UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549





FORM
10-K




(Mark
One)


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934




For
the Fiscal year ended December 25, 2008





OR




 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from 
to





Commission
File Number: 001-15046





NEW
DRAGON ASIA CORP.


(Exact
name of Registrant as Specified in its Charter)





Florida
            88-0404114(State
      or Other Jurisdiction of
            (IRS
      Employer Identification No.)Incorporation
      or Organization)





10
Huangcheng Road (N), Longkou, Shandong Province, PRC





(Address
of Principal Corporate Offices) (Zip Code)





(86
535) 8951-567


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Exchange Act:





Title of Each Class: Class A Common
Stock, $ 0.0001 par value.





Name of Each Exchange on Which
Registered: NYSE Amex.





Securities
registered pursuant to Section 12(g) of the Exchange Act: None.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈ No x





Indicated
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  ̈ No x





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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
past 90 days.  Yes x   No
 ̈







Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.





Large
      Accelerated Filer  ̈
            Accelerated
      Filer  ̈
            Non-Accelerated
      Filer  ̈
            Smaller
      Reporting Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈ No x





As of
June 25, 2008 the aggregate market value of the voting and non-voting equity
held by non-affiliates was approximately $36 million.





As of
March 9, 2009, there were 64,145,392 shares of Class A Common Stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


None.







TABLE OF
CONTENTS





PAGEPART
      IITEM
      1.
                          Business
                          
                          1ITEM
      1A.
                          Risk
      Factors
                          
                          4ITEM
      1B.
                          Unresolved
      Staff Comments
                          
                          10ITEM
      2.
                          Properties
                          
                          10ITEM
      3.
                          Legal
      Proceedings
                          
                          11ITEM
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          
                          11PART
      IIITEM
      5.
                          Market
      for Registrant’s Common Equity, Related StockholderMatters
      and Issuer Purchases of Equity Securities
                          
                          12ITEM
      6.
                          Selected
      Financial Data
                          
                          13ITEM
      7.
                          Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operation
                          
                          13ITEM
      7A.
                          Quantitative
      and Qualitative Disclosure About Market Risk
                          
                          20ITEM
      8.
                          Financial
      Statements and Supplementary Data
                          
                          20ITEM
      9.
                          Changes
      in and Disagreements with Accountants on Accountingand
      Financial Disclosure
                          
                          20ITEM 9A(T).
                          Controls
      and Procedures
                          
                          21ITEM
      9B.
                          Other
      Information
                          
                          21PART
      IIIITEM
      10.
                          Directors,
      Executive Officers and Corporate Governance
                          
                          22ITEM
      11.
                          Executive
      Compensation
                          
                          24ITEM
      12.
                          Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
                          
                          25ITEM
      13.
                          Certain
      Relationships and Related Transactions, andDirector
      Independence
                          
                          25ITEM
      14.
                          Principal
      Accounting Fees and Services
                          
                          26PART
      IVITEM
      15.
                          Exhibits
      and Financial Statement Schedules
                          
                          28SIGNATURES
                          
                          31FINANCIAL
      STATEMENTS
                          
                          F-1










Forward-Looking
Information





This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events or the
Company’s future financial performance. The Company has attempted to identify
forward-looking statements by terminology including “anticipates”, “believes”,
“expects”, “can”, “continue”, “could”, “estimates”, “expects”, “intends”, “may”,
“plans”, “potential”, “predict”, “should” or “will” or the negative of these
terms or other comparable terminology. These statements are only predictions.
Uncertainties and other factors, including the risks outlined under Risk Factors
contained in Item 1A of this Annual Report may cause the Company’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking statements. Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. The Company expectations are as of the
date this Form 10-K is filed, and the Company does not intend to update any of
the forward-looking statements after the date this Annual Report on Form 10-K is
filed to confirm these statements to actual results, unless required by
law.





Availability
of SEC Filings





The
Company files annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy and information statements and amendments
to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended. The public may read and copy these
materials at the Securities and Exchange Commission’s (“SEC”) Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding the Company and other companies that file materials with the SEC
electronically. You may also obtain copies of the Company’s reports filed with
the SEC, free of charge, on our website at
http://www.newdragonasia.com.










PART
I





ITEM
1. BUSINESS





OVERVIEW





New
Dragon Asia Corp. and its subsidiaries (collectively, “New Dragon”, “NWD”, “the
Company”, “we”, “us”, or “our”) are engaged in the milling, sale and
distribution of flour and related products, including instant noodles and
soybean-derived products, to retail and wholesale customers throughout China. We
are headquartered in Shandong Province in the People’s Republic of China (“PRC”
or “China”). With a well-known brand name called “Long Feng”, we market our
well-established product line through a countrywide network of over 200 key
distributors and 16 regional offices in 27 Chinese provinces. We have eight
manufacturing plants in the PRC with an aggregate annual production capacity of
approximately 110,000 tons of flour and approximately 1.1 billion packets of
instant noodles and 4,500 tons of Soybean powder. We were incorporated in the
State of Florida on March 18, 1999 under the name Bio-Aqua Systems,
Inc.





OUR
PRODUCTS AND PRODUCTION





We
produce and market a broad range of wheat flour for use in bread, dumplings,
noodles and confectionary products. Our flour products are marketed under the
“Long Feng” brand name and sold throughout China at both wholesale and retail
levels.





We
provide a wide range of instant noodle products to our customers. Our products
can be separated into two broad categories for selling and marketing purposes:
(i) packet noodles for home preparation and (ii) snacks and cup noodles for
outdoor convenience.





In late
2005, we began producing two types of soybean products – soybean protein powder
and soybean powder. These products are principally supplied to food and beverage
manufacturers.





Our
revenue by product category for the year ended December 25, 2008 was
approximately 55% for flour products, 27% for instant noodles and 18% for
soybean products.





Year Ended December 25,2008
                  
                  
                  2007(In
      thousands)Net
      revenue:Instant
      noodles
                  
                  $
                  13,234
                  
                  
                  $
                  15,262Flour
                  
                  
                  27,008
                  
                  
                  
                  30,903Soybean
                  
                  
                  9,098
                  
                  
                  
                  9,573$
                  49,340
                  
                  
                  $
                  55,738





For more
information, please refer to Note 19 of the accompanying consolidated financial
statements “Segment Information”.





We
believe that we have developed a reputation in China for producing high quality
food products. Our production plants operate at a high level of hygiene and
efficiency and all of our plants are certified under the ISO9002 standards. Most
of our “state of the art” manufacturing equipment is imported from Switzerland,
Japan, and Korea. We also operate strict quality control systems, resulting in a
favorable customer perception of the “Long Feng” brand.





Flour and
water are the two main ingredients used to produce our noodle products. Flour is
extracted from wheat through a milling process. Wheat sourced by our milling
operation in Shandong Province is generally regarded as being the highest
quality available in China. To produce our noodles, we mix flour with water and
other ingredients and then extrude or roll the mixture into the desired shape of
the noodle. The mixture then travels through a series of state-of-the-art dryers
before being stabilized at room temperature. After stabilization, the noodles
are steamed and cooked in deep fryers, cooled and then mixed with various
seasonings and freeze dried additives such as chicken, vegetables or beef, which
are prepared from raw ingredients in a separate building within our production
complex. The finished product is then packed, palletized and
shipped.




1




MARKETING
AND SALES




Most of
our products are regionally marketed and distributed throughout China. Our sales
and marketing strategy focuses on maintaining our relationships with our
distributors by holding annual sales order meetings and hosting regular
distributor conferences.  We also believe that we have an excellent
quality/price dynamic.





Our
domestic distribution system is the key to our continued success in developing
“Long Feng” as one of the leading brands in China. We have more than 200 points
of distribution, of which 10 are our direct sales offices, spread over 27
provinces in China. The remaining 190 sales points are owned and managed by
distributors. Most of our distributors have long-term relationships with us and
are loyal and efficient vendors of our products.  During 2008, sales
in China accounted for 95% of our instant noodle sales.





Our
primary customer base for both our flour products and instant noodles consists
of stores in the rural areas throughout China, where we believe our brand has
long been recognized as the highest quality available for the price. The rural
market is rapidly growing, benefiting from increases in rural consumer income.
We believe that brand loyalty is strongest in this sector. The Company also
sells to supermarkets mainly in urban areas.





In
addition to domestic sales, we also export noodles to other countries such as
South Korea, Australia, Malaysia and Indonesia.  We also obtained
HACCP (Hazard Analysis Critical Control Point) certification from CCIC
Conformity Assessment Services Co. Ltd., a Chinese quality assurance examination
authority, enabling the Company to begin exports of instant noodles and soybean
powder to Europe. In early 2008, we began exporting noodles to Nigeria, Africa.
During 2008, export sales accounted for approximately 5% of our instant noodle
sales.





COMPETITION





The flour
industry in the PRC is very competitive. Our largest competitors are Shandong
Guang Rao Ban Qiu Flour and Hebei Wu De Li Flour in the Northern market and
Shenzhen Nanshun Flour in the Southern market.





The
instant noodle segment in the PRC is also highly competitive. We compete against
well-established foreign companies, and many smaller companies. Our largest
competitors are the “Master Kang” brand manufactured by Tingyi (Cayman Island)
Holdings Corporation and the “President” brand manufactured by Uni-President
Group, both based in Taiwan. Both are focused predominately in the more
developed and competitive urban markets.  We do not face substantial
competition in the “high-quality” soybean powder market.





STRATEGY





Our
strategy for growth is to capitalize on our strong brand name and pursue
strategic partnerships and acquisitions that will enhance our sales. The
following are some of the key elements of our business growth
strategy:





-
            acquire
      additional locations to increase our production capacity;
    and


-
            build
      strategic alliances with multinational food groups to enhance product
      range and capitalize on our  distribution network in
      China.





Plans for
expansion of the existing plants are expected to be funded through current
working capital from ongoing sales. Acquisitions of plants will require an
additional infusion of funds in the form of debt or equity, or a combination of
both.  However, there can be no assurance these funds will be
available.





EMPLOYEES





We employ
approximately 1,500 employees. All of them are located in the eight plants and
our corporate office located in Shandong Province, Sichuan Province and Beijing.
We have maintained good relationships with our employees and no major disputes
have incurred since our inception.





GOVERNMENTAL
REGULATIONS ON OUR OPERATIONS IN CHINA





All of
our PRC subsidiary companies operate in facilities that are located in China.
Accordingly, our PRC subsidiaries’ operations have to conform to the
governmental regulations and rules of China.





We are
subject to the PRC’s national Environmental Protection Law, which was enacted on
December 26, 1989, as well as a number of other national and local laws and
regulations regulating air, water, and noise pollution and setting pollutant
discharge standards. Violation of such laws and regulations could result in
warnings, fines, orders to cease operations, and even criminal penalties,
depending on the circumstances of such violation. We believe that all
manufacturing operations comply with applicable environmental laws, including
those laws relating to air, water, and noise pollution.


2




We are
also subject to various laws and regulations administered by various local
governments relating to the operation of our production facilities. We believe
that we are in compliance with all governmental laws and regulations related to
our products and facilities.





THE
CHINESE LEGAL SYSTEM





The
practical effect of the PRC’s legal system on our business operations in China
can be viewed from two separate but intertwined considerations.





First, as
a matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full enjoyment of the benefits of corporate articles and contracts
to Foreign Invested Enterprise participants. These laws, however, do impose
standards concerning corporate formation and governance, which are not
qualitatively different from the General Corporation Laws of the several states.
Therefore, as a practical matter, a Foreign Invested Enterprise needs to retain
or have ready access to a local Chinese law firm for routine compliance
purposes.





Similarly,
the PRC accounting laws mandate accounting practices, which are not co-existent
with U.S. Generally Accepted Accounting Principles. The China accounting laws
require that an annual “statutory audit” be performed in accordance with PRC
accounting standards and that the books of account of Foreign Invested
Enterprises are maintained in accordance with Chinese accounting laws. Article
14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law
requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
reports and statements to designated financial and tax authorities, at the risk
of business license revocation. As a practical matter, a Foreign Invested
Enterprise must retain a local Chinese accounting firm that has experience with
both the Chinese standards and U.S. Generally Accepted Accounting Principles.
This type of accounting firm can serve the dual function of performing the
annual Chinese statutory audit and preparing the Foreign Invested Enterprise’s
financial statements in a form acceptable for an independent U.S. certified
public accountant to issue an audit report in accordance with U.S. Generally
Accepted Auditing Standards.





Second,
while the enforcement of substantive rights may appear less clear than United
States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned
Enterprises are Chinese registered companies, which enjoy the same status as
other Chinese registered companies in business-to-business dispute resolution.
Because the terms of the respective Articles of Association provide that all
business disputes pertaining to Foreign Invested Enterprises are to be resolved
by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
Sweden applying Chinese substantive law, the Chinese minority partner in our
joint venture companies will not assume a privileged position regarding such
disputes. Any award rendered by this arbitration tribunal is, by the express
terms of the respective Articles of Association, enforceable in accordance with
the “United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (1958).” Therefore, as a practical matter, although no
assurances can be given, the Chinese legal infrastructure, while different in
operation from its United States counterpart, should not present any significant
impediment to the operation of Foreign Invested Enterprises.





CURRENCY
CONVERSION AND EXCHANGE





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 as a result of changes in two countries’ economic conditions. To date,
we have not engaged in any currency hedging transactions in connection with our
operations.





CUSTOMERS





We have
approximately 560 customers for our products. None of our customers individually
accounts for more than 5% of our revenue. We source our wheat and soybean from
approximately 50 suppliers. None of the suppliers individually accounts for more
than 5% of our purchases. Historically, our fourth quarter revenue is much
higher than the other three quarters due to preparations for the Chinese New
Year holiday, which begins in January or February.





3





ITEM
1A. RISK FACTORS.


In
addition to the other information in this annual report, the following factors
should be considered carefully in evaluating the Company’s business and
prospects. THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.  We are subject to, among others, the following
risks:





RISKS
RELATED TO OUR CLASS A COMMON STOCK





We
have never declared or paid any dividends on our Class A Common
Stock





We have
never declared or paid any dividends on our Class A Common Stock. Our ability to
pay such cash dividends is subject to our receipt of dividends from our
operating subsidiaries, which are subject to legal restrictions in the PRC on
making such payments.  We currently intend to retain future earnings,
if any, to finance operations and the expansion of our business. 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 and
Series B Preferred Stock; our future earnings, if any; capital requirements;
financial condition; plans for expansion; restrictions imposed by PRC law; any
financing arrangements; 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.





We
are controlled by our major shareholder





Our major
shareholder, New Dragon Asia Food Ltd., which is controlled by our Chairman, Mr.
Heng Jing Lu, owns approximately 44% of our outstanding shares.  Mr.
Lu has sole voting and dispositive control over the shares of us held by New
Dragon Asia Food Ltd.  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 may also have the effect of
delaying or preventing a change in control of us that may not be viewed as
beneficial by other shareholders.





Our
primary source of funds for dividends and other distributions from our operating
subsidiary in China is subject to various legal and contractual restrictions and
uncertainties, and our ability to pay dividends or make other distributions to
our shareholders are negatively affected by those restrictions and
uncertainties





We are a
holding company established in the state of Florida and conduct our core
business operations through our operating subsidiaries, Hero Treasure Ltd.,
Delta Link Ltd., Mix Creation Ltd., Rich Delta Ltd. and Keen General Ltd. and
their respective subsidiaries in China.  As a result, our profits
available for distribution to our shareholders are dependent on the profits
available for distribution from our subsidiaries.  If our subsidiaries
incur debt on their own behalf, the debt instruments may restrict their ability
to pay dividends or make other distributions, which in turn would limit our
ability to pay dividends on our shares.  Under the current PRC laws,
because we are incorporated in the State of Florida, our PRC subsidiaries are
each regarded as a wholly foreign-owned enterprise in China.  The PRC
laws permit payment of dividends only out of net income as determined in
accordance with PRC accounting standards and
regulations.  Determination of net income under PRC accounting
standards and regulations may differ from determination under U.S. GAAP in
significant aspects, such as the use of different principles for recognition of
revenues and expenses.  In addition, distribution of additional equity
interests by any of our PRC subsidiaries to us (which is credited as fully paid
through capitalization of the PRC subsidiaries’ undistributed profits) requires
additional approval of the PRC government due to an increase in our registered
capital and total investment in the subsidiary.  Under current PRC
laws, each of our subsidiaries is required to set aside a portion of its net
income each year to fund designated statutory reserve funds.  These
reserves are not distributable as cash dividends.  As a result, our
primary internal source of funds for dividend payments from the subsidiaries are
subject to these and other legal and contractual restrictions and uncertainties,
which in turn may limit or impair our ability to pay dividends to our
shareholders.  Moreover, any transfer of funds from us to our
subsidiaries, either as a shareholder loan or as an increase in registered
capital, is subject to registration with or approval by PRC governmental
authorities.  These limitations on the flow of funds between us and
the subsidiaries could restrict our ability to act in response to changing
market conditions.




4




Regulations
relating to offshore investment activities by PRC residents may adversely affect
our business and prospects


On
September 8, 2006, several agencies of the PRC government issued a regulation
concerning restrictions on investments in China through special purpose
companies incorporated overseas and the listing of the shares of those companies
in overseas markets.  The regulation contains a number of provisions
relating to the acquisition of Chinese domestic companies which involve
“important industries” and may affect the national economic safety or result in
the transfer of actual control rights of any company having “famous brands” or
any “old established Chinese brands,” and require that the parties to any such
transaction report to the Ministry of Commerce for
approval.  Additionally, any foreign company directly or indirectly
controlled by Chinese companies or individuals used as a vehicle for public
listing in an overseas stock market will need China Securities Regulatory
Commission approval in connection with such listing.  As it is
uncertain how this new regulation will be interpreted or implemented, we cannot
predict how this regulation will affect our business operations or future
strategies.  For example, we may be subject to a more stringent review
and approval process with respect to our acquisition activities, which may
adversely affect our business and prospects.





RISKS
RELATED TO OUR BUSINESS





We
may be subject to product liability claims and product recalls that could result
in a decrease in demand for our products due to negative publicity, 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 company products caused illness or injury could
adversely affect our reputation with existing and potential customers and our
corporate and brand image.





In
September 2008, the Health Ministry of the People’s Republic of China announced
that several babies had died in recent months and thousands more had been
sickened by contaminated milk formula powder due to the presence of melamine, an
industrial chemical sometimes used to make plastics and
fertilizer.  On October 22, 2008, the United Nations issued a paper
addressing food safety in China, citing key challenges for China as the need for
a more modern food safety law; the need for improved monitoring, inspection and
enforcement; and the need to continue to improve standards to bring China in
line with international norms.  Although none of our products contain
milk powder, negative international publicity surrounding this food safety issue
could influence the popular perceptions of international consumers and result in
lower demand for exports of food products from China, which could have an
adverse effect on our sales and profitability.





Our
business may experience adverse effects from competition in the noodle, flour
and soybean product markets.





The
noodle, flour and soybean product markets in the PRC 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 retail outlets and sufficient shelf
  space.





Many of
our competitors are larger and have greater financial resources, including our
primary competitors, the manufactures of each of the brand names “Master Kang”
and “President”. 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.





An
inability to respond quickly and effectively to new trends would adversely
impact our competitive position.





Our
failure to maintain our technological capabilities or to respond effectively to
technological changes could adversely affect our ability to retain existing
business and secure new business.  We will need to constantly seek out
new products and develop new solutions to maintain in our
portfolio.  If we are unable to keep current with new trends, our
competitors’ technologies or products may render us noncompetitive and our
products obsolete.





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 wheat, soybeans 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.


5




We
are subject to risks associated with joint ventures and third party
agreements.





We
conduct certain of 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.
There is no assurance, 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, the government’s experience in implementing, interpreting and enforcing
these laws and regulations is 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
have limited business insurance coverage.





The
insurance industry in China is still in an early stage of
development.  Insurance companies in China offer limited business
insurance coverage.  As a result, we do not have any business
liability insurance coverage for our operations.  Moreover, while
business disruption insurance is available, management has 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.





We
may experience risks resulting from our plans for expansion.





We have
acquired several companies and businesses and plan to 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 businesses; (c) additional operating expenses not
offset by additional revenue; and (d) dilution of our stock as a result of
issuing equity securities.





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, noodle and soybean factories. While there are many such
companies, 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 we  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.





6




A
general economic downturn, a recession in China or sudden disruption in business
conditions may affect consumer purchases of discretionary items, including
instant noodles and soybean-derived products, which could adversely affect our
business.




Consumer
spending is generally affected by a number of factors, including general
economic conditions, the level of unemployment, inflation, interest rates,
energy costs, gasoline prices and consumer confidence generally, all of which
are beyond our control. Consumer purchases of discretionary items tend to
decline during recessionary periods, when disposable income is lower, and may
impact sales of our products. In addition, sudden disruptions in business
conditions as a result of a terrorist attack, retaliation and the threat of
further attacks or retaliation, war, adverse weather conditions and climate
changes or other natural disasters, pandemic situations or large scale power
outages can have a short or, sometimes, long-term impact on consumer spending. A
downturn in the economy in China, including any recession or a sudden disruption
of business conditions in those economies, could adversely affect our business,
financial condition, and results of operation.





RISKS
ASSOCIATED WITH DOING BUSINESS IN THE PEOPLE’S REPUBLIC OF CHINA.





We
are subject to the risks associated with doing business in the People’s Republic
of China.





As most
of our operations are conducted in the PRC, 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 the PRC, 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 the PRC 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.





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 our 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, there can be no assurance 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.


7




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 legal precedents. Since 1979, the PRC 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 PRC 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 introduced new laws and regulations to modernize its
securities and tax systems on January 1, 1994, China does not yet possess an
expansive 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 there is no assurance that any dispute involving our business in
China can be resolved expeditiously and satisfactorily.





We
may experience an 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 Unites 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 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
affect 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:


8




-
            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


-
            Original
      actions brought in China relating to 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.





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.




9




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 values 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 operation. 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 would be reduced. To date, we have not
engaged in any hedging transactions in connection with our
operations.





The
discontinuation of the preferential tax treatment currently available to our
Chinese subsidiaries might adversely affect our results of
operations.





Our
Chinese operating subsidiaries are subject to the People’s Republic of China
Enterprise Income Tax Law Concerning Foreign-Invested Enterprises and Foreign
Enterprises. Under this law and its related regulations, our Chinese
subsidiaries as foreign-invested enterprises, are generally subject to
enterprise income tax at a statutory rate of 33% (30% national income tax plus
3% local income tax) through 2007, and 25% from January 1, 2008 under the
tax law described below. However, as manufacturing foreign invested enterprises,
our Chinese subsidiaries enjoyed “two-year exemption, three-year 50% reduction”
preferential tax treatment from their first profitable year. However, under the
new tax law, a new manufacturing foreign-invested enterprise established after
March 16, 2007 will not be entitled to such preferential tax treatment
anymore.





On
March 16, 2007, the National People’s Congress of the People’s Republic of
China passed the People’s Republic of China Enterprise Income Tax Law, which was
effective as of January 1, 2008. In accordance with the new law, a unified
enterprise income tax rate of 25% and unified tax deduction standards will be
applied equally to both domestic-invested enterprises and foreign-invested
enterprises. Enterprises established prior to March 16, 2007 eligible for
preferential tax treatment in accordance with the currently prevailing tax laws
and administrative regulations shall, under the regulations of the State
Council, gradually be subject to the new tax rate over a five-year transition
period starting from the effectiveness date of the new law. For foreign-invested
enterprises that currently enjoy “two-year exemption, three-year 50% reduction”
preferential tax treatment, the tax holiday are still valid.





ITEM
1B. UNRESOLVED STAFF COMMENTS.





Not
applicable.





ITEM
2.  PROPERTIES.





Our
corporate office is located in Shandong. Our eight manufacturing plants, at five
locations in Shandong, Beijing and Chengdu, consist of 30 noodle production
lines and flour milling lines, located in Yantai, Penglai, Longkou and Beijing.
Manufacturing operations are vertically integrated, with the flour production
utilized in the noodle manufacturing process. All of our manufacturing
facilities have been awarded ISO9002 quality certification.  All of
our properties are suitable and adequate for the purposes for which they are
used in our business.





Facility
            
            Address
            
            Owned/Rented
            
            Size (Sq meters)Yantai
      Flour Mill, Yantai Noodle
              Factory
      & Soybean Plants
            
            No.
      10 Huancheng Road (N), Longkou, Shandong
            
            Owned
            
            41,268Sanhe
      Noodle Factory*
            
            1
      Yanjiao Jing Ha Road (N), Beijing
            
            Owned
            
            26,274Penglai
      Flour Mill
            
            Xiao
      Men Town, Penglai, Shandong
            
            Owned
            
            16,715Longyuan
      Plant
            
            Huancheng
      Beihuan Road, Longkou, Shandong
            
            Owned
            
            12,029Chengdu
      Plant
            
            Chengdu
      Economic & Technical Development Zone, Chengdu,
Sichuan
            
            Owned
            
            35,922




*
            The Sanhe plant was
      idle at December 25, 2008 and had not been in use the prior year. The
      Company had an offer to sell the property and accepted the offer on
      December 29, 2008 for a total of $5.78
million.




10




ITEM
3. LEGAL PROCEEDINGS.





We are
not a party to any material pending legal proceedings.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None.




11





PART
II





ITEM 5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.





MARKET
PRICES OF COMMON STOCK





Our Class
A Common Stock is traded on NYSE Amex under the symbol NWD. The high and
low sale prices of the  Class A Common Stock as reported on
NYSE Amex for the periods indicated are set forth on the table
below.





PRICE
      RANGE OF COMMON STOCKHIGH
                  
                  
                  LOWYear
      Ended December 25, 2007:First
      Quarter
                  
                  $
                  1.83
                  
                  
                  $
                  1.52Second
      Quarter
                  
                  $
                  1.49
                  
                  
                  $
                  1.19Third
      Quarter
                  
                  $
                  1.20
                  
                  
                  $
                  0.94Fourth
      Quarter
                  
                  $
                  1.59
                  
                  
                  $
                  0.90Year
      Ended December 25, 2008:First
      Quarter
                  
                  $
                  1.09
                  
                  
                  $
                  0.67Second
      Quarter
                  
                  $
                  0.86
                  
                  
                  $
                  0.61Third
      Quarter
                  
                  $
                  0.68
                  
                  
                  $
                  0.31Fourth
      Quarter
                  
                  $
                  0.42
                  
                  
                  $
                  0.26





SHAREHOLDERS





As of
March 9, 2009, there were 64,145,392 shares of our Class A Common Stock
outstanding and we had approximately 5,000 shareholders of record. American
Stock Transfer & Trust Company is the registrar and transfer agent for our
Class A Common Stock.





DIVIDEND
POLICY





We have
never declared or paid any cash dividends on our Class A Common Stock and we do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be based upon our
financial condition, operating results, capital requirements, plans for
expansion, restrictions imposed by any financing arrangements and any other
factors that the board of directors deems relevant.





RECENT
SALES OF UNREGISTERED SECURITIES





There
were no sales of unregistered sales of equity securities during the fiscal year
ended December 25, 2008.





ISSUER
PURCHASES OF EQUITY SECURITIES





None





EQUITY
COMPENSATION PLAN INFORMATION





The
following table sets forth aggregate information regarding the Company’s equity
compensation plans, including individual compensation arrangements, in effect as
of December 25, 2008.




12




Number of securities
                  to be issued upon
                  exercise of
                  outstanding options,
                  warrants, and rights
                
                
                Weighted - average
                  exercise price of
                  outstanding
                  options, warrants,
                  and rights
                
                
                Number of
                  securities
                  remaining
                  available for
                  future issuance
                  under equity
                  compensation
                  plans (excluding
                  securities
                  reflected in
                  column (a))Equity
      compensation plans approved by security holders
                
                
                8,000,000
                (1)
                
                $
                1.765
                
                
                
                —Equity
      compensation plans not approved by security holders
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                
                8,000,000
                
                
                $
                1.765
                
                
                
                —




(1)
Represents options to purchase 8,000,000 shares of our common stock issued to
Peter Mak, the former CFO, pursuant to individual compensation
arrangements.





ITEM
6. SELECTED FINANCIAL DATA





The
following selected consolidated financial data of the Company is presented as of
and for the years ended December 25, 2008 and 2007. The selected financial data
should be read in conjunction with the Company’s audited consolidated financial
statements and the notes thereto, and Management’s Discussion and Analysis of
Financial Condition and Results of Operation.





YEARS ENDED DECEMBER 25,2008
                    
                    
                    2007(in
      thousand, except per share data)CONSOLIDATED
      STATEMENTS OF OPERATIONS DATA:Net
      revenues
                    
                    $
                    49,340
                    
                    
                    $
                    55,738Operating
      expenses:Selling
      and distribution
                    
                    
                    (1,275
                    )
                    
                    
                    (1,279
                    )General
      and administrative(including
      stock-based compensation of $8,140 for 2006)
                    
                    
                    (3,896
                    )
                    
                    
                    (2,606
                    )Impairment
      reserve
                    
                    
                    (4,925
                    )
                    
                    
                    —Income
      (loss) from operations
                    
                    
                    (2,745
                    )
                    
                    
                    6,426Gain
      (loss) on fair value adjustments to embedded derivatives
                    
                    
                    2,047
                    
                    
                    
                    8,412Income/(loss)
      before tax and minority interests
                    
                    
                    (502
                    )
                    
                    
                    16,083Net
      income/(loss)
                    
                    
                    (1,517
                    )
                    
                    
                    14,115Income
      (loss) available to common stockholders
                    
                    
                    (3,247
                    )
                    
                    
                    11,900Earnings
      per common shareBasic
                    
                    
                    (0.06
                    )
                    
                    
                    0.22Diluted
                    
                    
                    (0.06
                    )
                    
                    
                    0.21Weighted
      average common shares outstanding:Basic
                    
                    
                    58,262
                    
                    
                    
                    54,109Diluted
                    
                    
                    58,262
                    
                    
                    
                    55,519CONSOLIDATED
      BALANCE SHEET DATA:Cash
      and cash equivalents
                    
                    $
                    4,383
                    
                    
                    $
                    3,646Total
      assets
                    
                    
                    84,878
                    
                    
                    
                    81,420Total
      stockholders’ equity
                    
                    
                    67,158
                    
                    
                    
                    62,322





ITEM 7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





This
report includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.


13





To
supplement our consolidated financial statements presented in accordance with
GAAP, we discuss our results in terms of financial measures that may be deemed
to be “non-GAAP financial measures” under the rules and regulations of the
Securities and Exchange Commission.  Our management believes that
these measures provide meaningful information regarding the Company’s
performance and liquidity by excluding certain expenses that may not be
indicative of its core operating results and facilitate comparisons to its
historical operations and competitors’ operating results.  To the
extent such measures are not readily reconcilable to the comparable GAAP
financial measures contained in its consolidated financial statements, we
provide detailed reconciliations that permit investors to determine how such
non-GAAP financial measures have been derived.





The
following discussion and analysis should be read in conjunction with “Item 6.
Selected Financial Data” and our consolidated financial statements and the
related notes thereto and other financial information contained elsewhere in
this Form 10-K.




OVERVIEW





Headquartered
in Shandong Province, PRC, New Dragon Asia Corp. is engaged in the milling, sale
and distribution of flour and related products, including instant noodles and
soybean-derived products, to retail and wholesale customers throughout China.
With a well-known brand name called LONG FENG, we market our well-established
product line through a countrywide network of more than 200 key distributors and
16 regional offices in 27 Chinese provinces. We have eight manufacturing plants
in the PRC with an aggregate production capacity of approximately 110,000 tons
of flour and approximately 1.1 billion packets of instant noodles and 4,500 tons
of soybean powder.





OPERATION
PLAN





Our
strategy for growth is to capitalize on our strong brand name and pursue
strategic partnerships and acquisitions that will enhance our sales. The
following are some of the key elements of our business growth
strategy:





-
            Acquire
      additional locations to increase our production
  capacity


-
            Build
      strategic alliances with multinational food groups to enhance product
      range and capitalize on our China distribution
  network





Plans for
expansion of the existing plants are expected to be funded through current
working capital from ongoing sales. Acquisitions of plants will require an
additional infusion of funds in the form of debt or equity, or a combination of
both. However, there can be no assurance these funds will be
available.





ESTABLISHMENT
AND ACQUISITIONS





Longyuan
Packaging Plant





On
January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
Materials Company Limited (“NDAPM”), a wholly-owned subsidiary in Longkou,
Shandong Province. NDAPM is principally engaged in the manufacturing and sale of
packing materials, with a registered capital of $3,600,000. During the year
ended December 25, 2008, the Company has spent approximately $2.20 million on
the construction at the new plant and has committed to further capital
expenditures of $1.46 million for the completion of the plant, which is
scheduled to be completed in 2009.





YEAR
ENDED DECEMBER 25, 2008 COMPARED TO YEAR ENDED DECEMBER 25, 2007





Selected
Information from the Consolidated Statements of Operations (in
thousands)





For the years ended December
      25,2008
                  
                  
                  2007Net
      revenue
                  
                  $
                  49,340
                  
                  
                  $
                  55,738Cost
      of goods sold
                  
                  
                  (41,989
                  )
                  
                  
                  (45,427
                  )Selling
      and distribution expenses
                  
                  
                  (1,275
                  )
                  
                  
                  (1,279
                  )General
      and administrative expenses
                  
                  
                  (3,896
                  )
                  
                  
                  (2,606
                  )Gain
      (loss) on fair value adjustments to embedded derivatives
                  
                  
                  2,047
                  
                  
                  
                  8,412VAT
      refund
                  
                  
                  60
                  
                  
                  
                  952Net
      income/(loss)
                  
                  
                  (1,517
                  )
                  
                  
                  14,115




14





Net
Revenue





Net
revenue for the year ended December 25, 2008 was $ 49.34 million, a decrease of
$6.40 million, or 11.48%, as compared to $55.74 million for the prior year.
Revenues declined in all segments with instant noodles decreasing 13.2 %, Flour
products decreasing 12.6% and Soybeans declining only 4.9%. The demand of our
products decreased during the second half year of 2008. We believe our revenues
were affected by the abrupt slowdown in the economy worldwide. The price of our
products did not have significant fluctuation during the year ended December 25,
2008.





Cost
of goods sold





For the
year, ended December 25, 2008, cost of goods sold was $41.99 million, a decrease
of $3.44 million, or 7.57%, as compared to $45.43 million for 2007. The decrease
was in line with the decrease in sales of our products.





For the
year ended December 25, 2008, as a percentage of revenue, cost of goods sold
increased to 85.10% as compared to 81.50% for that of the prior year. For the
year ended December 25, 2008, gross margin decreased to 14.90% as compared to
18.50% for the prior year as a result of the decrease of sales and the increase
in raw material prices, principally wheat.





Selling
and distribution expenses





Selling
and distribution expenses consist primarily of salaries, commissions and
associated employee benefits, travel expenses of sales and marketing personnel
and promotional expenses.





For the
year ended December 25, 2008, selling and distribution expenses decreased
slightly 0.78% to $1.27 million from $1.28 million in 2007. The decrease was
primarily due to the cost controls implemented by us.





General
and administrative expenses





For the
year ended December 25, 2008, general and administrative expenses increased
$1.29 million to $3.90 million from $2.61 million of 2007. The increase was
primarily due to severance compensation to former employees..





Gain/(loss)
on Fair Value Adjustments to Embedded Derivatives





The
Company issued Series A Redeemable Convertible Preferred Stock in July 2005,
together with 3,157,895 warrants to purchase Class A Common Stock resulting in
aggregate proceeds of $6 million. The Company also issued Series B Redeemable
Convertible Preferred Stock in December 2005, together with 2,968,750 warrants
to purchase Class A Common Stock resulting in aggregate proceeds of $9.5
million. The fair value of each instrument was recorded as a derivative
liability on our balance sheet. The corresponding gain or loss, which was
non-cash in nature, from changes in the fair values of these instruments was
recorded in our statement of income.  For the year ended December 25,
2008, the gain in this regard was $2.05 million.  For the
corresponding period of 2007, the gain in this regard was $8.41 million. The
determination of the change in the value of the derivatives requires the use of
a complex valuation model and can fluctuate significantly between periods based
on changes in the price of our shares and the time remaining in the life of the
underlying financial instruments. Increase in our stock’s market value increases
the value of the derivative creating losses in our income statements and
decrease in the stock’s market value reduces the value of the derivatives
creating gains in our income statements.





VAT
refund





VAT
refund decreased $0.89 million to $0.06 million for the year ended December 25,
2008 as compared to $0.95 million for the year ended December 25, 2007. This
primarily represents less tax refund from the municipal government during the
current year.





Net
income/(loss)





For the
year ended December 25, 2008, net loss was $1.52 million, a decrease of $15.64
million, or 110.76% as compared to the net income of $14.12 million for 2007. As
a percentage of revenue, net loss was 3.08% for the year ended December 25, 2008
as compared to net income of 25.33% for the prior year.  The decrease
was primarily due to (i) a reduction of revenue, which we attribute to the
downturn in the economy in general, (ii) The $4.92 million asset impairment
charged in 2008 (none in 2007), and (iii) the year to year  decrease
of $6.36million in
the gain on the fair value adjustment to embedded derivatives.


15





CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS





On July
11, 2005, we issued 6,000 shares of Series A Preferred Stock, convertible into
an aggregate of 6,315,789 shares of Class A Common Stock at a conversion price
of $0.95 per share (subject to anti-dilution adjustments and interest payments),
raising $6.0 million in gross proceeds.





On
December 22, 2005, we issued 9,500 shares of Series B Preferred Stock,
convertible into an aggregate of 5,937,500 shares of Class A Common Stock at a
conversion price of $1.60 per share (subject to anti-dilution adjustments and
interest payments), raising $9.5 million in gross proceeds.





The key
terms of the Series A Preferred Stock and Series B Preferred Stock are as
follows:





Series A Preferred Stock
                  
                  Series B Preferred StockPreferred
      Dividend
                  
                  7%
      per annum, payable quarterly in arrears in cash or, at the Company’s
      option subject to satisfaction of certain conditions, shares of Class A
      Common Stock valued at 95% of the volume-weighted current market
      price.
                  
                  7%
      per annum, payable quarterly in arrears in cash or, at the Company’s
      option subject to satisfaction of certain conditions, shares of Class A
      Common Stock valued at 95% of the volume-weighted current market
      price.Redemption
                  
                  July
      11, 2010
                    
                    Beginning
      on the 24th month following closing and each month thereafter, the Company
      shall redeem 1/37th of the face value of the Preferred Stock in either
      cash or Class A Common Stock valued at 90% of the volume-weighted current
      market price.
                  
                  December
      22, 2010
                    
                    Beginning
      at the end of the 24th month following closing and on each third monthly
      anniversary of that date (quarterly) thereafter, the Company shall redeem
      1/13th of the face value of the Preferred Stock in either cash or Class A
      Common Stock valued at 90% of the volume-weighted current market
      price.Mandatory
      Conversion
                  
                  The
      Company may at any time force the conversion of the Preferred Stock if the
      volume-weighted current market price of the Class A Common Stock exceeds
      300% of the then applicable conversion price.
                  
                  The
      Company may at any time force the conversion of the Preferred Stock if the
      volume-weighted current market price of the Class A Common Stock exceeds
      200% of its price at issuance of the Preferred Stock.Registration
                  
                  The
      Company shall file to register the underlying Class A common shares within
      30 days of the closing date and make its best efforts to have the
      Registration declared effective at the earliest date.  In the
      event such Registration is not continuously effective during the period
      such shares are subject to transfer restrictions under the U.S. federal
      securities laws, then (subject to certain exceptions) the holders are
      entitled to receive liquidated damages equal to 2.0% of the purchase price
      of the Preferred Stock per month.
                  
                  The
      Company shall file to register the underlying Class A common shares with
      30 days of the closing date and make its best efforts to have the
      Registration declared effective at the earliest date.  In the
      event such Registration is not continuously effective during the period
      such shares are subject to transfer restrictions under the U.S. federal
      securities laws, then (subject to certain exceptions) the holders are
      entitled to receive liquidated damages equal to 2.0% of the purchase price
      of the Preferred Stock per month.Anti-dilution
                  
                  In
      the event the Company issues, at any time while Preferred Stock are still
      outstanding, Common Stock or any type of securities giving rights to
      Common Stock at a price below the Issue Price, the Company agrees to
      extend full-ratchet anti-dilution protection to the
    investors.
                  
                  In
      the event the Company issues, at any time while Preferred Stock are still
      outstanding, Common Stock or any type of securities giving rights to
      Common Stock at a price below the Issue Price, the Company agrees to
      extend full-ratchet anti-dilution protection to the
    investors.





As of
December 25, 2008, the Company had long-term debt obligations that resulted from
the mandatorily redeemable convertible preferred stock and the pre-determined
annual fee charged by joint venture partners through February 2009 and other
commitments and long-term liabilities through August 2049 as
follows:


16





Payment
      Obligations By Period2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  Thereafter
                  
                  
                  Total(In
      thousands)Redeemable
      convertible preferred stock
                  
                  $
                  3,274
                  
                  
                  $
                  3,227
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  6,501Pre-determined
      annual fee charged by joint venture partners
                  
                  
                  129
                  
                  
                  
                  129
                  
                  
                  
                  129
                  
                  
                  
                  129
                  
                  
                  
                  129
                  
                  
                  
                  4,528
                  
                  
                  
                  5,173Total
                  
                  $
                  3,403
                  
                  
                  $
                  3,356
                  
                  
                  $
                  129
                  
                  
                  $
                  129
                  
                  
                  $
                  129
                  
                  
                  $
                  4,528
                  
                  
                  $
                  11,674





Reconciliation
of the outstanding payment obligations of redeemable convertible preferred
stock:




(In
      thousands)Aggregated
      balance as of the issue date
                    
                    $
                    15,500Partial
      redemption of Series A Preferred Stock in 2005
                    
                    
                    (1,900
                    )Partial
      redemption of Series A and B Preferred Stock in 2006
                    
                    
                    (3,438
                    )Partial
      redemption of Series A Preferred Stock in 2007
                    
                    
                    (728
                    )Partial
      redemption of Series A and B Preferred Stock in 2008
                    
                    
                    (2,933
                    )$
                    6,501





FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES





The
Company’s primary liquidity needs are for the purchase of inventories and
funding accounts receivable and capital expenditures. Historically, the Company
has financed its working capital requirements through a combination of
internally generated cash and advances from related companies.





Our
working capital increased $14,527,000 to $49,823,000 at December 25, 2008 as
compared to $35,296,000 at December 25, 2007, which was primarily due to (i) the
increase in inventory of $5.07 million, (ii) the assets held for disposal (none
in 2007) and (iii) the fluctuation of the fair value of embedded derivatives (a
decrease in current liabilities of $2.21 million).





Cash and
cash equivalents were $4,383,000 as of December 25, 2008, an increase of
$737,000 from December 25, 2007. The Company believes that it has enough cash
available and expects to have enough income and cash flow from operations to
operate for the next 12 months.





Off-balance
sheet arrangements





We have
never entered into any off-balance sheet financing arrangements and have not
formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.





INFLATION
AND CHANGING PRICES





The
Company does not foresee any material adverse effects on its earnings as a
result of inflation or changing prices.





CRITICAL
ACCOUNTING POLICIES





Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States.  The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities.  We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  Actual results may
differ from these estimates.





An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimates are made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur, could materially impact the consolidated financial
statements.  We believe the following critical accounting policies
reflect the more significant estimates and assumptions used in the preparation
of the consolidated financial statements.


17




Revenue
recognition





Our
revenues are generated from sales of flour and instant noodle. All of our
revenue transactions contain standard business terms and conditions. We
determine the appropriate accounting for these transactions after considering
(1) whether a contract exists; (2) when to recognize revenue on the
deliverables; and (3) whether all elements of the contract have been fulfilled
and delivered. In addition, our revenue recognition policy requires an
assessment as to whether collection is reasonably assured, which inherently
requires us to evaluate the creditworthiness of our customers. Changes in
judgments on these assumptions and estimates could materially impact the timing
or amount of revenue recognition.





Accounting
for Derivative Instruments





Statement
of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, requires all derivatives to be
recorded on the Company’s balance sheet at fair value. These derivatives,
including embedded derivatives in the Company’s Series A and B Redeemable
Convertible Preferred Stock, are separately valued and accounted for on the
Company’s balance sheet.





The
pricing models the Company uses for determining fair values of its derivatives
are a combination of the Black-Scholes and Binomial Pricing Models. Valuations
derived from this model are subject to ongoing internal and external review. The
model uses market-sourced inputs such as interest rates and option volatilities.
Selection of these inputs involves management's judgment and may impact net
earnings. The Company has obtained a valuation report from a valuation firm to
support its estimates.





In
September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to and Potentially
Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
contracts that are settled in a company's own stock, including common stock
warrants, to be designated as an equity instrument, asset or a liability. Under
the provisions of EITF 00-19, a contract designated as an asset or a liability
must be carried at fair value on a company's balance sheet, with any changes in
fair value recorded in the company's results of operations. A contract
designated as an equity instrument must be included within equity, and no fair
value adjustments are required.





The
Company has determined that the conversion features of its redeemable
convertible preferred stock and warrants to purchase common stock are
derivatives that the Company is required to account for as if they were
free-standing instruments under U.S. GAAP. The Company has also determined that
it is required to designate these derivatives as liabilities in its financial
statements. As a result, the Company reports the value of these embedded
derivatives as current liabilities on its balance sheet and reports changes in
the value of these derivatives as non-operating gains or losses on its statement
of operations. The value of the derivatives is required to be recalculated (and
resulting non-operating gains or losses reflected in the statement of operations
and resulting adjustments to the associated liability amounts reflected on the
balance sheet) on a quarterly basis, and is based on the market value of the
Company’s common stock. Due to the nature of the required calculations and the
large number of shares of the Company’s common stock involved in such
calculations, changes in the Company’s common stock price may result in
significant changes in the value of the derivatives and resulting gains and
losses on the Company’s statement of operations.





The
consolidated financial statements also reflect additional non-operating gains
and losses related to the classification of and accounting for: (1) the
conversion features of the Series A and B Preferred Stock and associated
warrants, (2) the amortization associated with the discount recorded with
respect to the Series A and B Preferred Stock as a preferred stock dividend, and
(3) the conversion features associated with the preferred stock issued by
the Company and associated warrants.





Stock-Based
Compensation





On
December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” and supercedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees.” SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on the grant date fair value of the award. Under SFAS
No. 123R, we must determine the appropriate fair value model to be used for
valuing share-based payments, the amortization method for compensation cost and
the transition method to be used at date of adoption. The transition methods
include prospective and retroactive adoption options. Under the retroactive
options, prior periods may be restated either as of the beginning of the year of
adoption or for all periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted
stock at the beginning of the first quarter of adoption of SFAS No. 123R, while
the retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. We have
adopted the requirements of SFAS No. 123R for the fiscal year beginning on
December 26, 2005, and recorded the compensation expense for all unvested stock
options.


18




Contractual joint
ventures





A
contractual joint venture is an entity established between the Company and
another joint venture partner, with the rights and obligations of each party
governed by a contract.  Currently, the Company has established three
contractual joint ventures with three Chinese partners in China, with percentage
of ownership ranging from 79.64% to 90%.  Pursuant to each Chinese
joint venture agreement, each Chinese joint venture partner is entitled to
receive a pre-determined annual fee and is not responsible for any profit or
loss, regardless of the ownership in the contractual joint
venture.  In view of such contracted profit sharing arrangement, the
three contractual joint ventures are regarded as 100% owned by the
Company.  Hence, the Company’s consolidated financial statements
include the financial statements of the contractual joint ventures.





Recent
accounting pronouncements





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities, an Amendment
of FASB No. 133,” (“SFAS 161”). SFAS 161 is intended to improve
transparency in financial reporting by requiring enhanced disclosures of an
entity’s derivative instruments and hedging activities and their effects on the
entity’s financial position, financial performance, and cash flows. SFAS 161
applies to all derivative instruments within the scope of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”).
SFAS 161 also applies to non-derivative hedging instruments and all hedged items
designated and qualifying under SFAS 133. SFAS 161 is effective prospectively
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. SFAS 161
encourages, but does not require, comparative disclosures for periods prior to
its initial adoption. We will adopt SFAS 161 on December 26, 2008 and are
currently evaluating the potential impact on our financial statements when
implemented.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS 141(R)”). SFAS 141(R) requires us to continue to follow the guidance in
SFAS 141 for certain aspects of business combinations, with additional guidance
provided defining the acquirer, recognizing and measuring the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, assets and liabilities arising from contingencies, defining a bargain
purchase and recognizing and measuring goodwill or a gain from a bargain
purchase. In addition, under SFAS 141(R) adjustments associated with changes in
tax contingencies that occur after the one year measurement period are recorded
as adjustments to income. This statement is effective for all business
combinations for which the acquisition date is on or after the beginning of an
entity’s first fiscal year that begins after December 15, 2008; however,
the guidance in this standard regarding the treatment of income tax
contingencies is retrospective to business combinations completed prior to
December 26, 2008. We will adopt SFAS 141(R) for any business combinations
occurring at or subsequent to December 26, 2008.





In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets”.  FSP 142-3 amends the factors
an entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, “Goodwill and Other Intangible Assets”.  This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset acquisitions.
FSP 142-3 is effective for financial statements issued for fiscal years and
interim periods beginning after December 15, 2008.  Early adoption is
prohibited.  We are currently evaluating the impact, if any, that FSP
142-3 will have on our consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” an Amendment of ARB No. 51,
“Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement is effective as of the beginning of an
entity’s first fiscal year that begins after December 15, 2008 with
retrospective application. We will adopt SFAS 160 beginning December 26, 2008
and are currently evaluating the potential impact on our financial statements
when implemented.




19




ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.


We may be
exposed to changes in financial market conditions in the normal course of
business. We have not entered into any financial instruments for trading
purposes. However, the estimated fair value of the derivatives embedded within
our Series A and B Preferred Stock creates a fluctuation risk exposure resulting
from changes in the price of our common stock. These embedded derivatives derive
their value primarily based on the price and volatility of our common stock and
the time to expiration of the derivatives related to the conversion features and
the warrants. The determination of the change in the value of the derivatives
requires the use of a complex valuation model and can fluctuate significantly
between periods based on changes in the price of our shares and the time
remaining in the life of the underlying financial instruments. Increase in our
stock’s market price increases the value of the derivative creating losses in
our income statements and decreases in the stock’s market price reduce the value
of the derivatives creating gains in our income statements. Unless our share
price significantly rises, the fair value of the derivatives will continue to
reduce as shares of our preferred stock are converted. The current derivatives
outstanding relate to the preferred shares and expire by the end of
2010.





Currency
Fluctuations and Foreign Currency Risk





The
majority of our operations are conducted in the PRC except for some minor export
business and limited overseas purchases of raw materials.  Most of our
sales and purchases are conducted within the PRC in Chinese Renminbi. Hence, the
effect of the fluctuations of the Renminbi exchange rate relative to other
currencies is considered minimal to our business operations.  However,
we use the United States dollar for financial reporting purposes and therefore,
fluctuations in the exchange rate between the Renminbi and the U.S dollar will
result in increases or decreases in other comprehensive income or
loss.  Conversion of Renminbi into foreign currencies is regulated by
The People’s Bank of China through a unified floating exchange rate system.
Although the PRC government has stated its intention to support the value of
Renminbi, there can be no assurance that such exchange rate will not again
become volatile or that Renminbi will not strengthen or devalue significantly
against the US dollar.  Exchange rate fluctuations may adversely
affect the value, in US dollar terms, of our net assets and income derived from
our operations in the PRC.





Interest
Rate Risk





The
Company does not have significant interest rate risk, as our debt obligations
are primarily short-term in nature, with fixed interest rates. Our embedded
derivatives liabilities are revalued each accounting period and their fair value
can be affected by interest rate fluctuations based on changes in the risk free
interest rate (generally the interest rate on intermediate term obligations of
the United States Government).





Credit
Risk





We have
not experienced significant credit risk as most of our customers are long-term
customers with outstanding payment records. Our receivables are regularly
monitored by our credit manager.




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





The
following financial statements and the footnotes thereto are included in the
section beginning on page F-1.





1.
Reports of Independent Registered Public Accounting Firms.


2.
Consolidated Balance Sheets as of December 25, 2008 and 2007.


3.
Consolidated Statements of Operations for each of the two years in the period
ended December 25, 2008 and 2007.


4.
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for
each of the two years in the period ended December 25, 2008 and
2007.


5.
Consolidated Statements of Cash Flows for each of the two years in the period
ended December 25, 2008 and 2007.


6. Notes
to Consolidated Financial Statements.




ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





There
were no changes in or disagreements with accountants on accounting matters and
financial disclosures.




20




ITEM
9A(T). CONTROLS AND PROCEDURES.





Disclosure
Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness, as of December 25, 2008, of the design and
operation of our disclosure controls and procedures, as such term is defined in
Exchange Act Rules 13a-15(e) and 15d-15(e).  Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that, as of such date, our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in our Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
 
 Management
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f).  Internal control over financial reporting
refers to the process designed by, or under the supervision of, our principal
executive officer and principal financial officer, and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external  purposes in accordance with
generally accepted accounting principles, and includes those policies and
procedures that:
 
 (1)
Pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets;
 
 (2)
Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorization of our management and directors;
and
 
 (3)
Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisitions, use or disposition of our assets that could have a
material effect on the financial statements.
 
 Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial
reporting process.  Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Management is
responsible for establishing and maintaining adequate internal control over
financial reporting for the company.
 
 Management
has used the framework set forth in the report entitled Internal Control
Integrated Framework published by the Committee of Sponsoring Organizations of
the Treadway Commission, known as COSO, to evaluate the effectiveness of our
internal control over financial reporting. Based on this assessment, management
has concluded that our internal control over financial reporting was effective
as of December 25, 2008.
 
 This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Our management report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only our management
report in this Annual Report. We are not required to include in our Annual
Report an attestation report by our independent auditors under the Public
Company Accounting Oversight Board, auditing Standard No. 2 until the filing of
the Annual Report for the fiscal year ending December 25, 2009.
 
 Changes
in Internal Control over Financial Reporting
 
 There has
been no change in our internal control over financial reporting during the
fourth quarter of 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.




ITEM
9B. OTHER INFORMATION





None.





21




PART
III





ITEM
10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.




The
following table sets forth certain information concerning each of our directors
continuing in office and each of our current executive officers:




NAME
                            
                            AGE
                            
                            POSITION
                            
                            DIRECTOR
                              SINCEHeng
      Jing Lu
                            
                            57
                            
                            Chairman
                            
                            2003Li
      Xia Wang
                            
                            50
                            
                            Director
      and Chief Executive Officer
                            
                            2003Ling
      Wang
                            
                            44
                            
                            Director
      and Chief Accounting Officer
                            
                            2003Zhi
      Yong Jiang
                            
                            42
                            
                            Independent
      Non-Executive Director
                            
                            2003De
      Lin Yang
                            
                            54
                            
                            Independent
      Non-Executive Director
                            
                            2003Qi
      Xue
                            
                            56
                            
                            Independent
      Non-Executive Director
                            
                            2003Feng
      Ju Chen
                            
                            53
                            
                            Independent
      Non-Executive Director
                            
                            2004




The
business experience during at least the last five years of each of these
individuals is as follows:




Mr. Heng Jing Lu, Chairman of
the Company, graduated from The Shandong Institute of Economics in accounting
and is a PRC qualified accountant. Before joining the Company on December 15,
2003, he had been working in the oil and grain industry for over 30
years.  Prior to joining the Company, he was the director of the Oil
and Grain Bureau of Longkou, Shandong PRC where he had worked since 1975. He has
extensive experience in the management of agricultural and food related
enterprises and strategic planning. He is primarily responsible for business
development and overall company management.




Ms. Li Xia Wang, director and
Chief Executive Officer of the Company, graduated from The Shandong Institute of
Economics in accounting and is a PRC qualified accountant. She joined the
Longkou Oil & Grain Group Company in 1980 where she has remained, her last
position being Deputy General Manager. She has over 20 years of extensive
experience in the field of finance and accounting. She became a director of the
Company on December 15, 2003, and its Chief Executive Officer in
2004.




Ms. Ling Wang, director and
Chief Accounting Officer of the Company, graduated from Shandong Television
Broadcast University in economics management. She has been working with the
subsidiary of the Company since 1981 and her main responsibilities are in
operation control and internal audit.




Mr. Zhi Yong Jiang,
independent non-executive director of the Company since December 15, 2003,
currently serves on the audit committee, acting as Chairman. He graduated from
Yantai Oil & Grain College with a degree in finance & accounting. He had
been working with Longkou Jinsheng Electronics Co. Ltd since 2000 and prior to
joining the Company, his last position was Vice President of Longkou Soybean
Food Co., Ltd. He has been working in the accounting and financing field for
more than 19 years in different industries. He has extensive experience in the
field of finance and accounting.




Mr. De Lin Yang, independent
non-executive director of the Company since December 15, 2003, is currently the
chairman of the Yantai Hong Yuan CPA, a public accounting firm. Mr. Yang
graduated from Shandong Gan Bu Distance Learning University with a bachelor
degree in Accounting. He joined the Longkou City Ceramics Factory as an
accountant in 1975 and was promoted to Chief Accountant in 1982. From 1989 to
1999, Mr. Yang served as the deputy chairman of the Longkou City CPA. In 2000,
Mr. Yang joined the Yantai Hong Yuan CPA as the deputy chairman and was promoted
to the chairman of the firm in 2002.


22




Mr. Qi Xue, independent
non-executive director of the Company since March 15, 2003, graduated in 1987
from The Official Institute of Beijing Chemical Industry Management with a
diploma of higher education specializing in industrial accounting. He is an
associate member of The Chinese Institute of Certified Public Accountants. Since
1999, he has been the Principal of the Longkou Huayu Certified Public
Accountants Co. Ltd.




Ms. Feng Ju Chen, independent
non-executive director of the Company, graduated from Yantai University in
business management and is a member of The Chinese Institute of Certified Public
Accountants. She has been the accounting manager of the Audit Bureau of Longkou
City for more than 20 years. She has extensive experience in the field of
accounting and joined the Company as a director on April 15, 2004.





There are
no family relationships between the directors and executive
officers.





Code
of Ethics





Our Board
of Directors has adopted a Code of Conduct and Ethics (the “Code”) that applies
to all of our employees, officers and directors. The Code covers compliance with
law, fair and honest dealings with the Company, with competitors and with
others, fair and honest disclosure to the public, and procedures for compliance
with the Code. You can obtain a copy of the Code by sending a written request to
the attention of Ms. Ling Wang, 10 Huangcheng Road (N), Longkou, Shandong
Province, PRC.





Board
Committees and Designated Directors





The Board
of Directors has a Compensation Committee, a Nominating Committee and an Audit
Committee.





Compensation
Committee.   The Compensation Committee makes recommendations
to the Board of Directors concerning salaries and incentive compensation for our
officers, including our Chief Executive Officer, and employees and administers
our stock option plans. Our Compensation Committee consists of Qi Xue, Feng Ju
Chen and Zhi Yong Jiang. Compensation decisions during the fiscal year ended
December 25, 2008 were made by all of the directors of the Committee. Each of
the members of the Committee is independent and none have served as an officer
or employee of the Company.





Nominating
Committee.   Under the rules of NYSE Amex (on which our
Class A Common Stock is listed for trading), nominees for our Board must be
selected either by a nominating committee consisting entirely of independent
directors or by a majority of the independent directors, acting pursuant to a
standing resolution governing the nominating process. Given the size of our
company and the significant committee responsibilities that many directors
already have, we have chosen to assign this function to the independent
directors rather than to a nominating committee. Consequently, our three
independent directors, Qi Xue, Feng Ju Chen and Zhi Yong Jiang, are responsible
for nominations. They act pursuant to a standing resolution. To date, the
independent directors have not engaged any third parties to assist them in
identifying candidates for the Board.





Among the
tasks that our independent directors may undertake in this capacity are
these:





-
            Identifying
      and selecting those persons who will be nominees for
    director.


-
            Considering
      factors relevant to the selection of nominees, including requirements of
      law, stock exchange listing standards, matters of character, judgment,
      business experience and areas of expertise, the diversity of the Board,
      and other factors.


-
            Recruiting
      appropriate candidates when necessary, and reviewing the qualifications of
      any candidates nominated by
shareholders.


-
            Evaluating
      from time to time the size and composition of the Board and its
      committees.


-
            Evaluating
      the function and performance of the Board and its
    directors.





There
have been no material changes to the procedures by which security holders may
recommend nominees to the Company’s board of directors.





Audit Committee.  
The Audit Committee operates under a written charter. The Audit Committee
consists of three directors, Qi Xue, Zhi Yong Jiang and Feng Ju Chen, each of
whom meets the independence requirements and standards currently established by
NYSE Amex and the SEC. In addition, the Board of Directors has determined
that Mr. Qi Xue is an “audit committee financial expert” and “independent”
as defined under the relevant rules of the SEC and NYSE Amex. The Audit
Committee assists the Board of Directors in fulfilling its oversight of the
quality and integrity of the Company’s financial statements and the Company’s
compliance with legal and regulatory requirements. The Audit Committee is
responsible for retaining (subject to stockholder ratification) and, as
necessary, terminating, the independent auditors, annually reviewing the
qualifications, performance and independence of the independent auditors and the
audit plan, fees and audit results, and pre-approving audit and non-audit
services to be performed by the auditors and related fees. The Audit Committee
also oversees the performance of the Company’s internal audit and compliance
functions.


23




Section 16(a) Beneficial
Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our executive officers and directors and persons who own more than 10%
of a registered class of our equity securities to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of common
stock and other of our equity securities, on Forms 3, 4 and 5 respectively.
Based on Company records and other information, we believe that all SEC filing
requirements applicable to our directors and executive officers were complied
with for the fiscal year ended December 25, 2008, except that:





New
Dragon Asia Food Limited did not timely file a Form 4 reflecting the purchase of
10,000 shares of Class A Common Stock of the Company on September 22,
2008.




ITEM
11.   EXECUTIVE COMPENSATION.





Summary
Compensation Table





Salary
                          
                          
                          Option Awards
                          
                          
                          TotalName and Principal Position
                          
                          Year
                          
                          ($)
                          
                          
                          ($)
                          
                          
                          ($)Li Xia Wang
      (i)
                          
                          2008
                          
                          
                          20,000
                          
                          
                          
                          —
                          
                          
                          
                          20,000Chief
      Executive Officer and Director
                          
                          2007
                          
                          
                          20,000
                          
                          
                          
                          —
                          
                          
                          
                          20,000Peter Mak
      (ii)
                          
                          2008
                          
                          
                          180,000
                          
                          
                          
                          —
                          
                          
                          
                          180,000Chief
      Financial Officer
                          
                          2007
                          
                          
                          180,000
                          
                          
                          
                          —
                          
                          
                          
                          180,000





(i) Li
Xia Wang was promoted to CEO of the Company in 2004. She is a Chinese national.
Her annual base salary is $20,000.





(ii)
Peter Mak joined the Company as CFO in 2004 and his employment contract with the
Company expired on December 31, 2008. The Company received notification from Mr.
Mak on February 12, 2009 of his resignation, effective as of such date. He is a
Hong Kong expatriate. His annual base salary was $180,000.





Outstanding
Equity Awards At Fiscal Year-end





Name
                        
                        Number of
                          Securities Underlying
                          Unexercised Options (#)
                          Exercisable
                        
                        
                        Number of
                          Securities Underlying
                          Unexercised Options (#)
                          Unexercisable
                        
                        
                        Option
                          Exercise
                          Price ($)
                        
                        Option Expiration
                          DateLi
      Xia Wang
                        
                        
                        —
                        
                        
                        
                        —Peter
      Mak
                        
                        
                        2,000,000
                        
                        
                        
                        —
                        
                        
                        $
                        1.60
                        
                        January
      20, 20126,000,000
                        
                        
                        
                        —
                        
                        
                        $
                        1.82
                        
                        December
      13,
2016





Pension
Benefits





We do not
sponsor any qualified or non-qualified defined benefit plans.





Nonqualified
Deferred Compensation





We do not
maintain any non-qualified defined contribution or deferred compensation plans.
Our Compensation Committee, which is comprised solely of “outside directors” as
defined for purposes of Section 162(m) of the Code, may elect to provide our
officers and other employees with non-qualified defined contribution or deferred
compensation benefits if the Compensation Committee determines that doing so is
in our best interests.




24




Compensation
of Directors





We do not
provide cash or other compensation to our directors for their services as
members of the Board or for attendance at Board or committee meetings. However,
our directors will be reimbursed for reasonable travel and other expenses
incurred in connection with attending meetings of the Board and its
committees.





COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION





None of
the members of the Compensation Committee have any relationship with the Company
or any of its officers or employees other than in connection with their role as
a director.  None of the members of the Compensation Committee have
participated in any related party transactions with the Company since the
beginning of the Company’s last fiscal year.








ITEM 12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.





The
following table sets forth, as of March 9, 2009, certain information concerning
the beneficial ownership of Common Stock by (i) each stockholder known to us to
beneficially own five percent or more of our outstanding 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
March 9, 2009, there were 64,145,392 shares of Common Stock
outstanding.





Name and Address of Beneficial Owner
                
                Amount and Nature of
                  Beneficial Ownership
                
                
                Percent of
                  ClassNew
      Dragon Asia Food Ltd.
                  10
      Huangcheng Road (N), Longkou, Shandong Province, PRC
                
                
                28,476,154
                
                
                
                44.39
                %Heng
      Jing Lu†
                  Chairman
                
                
                28,476,154
                (1)
                
                
                44.39
                %Li
      Xia Wang†
                  Chief
      Executive Officer and Director
                
                
                -0-
                
                
                
                *Ling
      Wang†
                  Director
      and Chief Accounting Officer
                
                
                -0-
                
                
                
                *Zhi
      Yong Jiang†
                  Director
                
                
                -0-
                
                
                
                *De
      Lin Yang†
                  Director
                
                
                -0-
                
                
                
                *Qi
      Xue†
                  Director
                
                
                -0-
                
                
                
                *Feng
      Ju Chen†
                  DirectorAll
      Directors and Executive Officers (7 people)
                
                
                28,476,154
                
                
                
                44.39
                %









* Less
than one percent.




† Address
of referenced person is c/o New Dragon Asia Corp. 10 Huangcheng Road (N),
Longkou, Shandong Province, PRC.





(1)
Represents shares owned by New Dragon Asia Food Ltd. Mr. Heng Jing Lu, our
Chairman, is the holder of record and beneficial holder of 100% of the equity
interests of New Dragon Asia Food Ltd.




ITEM
13.   CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.





Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.  For a summary of certain related party
transactions, please refer to Note 17 of the Consolidated Financial Statements
under the heading “Related Party Transactions” for significant details. The
comprehensive summary of information required by Item 13 is set forth in our
Proxy Statement under the caption “certain relationships and related
transactions” and is incorporated herein by this reference.


25




ITEM
14.   PRINCIPAL ACCOUNTING FEES AND SERVICES.





The Audit
Committee has selected Crowe Horwath LLP as our independent accountants for the
fiscal year ending December 25, 2008. Grobstein, Horwath & Company LLP
(“Grobstein”) was our independent accounting firm for the fiscal year ended
December 25, 2007.  On January 9, 2009, the Company was notified that
effective December 8, 2008, the personnel of Grobstein have joined with Crowe
Horwath LLP resulting in the resignation of Grobstein as independent registered
public accounting firm for the Company.




Public
Accountants’ fees





For
fiscal years ended December 25, 2008 and 2007, fees for services provided by
Crowe Horwath LLP and Grobstein, respectively were as follows:





2008
                  
                  
                  2007Audit
      Fees
                  
                  $
                  228,471
                  
                  
                  $
                  204,545Audit
      Related Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  $
                  9,000
                  
                  
                  $
                  8,000All
      other fees
                  
                  
                  -
                  
                  
                  
                  -





Audit
Fees were for professional services rendered for the audit of the Company’s
annual financial statements, the review of quarterly financial statements, and
the preparation of statutory and regulatory filings. Audit-Related Fees relate
to professional services rendered in connection with accounting consultations
relating to SEC reviews on filings. Tax fees consist of fees billed for
professional services for tax compliance, tax planning and tax advice. These
services include assistance regarding federal, state and international tax
compliance and planning, tax audit defense, and mergers and
acquisitions.





Pre-Approval
Policies and Procedures





In
accordance with the SEC’s auditor independence rules, the Audit Committee has
established the following policies and procedures by which it approves in
advance any audit or permissible non-audit services to be provided to the
Company by its independent auditor.





Prior to
the engagement of the independent auditor for any fiscal year’s audit,
management submits to the Audit Committee for approval lists of recurring audit,
audit-related, tax and other services expected to be provided by the auditor
during that fiscal year. The Audit Committee adopts pre-approval schedules
describing the recurring services that it has pre-approved, and is informed on a
timely basis, and in any event by the next scheduled meeting, of any such
services rendered by the independent auditor and the related fees.





The fees
for any services listed in a pre-approval schedule are budgeted, and the Audit
Committee requires the independent auditor and management to report actual fees
versus the budget periodically throughout the year. The Audit Committee will
require additional pre-approval if circumstances arise where it becomes
necessary to engage the independent auditor for additional services above the
amount of fees originally pre-approved. Any audit or non-audit service not
listed in a pre-approval schedule must be separately pre-approved by the Audit
Committee on a case-by-case basis.Every request to adopt or amend a pre-approval
schedule or to provide services that are not listed in a pre-approval schedule
must include a statement by the independent auditors as to whether, in their
view, the request is consistent with the SEC’s rules on auditor
independence.





The Audit
Committee will not grant approval for:





-
            any
      services prohibited by applicable law or by any rule or regulation of
      the SEC or other regulatory body applicable to the
  Company;


-
            provision
      by the independent auditor to the Company of strategic consulting services
      of the type typically provided by management consulting firms;
      or


-
            the
      retention of the independent auditor in connection with a transaction
      initially recommended by the independent auditor, the tax treatment of
      which may not be clear under the Internal Revenue Code and related
      regulations and which it is reasonable to conclude will be subject to
      audit procedures during an audit of the Company’s financial
      statements.


26




Tax
services proposed to be provided by the auditor to any director, officer or
employee of the Company who is in an accounting role or financial reporting
oversight role must be approved by the Audit Committee on a case-by-case basis
where such services are to be paid for by the Company, and the Audit Committee
will be informed of any services to be provided to such individuals that are not
to be paid for by the Company.





In
determining whether to grant pre-approval of any non-audit services in the “all
other” category, the Audit Committee will consider all relevant facts and
circumstances, including the following four basic guidelines:





-
            whether
      the service creates a mutual or conflicting interest between the auditor
      and the Company;


-
            whether
      the service places the auditor in the position of auditing his or her own
      work;


-
            whether
      the service results in the auditor acting as management or an employee of
      the Company; and


-
            whether
      the service places the auditor in a position of being an advocate for the
      Company.




27





PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)  
      1.Financial Statements




An index
to Consolidated Financial Statements appears on page F-1.




2.   
Schedules




All
financial statement schedules are omitted because they are not applicable, not
required under the instructions or all the information required is set forth in
the financial statements or notes thereto.




(b)         
      Exhibits




Exhibit
                    Number
                  
                  Description2.1
                  
                  Share
      Exchange Agreement dated as of December 18, 2001 (incorporated herein by
      reference from our filing on the Definitive Proxy 14/A filed on October
      11, 2001).3.1
                  
                  Amended  Articles  of  Incorporation
      (incorporated herewith by reference to Exhibit 3.1 to our Definitive Proxy
      14/A filed on October 11, 2001).3.2
                  
                  By-laws
      (incorporated herewith by reference to Exhibit 3.2 to our Definitive Proxy
      14/A filed on October 11, 2001).3.3
                  
                  Certificate
      of Designations of Preferences, Rights and Limitations of the Series A 7%
      Convertible Preferred Stock (incorporated herewith by reference to Exhibit
      3.1 of our Form 8-K filed on July 12, 2005).3.4
                  
                  Certificate
      of Designations of Preferences, Rights and Limitations of the Series B 7%
      Convertible Preferred Stock (incorporated herewith by reference to Exhibit
      3.1 of our Form 8-K filed on December 23, 2005).4.1
                  
                  Subscription
      Agreement, dated September 4, 2003  (incorporated herewith by
      reference to Exhibit 4.1 to our Registration Statement on Form S-3 filed
      on October 3, 2003).4.2
                  
                  Subscription
      Agreement, dated October 3, 2003 (incorporated herewith by reference to
      Exhibit 4.2 to our Registration Statement on Form S-3 filed on October 3,
      2003).4.3
                  
                  Common
      Stock Purchase Warrants for the September 4, 2003 Private Placement
      (incorporated herewith by reference to Exhibit 4.3 to our Registration
      Statement on Form S-3 filed on October 3, 2003).4.4
                  
                  Common
      Stock Purchase Warrants for the October 3, 2003 Private Placement
      (incorporated herewith by reference to Exhibit 4.4 to our Registration
      Statement on Form S-3 filed on October 3, 2003).4.5
                  
                  Form
      of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
      (incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
      on July 12, 2005).4.6
                  
                  Form
      of Warrant issued to Alliance Financial, LLC, Renaissance Advisors BVI,
      John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
      (incorporated herewith by reference to Exhibit 4.2 to our Registration
      Statement on Form S-3 filed on August 11, 2005).4.7
                  
                  Securities
      Purchase Agreement, dated July 11, 2005, relating to the sale of the
      Series A 7% Convertible Preferred Stock (incorporated herewith by
      reference to Exhibit 10.1 to our Form 8-K filed on July 12,
      2005).




28





4.8
              
              Registration
      Rights Agreement, dated July 11, 2005, by and among New Dragon Asia Corp.
      and the investors named therein (incorporated herewith by reference to
      Exhibit 10.2 to our Form 8-K filed on July 12, 2005).4.9
              
              Form
      of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
      (incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
      on December 23, 2005).4.10
              
              Form
      of Warrant issued to Alliance Financial, LLC, Renaissance Advisors, Inc.,
      John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
      (incorporated herewith by reference to Exhibit 4.2 to our Registration
      Statement on Form S-3 filed on January 20, 2006).4.11
              
              Securities
      Purchase Agreement, dated December 22, 2005, relating to the sale of the
      Series B 7% Convertible Preferred Stock (incorporated herewith by
      reference to Exhibit 10.1 to our Form 8-K filed on December 23,
      2005).4.12
              
              Registration
      Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
      Corp. and the investors named therein (incorporated herewith by reference
      to Exhibit 10.2 to our Form 8-K filed on December 23,
    2005).4.13
              
              Registration
      Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
      Corp. and New Dragon Food Ltd. (incorporated herewith by reference to
      Exhibit 4.5 to our Registration Statement on Form S-3 filed on January 20,
      2006).10.1
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
      Limited, dated June 1, 1999 (incorporated herewith by reference to Exhibit
      10.1 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.2
              
              Subcontracting
      Agreement, for the New Dragon Asia Flour (Yantai) Company Limited, dated
      June 26, 1999  (incorporated herewith by reference to Exhibit
      10.2 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.3
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
      Limited, dated November 28, 1998  (incorporated herewith by
      reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed
      on October 3, 2003).10.4
              
              Subcontracting
      Agreement, for the New Dragon Asia Food (Yantai) Company Limited, dated
      December 26, 1998  (incorporated herewith by reference to
      Exhibit 10.4 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.5
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
      Limited, dated November 28, 1998 (incorporated herewith by reference to
      Exhibit 10.5 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.6
              
              Subcontracting
      Agreement, for the New Dragon Asia Food (Dalian) Company Limited, dated
      December 26, 1998 (incorporated herewith by reference to Exhibit 10.6 to
      our Registration Statement on Form S-3 filed on October 3,
      2003).10.7
              
              Sino-Foreign
      Joint Venture Contract for the Sanhe New Dragon Asia Food Company Limited,
      dated November 28, 1998 (incorporated herewith by reference to Exhibit
      10.7 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.8
              
              Subcontracting
      Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated
      December 26, 1998  (incorporated herewith by reference to
      Exhibit 10.8 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.9
              
              Employment
      Agreement between New Dragon Asia Corp. and Peter Mak, dated November 2,
      2004 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
      filed on June 29, 2005).




29




10.10
              
              Employment
      Supplement between New Dragon Asia Corp. and Peter Mak, dated June 22,
      2005 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
      filed on June 29, 2005).10.11
              
              Supplementary
      Agreement to Employment Agreement between New Dragon Asia Corp. and Peter
      Mak, dated January 20, 2006 (incorporated herewith by reference to Exhibit
      10.10 to our Form 8-K filed on January 24, 2006).10.12
              
              Equity
      Incentive Plan (incorporated herewith by reference to Exhibit B to our
      Definitive Information Statement on Schedule 14C filed on March 14,
      2006).10.13
              
              Stock
      Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
      December 13, 2006 (incorporated herewith by reference to Exhibit 10.1 to
      our Form 8-K filed on December 15, 2006).10.14
              
              Settlement
      Agreement and General Release between New Dragon Asia Corp and Berry-Shino
      Securities Inc., dated August 15, 2007 (incorporated by reference to
      Exhibit 10.1 to our Form 8-K filed on August 15, 2007).21.1
              
              Subsidiaries
      of New Dragon Asia Corp., filed herewith.23.1
              
              Consent
      of Crowe Horwath LLP, Independent Registered Public Accounting Firm, filed
      herewith.23.2
              
              Consent
      of Grobstein, Horwath & Company LLP, Independent Registered Public
      Accounting Firm, filed herewith31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Certification
      of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, filed herewith.32.1
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
      Sarbanes-Oxley Act of 2002), filed herewith.32.2
              
              Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of
      the Sarbanes-Oxley Act of 2002), filed
herewith.




30





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.




Dated:  April
      6, 2009
            NEW
      DRAGON ASIA CORP.By:
            /s/ Li Xia WangName:   Li
      Xia WangTitle:    Chief
      Executive Officer (Principal ExecutiveOfficer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Dated:  April
      6, 2009
            By:
            /s/ Heng Jing LuName:
            Heng
      Jing LuTitle:
            ChairmanDated:  April
      6, 2009
            By:
            /s/ Li Xia WangName:
            Li
      Xia WangTitle:
            Chief
      Executive Officer (Principal ExecutiveOfficer)Dated:  April
      6, 2009
            By:
            /s/ Ling WangName:
            Ling
      WangTitle:
            Director
      and Chief Financial Officer (PrincipalFinancial
      and Accounting Officer)Dated:  April
      6, 2009
            By:
            /s/ De Lin YangName:
            De
      Lin YangTitle:
            DirectorDated:  April
      6, 2009
            By:
            /s/ Zhi Yong JiangName:
            Zhi
      Yong JiangTitle:
            DirectorDated:  April
      6, 2009
            By:
            /s/ Qi XueName:
            Qi
      XueTitle:
            DirectorDated:  April
      6, 2009
            By:
            /s/ Feng Ju ChenName:
            Feng
      Ju ChenTitle:
            Director




31


NEW
DRAGON ASIA CORP.





FINANCIAL
STATEMENTS





TABLE
OF CONTENTS





Reports
      of Independent Registered Public Accounting Firms
                  
                  F-2Consolidated
      Balance Sheets as of December 25, 2008 and 2007
                  
                  F-4Consolidated
      Statements of Operations for each of the two years in the period ended
      December 25, 2008 and 2007
                  
                  F-5Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income for each of
      the two years in the period ended December 25, 2008 and
    2007
                  
                  F-6Consolidated
      Statements of Cash Flows for each of the three years in the period ended
      December 25, 2008 and 2007
                  
                  F-7Notes
      to Consolidated Financial Statements
                  
                  F-8


F-1





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Stockholders and Board of Directors


New
Dragon Asia Corp. and Subsidiaries





We have
audited the accompanying consolidated balance sheet of New Dragon Asia Corp. and
Subsidiaries (the “Company”) as of December 25, 2008 and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.





In our
opinion, the 2008 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Dragon Asia Corp. and Subsidiaries as of December 25, 2008, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.





Sherman
      Oaks, California
            /s/
      Crowe Horwath LLPApril
      6, 2009


F-2


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Stockholders and Board of Directors


New
Dragon Asia Corp. and Subsidiaries





We have
audited the accompanying consolidated balance sheet of New Dragon Asia Corp. and
Subsidiaries (the “Company”) as of December 25, 2007 and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.





In our
opinion, the 2007 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Dragon Asia Corp. and Subsidiaries as of December 25, 2007 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United
States.





/s/
GROBSTEIN, HORWATH & COMPANY LLP





Sherman
Oaks, California


March 11,
2008


F-3


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


(Amounts
in thousands, except share data)


December 25,
                                    2008
                                  
                                  
                                  December 25,
                                    2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  4,383
                                  
                                  
                                  $
                                  3,646Accounts
      receivable, net
                                  
                                  
                                  8,888
                                  
                                  
                                  
                                  9,223Deposits
      and prepayments, net
                                  
                                  
                                  13,056
                                  
                                  
                                  
                                  12,183Inventories,
      net
                                  
                                  
                                  27,124
                                  
                                  
                                  
                                  22,050Assets
      held for disposal
                                  
                                  
                                  5,778
                                  
                                  
                                  
                                  —Total
      current assets
                                  
                                  
                                  59,229
                                  
                                  
                                  
                                  47,102Property,
      machinery and equipment, net
                                  
                                  
                                  20,139
                                  
                                  
                                  
                                  25,986Land
      use rights, net
                                  
                                  
                                  4,529
                                  
                                  
                                  
                                  7,294Due
      from related companies
                                  
                                  
                                  981
                                  
                                  
                                  
                                  913Goodwill
                                  
                                  
                                  —
                                  
                                  
                                  
                                  125Total
      assets
                                  
                                  $
                                  84,878
                                  
                                  
                                  $
                                  81,420LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                  
                                  $
                                  4,980
                                  
                                  
                                  $
                                  2,982Other
      payables and accruals
                                  
                                  
                                  3,845
                                  
                                  
                                  
                                  2,765Taxes
      payable
                                  
                                  
                                  294
                                  
                                  
                                  
                                  3,530Due
      to related companies
                                  
                                  
                                  —
                                  
                                  
                                  
                                  36Embedded
      derivatives at fair value
                                  
                                  
                                  287
                                  
                                  
                                  
                                  2,493Total
      current liabilities
                                  
                                  
                                  9,406
                                  
                                  
                                  
                                  11,806Due
      to shareholder
                                  
                                  
                                  2,780
                                  
                                  
                                  
                                  1,405Due
      to joint venture partners
                                  
                                  
                                  767
                                  
                                  
                                  
                                  272Total
      liabilities
                                  
                                  
                                  12,953
                                  
                                  
                                  
                                  13,483Minority
      interests
                                  
                                  
                                  122
                                  
                                  
                                  
                                  294Series
      A & B Redeemable Convertible Preferred Stock, $0.0001 par
      value:Authorized
      shares – 5,000,000Issued
      and outstanding – 6,501 shares and 9,434 shares at December 25, 2008 and
      2007, respectively
                                  
                                  
                                  4,645
                                  
                                  
                                  
                                  5,321CommitmentsStockholders’
      equity:Class
      A Common Stock, $0.0001 par value:Authorized
      shares – 102,000,000Issued
      and outstanding – 60,922,981 in 2008 and 55,195,385 in
2007
                                  
                                  
                                  6
                                  
                                  
                                  
                                  5Class
      B Common Stock, $0.0001 par value:Authorized
      shares – 2,000,000 – none issued and outstanding
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Additional
      paid-in capital
                                  
                                  
                                  32,521
                                  
                                  
                                  
                                  29,982Retained
      earnings
                                  
                                  
                                  21,321
                                  
                                  
                                  
                                  24,568Accumulated
      other comprehensive income
                                  
                                  
                                  13,310
                                  
                                  
                                  
                                  7,767Total
      stockholders’ equity
                                  
                                  
                                  67,158
                                  
                                  
                                  
                                  62,322Total
      liabilities and stockholders’ equity
                                  
                                  $
                                  84,878
                                  
                                  
                                  $
                                  81,420





The
accompanying notes are an integral part of these consolidated financial
statements.


F-4


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS





(Amounts
in thousands, except per share data)





For the years ended December 252008
                      
                      
                      2007Net
      revenue
                      
                      $
                      49,340
                      
                      
                      $
                      55,738Cost
      of goods sold
                      
                      
                      (41,989
                      )
                      
                      
                      (45,427
                      )Gross
      profit
                      
                      
                      7,351
                      
                      
                      
                      10,311Operating
      expenses:Selling
      and distribution expenses
                      
                      
                      (1,275
                      )
                      
                      
                      (1,279
                      )General
      and administrative expenses
                      
                      
                      (3,896
                      )
                      
                      
                      (2,606
                      )Impairment
      reserves
                      
                      
                      (4,925
                      )
                      
                      
                      —Income/(loss)
      from operations
                      
                      
                      (2,745
                      )
                      
                      
                      6,426Other
      income (expense):Other
      income
                      
                      
                      100
                      
                      
                      
                      252Interest
      income
                      
                      
                      36
                      
                      
                      
                      41Gain
      (loss) on fair value adjustments to embedded derivatives
                      
                      
                      2,047
                      
                      
                      
                      8,412VAT
      refund
                      
                      
                      60
                      
                      
                      
                      952Income/(loss)
      before income taxes and minority interests
                      
                      
                      (502
                      )
                      
                      
                      16,083Provision
      for income taxes
                      
                      
                      (1,205
                      )
                      
                      
                      (1,968
                      )Income/(loss)
      before minority interests
                      
                      
                      (1,707
                      )
                      
                      
                      14,115Minority
      interests
                      
                      
                      190
                      
                      
                      
                      —Net
      income/(loss)
                      
                      $
                      (1,517
                      )
                      
                      $
                      14,115Accretion
      of redeemable preferred stock
                      
                      
                      (1,196
                      )
                      
                      
                      (1,512
                      )Preferred
      stock dividends
                      
                      
                      (534
                      )
                      
                      
                      (703
                      )Income
      (loss) available to common stockholders
                      
                      $
                      (3,247
                      )
                      
                      $
                      11,900Earnings
      per common shareBasic
                      
                      $
                      (0.06
                      )
                      
                      $
                      0.22Diluted
                      
                      $
                      (0.06
                      )
                      
                      $
                      0.21Weighted
      average number of common shares outstandingBasic
                      
                      
                      58,262
                      
                      
                      
                      54,109Diluted
                      
                      
                      58,262
                      
                      
                      
                      55,519





The
accompanying notes are an integral part of these consolidated financial
statements.


F-5


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME





(Amounts
in the thousands)





Class A
                      Common Stock
                    
                    
                    Additional
                      Paid-in
                    
                    
                    Receivable
                      from
                    
                    
                    Retained
                    
                    
                    Accumulated
                      Other
                      Comprehensive
                    
                    
                    Total
                      Stockholders’
                    
                    
                    ComprehensiveShare
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Stockholder
                    
                    
                    Earnings
                    
                    
                    Income
                    
                    
                    Equity
                    
                    
                    IncomeBalance
      at December 25, 2006
                    
                    
                    53,614
                    
                    
                    $
                    5
                    
                    
                    $
                    28,411
                    
                    
                    $
                    -
                    
                    
                    $
                    12,668
                    
                    
                    $
                    2,928
                    
                    
                    $
                    44,012
                    
                    
                    $
                    (474
                    )Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    14,115
                    
                    
                    
                    -
                    
                    
                    
                    14,115
                    
                    
                    
                    14,115Accretion
      of redeemable preferred stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,512
                    )
                    
                    
                    -
                    
                    
                    
                    (1,512
                    )Preferred
      stock dividends
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (703
                    )
                    
                    
                    
                    
                    
                    
                    (703
                    )Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,839
                    
                    
                    
                    4,839
                    
                    
                    
                    4,839Class
      A Common Stocks issued to Berry Shino for dispute
    resolution
                    
                    
                    275
                    
                    
                    
                    -
                    
                    
                    
                    269
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    269
                    
                    
                    
                    -Conversion
      of preferred stocks and related dividend payments made in Class A Common
      Stock
                    
                    
                    1,306
                    
                    
                    
                    -
                    
                    
                    
                    1,302
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,302
                    
                    
                    
                    -Balance
      at December 25, 2007
                    
                    
                    55,195
                    
                    
                    $
                    5
                    
                    
                    $
                    29,982
                    
                    
                    $
                    -
                    
                    
                    $
                    24,568
                    
                    
                    $
                    7,767
                    
                    
                    $
                    62,322
                    
                    
                    $
                    18,954Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,517
                    )
                    
                    
                    -
                    
                    
                    
                    (1,517
                    )
                    
                    
                    (1,517
                    )Accretion
      of redeemable preferred stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,196
                    )
                    
                    
                    -
                    
                    
                    
                    (1,196
                    )Preferred
      stock dividends
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (534
                    )
                    
                    
                    
                    
                    
                    
                    (534
                    )Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,543
                    
                    
                    
                    5,543
                    
                    
                    
                    5,543Conversion
      of preferred stocks and related dividend payments made in Class A Common
      Stock
                    
                    
                    5,728
                    
                    
                    
                    1
                    
                    
                    
                    2,539
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,540
                    
                    
                    
                    -Balance
      at December 25, 2008
                    
                    
                    60,923
                    
                    
                    $
                    6
                    
                    
                    $
                    32,521
                    
                    
                    $
                    -
                    
                    
                    $
                    21,321
                    
                    
                    $
                    13,310
                    
                    
                    $
                    67,158
                    
                    
                    $
                    4,026





The
accompanying notes are an integral part of these consolidated financial
statements.


F-6


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS





(Amounts
in thousands)





For the years ended December 25,2008
                  
                  
                  2007Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  (1,517
                  )
                  
                  $
                  14,115Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Provision
      for doubtful accounts
                  
                  
                  229
                  
                  
                  
                  272Provision
      for inventory reserve
                  
                  
                  433
                  
                  
                  
                  20Property
      and equipment impairment
                  
                  
                  4,410
                  
                  
                  
                  —Provision
      for land use rights impairment
                  
                  
                  390
                  
                  
                  
                  —Impairment
      of goodwill
                  
                  
                  125
                  
                  
                  
                  —Depreciation
      and amortization of land use rights
                  
                  
                  1,955
                  
                  
                  
                  1,889Loss
      on sale of machinery and equipment
                  
                  
                  12
                  
                  
                  
                  20Gain
      on fair value adjustments to embedded derivatives
                  
                  
                  (2,047
                  )
                  
                  
                  (8,412
                  )Minority
      interests
                  
                  
                  (183
                  )
                  
                  
                  —Stock-based
      compensation expense
                  
                  
                  —
                  
                  
                  
                  —Non-cash
      service payment
                  
                  
                  —
                  
                  
                  
                  269Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  700
                  
                  
                  
                  (660
                  )Deposits
      and prepayments
                  
                  
                  (1
                  )
                  
                  
                  (5,597
                  )Inventories
                  
                  
                  (3,695
                  )
                  
                  
                  (10,472
                  )Due
      from related companies
                  
                  
                  (2
                  )
                  
                  
                  (20
                  )Accounts
      payable
                  
                  
                  1,665
                  
                  
                  
                  259Other
      payables and accruals
                  
                  
                  882
                  
                  
                  
                  (494
                  )Taxes
      payable
                  
                  
                  (3,256
                  )
                  
                  
                  77Due
      to related companies
                  
                  
                  (36
                  )
                  
                  
                  —Net
      cash provided by (used in) operating activities
                  
                  
                  64
                  
                  
                  
                  (8,734
                  )Cash
      flows from investing activities:Proceeds
      from sale of property, machinery and equipment
                  
                  
                  3
                  
                  
                  
                  49Purchases
      of property, machinery and equipment
                  
                  
                  (1,172
                  )
                  
                  
                  (1,603
                  )Net
      cash used in investing activities
                  
                  
                  (1,169
                  )
                  
                  
                  (1,554
                  )Cash
      flows from financing activities:Preferred
      Stock Dividends
                  
                  
                  (84
                  )
                  
                  
                  (49
                  )Borrowings
      from shareholder
                  
                  
                  1,189
                  
                  
                  
                  1,088Repayment
      to joint venture partners
                  
                  
                  444
                  
                  
                  
                  170Proceeds
      from exercise of stock options
                  
                  
                  —
                  
                  
                  
                  —Net
      cash provided by financing activities
                  
                  
                  1,549
                  
                  
                  
                  1,209Impact
      of foreign currency translation on cash
                  
                  
                  293
                  
                  
                  
                  2,449Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  737
                  
                  
                  
                  (6,630
                  )Cash
      and cash equivalents at the beginning of the period
                  
                  
                  3,646
                  
                  
                  
                  10,276Cash
      and cash equivalents at the end of the period
                  
                  $
                  4,383
                  
                  
                  $
                  3,646Non-cash
      Investing and Financing ActivitiesConversion
      of preferred stock to common stock
                  
                  $
                  1,947
                  
                  
                  $
                  624Dividend
      payments on preferred stock in form of common stock
                  
                  $
                  593
                  
                  
                  $
                  678Supplemental
      disclosure of cash flows information:Income
      taxes paid
                  
                  $
                  3,106
                  
                  
                  $
                  1,274





The
accompanying notes are an integral part of these consolidated financial
statements.


F-7





NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1. ORGANIZATION AND NATURE OF OPERATIONS





New
Dragon Asia Corporation, a corporation incorporated in the State of Florida, is
principally engaged in the milling, sale and distribution of flour and related
products, including instant noodles and soybean-derived products, to retail and
wholesale customers throughout China through its foreign subsidiaries in China
(collectively the “Company”). The Company is headquartered in Shandong Province,
the People’s Republic of China (“PRC”) and has its corporate office in Shenzhen,
and eight manufacturing plants in Yantai, Beijing, Penglai and
Chengdu.





Details
of the subsidiaries are as follows:





Name
                  
                  Domicile and date of
                    incorporation
                  
                  Paid-in capital
                  
                  Percentage of
                    ownership
                  
                  Principal activitiesMix
      Creation Limited (“MC”)
                  
                  The
      British Virgin Islands
                    November
      7, 1997
                  
                  US$1,500,000
                  
                  100
                  %
                  Investment
      holdingRich
      Delta Limited  (“RD”)
                  
                  The
      British Virgin Islands
                    October
      28, 1998
                  
                  US$1,000,000
                  
                  100
                  %
                  Investment
      holdingHero
      Treasure Limited (“HT”)
                  
                  The
      British Virgin Islands
                    April
      19, 2004
                  
                  US$1
                  
                  100
                  %
                  Investment
      holdingKeen
      General Limited
                    (“KG”)
                  
                  The
      British Virgin Islands
                    July
      20, 1998
                  
                  US$1,500,000
                  
                  100
                  %
                  Investment
      holdingDelta
      Link Limited
                    (“DL”)
                  
                  The
      British Virgin Islands
                    October
      29, 1998
                  
                  US$1
                  
                  100
                  %
                  Investment
      holdingNew
      Dragon Asia Flour (Yantai) Company Limited (“NDAFLY”)
                  
                  The
      PRC
                    August
      13, 1999
                  
                  RMB28,500,000
                  
                  90
                  % (a)
                  Manufacture,
      marketing and distribution of flourNew
      Dragon Asia Food (Yantai) Company Limited (“NDAFY”)
                  
                  The
      PRC
                    December
      24, 1998
                  
                  RMB17,462,000
                  
                  90
                  %
      (b)
                  Manufacture,
      marketing and distribution of instant noodlesNew
      Dragon Asia Food (Sanhe) Company Limited (“NDAFS”)
                  
                  The
      PRC
                    December
      25, 1998
                  
                  RMB51,191,432
                  
                  79.64
                  %
      (b)
                  Manufacture,
      marketing and distribution of instant noodlesPenglai
      New Dragon Jin Qiao Food Company Limited (“PNDJQ”)
                  
                  The
      PRC
                    December
      5, 2003
                  
                  US$850,000
                  
                  100
                  %
                  Manufacture,
      marketing and distribution of flourNew
      Dragon Asia (Longkou) Packing Materials Company Limited
      (“NDALPM”)
                  
                  The
      PRC
                    January
      10, 2006
                  
                  US$3,600,000
                  
                  100
                  %
                  Manufacture
      and sale of packing materialsNew
      Dragon Asia (LongKou) Food Company Limited (“NDALS”)
                  
                  The
      PRC
                    March
      17, 2005
                  
                  RMB16,996,980
                  
                  100
                  %
                  Manufacture,
      marketing and distribution of soybean productsShandong
      Xinlongya Industry and Trade Company Limited (“SXDC”)
                  
                  The
      PRC
                    September
      27, 2005
                  
                  US$404,400
                  
                  100
                  %
                  Marketing
      and distribution of instant noodles, flour and soybean
      productsNew
      Dragon Asia Food (Chengdu) Company Limited (“NDAFC)
                  
                  The
      PRC
                    February
      24, 2006
                  
                  RMB17,430,000
                  
                  90
                  %
                  Manufacture,
      marketing and distribution of instant
noodles


F-8





(a)
NDAFLY is a contractual joint venture established in the PRC to be operated for
50 years until August 13, 2049. In September 2000, MC contributed 90% of the
registered capital to NDAFLY. Under the joint venture agreement dated June 1,
1999 and the supplemental agreement dated June 26, 1999, the Chinese joint
venture partner is entitled to receive a pre-determined annual fee and is not
responsible for any profit or loss of NDAFLY effective from June 26, 1999. In
view of the profit sharing arrangement, NDAFLY is regarded as 100% owned by the
Company. The annual fee has been charged to General and Administrative Expenses
for the years ended December 25, 2008 and 2007.





(b) NDAFY
and NDAFS are contractual joint ventures established in the PRC to be operated
for 50 years until December 24, 2048. In March 1999, RD contributed 90% of the
registered capital to NDAFY, while KG contributed 79.64% of the registered
capital to NDAFS. Under the joint venture agreements dated November 28, 1998 and
the supplemental agreement dated December 26, 1998, the PRC joint venture
partner is entitled to receive a pre-determined annual fee and is not
responsible for any profit or loss of NDAFY and NDAFS effective from December
26, 1998. In view of the profit sharing arrangements, NDAFY and NDAFS are
regarded as 100% owned by the Company. The annual fees have been charged to
General and Administrative Expenses for the years ended December 25, 2008 and
2007.





NOTE
2. BASIS OF PRESENTATION





The
consolidated financial statements include the financial statements of New Dragon
Asia Corp. and all of its wholly and majority owned subsidiaries (Note
1).  Intercompany balances and transactions have been eliminated in
consolidation.





FIN 46,
“Consolidation of Variable Interest Entities” requires an investor with a
majority of the variable interests (primary beneficiary) in a variable interest
entity (“VIE”) to consolidate the entity.  A VIE is an entity in which
the voting equity investors do not have a controlling financial interest or the
equity investment at risk is insufficient to finance the entity’s activities
without receiving additional subordinated financial support from the other
parties. VIEs are required to be consolidated by their primary beneficiaries if
they do not effectively disperse risks among the parties
involved.  The primary beneficiary of a VIE is the party that absorbs
a majority of the entity’s expected losses or receives a majority of its
expected residual returns.  The Company has completed a review of its
investments in both non-marketable and marketable equity interests as well as
other arrangements to determine whether it is the primarily beneficiary of any
VIEs.  The review did not identify any VIEs.





The
consolidated financial statements were prepared in accordance with U.S.
GAAP.  The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  The
Company regularly evaluates estimates and assumptions related to allowances for
doubtful accounts, sales returns and allowance, and inventory reserves. Although
management believes these estimates and assumptions are adequate and reasonable
under the circumstances, actual results could differ from those
estimates.  U.S. GAAP differs from that used in the statutory
financial statements of the major operating subsidiaries of the Company, which
were prepared in accordance with the relevant accounting principles and
financial reporting regulations in the PRC.  Certain accounting
principles stipulated under U.S. GAAP are not applicable in the
PRC.





NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue
recognition





The
Company recognizes sales in accordance with the United States Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition.”  The Company recognizes revenue when the following
fundamental criteria are met:  (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services have been rendered,
(iii) the price to the customer is fixed or determinable and (iv) collection of
the resulting receivable is reasonably assured.  Revenue is not
recognized until title and risk of loss is transferred to the customer, which
occurs upon delivery of goods, and objective evidence exists that customer
acceptance provisions have been met.  Provisions for discounts and
returns are provided for at the time the related sales are recorded, and are
reflected as a reduction of sales. The Company bases its estimates on historical
experience taking into consideration the type of products sold, the type of
customer, and the type of specific transaction in each
arrangement.  Revenues represent the invoiced value of goods, net of
value added tax (“VAT”).


F-9





The
Company does not offer promotional payments, customer coupons, rebates or other
cash redemption offers to its customers.





All of
the Company’s sales made in Mainland China are subject to the Mainland Chinese
value-added tax at rates ranging from 13% to 17% (“output VAT”).  Such
output VAT is payable after offsetting VAT paid by the Company on purchases
(“input VAT”).





Deposits
or advance payments from customers prior to delivery of goods and passage of
title of goods are recorded as deposits from customers.





Shipping
and Handling Costs





Shipping
and handling costs are included in selling expenses for all periods presented.
For the year ended December 25, 2008 and 2007, shipping and handling costs were
all related to exports of noodle and included in selling expenses amounting to
$0.35 million and $0.94 million.





Cash
and cash equivalents





The
Company considers cash on hand, deposits in banks, and short-term investments
purchased with an original maturity date of three months or less to be cash and
cash equivalents.





Accounting
for Derivative Instruments





Statement
of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, requires all derivatives to be
recorded on the Company’s balance sheet at fair value. These derivatives,
including embedded derivatives in the Company’s Series A and B Redeemable
Convertible Preferred Stock, are separately valued and accounted for on the
Company’s balance sheet.





The
pricing models the Company uses for determining fair values of its derivatives
are a combination of the Black-Scholes and Binomial Pricing Models. Valuations
derived from this model are subject to ongoing internal and external review. The
model uses market-sourced inputs such as interest rates and option volatilities.
Selection of these inputs involves management's judgment and may impact net
earnings. The Company has obtained a valuation report from a valuation firm to
support its estimates.





In
September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to and Potentially
Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
contracts that are settled in a company's own stock, including common stock
warrants, to be designated as an equity instrument, asset or a liability. Under
the provisions of EITF 00-19, a contract designated as an asset or a liability
must be carried at fair value on a company's balance sheet, with any changes in
fair value recorded in the company's results of operations. A contract
designated as an equity instrument must be included within equity, and no fair
value adjustments are required. In accordance with EITF 00-19, in August 2006,
we determined that several of the outstanding warrants to purchase our common
stock and the embedded conversion feature of our financial instruments, should
be separately accounted for as liabilities. On our financial statements for the
year ended December 25, 2008 and 2007, we have recorded the fair value of these
warrants and conversion features on our balance sheet and record unrealized
changes in the values of these derivatives in our consolidated statement of
operations as “Gain (loss) on fair value adjustments to embedded
derivatives.”





We have
determined that the conversion features of our redeemable convertible preferred
stock and warrants to purchase our common stock are derivatives that we are
required to account for as if they were free-standing instruments under GAAP. We
have also determined that we are required to designate these derivatives as
liabilities in our financial statements. As a result, we report the value of
these embedded derivatives as current liabilities on our balance sheet and we
report changes in the value of these derivatives as non-operating gains or
losses on our statements of operations. The value of the derivatives is required
to be recalculated (and resulting non-operating gains or losses reflected in our
statement of operations and resulting adjustments to the associated liability
amounts reflected on our balance sheet) on a quarterly basis, and is based on
the market value of our common stock. Due to the nature of the required
calculations and the large number of shares of our common stock involved in such
calculations, changes in our common stock price may result in significant
changes in the value of the derivatives and resulting gains and losses on our
statements of operations.  Our common stock price ranged from a low of
$0.26 to a high $1.09 during last six months of 2008. We were required to
report a change of $2,047 as a gain on the embedded derivative liability in
other income on our statement of operations for the year ended December 25, 2008
and a gain of $8,427 for 2007.


F-10





Fair
Value of Financial Instruments





The
Company partially adopted SFAS 157 on January 1, 2008, delaying application
for non-financial assets and non-financial liabilities as permitted. This
statement establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.  SFAS 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three levels as follows:





Level
      1 -
              quoted
      prices (unadjusted) in active markets for identical asset or
      liabilities that the Company has the ability to access as of the
      measurement date. Financial assets and liabilities utilizing Level 1
      inputs include active exchange-traded securities and exchange-based
      derivatives.


Level
      2 -
              inputs
      other than quoted prices included within Level 1 that are directly
      observable for the asset or liability or indirectly observable through
      corroboration with observable market data. Financial assets and
      liabilities utilizing Level 2 inputs include fixed income securities,
      non-exchange-based derivatives, mutual funds, and fair-value
      hedges.


Level
      3 -
            unobservable
      inputs for the asset or liability only used when there is little, if any,
      market activity for the asset or liability at the measurement date.
      Financial assets and liabilities utilizing Level 3 inputs include
      infrequently-traded, non-exchange-based derivatives and commingled
      investment funds, and are measured using present value pricing
      models.





In
accordance with SFAS 157, the Company determines the level in the fair value
hierarchy within which each fair value measurement in its entirety falls, based
on the lowest level input that is significant to the fair value measurement in
its entirety.


The
following table presents the embedded derivative, the Company only financial
assets measured and recorded at fair value on the Company’s Consolidated Balance
Sheets on a recurring basis and their level within the fair value hierarchy
during the period ended December 25, 2008:





(In thousands)
                    
                    Fair ValueAs of December 25,2008
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    TotalEmbedded
      derivative liabilities
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    287
                    
                    
                    $
                    287





Financial
instruments





The
carrying amounts for cash and cash equivalents, accounts receivable, deposits
and prepayments, accounts payable, shareholder and joint venture partner debts,
and other payables and accruals approximate their fair values because of their
nature and respective duration.





Accounts
receivable





Accounts
receivable is stated at cost, net of an allowance for doubtful accounts. The
Company provides for an allowance for doubtful accounts for those third party
trade accounts that are not collected within one year.





Financial
instruments, which potentially subject the Company to concentration of credit
risk, consist primarily of trade receivables. However, concentrations of credit
risk are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across different businesses and geographic
areas. The Company monitors its exposure to credit losses and maintains an
allowance for anticipated losses. Such losses historically have not been
significant and have been within management’s expectations. To reduce credit
risk, the Company performs periodic credit valuations of its
customers.





Inventories





Inventories
are stated at the lower of cost, determined on a weighted average basis, or net
realizable value. Costs of work-in-progress and finished goods are composed of
direct material, direct labor and an attributable portion of manufacturing
overhead. Net realizable value is the estimated selling price, in the ordinary
course of business, less estimated costs to complete and dispose. The Company
has provided an inventory reserve.


F-11





Property,
machinery and equipment





Property,
machinery and equipment are stated at cost, less accumulated depreciation and
amortization.  Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the related assets that
range from 5 to 50 years.  Leasehold improvements are amortized using
the straight-line method over the estimated useful life of the asset or the term
of the lease, whichever is shorter.  Costs for normal repairs and
maintenance are expensed to operations as incurred, while renewals and major
refurbishments are capitalized.





The
Company accounts for long-lived assets, such as property, machinery and
equipment and purchased intangible assets with finite lives, in accordance with
SFAS No. 144, “Accounting for the impairment or Disposal of Long-Lived Assets”
(“SFAS 144”), which requires impairment losses to be recorded on long-lived
assets used in operations when indications of impairment are present.
Determination of recoverability is based on an estimate of undiscounted future
cash follows resulting from the use of the asset and its eventual disposition.
Measurement of any impairment loss for long-lived assets that management expects
to hold and use is based on the amount the carrying value exceeds the fair value
of the assets.





Assessments
of whether there has been a permanent impairment in the value of property,
machinery and equipment are periodically performed by considering factors such
as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other economic factors.  The
Company has made adequate provision for the impairment occurred as of December
25, 2008.





Land
use rights





Land use
rights are stated at cost, less accumulated amortization. Amortization is
computed using the straight-line method over the contractual lives ranging from
27 to 50 years.





Goodwill and other intangible assets
impairment





In
accordance with SFAS No.142, “Goodwill and Other Intangible Assets,” intangible
assets with finite lives are subject to amortization, and impairment reviews are
performed in accordance with SFAS No.144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”





In
addition, under these standards, goodwill is not amortized, but rather is
subject to an annual impairment test. The carrying value of the Company’s
goodwill is evaluated annually. The valuation is based on the comparison of an
entity’s discounted cash flow (equity valuation) or fair market value to its
carrying value. If the carrying value exceeds the equity valuation, the goodwill
is deemed impaired. The equity valuation is based on historical data and
management estimates of future cash flow. Since the estimates are forward
looking, actual results could differ materially from those used in the valuation
process. At December 25, 2008 the Company had reversed the goodwill in full
amount due to the impairment.





Income
taxes





The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes”. Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts and each
year-end based on enacted tax laws and statutory rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized when, in management’s opinion; it is more likely than not that
some portion of the deferred tax assets will not be realized. The provision for
income taxes represents current taxes payable net of the change during the
period in deferred tax assets and liabilities. The Company adopted FIN 48,
Accounting for Uncertainty in Tax Positions, effective December 26, 2007. The
adoption of FIN48 did not have a material impact on our consolidated financial
statements.





Operating
leases





Operating
leases represent those leases under which substantially all the risks and
rewards of ownership of the leased assets remain with the lessors. Rental
payments under operating leases are charged to expense on the straight-line
basis over the period of the leases.





Comprehensive
Income





SFAS
No.130, “Reporting Comprehensive Income,” establishes standards for reporting
and displaying comprehensive income and its components in the consolidated
financial statements. Accumulated other comprehensive income (loss) includes
foreign currency translation adjustments.


F-12





Foreign
currency translation





The
functional currency of the Company is the Chinese Renminbi. However, the Company
reports in U.S. dollars.  The financial statements of the Company’s
foreign subsidiaries have been translated into U.S. dollars in accordance with
SFAS No. 52, “Foreign Currency Translation”. All asset and liability accounts
have been translated using the exchange rate in effect at the balance sheet
date.  Equity accounts have been translated at their historical
exchange rates when the capital transaction occurred. Statements of Operations
amounts have been translated using the average exchange rate for the year. At
December 25, 2008, the revenues and expenses of the Company were translated to
U.S. dollars based on an average rate of US$1.00 = RMB 6.9562 and the assets and
liabilities of the Company maintained in Renminbi translated to U.S. dollars at
US$1.00 = RMB 6.8366. The foreign currency translation adjustment of $13,310 and
$7,767 have been reported as comprehensive income in the consolidated statement
of stockholders’ equity and comprehensive income for 2008 and 2007.





Although
the Chinese government regulations now allow convertibility of RMB for current
account transactions, significant restrictions still remain.  Hence,
such translations should not be construed as representations that RMB could be
converted into U.S. dollars at that rate or any other rate.





Substantially
all our revenue and expenses are denominated in RMB.  Our RMB cash
inflows are sufficient to service our RMB obligations.  For financial
reporting purposes, we use U.S. dollars.  The value of RMB against
U.S. dollars and other currencies may fluctuate and is affected by, among other
things, changes in China’s political and economic conditions.  Any
significant revaluation of RMB may materially affect our financial condition in
terms of U.S. dollar reporting.





Earnings
per share





The
Company computes earnings per share (“EPS’) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS
No. 128 requires companies with complex capital structures to present basic
and diluted EPS.  Basic EPS is measured as the income or loss available to
common shareholders divided by the weighted average common shares outstanding
for the period.  Diluted EPS is similar to basic EPS but presents the
dilutive effect on a per share basis of potential common shares (e.g.,
convertible securities, options and warrants) as if they had been converted at
the beginning of the periods presented, or issuance date, if later. 
Potential common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from the
calculation of diluted EPS. Approximately 29,667 dilutive shares on an “as
converted” basis for the Redeemable Convertible Preferred stock for the year
ended December 25, 2008 were excluded from the calculation of diluted earnings
per share since their effect would have been
anti-dilutive.  Approximately 6,447 dilutive shares on an “as
converted” basis for the Redeemable Convertible Preferred stock for the year
ended December 25, 2007 were excluded from the calculation of diluted earnings
per share since their effect would have been anti-dilutive.





The
calculation of diluted weighted average common shares outstanding for the year
ended December 25, 2008 and 2007 is based on the average of the closing price of
the Company’s common stock during such periods applied to warrants and options
using the treasury stock method to determine if they are dilutive. The
Redeemable Convertible Preferred stock is included on an “as converted “basis
when these shares are dilutive.





The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted earnings per share for the periods presented
(amounts in thousands, except per share data):




Year Ended December 25,2008
                              
                              
                              2007Weighted
                              
                              
                              
                              
                              
                              
                              
                              
                              WeightedIncome
                              
                              
                              Average
                              
                              
                              
                              
                              
                              Income
                              
                              
                              Average(Loss)
                              
                              
                              Shares
                              
                              
                              Per-Share
                              
                              
                              (Loss)
                              
                              
                              Shares
                              
                              
                              Per-ShareEarnings
      per share – basicIncome
      available to common stockholders
                              
                              $
                              (3,247
                              )
                              
                              
                              58,262
                              
                              
                              $
                              (0.06
                              )
                              
                              $
                              11,900
                              
                              
                              
                              54,109
                              
                              
                              $
                              0.22Effect
      of dilutive securitiesRedeemable
      Convertible Preferred Stock
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —Options
      and Warrants
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              1,410Earnings
      per share – dilutedIncome
      available to common stockholders
                              
                              $
                              (3,247
                              )
                              
                              
                              58,262
                              
                              
                              $
                              (0.06
                              )
                              
                              $
                              11,900
                              
                              
                              
                              55,519
                              
                              
                              $
                              0.21


F-13





Stock-Based
Compensation





In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “Share-Based Payment,” which established standards for transactions in
which an entity exchanges its equity instruments for goods or services. This
standard requires a public entity to measure the cost of services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. The Company adopted the requirements of SFAS No.123R for the
fiscal year 2006. Because all stock options granted before December 25, 2004
were fully vested and exercised or expired, no compensation charges were
recorded in fiscal 2008 for these options. For stock options granted after
December 25, 2004, the Company used the Black-Scholes option-pricing model to
estimate the fair value of the options at the date of grant.





Recent
accounting pronouncements





In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an Amendment of FASB
No. 133,” (“SFAS 161”). SFAS 161 is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” (“SFAS 133”). SFAS 161 also
applies to non-derivative hedging instruments and all hedged items designated
and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. SFAS 161 encourages,
but does not require, comparative disclosures for periods prior to its initial
adoption. We will adopt SFAS 161 on December 26, 2008 and are currently
evaluating the potential impact on our financial statements when
implemented.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS 141(R)”). SFAS 141(R) requires us to continue to follow the guidance in
SFAS 141 for certain aspects of business combinations, with additional guidance
provided defining the acquirer, recognizing and measuring the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, assets and liabilities arising from contingencies, defining a bargain
purchase and recognizing and measuring goodwill or a gain from a bargain
purchase. In addition, under SFAS 141(R) adjustments associated with changes in
tax contingencies that occur after the one year measurement period are recorded
as adjustments to income. This statement is effective for all business
combinations for which the acquisition date is on or after the beginning of an
entity’s first fiscal year that begins after December 15, 2008; however,
the guidance in this standard regarding the treatment of income tax
contingencies is retrospective to business combinations completed prior to
December 26, 2008. We will adopt SFAS 141(R) for any business combinations
occurring at or subsequent to December 26, 2008.





In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends
the factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets
under FASB Statement No. 142, “Goodwill and Other Intangible
Assets”.  This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. FSP 142-3 is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2008.  Early adoption is prohibited.  We are currently
evaluating the impact, if any, that FSP 142-3 will have on our consolidated
financial statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” an Amendment of ARB No. 51,
“Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement is effective as of the beginning of an
entity’s first fiscal year that begins after December 15, 2008 with
retrospective application. We will adopt SFAS 160 beginning on December 26, 2008
and are currently evaluating the potential impact on our financial statements
when implemented.


F-14


Business
Acquisition and Combination





Longyuan
Packaging Plant





On
January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
Materials Company Limited (“NDAPM”), a wholly-owned subsidiary in Longkou,
Shandong Province. NDAPM is principally engaged in the manufacturing and sale of
packing materials, with a registered capital of $3.60 million. During the year
ended December 25, 2008, the Company has spent approximately $2.20 million on
the construction at the new plant and has committed to further capital
expenditures of $1.46 million for the completion of the plant, which is
scheduled to be completed in 2009.




NOTE
4. ACCOUNTS RECEIVABLE





Accounts
receivable consist of the following:





December 25,
                              2008
                            
                            December 25,
                              2007(In thousands)
                            
                            (In thousands)Accounts
      receivable
                            
                            $
                            10,072
                            
                            
                            $
                            10,167Less:
      Allowance for doubtful accounts
                            
                            
                            (1,184
                            )
                            
                            
                            (944
                            )$
                            8,888
                            
                            
                            $
                            9,223





The
activity in the Company’s allowance for doubtful accounts is summarized as
follows:





December 25,
                    2008
                  
                  
                  December 25,
                    2007(In thousands)
                  
                  
                  (In thousands)Balance
      at the beginning of the year
                  
                  $
                  944
                  
                  
                  $
                  719Add:
      provision during the year
                  
                  
                  308
                  
                  
                  
                  272Less:
      write-offs during the year
                  
                  
                  (68
                  )
                  
                  
                  (47
                  )Balance
      at the end of the year
                  
                  $
                  1,184
                  
                  
                  $
                  944





NOTE
5. DEPOSITS AND PREPAYMENTS





Deposits
and prepayments consist of the following:





December 25,
                            2008
                          
                          December 25,
                            2007(In thousands)
                          
                          (In thousands)Deposits
      for raw materials
                          
                          $
                          12,414
                          
                          
                          $
                          12,053Prepayments
      and advances
                          
                          
                          642
                          
                          
                          
                          130$
                          13,056
                          
                          
                          $
                          12,183





NOTE
6. INVENTORIES





Inventories
consist of the following:





December 25,
                    2008
                  
                  
                  December 25,
                    2007(In thousands)
                  
                  
                  (In thousands)Raw
      materials (including packing materials)
                  
                  $
                  26,047
                  
                  
                  $
                  20,403Finished
      goods
                  
                  
                  1,642
                  
                  
                  
                  1,74327,689
                  
                  
                  
                  22,146Less:
      Inventory reserve
                  
                  
                  (565
                  )
                  
                  
                  (96
                  )$
                  27,124
                  
                  
                  $
                  22,050





The
activity in the Company’s provision for inventory reserve is summarized as
follows:





December 25,
                      2008
                    
                    
                    December 25,
                      2007(In thousands)
                    
                    
                    (In thousands)Balance
      at the beginning of the year
                    
                    $
                    96
                    
                    
                    $
                    104Add:
      provision during the year
                    
                    
                    471
                    
                    
                    
                    20Less:
      write-offs during the year
                    
                    
                    (2
                    )
                    
                    
                    (28
                    )Balance
      at the end of the year
                    
                    $
                    565
                    
                    
                    $
                    96


F-15


NOTE
7. DUE FROM RELATED COMPANIES





Due from
related companies consist of the following:





December 25,
                    2008
                  
                  
                  December 25,
                    2007(In thousands)
                  
                  
                  (In thousands)Due
      from affiliated companies for sales
                  
                  $
                  981
                  
                  
                  $
                  913





NOTE
8. ASSET IMPAIRMENTS





During
the fourth quarter of 2008, the Company completed a review of its long-term
assets and based on economic factors and the estimated future uses of certain
properties, the Company provided the following impairment reserves.




December 25,
                                        2008(In thousands)Property
      and equipment impairment
                                      
                                      $
                                      4,410Provision
      for land use rights impairment
                                      
                                      
                                      452Impairment
      of goodwill
                                      
                                      
                                      125Total
                                      
                                      $
                                      4,987


This
impairment related to two plants Sanhe and Chengdu. The Sanhe Plant was idle at
December 25, 2008 and had not been in use since the prior year. The Company had
an offer to sell the property and accepted the offer on December 29, 2008 for a
total of $5.78 million. On March 10, 2009 proceeds of $4.39 million were
received with the balance being due on demand. The Company evaluated the net
book value of the property equipment and land use rights sold and determined
impairment had occurred. The Company also reviewed the value of the Chengdu
plant and determined an impairment had occurred in the value of the property and
related goodwill and provided for an impairment of goodwill and
buildings.  These impairment reserves were provided in accordance with
the Company’s accounting policies. Based on the Company’s analysis, no other
impairment provisions were required.





The
assets held for sale related to the Sanhe plant and is considered a current
asset based on the consummation of the sale.





In
addition to these fourth quarter adjustments, the Company accrued $ .9 million
for additional severance provision for the former employees of Longyuan Packing
Material Co Ltd. which ceased operations back in late 2006, where the PRC local
government recently notified the Company that additional severance benefits
needed to be provided for as a result of the new labor benefits regulations
effective on January 1, 2008.





NOTE
9. PROPERTY, MACHINERY AND EQUIPMENT





Property,
machinery and equipment consist of the following:





Useful Life
                      
                      
                      December 25,
                        2008
                      
                      
                      December 25,
                        2007(In years)
                      
                      
                      (In thousands)
                      
                      
                      (In thousands)Buildings
                      
                      40
                      
                      
                      $
                      9,379
                      
                      
                      $
                      13,839Machinery
      and equipment
                      
                      5-
      12
                      
                      
                      
                      16,298
                      
                      
                      
                      20,229Construction
      in process
                      
                      
                      
                      
                      
                      
                      2,216
                      
                      
                      
                      1,12427,893
                      
                      
                      
                      35,192Less:
      Accumulated depreciation and amortization
                      
                      
                      
                      
                      
                      
                      (7,754
                      )
                      
                      
                      (9,206
                      )$
                      20,139
                      
                      
                      $
                      25,986





Depreciation
and amortization expense was approximately $1,847, and $1,488 for the years
ended December 25, 2008 and 2007, respectively.


F-16





NOTE
10. LAND USE RIGHTS





Land use
rights consist of the following:




December 25,
              2008
            
            December 25,
              2007(In thousands)
            
            (In thousands)Land
      use rights
            
            $
            5,250
            
            
            $
            8,415Less:
      Accumulated amortization
            
            
            (721
            )
            
            
            (1,121
            )$
            4,529
            
            
            $
            7,294




Private
ownership of land is not allowed in Mainland China. Rather, entities acquire the
right to use land for a designated term. As of December 25, 2008 and 2007, the
land use rights consisted of six parcels of land located in Mainland China held
under land use rights of 27 to 50 years through 2025 to 2047.





Amortization
expense was approximately $335 and $222 for the years ended December 25, 2008
and 2007, respectively. Amortization expense in each of the next 5 years is
expected to be $400.





NOTE
11. OTHER PAYABLES AND ACCRUALS





Other
payables and accruals consist of the following:





December 25,
                    2008
                  
                  
                  December 25,
                    2007(In thousands)
                  
                  
                  (In thousands)Deposits
      from customers
                  
                  $
                  591
                  
                  
                  $
                  566Accruals
      for payroll, bonus and benefits
                  
                  
                  1,173
                  
                  
                  
                  294Utilities
      and accrued expenses
                  
                  
                  2,081
                  
                  
                  
                  1,905$
                  3,845
                  
                  
                  $
                  2,765





NOTE
12. TAXATION





The PRC
subsidiaries within the Company are subject to PRC income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
operate. The group companies that are incorporated under the International
Business Companies Act of the British Virgin Islands are exempt from payment of
the British Virgin Islands income tax.





For the
years ended December 25, 2008 and 2007, substantially all of the Company’s
income was generated in the PRC, which is subject to PRC income taxes at rates
of 24% to 25%. Two of the PRC subsidiaries of the Company are eligible to be
exempt from income taxes for a two-year period commencing with the year in which
their operations are profitable and then subject to a 50% reduction in income
taxes for the next three years, starting from their first profitable year.
Several PRC subsidiaries receive preferential tax rates in regions in which they
operated and are also entitled to partial tax refunds from those tax
bureaus.





As of
December 25, 2008 and 2007, there were no material deferred tax assets or
deferred tax liabilities.





A
reconciliation of the provision for income taxes determined at the statutory
average state and local income tax rate to the Company’s effective income tax
rate is as follows:





2008
                  
                  
                  2007Expected
      tax provision (benefit)
                  
                  
                  (25
                  )%
                  
                  
                  33
                  %Non
      deductible expenses:Impairment
      for fixed assets and intangible assets
                  
                  
                  245
                  %
                  
                  
                  —Change
      in fair value of derivatives
                  
                  
                  (102
                  )%
                  
                  
                  (17
                  )%Expenses
      outside of China
                  
                  
                  42
                  %
                  
                  
                  3
                  %Governmental
      tax rate effects:Reduction
      for preferential tax rate
                  
                  
                  (17
                  )%
                  
                  
                  (4
                  )%Impact
      of effective tax holiday and lower factory rates
                  
                  
                  97
                  %
                  
                  
                  (3
                  )%Effective
      tax rate
                  
                  
                  240
                  %
                  
                  
                  12
                  %


F-17





Accounting
for Uncertainty in Income Taxes





The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement 109,
“Accounting for Income Taxes”, and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.





Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation was
performed for the tax years ended December 31, 2008 and 2007, the tax years,
which remain subject to examination by major tax jurisdictions (PRC) as of
December 31, 2008.





We may
from time to time be assessed interest or penalties by major tax jurisdictions.
In the event we receive an assessment for interest and/or penalties, it will be
classified in the financial statements as tax expense.





NOTE
13. REDEEMABLE CONVERTIBLE PREFERRED STOCK





On July
11, 2005, the Company issued 6,000 shares of Series A 7% Redeemable Convertible
Preferred Stock (“Series A Preferred Stock”); initially convertible into an
aggregate of 6,315,789 shares of Class A Common Stock at a conversion price of
$0.95 per share, raising $6 million in gross proceeds. Six-year warrants to
purchase an aggregate of 3,157,895 shares of Class A Common Stock at an exercise
price of $1.04 per share were also issued to the investors. As part of the
compensation to the placement agent, five-year warrants to purchase an aggregate
of 378,947 shares of Class A Common Stock at an exercise price of $1.04 share
were also issued. As of December 25, 2008, all of the warrants issued to the
placement agent were exercised cashless and 5,068 shares of Series A Preferred
Stock were converted into 5,821,349 shares of Class A Common Stock.





On
December 22, 2005, the Company issued 9,500 shares of Series B 7% Redeemable
Convertible Preferred Stock (“Series B Preferred Stock”), initially convertible
into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion
price of $1.60 per share, raising $9.5 million in gross proceeds. Six-year
warrants to purchase an aggregate of 2,968,750 shares of Class A Common Stock at
an exercise price of $1.76 per share were also issued to the investors. As part
of the compensation to the placement agent, five-year warrants to purchase an
aggregate of 356,250 shares of Class A Common Stock at an exercise price of
$1.76 per share were also issued.  As of December 25, 2008, 3,390
shares of Series B Preferred Stock were converted into 4,935,355 shares of Class
A Common Stock, and no warrants were exercised.





The key
terms of the Series A Preferred Stock and Series B Preferred Stock are as
follows:





Series A Preferred Stock
                          
                          Series B Preferred StockPreferred
      Dividend
                          
                          7%
      per annum, payable quarterly in arrears in cash or, at the Company’s
      option subject to satisfaction of certain conditions, shares of Class A
      Common Stock valued at 95% of the volume-weighted current market
      price.
                          
                          7%
      per annum, payable quarterly in arrears in cash or, at the Company’s
      option subject to satisfaction of certain conditions, shares of Class A
      Common Stock valued at 95% of the volume-weighted current market
      price.Redemption
                          
                          July
      11, 2010
                            
                            Beginning
      on the 24th month following closing and each month thereafter, the Company
      shall redeem 1/37th of the face value of the Preferred Stock in either
      cash or Class A Common Stock valued at 90% of the volume-weighted current
      market price.
                          
                          December
      22, 2010
                            
                            Beginning
      at the end of the 24th month following closing and on each third monthly
      anniversary of that date (quarterly) thereafter, the Company shall redeem
      1/13th of the face value of the Preferred Stock in either cash or Class A
      Common Stock valued at 90% of the volume-weighted current market
      price.


F-18





Mandatory
      Conversion
                    
                    The
      Company may at any time force the conversion of the Preferred Stock if the
      volume-weighted current market price of the Class A Common Stock exceeds
      300% of the then applicable conversion price.
                    
                    The
      Company may at any time force the conversion of the Preferred Stock if the
      volume-weighted current market price of the Class A Common Stock exceeds
      200% of its price at issuance of the Preferred Stock.Registration
                    
                    The
      Company shall file to register the underlying Class A common shares within
      30 days of the closing date and make its best efforts to have the
      Registration declared effective at the earliest date.  In the
      event such Registration is not continuously effective during the period
      such shares are subject to transfer restrictions under the U.S. federal
      securities laws, then (subject to certain exceptions) the holders are
      entitled to receive liquidated damages equal to 2.0% of the purchase price
      of the Preferred Stock per month.
                    
                    The
      Company shall file to register the underlying Class A common shares with
      30 days of the closing date and make its best efforts to have the
      Registration declared effective at the earliest date.  In the
      event such Registration is not continuously effective during the period
      such shares are subject to transfer restrictions under the U.S. federal
      securities laws, then (subject to certain exceptions) the holders are
      entitled to receive liquidated damages equal to 2.0% of the purchase price
      of the Preferred Stock per month.Anti-dilution
                    
                    In
      the event the Company issues, at any time while Preferred Stock are still
      outstanding, Common Stock or any type of securities giving rights to
      Common Stock at a price below the Issue Price, the Company agrees to
      extend full-ratchet anti-dilution protection to the
    investors.
                    
                    In
      the event the Company issues, at any time while Preferred Stock are still
      outstanding, Common Stock or any type of securities giving rights to
      Common Stock at a price below the Issue Price, the Company agrees to
      extend full-ratchet anti-dilution protection to the
    investors.





In
connection with the issuance of the Redeemable Convertible Series A Preferred
Stock and Series B Preferred Stock, the Company paid professional fees,
placement agent fees and associated expenses amounting to $1.83 million since
the issuance of the Redeemable Convertible Preferred Stocks. The Company also
identified freestanding financial instruments included in the issuances that
were required to be recorded as liabilities. These included the embedded
conversion feature and warrants included in the Series A & B Preferred Stock
issuances. The Company has evaluated the fair value of these liabilities using
combination of the Black Scholes and Binomial Pricing Models. The summary of
activity in the Series A & B Preferred Stock is as follows:





Redeemable Convertible Preferred Stock
                        
                        Preferred shares
                        
                        
                        Balance2007
                        
                        
                        
                        
                        (in
      thousand)Series
      A
                        
                        
                        1,384
                        
                        
                        $
                        1,384Series
      B
                        
                        
                        8,050
                        
                        
                        
                        8,050Less
      unamortized discount
                        
                        
                        
                        
                        
                        
                        (4,113
                        )Balance  December
      25, 2007
                        
                        
                        9,434
                        
                        
                        
                        5,3212008Series
      A
                        
                        
                        931
                        
                        
                        $
                        931Series
      B
                        
                        
                        5,570
                        
                        
                        
                        5,570Less
      unamortized discount
                        
                        
                        
                        
                        
                        
                        (1,856
                        )Balance  December
      25, 2008
                        
                        
                        6,501
                        
                        
                        $
                        4,645





Embedded
Derivatives relate to redeemable convertible preferred stock. We determined that
the conversion features of our redeemable convertible preferred stock and
warrants to purchase our common stock are derivatives that we are required to
account for as freestanding instruments under GAAP. We have also determined that
we are required to designate these derivatives as liabilities in our financial
statements. As a result, we report the value of these embedded derivatives as
current liabilities on our balance sheet and we report changes in the value of
these derivatives as non-operating gains or losses on our statement of
operations. The value of the derivatives is required to be recalculated (and
resulting non-operating gains or losses reflected in our statement of operations
and resulting adjustments to the associated liability amounts reflected on our
balance sheet) on a quarterly basis, and is based on the market value of our
common stock. Due to the nature of the required calculations and the large
number of shares of our common stock involved in such calculations, changes in
our common stock price may result in significant changes in the value of the
derivatives and resulting gains and losses on our statements of operations. Our
common stock price ranged from a low of $0.26 to a high $1.09 during last six
months of 2008. We were required to report a change of $2,047 as gain on
the embedded derivative liability in other income on our statement of operations
for the year ended December 25, 2008 and a change of $8,412 as gain for
2007.


F-19





The
pricing model we use for determining fair values of our derivatives is a
combination of the Black Scholes and Binomial Pricing Models. Valuations derived
from this model are subject to ongoing internal and external review. The model
uses market-sourced inputs such as interest rates, and option volatilities.
Selection of these inputs involves management's judgment and may impact net
income. The Company has obtained a valuation report from a third-party valuation
firm to support its estimates. The principal assumptions used to value these
complex freestanding financial instruments were as follows:





Warrants
                  
                  Embedded Conversion FeatureExpected life (in years)
                  
                  Remaining term at valuation
                    date
                  
                  Remaining Term to conversion or
                    redemption date at each valuation dateExpected
      volatility
                  
                  50%
                  
                  50%Risk-free
      interest rate
                  
                  1.00%
      to 1.15%
                  
                  0.07%
      to 0.85%Dividend
      yield
                  
                  0
                  
                  0





The
Company considered all of the other minor features of the conversion option
associated with the Company’s Preferred shares, including adjustments for: (i)
stock dividends and splits, (ii) the sale of the Company’s securities, (iii) the
subsequent issuance of rights, options, or warrants to Common shareholders, and
(iv) forced conversion and redemption features. We ultimately determined that
these features were insignificant and did not have a material impact on the
concluded values of the Series A and Series B Preferred Stock.





The
changes in the derivative liabilities during the period are as
follows:





Fair
      Value at December 25, 2006
                  
                  $
                  11,138Gain
      on change in value of derivatives during the period
                  
                  
                  (8,412
                  )Conversion
      of 728 shares of Series A & B Preferred Stock to common stock during
      2007
                  
                  
                  (233
                  )Fair
      Value at December 25, 2007
                  
                  $
                  2,493Gain
      on change in value of derivatives during the period
                  
                  
                  (2,047
                  )Conversion
      of 3,685 shares of Series A & B Preferred Stock to common stock during
      2008
                  
                  
                  (159
                  )Fair
      Value at December 25, 2008
                  
                  $
                  287





NOTE
14. COMMON STOCK





On
September 4, 2003, the Company issued 3,300,000 shares of Class A Common Stock
for an aggregate purchase amount of $1,650,000 or $0.5 per share. The shares
were issued pursuant to an exemption provided by Section 4(2) of the Securities
Act. The purchasers were also issued warrants to purchase 1,650,000 shares of
the Company’s Class A Common Stock, which have a term of 5 years at an exercise
price of $0.99 per share. As of December 25, 2008, all such warrants had been
exercised.





On
October 7, 2003, the Company issued 850,000 shares of Class A Common Stock for
an aggregate purchase amount of $425,000 or $0.50 per share. The shares were
issued pursuant to an exemption provided by Section 4(2) of the Securities Act.
The purchasers were also issued warrants to purchase 425,000 shares of the
Company’s Class A Common Stock, which have a term of 5 years and an exercise
price of $0.979 per share. As of December 25, 2008, warrants to purchase 400,000
shares of Class A Common Shares had been exercised and the outstanding warrants
to purchase 25,000 shares of Class A Common Shares had expired.





NOTE
15. WARRANTS





The
following table summarizes activity regarding the Company’s outstanding
warrants:





Shares
                    
                    
                    Weighted Average Exercise PriceOutstanding
      at December 25, 2007
                    
                    
                    6,507,895
                    
                    
                    
                    1.4077Issued
                    
                    
                    —
                    
                    
                    
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    —Expired
                    
                    
                    25,000
                    
                    
                    
                    0.979Outstanding
      at December 25, 2008
                    
                    
                    6,482,895
                    
                    
                    
                    1.4093


F-20





The
number of shares of Class A Common Stock issuable under warrants related to the
private placements and respective exercise prices are summarized as
follows:





Shares of Class A Common Stock
                    Issuable Under Warrants
                  
                  
                  Exercise
                    PriceJuly
      2005 private placement6-year
      warrants
                  
                  
                  3,157,895
                  
                  
                  $
                  1.04December
      2005 private placement6-year
      warrants
                  
                  
                  2,968,750
                  
                  
                  
                  1.765-year
      warrants
                  
                  
                  356,250
                  
                  
                  
                  1.76Warrants
      exercisable at December 25, 2008
                  
                  
                  6,482,895





As of
December 25, 2008,these warrants had no intrinsic value.





NOTE
16. STOCK-BASED COMPENSATION





In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “Share-Based Payment,” which established standards for transactions in
which an entity exchanges its equity instruments for goods or services. This
standard requires a public entity to measure the cost of services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. The Company adopted the requirements of SFAS No.123R for the
fiscal year 2006. Because all stock options granted before December 25, 2004
were fully vested and exercised or expired, no compensation charges were
recorded in fiscal 2008 for these options. For stock options granted after
December 25, 2004, the Company used the Black-Scholes option-pricing model to
estimate the fair value of the options at the date of grant.





In
November 2004, options to purchase 400,000 shares of Class A Common Stock were
issued to an officer at an exercise price of $1.00 per share with a term of 10
years. The market price of the Class A Common Stock as of the grant date was
$0.64 per share. As of December 25, 2008, all of these options had been
exercised.





On June
22, 2005, options to purchase an additional 600,000 shares of Class A Common
Stock were issued to the same officer at an exercise price of $1.20 per share
with a term of 10 years. The market price of the Class A Common Stock as of the
grant date was $1.00 per share. As of December 25, 2008, all of these options
had been exercised.





On
January 20, 2006, options to purchase an additional 2,000,000 shares of Class A
Common Stock were issued to the same officer at an exercise price of $1.60 per
share with a term of 6 years. The market price of the Class A Common Stock as of
the grant date was $1.54 per share. As of December 25, 2008, none of these
options had been exercised. The Company recorded compensation expense of
$2,320,000 based on an estimated fair value of the options of $1.16 per share on
January 20, 2006. The per share fair value of the stock options granted has been
estimated using the Black-Scholes option-pricing model with the following
assumptions:




January 20, 2006Life
      (years)
                      
                      
                      6Dividend
      yield
                      
                      NoneRisk
      - free interest rate
                      
                      
                      4.36
                      %Volatility
                      
                      
                      89
                      %




On
December 13, 2006, options to purchase an additional 6,000,000 shares of Class A
Common Stock were granted to the same officer at an exercise price of $1.82 per
share with a term of 10 years. The options were fully vested upon grant. The
market price of the Class A Common Stock as of the grant date was $1.82 per
share. As of December 25, 2008, these options were fully vested but not
exercisable. The Company recorded compensation expense of $5,820,000 based on an
estimated fair value of the options of $0.97 per share on December 13, 2006, the
grant date. The per share fair value of the stock options granted has been
estimated using the Black-Scholes option-pricing model with the following
assumptions:




F-21




December 13, 2006Life
      (years)
                    
                    
                    6Dividend
      yield
                    
                    NoneRisk
      - free interest rate
                    
                    
                    4.55
                    %Volatility
                    
                    
                    50
                    %




The
following table summarizes outstanding options as at December 25, 2008, related
weighted average fair value and life information:





Options Outstanding
                  
                  
                  Options ExercisableRange of
                    Exercise
                    Price Per Share
                  
                  Number Outstanding
                    at December 25,
                    2008
                  
                  
                  Weighted
                    Average
                    Fair Value
                  
                  
                  Weighted Average
                    Remaining Life
                    (Years)
                  
                  
                  Number Exercisable
                    at December 25,
                    2008
                  
                  
                  Weighted Average
                    Exercise Price$
      1.60-1.82
                  
                  
                  8,000,000
                  
                  
                  $
                  1.02
                  
                  
                  
                  6.67
                  
                  
                  
                  8,000,000
                  
                  
                  $
                  1.765





The
Company has no future compensation expense to record from this option
outstanding at December 25, 2008 because they were fully vested upon grant and
compensation cost was recorded as of that date.





NOTE
17. COMMITMENTS





(a)
Annual fees





Under the
supplementary joint venture agreements, the Company has committed to pay
predetermined annual fees of $129,000 to the Chinese joint venture partners for
each of the years in the period from December 26, 1998 to 2049 as long as the
joint venture continues to operate. As of December 25, 2008, total commitments
under these arrangements were as follows (in thousands):





2009
                                
                                
                                1292010
                                
                                
                                1292011
                                
                                
                                1292012
                                
                                
                                1292013
                                
                                
                                129Thereafter
                                
                                
                                4,528Total
                                
                                $
                                5,173





(b)
Capital commitment





Capital
commitments not provided in the consolidated financial statements include the
followings:





2008
                  
                  
                  2007Construction
      of factory premises
                  
                  $
                  1,457
                  
                  
                  $
                  2,320





NOTE
18. RELATED PARTY TRANSACTIONS





Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.





Transactions
between the New Dragon Asia Corp. and related companies are summarized below (in
thousands):





2008
                  
                  
                  2007Sales
      of finished goods to:Related
      parties (b)
                  
                  $
                  —
                  
                  
                  $
                  28Pre-determined
      annual fees charged by joint venture partners:Shandong
      Longfeng Group Company (a)
                  
                  $
                  87
                  
                  
                  $
                  79Shandong
      Longfeng Flour Company Limited (b)
                  
                  
                  43
                  
                  
                  
                  39$
                  130
                  
                  
                  $
                  118Sales
      of machinery to Shandong Longfeng Group Company
                  
                  $
                  —
                  
                  
                  $
                  10Rental
      income from a joint venture partner:Shandong
      Longfeng Group Company
                  
                  $
                  76
                  
                  
                  $
                  69


F-22


(a)
Shandong Longfeng Group Company is a joint venture partner of the
Company.





(b)
Subsidiary(ies) of Shandong Longfeng Group Company.





Loans
from the major shareholder New Dragon Asia Food Limited are for working capital
are unsecured and bear no interest, is payable if requested, and funds are
available. The Company and the major shareholder have agreed that no repayments
will take place in 2009. The joint venture partner’s amounts are similar to the
condition of New Dragon Asia Food Limited loans and no repayment is expected in
2009.





NOTE
19. CONDENSED GEOGRAPHIC FINANCIAL INFORMATION





Condensed
balance sheet information as of December 25, 2008 consisted of the following (in
thousands):





Inside China
                  
                  
                  Outside China
                  
                  
                  TotalAssets-
      Cash and cash equivalents
                  
                  $
                  4,337
                  
                  
                  $
                  46
                  
                  
                  $
                  4,383-
      Others
                  
                  
                  80,449
                  
                  
                  
                  46
                  
                  
                  
                  80,495Total
      Assets
                  
                  
                  84,786
                  
                  
                  
                  92
                  
                  
                  
                  84,878Liabilities
                  
                  
                  10,299
                  
                  
                  
                  2,654
                  
                  
                  
                  12,953Minority
      interests
                  
                  
                  122
                  
                  
                  
                  —
                  
                  
                  
                  122Intercompany
                  
                  
                  14,343
                  
                  
                  
                  (14,343
                  )
                  
                  
                  —Equity
                  
                  
                  55,454
                  
                  
                  
                  11,704
                  
                  
                  
                  67,158





Assets
located outside of China consist primarily of cash and cash equivalents and
deposits.  Liabilities located outside of China consist primarily of
preferred stock, net of the related beneficial conversion feature and fair value
of the warrants.





Condensed
statement of operation information for the year ended December 25, 2008
consisted of the following (in thousands):





Inside China
                  
                  
                  Outside China
                  
                  
                  TotalNet
      revenue
                  
                  $
                  49,340
                  
                  
                  $
                  —
                  
                  
                  $
                  49,340Cost
      of goods sold
                  
                  
                  (41,989
                  )
                  
                  
                  —
                  
                  
                  
                  (41,989
                  )General
      and administrative expenses
                  
                  
                  (3,062
                  )
                  
                  
                  (834
                  )
                  
                  
                  (3,896
                  )Income
      (loss) from operation
                  
                  
                  (1,911
                  )
                  
                  
                  (834
                  )
                  
                  
                  (2,745
                  )Other
      income (loss)
                  
                  
                  196
                  
                  
                  
                  2,047
                  
                  
                  
                  2,243Provision
      for income taxes
                  
                  
                  (1,205
                  )
                  
                  
                  —
                  
                  
                  
                  (1,205
                  )Net
      income (loss)
                  
                  
                  (1,000
                  )
                  
                  
                  (517
                  )
                  
                  
                  (1,517
                  )





See Note
23 for condensed parent company financial information.





Condensed
balance sheet information as of December 25, 2007 consisted of the following (in
thousands):





Inside China
                    
                    
                    Outside China
                    
                    
                    TotalAssets-
      Cash and cash equivalents
                    
                    $
                    3,505
                    
                    
                    $
                    141
                    
                    
                    $
                    3,646-
      Others
                    
                    
                    77,725
                    
                    
                    
                    49
                    
                    
                    
                    77,774Total
      Assets
                    
                    
                    81,230
                    
                    
                    
                    190
                    
                    
                    
                    81,420Liabilities
                    
                    
                    8,935
                    
                    
                    
                    4,548
                    
                    
                    
                    13,483Minority
      interests
                    
                    
                    294
                    
                    
                    
                    —
                    
                    
                    
                    294Intercompany
                    
                    
                    13,385
                    
                    
                    
                    (13,385
                    )
                    
                    
                    —Equity
                    
                    
                    52,642
                    
                    
                    
                    9,680
                    
                    
                    
                    62,322


F-23





Assets
located outside of China consist primarily of cash and cash equivalents and
deposits.  Liabilities located outside of China consist primarily of
preferred stock, net of the related beneficial conversion feature and fair value
of the warrants.





Condensed
statement of operation information for the year ended December 25, 2007
consisted of the following (in thousands):





Inside China
                  
                  
                  Outside China
                  
                  
                  TotalNet
      revenue
                  
                  $
                  55,738
                  
                  
                  $
                  —
                  
                  
                  $
                  55,738Cost
      of goods sold
                  
                  
                  (45,427
                  )
                  
                  
                  —
                  
                  
                  
                  (45,427
                  )General
      and administrative expenses
                  
                  
                  (1,309
                  )
                  
                  
                  (1,297
                  )
                  
                  
                  (2,606
                  )Income
      (loss) from operation
                  
                  
                  7,723
                  
                  
                  
                  (1,297
                  )
                  
                  
                  6,426Other
      income (loss)
                  
                  
                  1,245
                  
                  
                  
                  8,412
                  
                  
                  
                  9,657Provision
      for income taxes
                  
                  
                  (1,968
                  )
                  
                  
                  —
                  
                  
                  
                  (1,968
                  )Net
      income (loss)
                  
                  
                  7,000
                  
                  
                  
                  4,900
                  
                  
                  
                  11,900





NOTE
20. SEGMENT INFORMATION





The
Company classifies its products into three core business segments, namely
instant noodles, flour and soybean. In view of the fact that the Company
operates principally in Mainland China, no geographical segment information is
presented.





2008
                  
                  
                  2007(In
      thousands)Net
      revenue:Instant
      noodles
                  
                  $
                  13,234
                  
                  
                  $
                  15,262Flour
                  
                  
                  27,008
                  
                  
                  
                  30,903Soybean
                  
                  
                  9,098
                  
                  
                  
                  9,573$
                  49,340
                  
                  
                  $
                  55,738Income
      (loss) from operations:Instant
      noodles
                  
                  $
                  (5,574
                  )
                  
                  $
                  1,208Flour
                  
                  
                  3,106
                  
                  
                  
                  5,526Soybean
                  
                  
                  (277
                  )
                  
                  
                  (308
                  )$
                  (2,745
                  )
                  
                  $
                  6,426Depreciation
      and amortization:Instant
      noodles
                  
                  $
                  1,034
                  
                  
                  $
                  841Flour
                  
                  
                  716
                  
                  
                  
                  615Soybean
                  
                  
                  432
                  
                  
                  
                  218$
                  2,182
                  
                  
                  $
                  1,674Identifiable
      long-term assets:Instant
      noodles
                  
                  $
                  13,084
                  
                  
                  $
                  22,099Flour
                  
                  
                  8,667
                  
                  
                  
                  8,480Soybean
                  
                  
                  3,898
                  
                  
                  
                  3,614$
                  25,649
                  
                  
                  $
                  34,193





NOTE
21. MAJOR CUSTOMERS





No single
customer accounted for more than 5% of sales for the years ended December 25,
2008 and 2007.





NOTE
22. RETIREMENT PLAN





As
stipulated by the regulations of the PRC government, companies operating in the
PRC have defined contribution retirement plans for their employees. The PRC
government is responsible for the pension liability to these retired employees.
Commencing from January 1, 2002, the Company was required to make specified
contributions to the state-sponsored retirement plan at 20% of the basic salary
cost of their staff. Each of the employees of the PRC subsidiaries is required
to contribute 6% of his/her basic salary. For the years ended December 25, 2008
and 2007, contributions made by the Company were approximately $446,000 and
$365,000, respectively.


F-24





NOTE
23. CONDENSED U.S. PARENT COMPANY FINANCIAL INFORMATION





BASIS
OF PRESENTATION





These
condensed parent company financial statements have been prepared in accordance
with Rule 12-04 of Regulation S-X. New Dragon Asia Corp. is a holding company
that conducts its operations through its subsidiaries, which are more fully
described in Note 1.





The
parent company financial statements have been prepared using the same accounting
principles and policies described in the notes to the consolidated financial
statements, with the only exception being that the parent company accounts for
its subsidiaries using the equity method.  Refer to the footnotes to
the consolidated financial statements presented above for additional information
and disclosures with respect to these financial statements.


F-25





NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONDENSED
PARENT COMPANY BALANCE SHEETS





(Amounts
in thousands, except share data)





December 25,
                                    2008
                                  
                                  
                                  December 25,
                                    2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  46
                                  
                                  
                                  $
                                  141Other
      receivable
                                  
                                  
                                  20
                                  
                                  
                                  
                                  20Deferred
      expenses, net
                                  
                                  
                                  26
                                  
                                  
                                  
                                  29Total
      current assets
                                  
                                  
                                  92
                                  
                                  
                                  
                                  190Investment
      in and advances to subsidiaries
                                  
                                  
                                  74,814
                                  
                                  
                                  
                                  72,001Total
      assets
                                  
                                  $
                                  74,906
                                  
                                  
                                  $
                                  72,191LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Other
      payables and accruals
                                  
                                  $
                                  762
                                  
                                  
                                  $
                                  792Dividend
      payable on preferred shares
                                  
                                  
                                  114
                                  
                                  
                                  
                                  173Embedded
      derivatives at fair value
                                  
                                  
                                  287
                                  
                                  
                                  
                                  2,493Total
      current liabilities
                                  
                                  
                                  1,163
                                  
                                  
                                  
                                  3,458Due
      to New Dragon Asia Food Limited
                                  
                                  
                                  1,940
                                  
                                  
                                  
                                  1,090Total
      liabilities
                                  
                                  
                                  3,103
                                  
                                  
                                  
                                  4,548Series
      A & B Redeemable Convertible Preferred Stock, $0.0001 par
      value:Authorized
      shares – 5,000,000Issued
      and outstanding – 6,501 shares and 9,434 shares at December 25, 2008 and
      2007, respectively
                                  
                                  
                                  4,645
                                  
                                  
                                  
                                  5,321CommitmentsStockholders’
      equity:Class
      A Common Stock, $0.0001 par value:Authorized
      shares – 102,000,000Issued
      and outstanding –60,922,981 in 2008 and 55,195,385 in 2007
                                  
                                  
                                  6
                                  
                                  
                                  
                                  5Class
      B Common Stock, $0.0001 par value:Authorized
      shares – 2,000,000 – none issued and outstanding
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Additional
      paid-in capital
                                  
                                  
                                  32,521
                                  
                                  
                                  
                                  29,982Retained
      earnings
                                  
                                  
                                  21,321
                                  
                                  
                                  
                                  24,568Accumulated
      other comprehensive income
                                  
                                  
                                  13,310
                                  
                                  
                                  
                                  7,767Total
      stockholders’ equity
                                  
                                  
                                  67,158
                                  
                                  
                                  
                                  62,322Total
      liabilities and stockholders’ equity
                                  
                                  $
                                  74,906
                                  
                                  
                                  $
                                  72,191


F-26


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONDENSED
PARENT COMPANY STATEMENTS OF OPERATIONS





(Amounts
in thousands)


For the years ended December 25,2008
                
                
                2007General
      and administrative expenses
                
                
                (834
                )
                
                
                (1,297
                )Loss
      from operations
                
                
                (834
                )
                
                
                (1,297
                )Other
      income (expense):Interest
      income
                
                
                —
                
                
                
                —Gain
      on fair value adjustments to embedded derivatives
                
                
                2,047
                
                
                
                8,412Total
      parent only gain (loss)
                
                
                1,212
                
                
                
                7,115Equity
      in subsidiary earnings, net of taxes
                
                
                (2,729
                )
                
                
                7,000Net
      income (loss)
                
                $
                (1,517
                )
                
                $
                14,115Accretion
      of redeemable preferred stock
                
                
                (1,196
                )
                
                
                (1,512
                )Preferred
      stock dividends
                
                
                (534
                )
                
                
                (703
                )Income
      (loss) available to common stockholders
                
                $
                (3,247
                )
                
                $
                11,900


F-27


NEW
DRAGON ASIA CORP. AND SUBSIDIARIES





CONDENSED
PARENT COMPANY STATEMENTS OF CASH FLOWS





(Amounts
in thousands)


For the years ended December 25,2008
                
                
                2007Cash
      flows from operating activities:Total
      parent only gain (loss)
                
                $
                1,212
                
                
                $
                7,115Adjustments
      to reconcile total parent only loss to net cash provided by (used in)
      operating activities:Gain
      on fair value adjustments to embedded derivatives
                
                
                (2,047
                )
                
                
                (8,412
                )Stock-based
      compensation expense
                
                
                —
                
                
                
                —Non-cash
      service payment
                
                
                —
                
                
                
                269Changes
      in operating assets and liabilities:Other
      receivable
                
                
                3
                
                
                
                4Other
      payables and accruals
                
                
                (30
                )
                
                
                108Net
      cash provided by (used in) operating activities
                
                
                (862
                )
                
                
                (916
                )Cash
      flows from investing activities:Investment
      and advances to subsidiaries
                
                
                (292
                )
                
                
                (2,447
                )Net
      cash provided by (used in) investing activities
                
                
                (292
                )
                
                
                (2,447
                )Cash
      flows from financing activities:Payments
      of issuance costs related to preferred stock
                
                
                —
                
                
                
                —Preferred
      Stock Dividends
                
                
                (84
                )
                
                
                (49
                )Increase
      in due to parent company
                
                
                850
                
                
                
                750Proceeds
      from exercise of stock options
                
                
                —
                
                
                
                —Net
      cash provided by financing activities
                
                
                766
                
                
                
                701Foreign
      currency translation adjustment
                
                
                293
                
                
                
                2,448Net
      increase (decrease) in cash and cash equivalents
                
                
                (95
                )
                
                
                (214
                )Cash
      and cash equivalents at the beginning of the period
                
                
                141
                
                
                
                355Cash
      and cash equivalents at the end of the period
                
                $
                46
                
                
                $
                141


F-28


EXHIBIT
INDEX





Exhibit
                Number
              
              Description2.1
              
              Share
      Exchange Agreement dated as of December 18, 2001 (incorporated herein by
      reference from our filing on the Definitive Proxy 14/A filed on October
      11, 2001).3.1
              
              Amended  Articles  of  Incorporation
      (incorporated herewith by reference to Exhibit 3.1 to our Definitive Proxy
      14/A filed on October 11, 2001).3.2
              
              By-laws
      (incorporated herewith by reference to Exhibit 3.2 to our Definitive Proxy
      14/A filed on October 11, 2001).3.3
              
              Certificate
      of Designations of Preferences, Rights and Limitations of the Series A 7%
      Convertible Preferred Stock (incorporated herewith by reference to Exhibit
      3.1 of our Form 8-K filed on July 12, 2005).3.4
              
              Certificate
      of Designations of Preferences, Rights and Limitations of the Series B 7%
      Convertible Preferred Stock (incorporated herewith by reference to Exhibit
      3.1 of our Form 8-K filed on December 23, 2005).4.1
              
              Subscription
      Agreement, dated September 4, 2003  (incorporated herewith by
      reference to Exhibit 4.1 to our Registration Statement on Form S-3 filed
      on October 3, 2003).4.2
              
              Subscription
      Agreement, dated October 3, 2003 (incorporated herewith by reference to
      Exhibit 4.2 to our Registration Statement on Form S-3 filed on October 3,
      2003).4.3
              
              Common
      Stock Purchase Warrants for the September 4, 2003 Private Placement
      (incorporated herewith by reference to Exhibit 4.3 to our Registration
      Statement on Form S-3 filed on October 3, 2003).4.4
              
              Common
      Stock Purchase Warrants for the October 3, 2003 Private Placement
      (incorporated herewith by reference to Exhibit 4.4 to our Registration
      Statement on Form S-3 filed on October 3, 2003).4.5
              
              Form
      of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
      (incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
      on July 12, 2005).4.6
              
              Form
      of Warrant issued to Alliance Financial, LLC, Renaissance Advisors BVI,
      John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
      (incorporated herewith by reference to Exhibit 4.2 to our Registration
      Statement on Form S-3 filed on August 11, 2005).4.7
              
              Securities
      Purchase Agreement, dated July 11, 2005, relating to the sale of the
      Series A 7% Convertible Preferred Stock (incorporated herewith by
      reference to Exhibit 10.1 to our Form 8-K filed on July 12,
      2005).4.8
              
              Registration
      Rights Agreement, dated July 11, 2005, by and among New Dragon Asia Corp.
      and the investors named therein (incorporated herewith by reference to
      Exhibit 10.2 to our Form 8-K filed on July 12, 2005).4.9
              
              Form
      of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
      (incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed
      on December 23, 2005).4.10
              
              Form
      of Warrant issued to Alliance Financial, LLC, Renaissance Advisors, Inc.,
      John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
      (incorporated herewith by reference to Exhibit 4.2 to our Registration
      Statement on Form S-3 filed on January 20, 2006).4.11
              
              Securities
      Purchase Agreement, dated December 22, 2005, relating to the sale of the
      Series B 7% Convertible Preferred Stock (incorporated herewith by
      reference to Exhibit 10.1 to our Form 8-K filed on December 23,
      2005).











4.12
              
              Registration
      Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
      Corp. and the investors named therein (incorporated herewith by reference
      to Exhibit 10.2 to our Form 8-K filed on December 23,
    2005).4.13
              
              Registration
      Rights Agreement, dated December 22, 2005, by and among New Dragon Asia
      Corp. and New Dragon Food Ltd. (incorporated herewith by reference to
      Exhibit 4.5 to our Registration Statement on Form S-3 filed on January 20,
      2006).10.1
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
      Limited, dated June 1, 1999 (incorporated herewith by reference to Exhibit
      10.1 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.2
              
              Subcontracting
      Agreement, for the New Dragon Asia Flour (Yantai) Company Limited, dated
      June 26, 1999  (incorporated herewith by reference to Exhibit
      10.2 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.3
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
      Limited, dated November 28, 1998  (incorporated herewith by
      reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed
      on October 3, 2003).10.4
              
              Subcontracting
      Agreement, for the New Dragon Asia Food (Yantai) Company Limited, dated
      December 26, 1998  (incorporated herewith by reference to
      Exhibit 10.4 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.5
              
              Sino-Foreign
      Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
      Limited, dated November 28, 1998 (incorporated herewith by reference to
      Exhibit 10.5 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.6
              
              Subcontracting
      Agreement, for the New Dragon Asia Food (Dalian) Company Limited, dated
      December 26, 1998 (incorporated herewith by reference to Exhibit 10.6 to
      our Registration Statement on Form S-3 filed on October 3,
      2003).10.7
              
              Sino-Foreign
      Joint Venture Contract for the Sanhe New Dragon Asia Food Company Limited,
      dated November 28, 1998 (incorporated herewith by reference to Exhibit
      10.7 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.8
              
              Subcontracting
      Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated
      December 26, 1998  (incorporated herewith by reference to
      Exhibit 10.8 to our Registration Statement on Form S-3 filed on October 3,
      2003).10.9
              
              Employment
      Agreement between New Dragon Asia Corp. and Peter Mak, dated November 2,
      2004 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
      filed on June 29, 2005).10.10
              
              Employment
      Supplement between New Dragon Asia Corp. and Peter Mak, dated June 22,
      2005 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K
      filed on June 29, 2005).10.11
              
              Supplementary
      Agreement to Employment Agreement between New Dragon Asia Corp. and Peter
      Mak, dated January 20, 2006 (incorporated herewith by reference to Exhibit
      10.10 to our Form 8-K filed on January 24, 2006).10.12
              
              Equity
      Incentive Plan (incorporated herewith by reference to Exhibit B to our
      Definitive Information Statement on Schedule 14C filed on March 14,
      2006).10.13
              
              Stock
      Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
      December 13, 2006 (incorporated herewith by reference to Exhibit 10.1 to
      our Form 8-K filed on December 15,
2006).











10.14
              
              Settlement
      Agreement and General Release between New Dragon Asia Corp and Berry-Shino
      Securities Inc., dated August 15, 2007 (incorporated by reference to
      Exhibit 10.1 to our Form 8-K filed on August 15, 2007).21.1
              
              Subsidiaries
      of New Dragon Asia Corp., filed herewith.23.1
              
              Consent
      of Crowe Horwath LLP, Independent Registered Public Accounting Firm, filed
      herewith.23.2
              
              Consent
      of Grobstein, Horwath & Company LLP, Independent Registered Public
      Accounting Firm, filed herewith31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Certification
      of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, filed herewith.32.1
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
      Sarbanes-Oxley Act of 2002), filed herewith.32.2
              
              Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of
      the Sarbanes-Oxley Act of 2002), filed
herewith.