<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549
                                   FORM 10-K/A
                                 AMENDMENT NO. 1

(Mark One)

[X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934.

For the fiscal year ended December 25, 2002

OR

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
        ACT OF 1934.

For the transition period from __________to __________

                             Commission file Number

                              NEW DRAGON ASIA CORP.
                              ---------------------
                 (Name of Small Business Issuer in Its Charter)

              Florida                               88-0404114
 ----------------------------               ---------------------------------
 (State or other Jurisdiction             (I.R.S. Employer  Identification No.)
         of Incorporation)

        Room 1304, 13/F Wing On Centre,
              111 Connaught Road
              Central, Hong Kong
          ---------------------------                  -----------
    (Address of Principal Executive Offices)           (Zip Code)

                                 (852) 2815-9892
                               ------------------
                (Issuer's Telephone Number, Including Area Code)

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

                                                    Name of Each Exchange
          Title of Each Class                        on Which Registered
             Common Stock                                   Amex

          -------------------                       ---------------------

     Securities registered under Section 12(g) of the Exchange Act:


                                ----------------
                                (Title of Class)

<PAGE>

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [  ]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-SKB. [x]

     State issuer's revenue for its most recent fiscal year $33,700,000

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity as sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. As of September 30, 2003 the aggregate
market value of the common equity held by non-affiliates was $1,710,248.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of September 30, 2003 there
were 45,861,242 shares outstanding

     Transitional Small Business Disclosure Format (check one):

Yes [  ]  No [X]


<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

       This amended Annual Report on Form 10-K/A contains the amended
Independent Auditors' Report of both Grobstein, Horwath & Company LLP, dated
March 31, 2003 and Spear, Safer, Harmon & Co., dated april 12, 2002 along with
amendments to notes 1 and 3 to the financial statements and a correction to the
weighted average number of shares outstanding for 2001. Each of the foregoing
items have been amended to correct certain errors contained in the Form 10-KSB
filed on April 9, 2003.


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       NEW DRAGON ASIA CORP.

Dated: October 2, 2003                 By /s/ Xue Jun Song
                                       ------------------------------
                                       Name: Xue Jun Song
                                       Title: Chief Executive Officer

     In accordance  with 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: October 2, 2003                 By /s/ Xue Jun Song
                                       ------------------------------
                                       Name: Xue Jun Song
                                       Title: Chief Executive Officer, Director

Dated: October 2, 2003                 By /s/ Shu Hua Zhang
                                       ------------------------------
                                       Name: Shu Hua Zhang
                                       Title: Deputy General Manager, Director

Dated: October 2, 2003                 By /s/ Wing Leung Lai
                                       ------------------------------
                                       Name: Wing Leung Lai
                                       Title: Chief Financial Officer, Director

Dated: October 2, 2003                 By /s/ Man Fai Leung
                                       ------------------------------
                                       Name: Man Fai Leung
                                       Title: Director

Dated: October 2, 2003                 By /s/ Qi Xue
                                       ------------------------------
                                       Name: Qi Xue
                                       Title: Director



<PAGE>



                                  CERTIFICATION
I, Xue Jun Song, certify that:

1.    I have reviewed this amended report on Form 10-K/A of New Dragon Asia
      Corp.

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact of omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report.

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report.

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities, particularly during the period in which this report is being
          prepared:

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this report (the "Evaluation Date"); and

     (c)  presented in this report our conclusions  about the  effectiveness  of
          the disclosure  controls and procedures  based on our evaluation as of
          the Evaluation Date;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of  registrant's  board of directors (or persons  performing the
      equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.    The  registrant's  other  certifying  officer and I have indicated in this
      report whether or not there were significant  changes in internal controls
      or in other  factors that could  significantly  affect  internal  controls
      subsequent  to the  date of our  most  recent  evaluation,  including  any
      corrective  actions with regard to significant  deficiencies  and material
      weaknesses.

                                                        /S/  XUE JUN SONG
                                                        ------------------------
October 2, 2003                                         Xue Jun Song
                                                        Chief Executive Officer



<PAGE>


                                  CERTIFICATION
I, Wing Leung Lai, certify that:

1.    I have reviewed this amended report on Form 10-K/A of New Dragon Asia
      Corp.

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact of omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report.

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report.

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities, particularly during the period in which this report is being
          prepared:

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this report (the "Evaluation Date"); and

     (c)  presented in this report our conclusions  about the  effectiveness  of
          the disclosure  controls and procedures  based on our evaluation as of
          the Evaluation Date;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of  registrant's  board of directors (or persons  performing the
      equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.    The  registrant's  other  certifying  officer and I have indicated in this
      report whether or not there were significant  changes in internal controls
      or in other  factors that could  significantly  affect  internal  controls
      subsequent  to the  date of our  most  recent  evaluation,  including  any
      corrective  actions with regard to significant  deficiencies  and material
      weaknesses.
                                                     /s/ Wing Leung Lai
                                                    ------------------------
October 2, 2003                                      Wing Leung Lai
                                                     Chief Financial Officer
<PAGE>

TABLE OF CONTENTS
-----------------

                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                           DECEMBER 25, 2002 AND 2001



                                    CONTENTS

                                                                  PAGE
                                                                -------
Independent Auditors` Report of Grobstein, Horwath &
Company LLP                                                       F-1

Independent Auditors` Report of Spear, Safer, Harmon & Co.        F-2

Consolidated Statements of Income and Comprehensive Income        F-3

Notes 1 and 3 to Consolidated Financial Statements                F-4


<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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  as of December  25, 2002 and the related  consolidated
statements of income and  comprehensive  income,  stockholders`  equity 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 auditing standards generally accepted
in the 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. 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 financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 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, 2002, and the consolidated
results of their operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States.


Grobstein, Horwath & Company LLP

Sherman Oaks, California
March 31, 2003




<PAGE>





                          INDEPENDENT AUDITORS' REPORT

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 as of December 25, 2001, and the related consolidated
statements of operation and comprehensive income, cash flows and stockholders'
equity for the year then ended December 25, 2001. 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 auditing standards generally accepted
in the United States of America. 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. 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 financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the 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, 2001, and the consolidated
results of their operations and cash flows for the year ended December 25, 2001,
in accordance with accounting principles generally accepted in the United States
of America.





Spear, Safer, Harmon & Co.


Miami Florida
April 12, 2002

<PAGE>

                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES


           Consolidated Statements of Income and Comprehensive Income


                 For the Years Ended December 25, 2002 and 2001

<TABLE>
<CAPTION>
                                                                    2002               2001
                                                                  (US$'000)         (US$'000)
                                                                  --------          --------
<S>                                                               <C>               <C>
Net Sales                                                         $ 33,704          $ 30,135
Cost of Goods Sold                                                 (27,596)          (24,092)
                                                                  --------          --------
Gross Profit                                                         6,108             6,043

Operating Expenses:
         Selling and distribution expenses                          (1,161)             (613)
         General and administrative expenses                          (601)           (1,341)
                                                                  --------          --------
Income from Operations                                               4,346             4,089
Other Income and Expenses:
                  Interest expense                                    (265)             (200)
                  Interest income                                      194                88
                  Other income                                         487               642
                                                                  --------          --------
Income Before Non-recurring Item and Provision for Income
Taxes                                                                4,762             4,619
Non-recurring Costs of Share Exchange                                   --            (3,134)
                                                                  --------          --------
Income Before Provision for Income Taxes                             4,762             1,485
Provision for Income Taxes                                            (609)             (619)
                                                                  --------          --------
Net Income and Comprehensive Income                               $  4,153          $    866
                                                                  --------          --------
Basic and Diluted Earnings Per Common Share                       $   0.10          $   0.02
                                                                  ========          ========
Weighted Average Shares Used to Compute Basic and Diluted
Net Income per Common Share                                         40,911             3,894
                                                                  ========          ========
</TABLE>

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


<PAGE>

                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES


                   Notes to Consolidated Financial Statements


                     Years Ended December 25, 2002 and 2001


NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS


New Dragon Asia Corp.  (formerly  Bio-Aqua  Systems,  Inc.) and its subsidiaries
(the "Group" or "NDAC"), a United States  corporation  incorporated in the State
of  Florida,  is  principally  engaged  in  the  manufacturing,   marketing  and
distribution  of instant  noodles  and flour in the  People's  Republic of China
("PRC").  NDAC has its principal  offices in Hong Kong. The Group is composed of
four wholly-owned  limited liability  companies,  incorporated under the laws of
the British  Virgin  Islands  (BVI).  The limited  liability  companies  are Mix
Creation Limited ("MC"), Rich Delta Limited ("RD"),  Noble Point Limited ("NP"),
and Keen General  Limited ("KG").  Each of the  wholly-owned  limited  liability
companies own a majority  interest in a contractual  joint venture in the PRC. A
contractual  joint  venture is an entity  established  between the  wholly-owned
subsidiary and another joint venture partner, with the rights and obligations of
each party governed by a contract. If the wholly-owned subsidiary owns more than
50% of the joint  venture and is able to govern and control  its  financial  and
operating policies and its board of directors,  such joint venture is considered
a de facto subsidiary and has been accounted for as a subsidiary of the Group.


Prior to December  2001,  Bio-Aqua  Systems,  Inc.  ("Bio-Aqua")  owned majority
interests in Tepual,  S.A. and Krisel,  S.A., Chilean  corporations  principally
engaged in the business of (1) research, consulting,  development and control of
the  production  of meals for feed used by the  aquaculture,  poultry and cattle
farming  industries,  (2) sales of vaccine  products,  and (3) krill  fishing in
Uruguay.


Due to lack of working capital,  Bio-Aqua suspended all of its operations during
2001.  On August 7,  2001,  it was  announced  that it would  seek to divest its
current  operations  and  acquire  a new  operating  company  with  the  goal of
enhancing shareholder value.


On December 13, 2001  Bio-Aqua  entered  into a Share  Exchange  Agreement  (the
"Exchange  Agreement")  with Max Rutman,  Flagship  Import  Export LLC, a Nevada
limited liability company and New Dragon Asia Food Limited,  a company organized
under  the  laws  of the  British  Virgin  Islands.  Pursuant  to  the  Exchange
Agreement, Bio-Aqua acquired from New Dragon Asia Food Limited all of its equity
interests  in four  companies  organized  under the laws of the  British  Virgin
Islands (each a "Subsidiary" and, collectively the "Subsidiaries") each of which
in turn holds an interest in a separate sino-foreign joint venture, which equity
interests  constituted all of the issued and outstanding equity interests of the
Subsidiaries  in  exchange  for  37,963,263   shares  of  common  stock  of  the
Registrant.


Upon the closing of the share exchange,  Max Rutman,  Nestor Lagos,  Pedro Sayes
and Oscar Cornejo  resigned from the board of directors and on December 14, 2001
Xue Jun Song, Man Fai Leung,  Shu Hua Zhang and Wing Leung Lai became members of
Bio-Aqua's board of directors.  The directors then elected Wing Leung Lai as the
Chief Financial Officer, Shu Hua Zhang as the Deputy General Manager and Xue Jun
Song as the Chief Executive Officer.


As conditions  of the Exchange  Agreement,  the Company  amended its Articles of
Incorporation to:

     1)   Change the name of the Company to New Dragon Asia Corp.

     2)   Convert all the previously existing Class A and Class B common stock
          into a single class of common stock.

     3)   Increase its authorized capital stock to 107,000,000 shares.

     4)   Max Rutman (through his ownership interest in Flagship Import Export
          LLC) and Atik S.A., owners of all of the previously existing 1,700,000
          shares of the Class B common stock, agreed to convert their Class B
          shares to Class A common stock.

In connection with the terms and provisions of the Exchange Agreement,  Bio-Aqua
issued  1,335,912 shares of restricted  common stock to investment  advisors and
attorneys in  connection  with services  rendered to effectuate  the


<PAGE>

exchange of shares. At the date of issuance of the shares, the AMEX market
quotation of the stock was $3.00 per share. NDAC has included these costs
approximating $3,134,000 in other expenses in the accompanying statement of
consolidated income and comprehensive income for the year ended December 25,
2001, computed by applying a 20% discount to the above AMEX market quotation due
to the restricted nature of the stock.

<PAGE>

NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS (Continued)

The Group is subject to, among others, the following operating risks:

Country Risk -- As all of the Group's  operations  are conducted in the PRC, the
Group is 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. The Group's 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.

In addition, all of the Group's revenue is denominated in Renminbi ("RMB") which
must be converted into other currencies  before  remittance out of the PRC. Both
the  conversion  of RMB into foreign  currencies  and the  remittance of foreign
currencies abroad require the approval of the PRC government.

Operating  Risk -- The Group  conducts its  manufacturing  and sales  operations
through joint  ventures  established  between the Group and certain PRC parties.
Any deterioration of these strategic relationships may have an adverse effect on
the operations of the Group.

Concentration  of Credit Risk --  Concentrations  of credit risk with respect to
customer receivables are limited due to the large number of customers comprising
the Group's customer base, and their dispersion across the PRC. In addition, the
Group performs ongoing credit evaluations of each customer's financial condition
and maintains reserves for potential credit losses. Such losses in the aggregate
have not exceeded management's expectations.


<PAGE>

NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS (Continued)

Details of the companies comprising the Group are as follows:

<TABLE>
<CAPTION>
                         Domicile and
                           Date of              Paid-Up            Percentage of          Principal
        Name            Incorporation           Capital              Ownership            Activities
        ----            -------------           -------              ---------            ----------
<S>                     <C>                  <C>                   <C>                <C>
Mix Creation Limited     The British         US$1,500,000             100% (a)        Investment holding
("MC")                  Virgin Islands
                       November 7, 1997

Rich Delta Limited       The British         US$1,000,000             100% (a)         Investment holding
("RD")                  Virgin Islands
                       October 28, 1998

Noble Point Limited      The British         US$1,000,000             100% (a)         Investment holding
("NP")                  Virgin Islands
                       October 29, 1998

Keen General Limited     The British         US$1,500,000             100% (a)         Investment holding
("KG")                  Virgin Islands
                        July 20, 1998

New Dragon Asia            The PRC                RMB                   90% (b)        Manufacture, marketing and
Flour                  August 13, 1999        28,000,000                               distribution of flour
(Yantai) Company
Limited
("NDAFLY")

New Dragon Asia Food       The PRC                RMB                   90% (c)       Manufacture, marketing and
(Yantai) Company      December 24, 1998       17,462,000                              distribution of instant
Limited                                                                               noodles
("NDAFY")

New Dragon Asia Food       The PRC                RMB                   90% (c)       Manufacture, marketing and
(Dalian) Company       December 28, 1998       17,430,000                             distribution of instant
Limited                                                                               noodles
("NDAFD")

Sanhe New Dragon           The PRC                RMB                  79.64% (c)     Manufacture, marketing and
Asia                   December 25, 1998       51,191,432                             distribution of instant
Food Company Limited                                                                  noodles
("SNDAF")
</TABLE>

     (a)  MC, RD, NP and KG are wholly owned by New Dragon Asia Corp.

     (b)  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 all profits or loss, net of
          annual fees from the joint venture are to be allocated to NDAFLY
          effective from June 26, 1999. In view of the profit sharing
          arrangement NDAFLY is regarded as 100% owned by the Group. The
          minority interest component has been included as a component of
          General and Administrative Expenses for the years ended December 25,
          2002 and 2001.

     (c)  NDAFY, NDAFD and SNDAF are contractual joint ventures established in
          the PRC to be operated for 50 years until December 24, 2048. In March
          1999, RD and NP contributed 90% of the registered capital to NDAFY and
          NDAFD, respectively, while KG contributed 79.64% of the registered
          capital to SNDAF. 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,
          NDAFD and SNDAF effective from December 26, 1998. In view of the
          profit sharing arrangements, NDAFY, NDAFD and SNDAF are regarded as
          100% owned by the Group.



<PAGE>

NOTE 2 -- BASIS OF PRESENTATION


The  consolidated   financial  statements  include  the  consolidated  financial
statements of MC and its subsidiary (NDAFLY),  RD and its subsidiary (NDAFY), NP
and its  subsidiary  (NDAFD)  and KG and its  subsidiary  (SNDAF),  as they  are
enterprises  controlled  by  NDAC.  All  significant  intra-group  balances  and
transactions have been eliminated in consolidation.


The  consolidated   financial   statements  were  prepared  in  accordance  with
accounting principles generally accepted in the United States ("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.  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 Group, which were prepared
in accordance with the relevant  accounting  principles and financial  reporting
regulations  applicable  to joint  venture  enterprises  as  established  by the
Ministry of Finance of 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 Group  recognizes sales in accordance with SEC Staff
Accounting  Bulletin No. 101,  "Revenue  Recognition  in Financial  Statements."
Sales  represent  the invoiced  value of goods,  net of value added tax ("VAT"),
supplied to customers,  and are recognized upon delivery of goods and passage of
title.


All of the  Group'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  Group 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.


Advertising  -- The costs of  advertising  are expensed in the year in which the
advertising  first takes  place.  Total  advertising  expense was  approximately
$13,821 and $5,000 for the years ended December 25, 2002 and 2001, respectively.


Use of Estimates - The  preparation  of  consolidated  financial  statements  in
accordance with accounting  principles  generally  accepted in the United States
requires management to make estimates and assumptions  relating to the reporting
of assets and liabilities,  the disclosure of contingent  assets and liabilities
and the reported  amounts of revenues and expenses during the reporting  period.
Actual results could differ from those estimates.


Cash and Cash Equivalents -- Highly liquid  investments with a maturity of three
months or less at the time of acquisition are considered to be cash equivalents.




<PAGE>

NOTE 3-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial  Instruments -- The Group accounts for financial instruments under the
provisions of SFAS No. 133:  "Accounting for Derivative  Instruments and Hedging
Activities",  which  requires  that  all  derivative  financial  instruments  be
recognized in the consolidated financial statements and maintained at fair value
regardless of the purpose or intent for holding  them.  Changes in fair value of
derivative financial instruments are either recognized periodically in income or
stockholders'  equity (as a component  of  comprehensive  income),  depending on
whether  the  derivative  is being  used to hedge  changes in fair value or cash
flows.  The  adoption of SFAS 133 did not have a material  impact on the Group's
consolidated  financial  position or its results of operations because the Group
does not currently hold any derivative financial instruments and does not engage
in hedging  activities.  The  carrying  amounts  for cash and cash  equivalents,
restricted  cash,   accounts   receivable,   other  receivables,   deposits  and
prepayments,   short-term  borrowings,  accounts  payable,  other  payables  and
accruals  approximate  their fair values  because of the short maturity of those
instruments.


Inventories  --  Inventories  are stated at the lower of cost,  determined  on a
weighted average basis, and net realizable value.  Work-in-progress and finished
goods  are  composed  of  direct  material,   direct  labor  and  a  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.


Property, Machinery,  Equipment, land use rights and Construction-in-Progress --
Property, machinery, equipment, land use rights and construction in progress are
stated at cost. Major  expenditures for betterments and renewals are capitalized
while  ordinary  repairs  and  maintenance   costs  are  expensed  as  incurred.
Depreciation  and amortization is provided using the  straight-line  method over
the estimated useful lives of the assets after taking into account the estimated
residual value. The estimated useful lives are as follows:


  Land use rights                     27 to 50 years
  Buildings                           40 to 50 years
  Machinery and equipment             12 years
  Furniture and office equipment      5 years
  Motor vehicles                      5 years

Construction-in-progress  represents  land costs as well as  factory  and office
buildings  under  construction.   The  Group  capitalizes  interest  during  the
construction  phase  of  qualifying  assets  in  accordance  with  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 34,  "Capitalization  of Interest
Cost." No interest  was  capitalized  during 2002 and 2001 and the  construction
paid was minimal.


In October 2001, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 144: "Accounting for the Impairment or Disposal of Long-Lived Assets".  SFAS
No. 144 amends  accounting and reporting  standards for the disposal of segments
of a business and addresses  various  issues  related to the  accounting for the
impairment or disposal of long-lived  assets. The provisions of SFAS No. 144 are
effective for fiscal years  beginning  after  December 15, 2001. The adoption of
SFAS  No.  144  is not  expected  to  have  a  material  impact  on the  Group's
consolidated financial statements.


Income Taxes -- The Group accounts for income taxes under the provisions of SFAS
No. 109,  "Accounting for Income Taxes",  which requires recognition of deferred
tax assets and liabilities  for the expected  future tax  consequences of events
that have been included in the consolidated financial statements or tax returns.
Deferred income taxes are provided using the liability  method and is recognized
for all significant  temporary  differences between the income tax and financial
statement bases of assets and liabilities.


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 relevant leases.



<PAGE>

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Foreign Currency Translation -- The functional currency of the Group is Renminbi
("RMB").  Transactions denominated in foreign currencies are translated into RMB
at the unified exchange rates quoted by the People's Bank of China prevailing at
the dates of the  transactions.  Monetary assets and liabilities  denominated in
foreign currencies are translated into RMB using the applicable unified exchange
rates  prevailing  at the  balance  sheet date.  There are no material  exchange
differences  as a result of the stability of the RMB during the periods  covered
by the consolidated financial statements.


Translations of amounts from Renminbi ("RMB") into United States dollars ("US$")
were at US $1.00 = RMB 8.3 for the years ended  December  25, 2002 and 2001.  No
representation  is made that the Renminbi  amounts could have been, or could be,
converted into United States dollars at that rate or at any other rate.


Earnings  Per Share -- Basic  earnings  per common  rate  ("EPS") is computed in
accordance  with  SFAS  No.128:"Earnings  Per  Share"  by  dividing  net  income
available to common stockholders by the weighted-average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised or converted  into common  stock.  As of December 25, 2002,  the
diluted share base  excludes  incremental  shares  relating to stock options and
warrants since their effect was anti-dilutive.  The  weighted-average  number of
common shares  outstanding for computing basic EPS was 40,911,242 for both years
ended December 25, 2002 and 2001.


Recently Issued Accounting Standards --


(a) In July 2001, The FASB issued SFAS No. 141: Business Combinations,  and SFAS
No. 142: "Goodwill and Other Intangible  Assets." SFAS No. 141 requires that the
purchase  method of accounting be used for all business  combinations  initiated
after June 30, 2001. Use of the pooling-of-interests  method is prohibited after
that date.  SFAS No. 142 changes the  accounting  for  goodwill  and  intangible
assets with indefinite lives from an amortization  method to an  impairment-only
approach and requires  intangible  assets with finite lives to be amortized over
their useful lives.  Thus,  amortization of goodwill and intangible  assets with
indefinite  lives will cease upon  adoption  of the  statement.  SFAS No. 142 is
required to be applied in fiscal years  beginning  after December 15, 2001. Upon
the adoption of SFAS No. 142,  the Group will not amortize  goodwill and instead
will conduct an annual impairment test of the remaining goodwill. The Group does
not  expect  that the  adoption  of SFAS No.  141,  or SFAS No.  142 will have a
significant immediate impact on the financial condition or results of operations
of the Group.


(b) In  October  2001,  the  FASB  issued  SFAS  No.  144:  "Accounting  for the
Impairment of Disposal of Long-Lived  Assets." SFAS No.144 amends accounting and
reporting  standards  for the disposal of segments of a business  and  addresses
various  issued  related to the  accounting  for the  impairment  or disposal of
long-lived assets. The provisions of SFAS No. 144 are effective for fiscal years
beginning  after December 15, 2001. The adoption of SFAS No. 144 is not expected
to have a material impact on the Group's consolidated financial statements.


(c) In April 2002, the FASB issued SFAS No.145:  "Rescission of FASB  Statements
No. 4, 44 and 64, Amendment of FASB Statement No.13, and Technical Corrections."
This SFAS made  revisions  to the  accounting  for  gains  and  losses  from the
extinguishment  of debt,  rescinded  SFAS  No.44,  and  required  certain  lease
modifications that have economic effects similar to sale-leaseback  transactions
be accounted for in the same manner as sale-leaseback transactions. The Group is
required to and will adopt SFAS No.145 on January 1, 2002.  The adoption of SFAS
No.145 is not  expected to have a material  impact on the  Group's  consolidated
financial statements.


(d) In June 2002, the FASB issued SFAS No. 146: "Accounting for Costs Associated
with Exit or Disposal  Activities." SFAS No. 146 addresses financial  accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  Emerging  Issues  Task  Force  ("EITF")  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including Certain Costs Incurred in a  Restructuring)."  SFAS No. 146
requires  that a  liability  for a cost  associated  with an  exit  or  disposal
activity  be  recognized  when  the  liability  is  incurred.   This  SFAS  also
established  that fair value is the  objective  for initial  measurement  of the
liability.  The  provisions  of SFAS No. 146 are  effective for exit or disposal
activities  that are initiated  after  December 31, 2002.  The Group adopted the
provisions of SFAS No. 146 effective December 25, 2002.



<PAGE>

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


(e) In December 2002, the FASB issued SFAS No. 148:  "Accounting for Stock-Based
Compensation-Transition  and Disclosure-an Amendment of FASB Statement No. 123."
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based  Compensation," to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of  accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require prominent  disclosures in both annual and interim  financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect  of the  method  used  on  reported  results.  The  Company  adopted  the
disclosure provisions of SFAS No. 148 effective December 25, 2002.


(f) In  November  2002,  the FASB  issued  Interpretation  No. 45:  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  including  Indirect
Guarantees  of  Indebtedness  of  Others  ("FIN45")."  FIN45  elaborates  on the
existing disclosure requirements for most guarantees,  including loan guarantees
such as standby letters of credit.  It also clarifies that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair
market  value of the  obligations  it  assumes  under  that  guarantee  and must
disclose that  information in its interim and annual financial  statements.  The
initial recognition and measurement  provisions of FIN 45 apply on a prospective
basis to guarantees  issued or modified  after  December 31, 2002. The Group has
implemented  the  disclosure  provisions  of  FIN 45 in its  December  25,  2002
consolidated financial statements.


(g) In January 2003, the FASB issued  Interpretation  No. 46:  "Consolidation of
Variable Interest Entities (an interpretation of ARB No. 51) ("FIN 46")." FIN 46
addresses  consolidation by business  enterprises of certain  variable  interest
entities,  commonly referred to as special purpose  entities.  The Group will be
required to implement the other  provisions of FIN 46 in 2003.  The Company does
not believe that FIN 46 will have a material impact on its financial statements.

Reclassifications  - Certain amounts in the fiscal 2001  consolidated  financial
statements have been reclassified to conform to the fiscal 2002 presentation.