Dragon Group International

Chairman and CEO’s Message
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Dear Shareholders,

DGI is continuing on its journey to change and discover new opportunities. Our engagements in Japan and Silicon Valley continue to progress our abilities to address the mobility and green markets - batteries, microbatteries, IoT, storage, LED, and others. Our Silicon Valley entity has made good progress and patents have been filed to protect our intellectual properties. We continued our march securing approvals through the various bureaucracies in China for our development in Nanjing. While DGI has made and continue to make progress, the economic outlook was altered dramatically midstream through 2015. The Chinese economic landscape and balance sheet were signifi cantly adjusted. The Chinese stock market crash wiped out US$5 trillion of wealth, while the decelerating economic growth and the declining RMB currency have resulted in almost US$1 trillion of exodus from China. Given that circumstance and outlook, we decided to take the utmost prudence and impair where practical and sensible - US$8 million mainly in Chinese assets. These exceptional items do not impede our mindset to press forward where commercially prudent and profi table.

DGI OPERATIONS REVIEW

INCOME STATEMENT

The increase in revenue and gross profi t for the year ended 31 December 2015 was mainly due to increase in sales in distribution business.

 

The gross margin has decreased from 29.3% to 10% due to changes in sales mix.

Operating expenses increased mainly due to payroll related costs. In addition, there is a provision for the aged inventories for the Dragon Treasure Boat project during the year. Research and development costs were incurred by EoCell Limited.

The exceptional items related to the impairment of the value of the Dragon Treasure Boat and certain receivables from third party.

REVIEW OF STATEMENT OF FINANCIAL POSITION

Assets

Decrease in property, plant & equipment was due to an US$8 million impairment of the Dragon Treasure Boat project. This is partially offset by the addition of equipment purchased for the research and development activities in EoCell.

Long term prepayment relates to the costs incurred for the development project along the Yangtze Riverbank.

Available-for-sale fi nancial assets increased due to the Group’s investment in a 4% equity interest in Nanofuel Co., Ltd. (“Nanofuel”) for a consideration of US$500,000. Nanofuel is engaged in the research and development of nano-emulsifi cation technology for biomass energy.

Decrease in stocks is mainly due to lower customers’ demands in 4Q 2015 and the provision for the aged inventories of the Dragon Treasure Boat project. Decrease in other debtors is mainly due to US$1.6 million allowance for an external party’s debts and receipt of US$1.8 million for the fi nal 10% instalment proceeds from the disposal of the discontinued operations. This is offset by the partial payments for acquisition of Heat Tech Japan Co., Ltd (“HTJ”). As at the balance sheet date, the acquisition is pending completion. For more details, please refer to our announcement made on 23 October 2015.

Liabilities

The increases in trade creditors, accruals and other creditors were in line with the increase in the Group’s batteries research and development activities, as well as the higher professional fees incurred for new business evaluations and additional accrual for payroll related costs.

Equity

Share capital of the Company increased by US$1.8 million as a result of the issuance of 27,777,778 new placement shares.

As at 31 December 2015, the Group has US$11.2 million net current assets and US$12.9 million shareholders’ equity.

CASH FLOWS

The Group utilised US$4.2 million for its operating activities, US$1.3 million to purchase property, plant and equipment and US$0.5 million was invested on development project. The Group incurred US$1.2 million for considerations paid for acquisition of available-for-sale investments.

A net amount of US$1.8 million was received from a share placement exercise. In addition, the Group also received US$1.8 million for the fi nal payment of the proceeds from the sale of discontinued operations which took place in May 2013.

Cash and cash equivalents decreased US$3.5 million from US$13.9 million as at 31 December 2014 to US$10.4 million as at 31 December 2015.

OUTLOOK

The sudden economic turn of events midstream 2015 decelerated our journey and diminished our opportunities. We took the necessary prudent views even as we pushed forward. While our outlook in some areas are bright, especially in the arena of battery technology where commercialization and revenue generation may be achieved this year if all goes well, we believe the decelerated and slower China growth may be structural, and any increase in economic activity may be subdued until the fundamental parameters in China are repositioned. Even as we push forward, we are cognizant of the fact that DGI is on Watch List and the time clock is ticking.

As we move forward, the Group will continue to explore investment and business opportunities and will make the appropriate announcements accordingly.

IN APPRECIATION

I would like to thank all of our customers, principals, bankers, and shareholders for their confi dence and trust in us, and I look forward to your support in the new fi nancial year. To our shareholders, your support will be very important to us, and your vote of confi dence will give us the needed encouragement as we continue on this journey to change and yet meet the time clock requirements of our regulators.

Yours sincerely,


Dato’ Michael Loh
Executive Chairman and Chief Executive Offi cer

 

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Blk 25, Kallang Avenue, #06-01, Kallang Basin Industrial Estate, Singapore 339416   T (65) 6392 6922   F (65) 6392 5522
Company Registration No.: 199306761C