively. The Company has paid an additional $100,000 to a
company controlled by Dr. Liu to produce Insulin samples for drug
registration purposes. The Company has reached settlement with
Dr. Liu on this and other projects (note 5).
(c) see Notes 5, 6, and 7 also.
13. Commitments
(a)The Company has entered into operating lease agreements with respect to
Huaxin's production plant in Nanjing, China for an amount of $326,200 (RMB
2,700,000) per annum until June 11, 2009, and the Company's administrative
offices in Vancouver for an amount escalating from $136,000 to $157,000
(CDN$200,000 to CDN$230,000) per annum until March 31, 2007. Minimum
payments required under the agreements are as follows:
2004 (balance of the year) $ 125,9011
2005 504,954
2006 509,035
2007 372,253
2008 326,205
2009 144,738
-------------------------------------------------------------
Total $ 1,983,086
=============================================================
(b) The Company has contracted with a European Institute of Biotechnology,
which may develop a high yield proprietary cell line and production process
technology for the Company. Product from this most 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 $609,000
(EUROS 500,000) of which $365,000 (EUROS 300,000) remains unpaid at
September 30, 2004.
16
DRAGON PHARMACEUTICAL INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Expressed in U.S. Dollars)
(Unaudited - Prepared by Management)
--------------------------------------------------------------------------------
14. Segmented Information
The Company operates exclusively in the biotech sector. The Company's
assets and revenues are distributed as follows:
September 30, 2004 December 31,2003
---------------------------------------------------------------------------
ASSETS
North America $2,754,530 $3,156,953
China 6,963,686 7,079,241
Other 541,206 899,858
---------------------------------------------------------------------------
Total $ 10,259,422 $11,136,052
===========================================================================
---------------------------------------------------------------------------
Nine months ended Nine months ended
September 30, 2004 September 30, 2003
---------------------------------------------------------------------------
REVENUE
North America $ - $ -
China 2,051,164 1,773,709
Other 792,485 1,049,945
---------------------------------------------------------------------------
Total $ 2,843,669 $ 2,823,654
===========================================================================
15. Comparative Figures
Certain 2003 comparative figures have been reclassified to conform to the
financial statement presentation adopted for 2004.
17
Item 2. Management's Discussion and Analysis and Plan of Operations
The following discusses the Company's financial condition and results of
operations based upon the Company's consolidated financial statements which have
been prepared in accordance with generally accepted accounting principles. It
should be read in conjunction with the Company's financial statements and the
notes thereto and other financial information included in the Company's Form
10-KSB for the fiscal year ended December 31, 2003.
Overview
The Company (or "Dragon") was formed on August 22, 1989, under the name First
Geneva Investment Inc. First Geneva Investment's business was to evaluate
businesses for possible acquisition. On July 28, 1998, First Geneva Investment
entered into a share exchange agreement with Allwin Newtech. Allwin Newtech was
formed in 1998 for the purpose of developing and marketing pharmaceutical drugs
for sale in China. Prior to the acquisition of Allwin Newtech, First Geneva
Investment had no operations. On September 21, 1998, First Geneva Investment
changed its name to Dragon Pharmaceutical Inc.
On July 27, 1999, Dragon acquired a 75% interest in Nanjing Huaxin
Bio-pharmaceutical Co. Ltd. ("Huaxin"), which manufactures EPO in China. The
Company increased the efficiencies in the production of EPO and successfully
achieved commercial production during the last quarter of calendar 1999. In
January 2002 the Company purchased the balance of Huaxin for $1,400,000.
On September 6, 2000, Dragon incorporated Allwin Biotrade Inc. ("Biotrade").
Biotrade was incorporated for the purpose of marketing and distributing
biopharmaceutical products outside China. On September 15, 2000, Dragon
incorporated Dragon Pharmaceutical (Canada) Inc. ("Dragon Canada"). Dragon
Canada was incorporated for the purpose of researching and developing new
biopharmaceutical products.
The Company has contracted with a European Institute of Biotechnology that may
develop a high yield proprietary cell line and production process technology for
the Company. Product from this most advanced technology available today will be
used by the Company to enter the European market, once certain competitor's
patents expire.
Recent Events
Agreement to Acquire Oriental Wave Holding Ltd. On March 24, 2004, we announced
that we entered into a letter of intent to acquire Oriental Wave Holding Ltd. in
a transaction in which we will be the survivor company. On June 14, 2004 we
announced that the parties had signed a definitive Share Purchase Agreement
setting forth the terms of the acquisition. If the proposed acquisition is
consummated, the resulting ownership of the combined company will be
approximately 31.65% for Dragon shareholders and approximately 68.35% for
Oriental Wave shareholders.
Oriental Wave Holding Ltd, incorporated in the British Virgin Islands, is a
holding company of a China-based pharmaceutical company engaged in the
production of chemical intermediates and active pharmaceutical ingredients and
formulation, marketing and sale of generic drugs. Based on its 2003 audited
financial statements, Oriental Wave Group had revenues of $26 million and
earnings of $7.5 million.
Oriental Wave Group currently has two Chinese State Food and Drug administration
("SFD&A") certified GMP production facilities in operations: a pharmaceutical
facility with a capacity of producing
18
1.6 billion tablets and capsules, 80 million injectables and 10 million
suppositories per year and a chemical plant producing clavulanic acid by a
fermentation process. A third facility for the production, by fermentation, of
7-ACA, an intermediate for Cephalosporin antibiotics started pilot production on
July 1, 2004. Oriental Wave Group has a total of approximately 290 drug
approvals from the SFD&A of which about 35, mainly anti-infectious drugs, were
actively marketed in China in 2003.
Upon the consummation of the acquisition, the combined company will be
reorganized into three major divisions: a Pharmaceutical division for
prescription and over-the-counter generic drugs; a Chemical division for bulk
pharmaceutical chemicals such as Clavulanic Acid, 7-ACA and sterilized bulk
drugs and a Biotech division for EPO and in-licensed G-CSF.
Completion of the proposed acquisition is subject to a number of conditions
including required regulatory and shareholder approvals.
Settlement agreement with Dr. Liu. In view of the slow progress in developing
new drugs, the availability of alternative drugs, the desire to avoid conflict
of interest issues in the future and, in some cases, the high investment costs
associated with bringing the drugs into production, the Company has reached a
settlement with its research partners to discontinue further development of the
drugs under development and recover some of the development costs paid to date.
On April 4, 2004, the Company entered into an agreement with Dr. Longbin Liu and
his affiliate to settle the amount owing to the Company from his acquisition of
the Hepatitis B Vaccine Project as well as cancellation of the Patent and
Project Development agreements between the parties. Under the terms of the
settlement agreement, the G-CSF, Insulin and Hepatitis B Projects, including the
rights of ownership and development obligations would revert to Dr. Liu.
In exchange, Dr Liu will pay to the Company the $3,710,000 in principal and
interest owing under the Hepatitis B Project as well as reimburse the Company
$1,330,000 that had been paid previously under the Patent and Project
Development agreements. All amounts are due on December 31, 2004 and the
warrants granted to Dr. Liu under the Patent Development agreement have been
cancelled. Dr. Liu has agreed to provide 2,600,000 common shares of the Company,
to be held in escrow, as security for the amounts owing of which 2,231,000
common shares of the Company have been placed in escrow as of September 30,
2004.
Results of Operations
Sales. Sales are generated from the sale of EPO in China by our subsidiary,
Nanjing Huaxin, and throughout the developing world by our subsidiary, Allwin
Biotrade. Revenues for the three-month period ending September 30, 2004 were
$1,057,254 compared to $1,151,646 for the three-month period ending September
30, 2003. Sales in and outside of China were $691,669 and $365,585, respectively
during the three-month period ending September 30, 2004. Sales during the
three-month period ending September 30, 2003 were $742,467 in China and $409,179
outside of China. Sales for the nine-month period ended September 30, 2004 were
$2,843,669 compared to $2,823,654 for the nine-month period ended September 30,
2003. Sales in and outside of China were $2,051,184 and $792,485, respectively,
during the nine-month period ended September 30, 2004. Sales during the
nine-month period ended September 30, 2003 were $1,773,708 in China and
$1,049,946 outside of China. Sales in China increased during the nine-month
period ended September 30, 2004 due to our implementing a more commission-based
sales compensation plan during the latter part of the year ended December 31,
2003. During the first part of the nine months ended September 30, 2003, our
compensation structure was more salary-based which did not provide sufficient
incentives to our sales force. During the nine months ended September 30, 2004,
sales outside of China decreased compared to the same period of the prior year.
19
During the nine months ended September 30, 2003, because the shelf-life of
certain of our EPO product inventory was about to expire, we decreased the price
of this product in order to encourage sales. Although sales increased during the
nine months ended September 30, 2003, the price reduction reduced our profit
margin.
Cost of sales for the three-months ended September 30, 2004 of $281,536 is
attributed to the production costs of the pharmaceutical products. The cost of
sales for the three-months ended September 30, 2003 was $353,998. The gross
profit margin was 73% for the three-month period ending September 30, 2004 and
68% for the three-month period ended September 30, 2003. Cost of sales for the
nine-months ended September 30, 2004 and September 30, 2003 were $723,033 and
$882,267. The gross profit margin was 75% for the nine-month period ended
September 30, 2004 and 69% for the nine-month period ended September 30, 2003.
The lower profit margin during the nine month period ended September 30, 2003
reflects price reductions in sales price for certain of our products that we
were required to sell due to the anticipated expiration dates of such products
reducing the gross margin to 69% from the normal overall gross margin of
75%-80%.
Interest income is related primarily to interest earned on cash received
from the private placement of common stock received during the third quarter of
2001 and subsequent sales. Interest income for the three-month period ended
September 30, 2004 was $4,846 compared to $4,185 for the three-month period
ended September 30, 2003. Interest income for the nine-month period ended
September 30, 2004 was $31,035 compared to $21,004 for the nine-month period
ended September 30, 2003. Interest income increased during the nine months ended
September 30, 2004 as compared to the same period for the prior year primarily
due to a marginally increase in interest rates.
Expenses. Total operating expenses for the three-month period ended
September 30, 2004 were $992,712 consisting of selling, general and
administrative expenses of $810,870, depreciation and amortization of $179,612,
research expenses of $4, new market development of $1,588, and interest expense
of $638. Total operating expenses for the nine-month period ended September 30,
2004 were $3,001,246, consisting of selling, general and administrative expenses
of $2,273,807, depreciation and amortization of $538,466, research expenses of
$152,011, new market development of $13,993, provision for bad debt of $20,816
and interest expense of $2,154.
Comparatively, total operating expenses for the three-month period ended
September 30, 2003 were $1,084,414 consisting of selling, general and
administrative expenses of $861,160, depreciation and amortization of $186,674,
research expenses of $25,884, new market development of $6,577, provision for
bad debt of $3,257 and interest expense of $862. Total operating expenses for
the nine-month period ended September 30, 2003 were $3,215,425 consisting of
selling, general and administrative expenses of $2,553,462, depreciation and
amortization of $555,869, research expenses of $25,884, new market development
of $30,291, provision for bad debt of $44,668 and interest expense of $5,251.
Selling, general and administrative expenses for the three months ended
September 30, 2004 primarily consisted of $369,093 in selling expenses, rent of
$85,775, salaries and benefits of $209,541, travel costs of $50,051, insurance
of $10,927 and legal fees of $17,808. Selling, general and administrative
expenses for the nine months ended September 30, 2004 primarily consisted of
$997,423 in selling expenses, rent of $253,876, salaries and benefits of
$600,012, travel costs of $133,934, insurance of $34,832 and legal fees of
$56,526.
Comparatively, selling, general and administrative expenses for the three
months ended September 30, 2003 primarily consisted of $368,380 in selling
expenses, rent of $68,680, salaries and benefits of $204,960, travel costs of
$42,964, insurance of $12,293 and legal fees of $47,620. Selling,
20
general and administrative expenses for the nine months ended September 30, 2003
primarily consisted of $1,161,719 in selling expenses, rent of $280,796,
salaries and benefits of $594,938, travel costs of $143,377, insurance of
$50,001 and legal fees of $59,268. Included in selling, general and
administrative expenses were management fees of $40,000 paid to a director for
services. No similar payment was made during the nine months ended September 30,
2004.
Overall, selling, general and administrative expenses decreased by $164,296
during the nine months ended September 30, 2004 as compared for the nine months
ended September 30, 2003. Selling expenses decreased as a result of sales staff
reductions and implementation of a commission-based compensation structure.
Other reductions occurred in administrative salaries as our personnel levels
have decreased as we streamlined operations, rent through the closure of our
Beijing and Hong Kong representative offices and diligently pursued cutting
costs in all areas where practical. In addition, during the nine months ended
September 30, 2003 we incurred fees for management services to related parties.
No management fees were paid to directors for services during the first nine
months of 2004.
Depreciation and fixed assets and amortization of license and permit of
$538,466 for the nine months ended September 30, 2004 compared to $555,869 for
the nine months ended September 30, 2003 remained relatively the same as we did
not acquired significant assets or licenses during the nine months ended
September 30, 2004. Further during the nine months ended September 30, 2004, we
incurred research expenses of $152,011 related to our proposed EPO product to be
offered in Europe. The majority of the research expense was incurred during the
first part of 2004. In general, it is our policy to expense research expenses.
No significant research expense was incurred during the same period for the
prior year.
New market development expense decrease by $16,298 from $30,291 for the
nine months ended September 30, 2003 compared to $13,993 for the nine months
ended September 30, 2004. The decrease was due to fewer new EPO dosages or
indications being introduced in 2004. In addition, the provision for doubtful
debts decreased by $23,852 from $44,668 for the nine months ended September 30,
2003 compared to $20,816 for the nine months ended September 30, 2004 due to our
tightening of our credit policy in China. Finally, interest expense decreased by
$3,097 from $5,251 for the nine months ended September 30, 2003 compared to
$2,154 for the nine months ended September 30, 2004 due to the payoff of certain
loans in early 2003.
Expenses, Net and Comprehensive Loss. Dragon had a net loss and a comprehensive
loss of $212,148 for the three-month period ending September 30, 2004 compared
to $282,581 for the same period last year.
The Company's net and comprehensive loss of $849,576 for the nine-month period
ending September 30, 2004 compared to $1,253,034 for the same period last year.
Basic and Diluted Net Loss Per Share
The Company's net loss per share has been computed by dividing the net loss for
the period by the weighted average number of shares outstanding during the three
and nine month periods ended September 30, 2004. The loss per share for the
three-month period ended September 30, 2004 was $0.01 and $0.04 for the
nine-month period ended September 30, 2004. Common stock issuable upon the
exercise of common stock options and common stock warrants have been excluded
from the net loss per share calculations as their inclusion would be
anti-dilutive.
21
Liquidity and Capital Resources
Dragon is a pharmaceutical and biotechnological company that has commenced the
manufacture and marketing of pharmaceutical products in China through its
indirect ownership in Nanjing Huaxin Bio-pharmaceuticals Ltd. Previously, the
Company has raised funds through equity financings to fund its operations and to
provide working capital.
As of September 30, 2004, the Company had $2,283,072 in cash available. This
cash, the $1,571,659 in accounts receivable and anticipated sales will be used
to fund the ongoing operations and research and development. Working capital was
$4,347,812 at September 30, 2004. The Company does not anticipate significant
capital requirements in the near future.
During the nine-months September 30, 2004, the Company incurred losses of
$849,576 and the Company will continue to incur losses until sales for its
products increase or the contemplated merger with Oriental Wave is completed.
The Company will continue to fund its operations in the near future through
working capital.
Item 3. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation
of our management, including our Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined by Exchange Act Rule 13a-15(e)) as of the end of our
third fiscal quarter pursuant to Exchange Act Rule 13a-15(b). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in ensuring that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
There have been no changes in our internal control over financial reporting
identified in connection with our evaluation as of the end of the first fiscal
quarter that occurred during such quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
22
Item 5. Other Information.
None
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.
Signatures
In accordance with the requirements 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.
DRAGON PHARMACEUTICAL INC.
(registrant)
Dated: November 10, 2004 /s/ Matthew Kavanagh
---------------------------------
Matthew Kavanagh
Director of Finance and Corporate
Compliance and Corporate Secretary
(Duly authorized Officer and
Principal Financial Officer)
23
EXHIBIT 31.1
Section 302 Certification of Principal Executive Officer
I, Alexander Wick, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Dragon
Pharmaceutical Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Omitted
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonable likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: November 10, 2004 /s/ Alexander Wick
------------------------------------
Alexander Wick, President and
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
Section 302 Certification of Principal Financial Officer
I, Matthew Kavanagh, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Dragon
Pharmaceutical Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Omitted
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonable likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: November 10, 2004 /s/ Matthew Kavanagh
-------------------------------
Matthew Kavanagh
Principal Financial Officer
EXHIBIT 32
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), each of the
undersigned officers of Dragon Pharmaceutical Inc., a Florida corporation (the
"Company"), does hereby certify with respect to the Quarterly Report of the
Company on Form 10-QSB for the quarter ended September 30, 2004 as filed with
the Securities and Exchange Commission (the "Form 10-QSB") that, to the best of
their knowledge:
(1) the Form 10-QSB fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: November 10, 2004 /s/ Alexander Wick
---------------------------------
Alexander Wick
President and Chief Executive Officer
Dated: November 10, 2004 /s/ Matthew Kavanagh
---------------------------------
Matthew Kavanagh
Principal Financial Officer