PROSPECTUS
 |
NEW
DRAGON ASIA
CORP.
|
|
9,746,974
Shares of Class A Common Stock
This
prospectus relates to the sale by the selling shareholders identified in this
prospectus of up to an aggregate of 9,746,974 shares of our Class A Common
Stock, which includes:
| · |
6,315,789
shares issuable upon conversion of our Series A 7% Convertible Preferred
Stock at an initial conversion price of $0.95 cents per share;
|
| · |
3,157,895
shares issuable upon the exercise of six-year warrants with an
initial
exercise price of $1.04 cents per share (in the event
we issue shares
of our Class A Common Stock or securities convertible into or
exchangeable
for our Class A Common Stock (subject to certain exceptions) at a
price or
having a conversion or exercise price less than $1.04, the exercise
price
of these six-year warrants shall be reduced to such lower price);
|
| · |
101,579 shares
issuable upon the exercise of five-year warrants with an exercise
price of
$1.04 cents per share; and
|
| · | 171,711 shares issued and outstanding as a result of cashless exercises of five-year warrants by certain of the selling shareholders. |
We
will
not receive any of the proceeds from the sale of these shares by the selling
shareholders. However, we will receive the proceeds from any exercise of
warrants to purchase shares to be sold hereunder to the extent that the selling
shareholders do not perform cashless exercises. See “Use of
Proceeds.”
We
have
agreed to pay the expenses in connection with the registration of these
shares.
Our
Class
A Common Stock is listed on the American Stock Exchange, also called the AMEX,
under the trading symbol “NWD.” The last reported price for our Class A Common
Stock on October 25, 2005 was $2.05 per share.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING
ON PAGE 2 OF THIS PROSPECTUS FOR CERTAIN RISKS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE
DATE OF THIS PROSPECTUS IS OCTOBER 26, 2005.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere or incorporated by reference
in this prospectus. Accordingly, it does not contain all of the information
that
may be important to you. You should read this entire prospectus carefully,
including the information under “Risk Factors” and the consolidated financial
statements and the notes thereto included elsewhere in this prospectus before
making an investment decision. Unless the context otherwise requires, references
to “we,” “us” or “our” refer collectively to New Dragon Asia Corp. and its
subsidiaries. References to our “Series A Preferred Stock” refer to our Series A
7% Convertible Preferred Stock.
New
Dragon Asia Corp.
We
are
one of the largest flour and instant noodle producers in Northern China. Our
core business is twofold: (1) the milling, sale and distribution of flour and
related products, and (2) the production of instant noodles, which we market
and
sell through distributors, supermarkets and food stores. Our principal brand
is
“Long Feng.”
Our
principal executive office is located at Suite 2808, International Chamber
of
Commerce Tower, Fuhua Three Road, Shenzhen, PRC 518048, and our telephone number
is (86 755) 8831- 2115.
This
Offering
|
Securities
being offered by the selling shareholders
|
9,746,974
shares of our Class A Common Stock.
|
|
|
Use
of Proceeds
|
We
will not receive any proceeds from the sales of the shares of Class
A
Common Stock being offered by the selling shareholders other than
the
exercise price of any warrants that are exercised by the selling
shareholders who do not conduct cashless exercises, the proceeds
of which
we expect to use for working capital.
|
|
|
Trading
|
Our
Class A Common Stock is listed on the American Stock Exchange under
the
symbol “NWD.”
|
-1-
RISK
FACTORS
You
should carefully consider the risks described below before making an investment
in us. The risks and uncertainties described below are not the only ones facing
us, and there may be additional risks that we do not presently know of or that
we presently consider immaterial. All of these risks may impair our business
operations. If any of the following risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our Class A Common Stock could
decline, and you may lose all or part of your investment.
Risks
Related to Our Class A Common Stock
We
have never paid dividends on our Class A Common Stock.
We
have
never declared or paid any dividends on our Class A Class A Common Stock. The
declaration and payment in the future of any cash or stock dividends on the
Class A Common Stock will be at the discretion of our Board of Directors and
will depend upon a variety of factors, including our ability to service our
outstanding indebtedness, if any, and to pay dividends on securities ranking
senior to the Class A Common Stock, including the shares of our outstanding
Series A Preferred Stock, our future earnings, if any, capital requirements,
financial condition and such other factors as our Board of Directors may
consider to be relevant from time to time. We do not expect to declare or pay
any dividends on our Class A Common Stock in the foreseeable
future.
After
this offering we will continue to be controlled by our major shareholder, which
is controlled by our Chairman.
Upon
completion of the offering, assuming conversion of all the Series A Preferred
Stock and the exercise of all the five-year and six-year warrants for shares
of
our Class A Common Stock, registered hereunder, our majority shareholder, New
Dragon Asia Food Ltd. which is controlled by our Chairman, Heng Jing Lu, will
beneficially own in the aggregate, approximately 61% of our outstanding Class
A
Common Stock. As a result, Mr. Lu through this shareholder, effectively
exercises control over all matters requiring shareholder approval, including
the
election of directors and approval of significant corporate transactions. This
concentration of ownership might also have the effect of delaying or preventing
a change in control of us that may be viewed as beneficial by other
shareholders.
Risks
Related with Our Business
Our
business may experience adverse effects from competition in the noodle
and
flour product markets.
The
noodle and flour product markets are highly competitive. Competition in these
markets takes many forms, including the following:
| · |
establishing
favorable brand recognition;
|
| · |
developing
products sought by consumers;
|
| · |
implementing
appropriate pricing;
|
| · |
providing
strong marketing support; and
|
| · |
obtaining
access to retain outlets and sufficient shelf
space.
|
Many
of
our competitors are larger and have greater financial resources, including
our
primary competitors, the “Master Kang” brand manufactured by Tingyi (Cayman
Islands) Holdings Corp. and the “President” brand manufactured by Uni-President
Group. We may not be able to compete successfully with such competitors.
Competition could cause us to lose our market share, increase expenditures
or
reduce pricing, each of which could have a material adverse effect on our
business and financial results.
-2-
Increases
in prices of main ingredients and other materials could adversely affect our
business.
The
main
ingredients that we use to manufacture our products are flour and eggs. We
also
use paper products, such as corrugated cardboard, as well as films and plastics,
to package our products. The prices of these materials have been, and we expect
them to continue to be, subject to volatility. We may not be able to pass price
increases in these materials onto our customers which could have an adverse
effect on our financial results.
We
are subject to risks associated with joint ventures and third party
agreements.
We
conduct our milling and sales operations through joint ventures established
with
certain Chinese parties. Any deterioration of these strategic relationships
may
have an adverse effect on our operations. Changes in laws and regulations,
or
their interpretation, or the imposition of confiscatory taxation, restrictions
on currency conversion, imports and sources of supply, devaluations of currency
or the nationalization or other expropriation of private enterprises could
have
a material adverse effect on our business, results of operations and financial
condition. Under its current leadership, the Chinese government has been
pursuing economic reform policies that encourage private economic activity
and
greater economic decentralization. We cannot assure you, however, that the
Chinese government will continue to pursue these policies, or that it will
not
significantly alter these policies from time to time without notice.
We
may
have limited legal recourse under Chinese law if disputes arise under our
agreements with joint ventures or third parties. The Chinese government has
enacted some laws and regulations dealing with matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
However, their experience in implementing, interpreting and enforcing these
laws
and regulations are limited, and our ability to enforce commercial claims or
to
resolve commercial disputes is unpredictable. If our new business ventures
are
unsuccessful, or other adverse circumstances arise from these transactions,
we
face the risk that the parties to these ventures may seek ways to terminate
the
transactions, or, may hinder or prevent us from accessing important information
regarding the financial and business operations of these acquired companies.
The
resolution of these matters may be subject to the exercise of considerable
discretion by agencies of the Chinese government, and forces unrelated to the
legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an
injunction under Chinese law, in either of these cases, are severely limited,
and without a means of recourse by virtue of the Chinese legal system, we may
be
unable to prevent these situations from occurring. The occurrence of any such
events could have a material adverse effect on our business, financial condition
and results of operations.
We
may be subject to product liability claims and product recalls, which could
negatively impact our profitability.
We
sell
food products for human consumption, which involves risks such as product
contamination or spoilage, product tampering and other adulteration of food
products. We may be subject to liability if the consumption of any of our
products causes injury, illness or death. In addition, we will voluntarily
recall products in the event of contamination or damage. A significant product
liability judgment or a widespread product recall may negatively impact our
profitability for a period of time depending on product availability,
competitive reaction and consumer attitudes. Even if a product liability claim
is unsuccessful or is not fully pursued, the negative publicity surrounding
any
assertion that our products caused illness or injury could adversely affect
our
reputation with existing and potential customers and our corporate and brand
image.
We
have limited business liability insurance coverage.
The
insurance industry in China is still in its early stage of development.
Insurance companies in China offer limited business liability insurance. As
a
result, we do not have any business liability insurance coverage for our
operations. Moreover, while business disruption insurance is available, we
have
determined that the risks of disruption and cost of the insurance are such
that
we do not require it at this time. Any business disruption, litigation or
natural disaster might result in substantial costs and diversion of
resources.
-3-
We
may experience risks resulting from our plans for expansion.
We
have
acquired several companies and businesses and may continue to acquire companies
in the future. Entering into an acquisition entails many risks, any of which
could harm our business, including: (a) diversion of management’s attention from
other business concerns; (b) failure to integrate the acquired company with
our
existing business; (c) additional operating expenses not offset by additional
revenue; and (d) dilution of our stock as a result of issuing equity securities
in connection with any such acquisitions.
If
we are
unable to implement our acquisition strategy, we may be less successful in
the
future. A key component of our growth strategy is accomplished by acquiring
additional flour and noodle factories and, if our recent acquisition of a soy
bean business proves successful, our acquisition strategy may expand to include
future acquisitions of soy bean businesses. While there are may be companies
available, we may not always be able to identify and acquire companies meeting
our acquisition criteria on terms acceptable to us. Additionally, financing
to
complete significant acquisitions may not always be available on satisfactory
terms. Further, our acquisition strategy presents a number of special risks
to
us that it would not otherwise contend with absent such strategy, including
possible adverse effects on our earnings after each acquisition, diversion
of
management’s attention from our core business due to the special attention that
a particular acquisition may require, failure to retain key acquired personnel
and risks associated with unanticipated events or liabilities arising after
each
acquisition, some or all of which could have a material adverse effect on our
business, financial condition and results of operations.
Risks
Associated With Doing Business In China
We
are subject to the risks associated with doing business in China.
As
most
of our operations are conducted in China, we are subject to special
considerations and significant risks not typically associated with companies
operating in North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments and foreign
currency exchange. Our results may be adversely affected by changes in the
political and social conditions in China, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation,
among other things.
Although
the majority of productive assets in China are owned by the Chinese government,
in the past several years the government has implemented economic reform
measures that emphasize decentralization and encourage private economic
activity. Because these economic reform measures may be inconsistent or
ineffectual, there are no assurances that:
| · |
we
will be able to capitalize on economic reforms;
|
| · |
the
Chinese government will continue its pursuit of economic reform
policies;
|
| · |
the
economic policies, even if pursued, will be successful;
|
| · |
economic
policies will not be significantly altered from time to time; and
|
| · |
business
operations in China will not become subject to the risk of
nationalization.
|
Economic
reform policies or nationalization could result in a total investment loss
in
our Class A Common Stock.
Since
1979, the Chinese government has reformed its economic systems. Because many
reforms are unprecedented or experimental, they are expected to be refined
and
improved. Other political, economic and social factors, such as political
changes, changes in the rates of economic growth, unemployment or inflation,
or
in the disparities in per capita wealth between regions within China, could
lead
to further readjustment of the reform measures. This refining and readjustment
process may negatively affect our operations.
-4-
Over
the
last few years, China’s economy has registered a high growth rate. Recently,
there have been indications that rates of inflation have increased. In response,
the Chinese government has taken measures to curb this excessively expansive
economy. These measures include restrictions on the availability of domestic
credit, reducing the purchasing capability of certain of its customers, and
limited re-centralization of the approval process for purchases of some foreign
products. The Chinese government may adopt additional measures to further combat
inflation, including the establishment of freezes or restraints on certain
projects or markets. These measures may adversely affect our manufacturing
operations.
To
date,
reforms to China’s economic system have not adversely impacted our operations
and are not expected to adversely impact operations in the foreseeable future.
However, we cannot assure you that the reforms to China’s economic system will
continue or that we will not be adversely affected by changes in China’s
political, economic, and social conditions and by changes in policies of the
Chinese government, such as changes in laws and regulations, measures which
may
be introduced to control inflation and changes in the rate or method of
taxation.
On
November 11, 2001, China signed an agreement to become a member of the World
Trade Organization (“WTO”), the international body that sets most trade rules,
further integrating China into the global economy and significantly reducing
the
barriers to international commerce. China’s membership in the WTO was effective
on December 11, 2001. China has agreed upon its accession to the WTO to reduce
tariffs and non-tariff barriers, remove investment restrictions and provide
trading and distribution rights for foreign firms. The tariff rate reductions
and other enhancements will enable us to develop better investment strategies.
In addition, the WTO’s dispute settlement mechanism provides a credible and
effective tool to enforce members’ commercial rights. Also, with China’s entry
to the WTO, it is believed that the relevant laws on foreign investment in
China
will be amplified and will follow common practices.
The
Chinese legal system is not fully developed and has inherent uncertainties
that
could limit the legal protections available to investors.
The
Chinese legal system is a system based on written statutes and their
interpretation by the Supreme People’s Court. Prior court decisions may be cited
for reference but have limited precedential value. Since 1979, the Chinese
government has been developing a comprehensive system of commercial laws, and
considerable progress has been made in introducing laws and regulations dealing
with economic matters such as foreign investment, corporate organization and
governance, commerce, taxation and trade. Two examples are the promulgation
of
the Contract Law of the People’s Republic of China to unify the various economic
contract laws into a single code, which went into effect on October 1, 1999,
and
the Securities Law of the People’s Republic of China, which went into effect on
July 1, 1999. However, because these laws and regulations are relatively new,
and because of the limited volume of published cases and their non-binding
nature, interpretation and enforcement of these laws and regulations involve
uncertainties. In addition, as the Chinese legal system develops, changes in
such laws and regulations, their interpretation or their enforcement may have
a
material adverse effect on our business operations.
Enforcement
of regulations in China may be inconsistent.
Although
the Chinese government has introduced new laws and regulations to modernize
its
securities and tax systems on January 1, 1994, China does not yet possess a
comprehensive body of business law. As a result, the enforcement, interpretation
and implementation of regulations may prove to be inconsistent and it may be
difficult to enforce contracts.
We
may experience lengthy delays in resolution of legal disputes.
As
China
has not developed a dispute resolution mechanism similar to the Western court
system, dispute resolution over Chinese projects and joint ventures can be
difficult and we cannot assure you that any dispute involving our business
in
China can be resolved expeditiously and satisfactorily.
-5-
Impact
of the United States Foreign Corrupt Practices Act on our business.
We
are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are not
subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in mainland China. We
have attempted to implement safeguards to prevent and discourage such practices
by our employees and agents. We cannot assure you, however, that our employees
or other agents will not engage in such conduct for which we might be held
responsible. If our employees or other agents are found to have engaged in
such
practices, we could suffer severe penalties and other consequences that may
have
a material adverse effect on our business, financial condition and results
of
operations.
Impact
of governmental regulation on our operations.
We
may be
subjected to liability for product safety that could lead to a product recall.
Our operations and properties are subject to regulation by various Chinese
government entities and agencies. As a producer of food products, our operations
are subject to production, packaging, quality, labeling and distribution
standards. Our production and distribution facilities are also subject to
various local environmental laws and workplace regulations. We believe that
our
current legal and environmental compliance programs adequately address such
concerns and that we are in substantial compliance with applicable laws and
regulations. However, compliance with, or any violation of, current and future
laws or regulations could require material expenditures or otherwise adversely
effect our business and financial results.
We
may be
liable if the consumption of any of our products cause injury, illness or death.
We may also be required to recall certain of our products that become
contaminated or are damaged. We are not aware of any material product liability
judgment against us. However, a product liability judgment or a product recall
could have a material adverse effect on our business or financial
results.
It
may be difficult to serve us with legal process or enforce judgments against
our
management or us.
All
of
our assets are located in China. In addition, all of our directors and officers
are non-residents of the United States, and all, or substantial portions of
the
assets of such non-residents, are located outside the United States. As a
result, it may not be possible to effect service of process within the United
States upon such persons. Moreover, there is doubt as to whether the courts
of
China would enforce:
| · |
judgments
of United States courts against us, our directors or our officers
based on
the civil liability provisions of the securities laws of the United
States
or any state; or
|
| · |
in
original actions brought in China, liabilities against non-residents
or us
based upon the securities laws of the United States or any
state.
|
The
Chinese government could change its policies toward private enterprise or even
nationalize or expropriate it, which could result in the total loss of your
investment.
Our
business is subject to significant political and economic uncertainties and
may
be adversely affected by political, economic and social developments in China.
Over the past several years, the Chinese government has pursued economic reform
policies including the encouragement of private economic activity and greater
economic decentralization. The Chinese government may not continue to pursue
these policies or may significantly alter them to our detriment from time to
time with little, if any, prior notice. Changes in policies, laws and
regulations or in their interpretation or the imposition of confiscatory
taxation, restrictions on currency conversion, restrictions or prohibitions
on
dividend payments to shareholders, devaluations of currency or the
nationalization or other expropriation of private enterprises could have a
material adverse effect on our business. Nationalization or expropriation could
even result in the total loss of our investment in China and in the total loss
of your investment.
-6-
If
relations between the United States and China worsen, our stock price may
decrease and we may have difficulty accessing U.S. capital
markets.
At
various times during recent years, the United States and China have had
significant disagreements over political and economic issues. Controversies
may
arise in the future between these two countries. Any political or trade
controversies between the United States and China, whether or not directly
related to our business, could adversely affect the market price of our Class
A
Common Stock and our ability to access U.S. capital markets.
The
Chinese economic, political and social conditions as well as government policies
could affect our business.
All
of
our business, assets and operations are located in China. The economy of China
differs from the economies of most developed countries in many respects,
including:
| · |
government
involvement;
|
| · |
level
of development;
|
| · |
growth
rate;
|
| · |
control
of foreign exchange; and
|
| · |
allocation
of resources.
|
The
economy of China has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the Chinese government has
implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the Chinese
government. In addition, the Chinese government continues to play a significant
role in regulating industry by imposing industrial policies. It also exercises
significant control over China’s economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies.
The
economy of China has experienced significant growth in the past 20 years, but
growth has been uneven both geographically and among various sectors of the
economy. The Chinese government has implemented various measures from time
to
time to control the rate of economic growth. Some of these measures benefit
the
overall economy of China, but may have a negative effect on us. For example,
our
operating results and financial condition may be adversely affected
by:
| · |
changes
in the rate or method of taxation;
|
| · |
imposition
of additional restrictions on currency conversion and remittances
abroad;
|
| · |
reduction
in tariff or quota protection and other import restrictions;
and
|
| · |
changes
in the usage and costs of state-controlled transportation
services.
|
Fluctuations
in the value of the Chinese renminbi relative to foreign currencies could affect
our operating results.
Substantially
all our revenues and expenses are denominated in the Chinese renminbi. However,
we use the United States dollar for financial reporting purposes. The value
of
Chinese renminbi against the United States dollar and other currencies may
fluctuate and is affected by, among other things, changes in China’s political
and economic conditions. The
Chinese government recently announced that it is valuing the exchange rate
of
the Chinese renminbi against a number of currencies, rather than
just exclusively to
the
United States dollar. Although the Chinese government has stated its intention
to support the value of the Chinese renminbi, we cannot assure you that the
government will not revalue it. As
our
operations are primarily in China, any significant revaluation of the Chinese
renminbi may materially and adversely affect our cash flows, revenues and
financial condition. For example, to the extent that we need to convert United
States dollars into Chinese renminbi for our operations, appreciation of this
currency against the United States dollar could have a material adverse effect
on our business, financial condition and results of operations. Conversely,
if
we decide to convert our Chinese renminbi into United States dollars for other
business purposes and the United States dollar appreciates against this
currency, the United States dollar equivalent of the Chinese renminbi we convert
would be reduced. To date, we have not engaged in any hedging transactions
in
connection with our operations.
-7-
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
Under
the
Private Securities Litigation Reform Act of 1995, companies are provided with
a
“safe harbor” for making forward-looking statements about the potential risks
and rewards of their strategies. Forward-looking statements often include the
words “believe,” “expect,” “anticipate,” “intend,”
“plan,” “estimate” or similar expressions. In this prospectus,
forward-looking statements also include:
| · |
statements
about our business plans;
|
| · |
statements
about the potential for the development, regulatory approval and
public
acceptance of new products;
|
| · |
estimates
of future financial performance;
|
| · |
predictions
of national or international economic, political or market conditions;
|
| · |
statements
regarding other factors that could affect our future operations or
financial position; and
|
| · |
other
statements that are not matters of historical
fact.
|
Our
ability to achieve our goals depends on many known and unknown risks and
uncertainties, including changes in general economic and business conditions.
These factors could cause our actual performance and results to differ
materially from those described or implied in forward-looking statements.
Factors that could cause or contribute to such differences include, among
others:
| · |
the
success of our research and development activities and the speed
with
which regulatory authorizations and product launches may be achieved;
|
| · |
our
ability to continue to manage our costs;
|
| · |
our
ability to successfully market new and existing products in new and
existing domestic and international markets;
|
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the
effect of weather conditions and commodity markets on the agriculture
business;
|
| · |
our
exposure to lawsuits and other liabilities and contingencies;
|
| · |
the
accuracy of our estimates and projections, for example, those with
respect
to product returns and grower use of our products and related distribution
inventory levels;
|
| · |
our
ability to obtain payment for the products that we sell;
|
| · |
the
effects of our accounting policies and changes in generally accepted
accounting principles;
|
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our
ability to fund our short-term financing needs;
|
| · |
general
economic and business conditions;
and
|
| · |
any
changes in business, political and economic conditions due to threat
of
future terrorist activity and related military
action.
|
These
forward-looking statements speak only as of the date of this prospectus. We
believe it is in the best interest of our investors to use forward-looking
statements in discussing future events. However, we are not required to, and
you
should not rely on us to, revise or update these statements or any factors
that
may affect actual results, whether as a result of new information, future events
or otherwise.
USE
OF PROCEEDS
We
have
registered these shares as a result of registration rights granted to the
selling shareholders. We will not receive any proceeds from the issuance of
our
Class A Common Stock to the selling shareholders other than the exercise price
of any warrants that are exercised by the selling shareholders who do not
conduct cashless exercises, the proceeds of which we expect to use for working
capital.
-8-
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth, as of October 25, 2005, certain information
concerning the beneficial ownership of our Class A Common Stock by (i)
each
stockholder known to us to beneficially own five percent or more of our
outstanding Class A Common Stock; (ii) each director; (iii) each executive
officer; and (iv) all of our executive officers and directors as a group,
and
their percentage ownership and voting power. As of October 25, 2005,
there were
47,182,953 shares of our Class A Common Stock outstanding.
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Name
and Address of Beneficial Owner
|
|
Amount
and Nature
of
Beneficial Ownership
|
|
Percent
of Class
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||
|
New
Dragon Asia Food Ltd.
Suite
2808, International Chamber of Commerce Tower,
Fuhua
Three Road, Shenzhen, PRC 518048
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|
|
34,823,954
|
|
|
73.8
|
%
|
|
Heng
Jing Lu†
Chairman
|
|
|
34,823,954(1)
|
|
|
73.8
|
%(1)
|
|
Li
Xia Wang†
Director
and Chief Executive Officer
|
|
|
-0-
|
|
|
*
|
|
|
Ling
Wang†
Director
and Vice President
|
|
|
-0-
|
(2)
|
|
*
|
(2)
|
|
Zhi
Yong Jiang†
Director
|
|
|
-0-
|
|
|
*
|
|
|
De
Lin Yang†
Director
|
|
|
-0-
|
|
|
*
|
|
|
Qi
Xue†
Director
|
|
|
-0-
|
|
|
*
|
|
|
Feng
Ju Chen†
Director
|
|
|
-0-
|
|
|
*
|
|
|
Peter
Mak†
Chief
Financial Officer
|
|
|
1,000,000(3
|
)
|
|
2.1
|
%(3)
|
|
All
Directors and Executive Officers (8 people)
|
|
|
35,823,954
|
|
|
74.3
|
%
|
* Less than one percent.
†
Address
of referenced person is c/o New Dragon Asia Corp. Suite 2808, International
Chamber of Commerce Tower, Fuhua Three Road, Shenzhen, PRC 518048.
(1)
Represents shares owned by New Dragon Asia Food Ltd. Ms. Ling Wang,
our Vice
President and a director, is the holder of record of 100% of the equity
interests of Long Feng Food Overseas Ltd. ("Long Feng"), which in turn
owns 100%
of the equity interests of New Dragon Pacific Holding Ltd., which in
turn holds
100% of the equity interests of New Dragon Asia Food Ltd. By virtue
of an
understanding with Ms. Wang, Mr. Lu has sole voting and dispositive
control over
the shares of Long Feng and, accordingly, has sole voting and dispositive
control of the shares held by New Dragon Asia Food Ltd.
(2)
Represents shares owned by New Dragon Asia Food Ltd. By virtue of an
oral
understanding between Ms. Wang and Mr. Lu, Mr. Lu has sole voting and
dispositive control over the shares of Long Feng and, accordingly, has
sole
voting and dispositive control of the shares held by New Dragon Asia
Food Ltd.
Ms. Wang disclaims beneficial ownership of any equity interests of Long
Feng and
New Dragon Asia Food Ltd.
(3)
Represents shares underlying immediately exercisable options, which
includes
options exercisable for 400,000 shares at an exercise price of $1.00
per share
pursuant to an option granted on November 2, 2004, and
options
exercisable for 600,000 shares at an exercise price of $1.20 per share
pursuant
to an option granted on June 22, 2005.
SELLING
SHAREHOLDERS
On
July
11, 2005, we completed a private placement transaction where, for an aggregate
purchase price of $6,000,000, we sold 6,000 shares of our Series A Preferred
Stock to two qualified institutional buyers. Based upon an initial conversion
price of $0.95 per share of our Class A Common Stock, the shares of Series
A
Preferred Stock are immediately convertible into an aggregate of 6,315,789
shares of our Class A Common Stock. In addition, the two investors in the
private placement also received warrants (the “Investor Warrants”) to purchase
an aggregate of 3,157,895 shares of our Class A Common Stock which are
immediately exercisable by the holder at $1.04 per share for a period of six
years following the closing of the private placement. In
the
event we issue at any time while the Investor Warrants are still outstanding,
shares of our Class A Common Stock or any type of securities convertible or
exercisable into shares of our Class A Common Stock at a price below $1.04,
the
exercise price of the Investor Warrants shall be reduced to such lower price.
The terms of the shares of the Series A Preferred Stock and the Investor
Warrants are set forth in our Current Report on Form 8-K (including exhibits
3.1, 4.1, 10.1 and 10.2 thereto) filed with the U.S. Securities and Exchage
Commission (“SEC”) on July 12, 2005, and our Definitive Information Statement on
Schedule 14C, filed with the SEC on July 26, 2005, each of which is
incorporated herein by reference in their entirety. We granted registration
rights to the two investors for the shares of our Class A Common Stock issuable
upon conversion of our Series A Preferred Stock and exercise of the Investor
Warrants. Under the terms of the registration rights agreement, we are required
to register 130% of the maximum number of shares of our Class A Common Stock
issuable upon (i) conversion of our Series A Preferred Stock, (ii) exercise
of
the Investor Warrants and (iii) the occurrence of certain anti-dilution events.
The terms of our Series A Preferred Stock and the Investor Warrants limit the
number of shares a holder may beneficially own upon conversion of our Series
A
Preferred Stock, or exercise of the Investor Warrants, to 4.99% of our
outstanding shares of Class A Common Stock (after giving effect to such
conversion or exercise). However, the holders have the right upon 61 days prior
notice to us to waive this limitation.
TN
Capital Equities, Ltd., a registered broker-dealer, acted as placement agent
and
received a 6% cash commission and warrants to purchase an aggregate of 378,947
shares of our Class A Common Stock which were immediately exercisable by the
holder at $1.04 per share for a period of five years following the closing
of
the private placement (the “Agent Warrants”) and which also contain a
cashless exercise feature. TN Capital Equities, Ltd. then assigned a portion
of
the Agent Warrants to certain of the selling shareholders identified in the
table below. We also granted TN Capital Equities, Ltd. and its assignees
identical registration rights to those granted to the two investors in the
private placement.
Unless
otherwise described below, to our knowledge, no selling shareholder nor any
of
its affiliates has held any position or office with, been employed by, or
otherwise has had any material relationship with us, or our affiliates, during
the three years prior to the date of this prospectus.
|
Name
of Selling Shareholder
|
Number
of Shares Beneficially Owned Prior to this
Offering (1) |
Number
of Shares Offered Hereby (1)
|
Number
of
Shares
Owned
After
this Offering Assuming All Shares Offered Hereby are
sold
|
Percentage
of Ownership After this Offering (%)
|
|||||||||
|
Midsummer
Investment Ltd. (2)(3)
|
6,315,789
|
6,315,789
|
0
|
0
|
|||||||||
|
Islandia,
L.P. (4)
|
3,157,895
|
3,157,895
|
0
|
0
|
|||||||||
|
Alliance
Financial, LLC (5)
|
130,779
|
130,779
|
0
|
0
|
|||||||||
|
Renaissance
Advisors, BVI (6)
|
95,076
|
95,076
|
0
|
0
|
|||||||||
|
John
F. Steinmetz (7)
|
21,346
|
21,346
|
0
|
0
|
|||||||||
|
TN
Capital Equities, Ltd. (8)
|
21,346
|
21,346
|
0
|
0
|
|||||||||
|
Kathleen
McDonnell (9)
|
4,743
|
4,743
|
0
|
0
|
|||||||||
|
Total
|
9,746,974
|
9,746,974
|
0
|
0
|
|||||||||
| (1) |
For
purposes of this table, we have assumed that the selling shareholder
will
have sold all of the shares registered under this prospectus upon
completion of the offering. Therefore, the calculation of the maximum
number of shares being offered and shares beneficially owned after
the
offering do not take into account the limitations on beneficial
ownership
contained in the terms of our Series A Preferred Stock and the
Investor
Warrants discussed above.
|
| (2) |
Represents
4,210,526 shares of Class A Common Stock initially issuable upon
conversion of the Series A Preferred Stock and 2,105,263 shares
of Class A
Common Stock issuable upon exercise of Investor
Warrants.
|
| (3) |
Midsummer
Capital, LLC is the investment manager to Midsummer Investment Ltd.
By
virtue of such relationship, Midsummer Capital, LLC may be deemed
to have
dispositive power over the shares owned by Midsummer Investment Ltd.
Midsummer Capital, LLC disclaims beneficial ownership of such shares.
Mr.
Michel Amsalem and Mr. Scott Kaufman have delegated authority from
the
members of Midsummer Capital, LLC with respect to the shares of our
Class
A Common Stock owned by Midsummer Investment Ltd. Messrs. Amsalem
and
Kaufman may be deemed to share dispositive power over the shares
of our
Class A Common Stock owned by Midsummer Investment Ltd. Messrs. Amsalem
and Kaufman disclaim beneficial ownership of such shares of our Class
A
Common Stock and neither person has any legal right to maintain such
delegated authority.
|
| (4) |
Represents
2,105,263 shares of Class A Common Stock initially issuable upon
conversion of the Series A Preferred Stock and 1,052,632 shares
of Class A
Common Stock issuable upon exercise of Investor
Warrants.
|
| (5) |
Represents
101,579 shares of Class A Common Stock issuable upon exercise
of Agent
Warrants and 29,200 shares issued and outstanding as a result
of a partial
cashless exercise of such Agent Warrant by the selling
shareholder.
Alliance Financial, LLC is a registered broker-dealer and acquired
the
Agent Warrants as compensation for investment banking services
it provided
in connection with the private placement.
|
| (6) |
Represents
shares of Class A Common Stock issued and outstanding as a result
of the
cashless exercise of such Agent Warrant in
full.
|
| (7) |
Represents
shares of Class A Common Stock issued and outstanding as a result
of the
cashless exercise of such Agent Warrant in full. John
F. Steinmetz is
an affiliate of TN Capital Equities, Ltd., a registered broker-dealer,
and
the placement agent in the private placement. Mr. Steinmetz acquired
the
Agent Warrants in the ordinary course of business, and at the
time of the
acquisition did not have any arrangements or understandings with
any
person to distribute the
securities.
|
| (8) |
Represents
shares of Class A Common Stock issued and outstanding as a result
of the
cashless exercise of such Agent Warrant in full. John
F. Steinmetz
has sole investment control over these
securities.
|
| (9) |
Represents
shares of Class A Common Stock issued and outstanding as a result
of the
cashless exercise of such Agent Warrant in full. This
selling
shareholder is an employee of TN Capital Equities, Ltd., the
placement
agent.
|
-9-
PLAN
OF DISTRIUBTION
Each
selling shareholder of our Class A Common Stock and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all
of
their shares of Class A Common Stock on the American Stock Exchange or any
other
stock exchange, market or trading facility on which the shares are traded or
in
private transactions. These sales may be at fixed or negotiated prices. A
selling shareholder may use any one or more of the following methods when
selling shares of our Class A Common Stock:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
| · |
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share;
|
| · |
a
combination of any such methods of
sale;
|
| · |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
| · |
any
other method permitted pursuant to applicable
law.
|
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the our Class A Common Stock or interests therein,
the selling shareholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of
the
Class A Common Stock in the course of hedging the positions they assume. The
selling shareholders may also sell our Class A Common Stock short and deliver
these securities to close out their short positions, or loan or pledge the
Class
A Common Stock to broker-dealers that in turn may sell these securities. The
selling shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of our Class A Common Stock offered by this prospectus,
which shares such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
-10-
The
selling shareholders, and any broker-dealers or agents that are involved in
selling our Class A Common Stock, may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event,
any
commissions received by such broker-dealers or agents and any profit on the
resale of our Class A Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. Each selling
shareholder has informed us that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the Class A Common Stock. In no event shall any broker-dealer receive
fees, commissions and markups which, in the aggregate, would exceed eight
percent (8%).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares of our Class A Common Stock. We have agreed to
indemnify the selling shareholders against certain losses, claims, damages
and
liabilities, including liabilities under the Securities Act.
Because
selling shareholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. Each selling shareholder
has
advised us that they have not entered into any written or oral agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the resale of our Class A Common Stock. There is no underwriter or coordinating
broker acting in connection with the proposed the resale of our Class A Common
Stock by the selling shareholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling shareholders without registration and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of such shares
have been sold pursuant to the prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale of such shares will be made
only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
of
such shares may not be made unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
as
amended, any person engaged in the distribution of such resale of our Class
A
Common Stock may not simultaneously engage in market making activities with
respect to our Class A Common Stock for a period of two business days
prior
to the commencement of the distribution. In addition, the selling shareholders
will be subject to applicable provisions of the Securities Exchange Act of
1934,
as amended, and the rules and regulations thereunder, including Regulation
M,
which may limit the timing of purchases and sales of shares of our Class
A
Common Stock by the selling shareholders or any other person. We will make
copies of this prospectus available to the selling shareholders and we have
informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale.
LIMITATION
ON LIABILITY AND INDEMNIFICATION MATTERS
Our
Articles of Incorporation limit the liability of directors to the maximum extent
permitted by Florida law. In addition, our bylaws require us to indemnify our
directors and officers, and allow us to indemnify our other employees and agents
to the fullest extent permitted by law. At present, there is no pending
litigation or proceeding involving any director, officer, employee or agent
where indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. If we permit indemnification for liabilities arising under
the
Securities Act to directors, officers or controlling persons under these
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, this indemnification is against public policy as expressed
in the Securities Act and is unenforceable.
-11-
WHERE
YOU CAN FIND MORE INFORMATION
We
are a
public company and file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any document we file
at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C.
20549. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference room. Our SEC
filings are also available, at no charge, to the public at the SEC’s web site at
http://www.sec.gov.
This
prospectus is only part of a registration statement on Form S-3 that
we
have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the registration statement. We have also filed
exhibits and schedules to the registration statement that are excluded from
this
Prospectus, and you should refer to the applicable exhibit or schedule for
a
complete description of any statement referring to any contract or other
document. You may inspect or obtain a copy of the registration statement,
including the exhibits and schedules, as described in the previous paragraph
at
no charge from us.
EXPERTS
The
financial statements included in our Annual Report on Form 10-K for the fiscal
year ended December 25, 2004 (as amended), which report is incorporated by
reference in this prospectus and elsewhere in the registration statement, have
been audited by Grobstein, Horwath & Company LLP, independent registered
accountants to the extent and for the periods set forth in their report and
are
included in reliance upon such report given upon the authority of said firm
as
experts in auditing and accounting.
LEGAL
MATTERS
Loeb
& Loeb, LLP, New York, New York has passed upon the validity of the Class A
Common Stock being offered hereby.
INCORPORATION
BY REFERENCE
The
SEC
allows us to incorporate by reference into this prospectus the information
that
we file with the SEC in other documents. This means that we can disclose
important information to you by referring to other documents that contain that
information. The information may include documents filed after the date of
this
prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the following documents listed below,
except to the extent information in those documents is different from the
information contained in this prospectus, and all future documents filed with
the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, until
we
terminate the offering of these shares:
| · |
Our
Annual Report on Form 10-K for the fiscal year ended December 25,
2004,
filed with the SEC; (as amended on Form 10-K/A filed with the SEC
on June
14, 2005 and Form 10-K/A filed on June 28,
2005);
|
| · |
Our
Quarterly Report on Form 10-Q for the quarter ended March 25, 2005,
filed
with the SEC on May 5, 2005;
|
| · |
Our
Quarterly Report on Form 10-Q for the quarter ended June 25, 2005,
filed
with the SEC on August 8, 2005;
|
| · |
Our
Periodic Report on Form 8-K, dated June 22, 2005, filed with the
SEC on
June 29, 2005;
|
| · |
Our
Periodic Report on Form 8-K, dated July 11, 2005, filed with the
SEC on
July 12, 2005;
|
| · |
Our
Periodic Report on Form 8-K, dated August 4, 2005, filed with the
SEC on
August 4, 2005;
|
| · |
Our
Definitive Proxy Statement on Schedule 14A, dated April 1, 2005,
and filed
with the SEC on April 5, 2005, relating to our Annual Shareholder
Meeting
held on May 3, 2005;
|
| · |
Our
Definitive Information Statement on Schedule 14C, dated July
25, 2006, and
filed with the SEC on July 26, 2005;
and
|
| · |
The
description of our Class A Common Stock which is contained in the
registration statement on Form SB-2 (File No. 333-81829) filed with
the
SEC on March 3, 2000, including any amendment or reports filed for
the
purpose of updating such
description.
|
You
may
request a copy of these documents, at no cost, by written or oral request to:
New Dragon Asia Corp. Attn: Peter Mak, Chief Financial Officer; Suite 2808,
International Chamber of Commerce Tower, Fuhua Three Road, PRC
518048.
This
prospectus may contain information that updates, modifies or is contrary to
information in one or more of the documents incorporated by reference in this
prospectus. Reports we file with the SEC after the date of this prospectus
may
also contain information that updates, modifies or is contrary to information
in
this prospectus or in documents incorporated by reference into this prospectus.
You should review these reports as they may disclose a change in our business,
prospects, financial condition or other affairs after the date of this
prospectus.
-12-
|
We
have not authorized any dealer,
salesperson or any other person to give any information or to represent anything other than those contained in this prospectus in connection with the offer contained herein, and, if given or made, you should not rely upon such information or representations as having been authorized by New Dragon Asia Corp. This prospectus does not constitute an offer of any securities other than those to which it relates or an offer to sell, or a solicitation of an offer to buy, those to which it relates in any state to any person to whom it is not lawful to make such offer in such state. The delivery of this prospectus at any time does not imply that the information herein is correct as of any time after the date of this prospectus. |
NEW
DRAGON ASIA CORP.
 __________________
Prospectus
_________________
October
26, 2005
|
||
| TABLE OF CONTENTS | Page | ||
| Prospectus Summary |
1
|
||
| Risk Factors |
2
|
||
| Information Regarding Forward-Looking Statements |
8
|
||
| Use of Proceeds |
8
|
||
| Security Ownership of Certain Beneficial Owners and Management |
9
|
||
| Selling Shareholders |
9
|
||
| Plan of Distribution |
10
|
||
| Limitation on Liability and Indemnification Matters |
11
|
||
| Where You Can Find More Information |
12
|
||
| Experts |
12
|
||
| Legal Matters |
12
|
||
| Incorporation By Reference |
12
|
||