**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 SECURITIES EXCHANGE
                  ACT OF
                  1934******
              ********
              **For
                  the Fiscal year ended December 25, 2007******
              ********
              **OR******
              ******o**
              **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**
                **Incorporation
                  or Organization)**
              **(IRS
                  Employer Identification
                  No.)**
 
 **Suite
        2808, International Chamber of Commerce Tower**
 **Fuhua
        Three Road, Shenzhen, China**
 **(Address
        of Principal Executive Offices) (Zip Code)**
 
 **(86
        755) 8831-2115**
 **(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: The American Stock
        Exchange.**
 
 **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
oNo
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
oNo
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 xNo o
  
  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 oAccelerated
        Filer oNon-Accelerated Filer xSmaller
        Reporting Company o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
o
        No x
 
 As
        of
        June 25, 2007 the aggregate market value of the voting and non-voting equity
        held by non-affiliates was approximately $35 million.
 
 As
        of
        March 9, 2008, there were 56,071,947 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 Stockholder Matters and Issuer
                  Purchases of Equity Securities
              12ITEM
                  6.
              Selected
                  Financial Data
              13ITEM
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operation
              13ITEM
                  7A.
              Quantitative
                  and Qualitative Disclosure About Market Risk
              22ITEM
                  8.
              Financial
                  Statements and Supplementary Data
              22ITEM
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              23ITEM
                  9A(T).
              Controls
                  and Procedures
              23ITEM
                  9B.
              Other
                  Information
              24PART
                  IIIITEM
                  10.
              Directors,
                  Executive Officers and Corporate Governance
              25ITEM
                  11.
              Executive
                  Compensation
              27ITEM
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              30ITEM
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              31ITEM
                  14.
              Principal
                  Accounting Fees and Services
              31PART
                  IVITEM
                  15.
              Exhibits
                  and Financial Statement Schedules
              33SIGNATURES
              36FINANCIAL
                  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” or
“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 the country 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 started producing two types of soybean products - soybean protein
        powder and soybean powder. They are principally supplied to food and beverage
        manufacturers.
 
 Our
        product breakdown for the year ended December 25, 2007 was approximately
        55% for
        flour products, 28% for instant noodles and 17% for soybean products.
 
 **2007**
              
              **2006**
              
              **2005**(In
                  thousands)Net
                  revenue:Instant
                  noodles
              
              $
              15,262
              
              $
              15,799
              
              $
              15,353Flour
              
              
              30,903
              
              
              30,263
              
              
              28,827Soybean
              
              
              9,573
              
              
              7,377
              
              
              --$
              55,738
              
              $
              53,439
              
              $
              44,180
 
 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 the highest 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.
 
 **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.
  1
  Our
        domestic distribution system is the key to its 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 2007, 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.
        From the second quarter of the year, we began export sales to Sweden and
        Greece.
        During 2007, export sales accounted for approximately 5% of our instant noodle
        sales.
 
 We
        also
        receive orders for flour from certain KFC Corporation (“KFC”) locations in China
        and KFC’s intermediary suppliers for flour. KFC requires rigorous quality
        control standards for its flour of at least the ISO9002 level. We believe
        that
        KFC’s orders reflect the positive brand reputation and quality of Long Feng as
        well as the Company’s commitment to maintaining international quality standards.
 
 **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.
 
 **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 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.
 
 **EMPLOYEES**
 
 We
        employ
        approximately 1,500 employees. All of them are located in the eight plants
        and
        the executive office located in Shenzhen. 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.
  2
  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.
 
 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 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 February.
  3
 
 **ITEM
        1** **A.
        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. 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 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*
  We
        are
        controlled by our major shareholder, which is controlled by our Chairman,
        Mr.
        Heng Jing Lu. Mr. Heng Jing Lu, our Chairman, is the holder of record of
        100% of
        the equity interests of New Dragon Asia Food Ltd. Mr. Lu has sole voting
        and
        dispositive control over the shares of us held by New Dragon Asia Food Ltd.,
        which is our majority shareholder. 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 the Subsidiaries. If the 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. Although dividends paid by foreign invested enterprises,
        such as wholly foreign-owned enterprises and Sino-foreign joint ventures,
        are
        not subject to any PRC corporate withholding tax, 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 the 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 the 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
 
 ***Recent
        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 new
        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.
 
 ***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. 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. 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 PRC law and any
        financing arrangements and any other factors that the board of directors
        deems
        relevant.
 
 **RISKS
        RELATED TO OUR BUSINESS**
 
 ***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 retai1 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.
 
 ***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 operation. 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.
  5
  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
        may be subject to product liability claims and product recalls, which could
        negatively impact our profitability.***
 
 We
        sell
        food products for human consumption, which involves risks such as product
        contamination or spoilage, product tampering and other adulteration of food
        products. We may be subject to liability if the consumption of any of its
        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.
 
 ***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 and noodle factories and, if our acquisition of a soybean
        business proves successful, our acquisition strategy may expand to include
        future acquisitions of soybean businesses. 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
  **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.
 
 ***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.
  7
  ***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:
 
 -
              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.
  8
 
 ***If
        relations between the United States and China worsen, our stock price may
        decrease and we may have difficulty accessing U.S. capital
        markets.***
 
 At
        various times during recent years, the United States and China have had
        significant disagreements over political and economic issues. Controversies
        may
        arise in the future between these two countries. Any political or trade
        controversies between the United States and China, whether or not directly
        related to our business, could adversely affect the market price of our Class
        A
        Common Stock and our ability to access U.S. capital markets.
 
 ***The
        Chinese economic, political and social conditions as well as government policies
        could affect our business.***
 
 All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including:
 
 -
              government
                  involvement;
 -
              level
                  of development;
 -
              growth
                  rate;
 -
              control
                  of foreign exchange; and
 -
              allocation
                  of resources.
 
 The
        economy of China has been transitioning from a planned economy to a more
        market-oriented economy. Although in recent years the Chinese government
        has
        implemented measures emphasizing the utilization of market forces for economic
        reform, the reduction of state ownership of productive assets and the
        establishment of sound corporate governance in business enterprises, a
        substantial portion of productive assets in China is still owned by the Chinese
        government. In addition, the Chinese government continues to play a significant
        role in regulating industry by imposing industrial policies. It also exercises
        significant control over China’s economic growth through the allocation of
        resources, controlling payment of foreign currency-denominated obligations,
        setting monetary policy and providing preferential treatment to particular
        industries or companies.
 
 The
        economy of China has experienced significant growth in the past 20 years,
        but
        growth has been uneven both geographically and among various sectors of the
        economy. The Chinese government has implemented various measures from time
        to
        time to control the rate of economic growth. Some of these measures benefit
        the
        overall economy of China, but may have a negative effect on us. For example,
        our
        operating results and financial condition may be adversely affected
        by:
 
 -
              changes
                  in the rate or method of taxation;
 -
              imposition
                  of additional restrictions on currency conversion and remittances
                  abroad;
 -
              reduction
                  in tariff or quota protection and other import restrictions;
                  and
 -
              changes
                  in the usage and costs of state-controlled transportation
                  services.
 
 ***Fluctuations
        in the value of the Chinese Renminbi relative to foreign currencies could
        affect
        our operating results.***
 
 Substantially
        all our revenues and expenses are denominated in the Chinese Renminbi. However,
        we use the United States dollar for financial reporting purposes. The value
        of
        Chinese Renminbi against the United States dollar and other currencies may
        fluctuate and is affected by, among other things, changes in China’s political
        and economic conditions. The Chinese government 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.
  9
  ***The
        legal authorities in China are in the process of evaluating existing tax
        and fee
        benefits provided to foreign investors and companies; these benefits may
        be
        reduced or eliminated, which may cause expenses to rise impacting margins
        and
        net income.***
 
 The
        legal
        authorities are evaluating tax and fee benefits that have been available
        to
        foreign investors and companies operating in China and tax holidays for new
        enterprises. It is anticipated, in the near term, there are going to be changes
        that substantially reduce or eliminate many, if not all, of the tax and other
        governmental fee advantages that have been available to foreign entities
        and
        newly created entities whether or not such new entities are foreign. The
        goal is
        to institute greater equalization of tax and government fee treatment of
        all
        corporate and similar entities in China. China is being encouraged to create
        this more equal treatment because of its WTO obligations and public opinion
        within China. There may be phase-ins of various taxes and fees for entities
        that
        currently benefit from either no or lower tax rates and fees compared to
        wholly
        Chinese companies and entities, but there can be no assurance of this. Even
        if
        there are phase-in periods, the length of such periods is not known. Overall,
        it
        is expected that the cost of operating in China will increase for those
        companies and entities that have had various tax and fee advantages in the
        past.
 
 ***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
        new 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 effect 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. We
        expect
        details of the transitional arrangement for the five-year period from
        January 1, 2008 to December 31, 2012 applicable to enterprises
        approved for establishment prior to March 16, 2007, to be set out in more
        detailed implementing rules to be adopted in the future.
 
 **ITEM
        1B. UNRESOLVED STAFF COMMENTS.** ****
 
 Not
        applicable.
 
 **ITEM
        2. PROPERTIES.** ****
 
 Our
        corporate office is located in Shenzhen. 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
              
              25,345Sanhe
                  Noodle Factory
              
              1
                  Yanjiao Jing Ha Road (N), Beijing
              
              Owned
              
              26,274Penglai
                  Flour Mill
              
              Xiao
                  Men Town, Penglai, Shandong
              
              Rented
              
              33,330Longyuan
                  Plant
              
              Huancheng
                  Beihuan Road, Longkou, Shandong
              
              Owned
              
              35,000Chengdu
                  Plant
              
              Chengdu
                  Economic & Technical Development Zone, Chengdu,
                  Sichuan
              
              Owned
              
              35,922
  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 the American Stock Exchange under the symbol NWD. The high and low sale
        prices of the Class
        A
        Common Stock as
        reported on AMEX for the periods indicated are set forth on the table below.
 
 PRICE RANGE OF COMMON STOCKHIGH
              
              LOWYear
                  Ended December 25, 2006:First
                  Quarter
              
              $
              2.66
              
              $
              1.38Second
                  Quarter
              
              $
              2.27
              
              $
              1.23Third
                  Quarter
              
              $
              1.75
              
              $
              1.20Fourth
                  Quarter
              
              $
              2.02
              
              $
              1.22Year
                  Ended December 25, 2007:First
                  Quarter
              
              $
              1.83
              
              $
              1.52Second
                  Quarter
              
              $
              1.49
              
              $
              1.19Third
                  Quarter
              
              $
              1.20
              
              $
              0.94Fourth
                  Quarter
              
              $
              1.59
              
              $
              0.90
 
 **SHAREHOLDERS**
 
 As
        of
        March 9, 2008, there were 56,071,947 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, 2007 .
 
 **ISSUER
        PURCHASES OF EQUITY SECURITIES**
 
 None
  12
  **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, 2007.
 
 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 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, 2007, 2006 and 2005. 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 25,2007
              
              2006
              
              2005(in
                  thousand, except per share data)CONSOLIDATED
                  STATEMENTS OF OPERATIONS DATA:Net
                  revenues
              
              $
              55,738
              
              $
              53,439
              
              $
              44,180Operating
                  expenses:Selling
                  and distribution
              
              
              (1,279
              )
              
              (1,045
              )
              
              (721
              )General
                  and administrative(including
                  stock-based compensation of $8,140 for 2006)
              
              
              (2,606
              )
              
              (10,908
              )
              
              (2,358
              )Income
                  (loss) from operations
              
              
              6,426
              
              
              (1,918
              )
              
              4,950Gain
                  (loss) on fair value adjustments to embedded derivatives
              
              
              8,412
              
              
              (1,434
              )
              
              (4,064
              )Income/(loss)
                  before tax and minority interests
              
              
              16,083
              
              
              (813
              )
              
              3,240Net
                  income/(loss)
              
              
              14,115
              
              
              (2,604
              )
              
              1,747Income
                  (loss) available to common stockholders
              
              
              11,900
              
              
              (5,361
              )
              
              1,106Earnings
                  per common shareBasic
              
              
              0.22
              
              
              (0.10
              )
              
              0.02Diluted
              
              
              0.21
              
              
              (0.10
              )
              
              0.02Weighted
                  average common shares outstanding:Basic
              
              
              54,109
              
              
              51,485
              
              
              46,051Diluted
              
              
              55,519
              
              
              51,485
              
              
              46,949CONSOLIDATED
                  BALANCE SHEET DATA:Cash
                  and cash equivalents
              
              $
              3,646
              
              $
              10,276
              
              $
              14,332Total
                  assets
              
              
              81,420
              
              
              69,508
              
              
              57,421Total
                  stockholders’ equity
              
              
              62,322
              
              
              44,012
              
              
              33,999
 
 **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
        current strategies are:
 
 -
              to
                  acquire additional plants to enlarge our capacity,
                  and
 -
              to
                  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. A significant acquisition will require
        additional 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, 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, 2007, the Company has spent approximately $1.09 million on the
        construction at the new plant and has committed further capital expenditure
        of
        $1.23 million for the completion of the plant, which is scheduled to complete
        in
        2009.
 
 **YEAR
        ENDED DECEMBER 25, 2007 COMPARED TO YEAR ENDED DECEMBER 25,
        2006**
 
 Selected
        Information from the Consolidated Statements of Operations (in
        thousands)
 **For the years ended December 25,****2007**
                
                **2006**Net
                    revenue
                
                $
                55,738
                
                $
                53,439Cost
                    of goods sold
                
                
                (45,427
                )
                
                (43,404
                )Selling
                    and distribution expenses
                
                
                (1,279
                )
                
                (1,045
                )General
                    and administrative expenses(including
                    stock-based compensation of $8,140 for 2006)
                
                
                (2,606
                )
                
                (10,908
                )Gain
                    (loss) on fair value adjustments to embedded derivatives
                
                
                8,412
                
                
                (1,434
                )VAT
                    refund
                
                
                952
                
                
                2,328Net
                    income/(loss)
                
                
                14,115
                
                
                (2,604
                )EBITDA
                    *
                
                
                9,340
                
                
                10,173EBITDA
                    margin on revenue
                
                
                17
                %
                
                19
                %
  14
 
 *  The
        Company uses EBITDA as an operating performance measure. EBITDA is defined
        as
        net earnings (loss) before interest, income taxes, depreciation and amortization
        expense and in our case (Loss) gain on fair value adjustments to embedded
        derivatives. EBITDA is not a measure of operating performance under U.S.
        generally accepted accounting principles (“GAAP”) and should not be considered
        as an alternative or substitute for GAAP profitability measures such as
        operating earnings (loss) and net earnings (loss). EBITDA as an operating
        performance measure has material limitations since it excludes, among other
        things, the statement of operations impact of depreciation and amortization
        expense, interest expense, the provision (benefit) for income taxes and (loss)
        gain on fair value adjustments to embedded derivatives and therefore does
        not
        necessarily represent an accurate measure of profitability, particularly
        in
        situations where a company is highly leveraged or has a disadvantageous tax
        structure. The Company uses a significant amount of capital assets and
        depreciation and amortization expense is a necessary element of the Company’s
        costs and ability to generate revenue and therefore its exclusion from EBITDA
        is
        a material limitation. The Company generally incurs significant income taxes
        each year and the provision (benefit) for income taxes is a necessary element
        of
        the Company’s costs and therefore its exclusion from EBITDA is a material
        limitation. As a result, EBITDA should be evaluated in conjunction with net
        earnings (loss) for a more complete analysis of the Company’s profitability, as
        net earnings (loss) includes the financial statement impact of these items
        and
        is the most directly comparable GAAP operating performance measure to EBITDA.
        As
        EBITDA is not defined by GAAP, the Company’s definition of EBITDA may differ
        from and therefore may not be comparable to similarly titled measures used
        by
        other companies, thereby limiting its usefulness as a comparative measure.
        Because of the limitations that EBITDA has as an analytical tool, investors
        should not consider it in isolation, or as a substitute for analysis of the
        Company’s operating results as reported under GAAP.
 
 ***Net
        Revenue***
 
 Net
        revenue for the year ended December 25, 2007 was $55.74 million, an increase
        of
        $2.3 million, or 4.30%, as compared to $53.44 million for the prior
        year.
 
 The
        increase was due to the growth in market demand principally for soybean
        products, which increased from $7.38 million in 2006 to $9.57 million in
        2007.
        The selling prices for all our products remained stable.
 
 ***Cost
        of goods sold***
 
 For
        the
        year ended December 25, 2007, cost of goods sold was $45.43 million, an increase
        of $2.03 million, or 4.70%, as compared to $43.40 million for 2006. The increase
        was primarily due to the growth of our soybean products business and the
        slight
        increase of raw material cost.
 
 For
        the
        year ended December 25, 2007, as a percentage of revenue, cost of goods sold
        increased slightly to 81.50% as compared to 81.22% for that of the prior
        year.
        For the year ended December 25, 2007, gross margin decreased slightly to
        18.50%
        as compared to 18.78% for the prior year.
 
 ***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, 2007, selling and distribution expenses increased
        21.90%
        to $1.28 million from $1.05 million in 2006. The increase was primarily due
        to
        the expansion
        of marketing activities and the higher levels of travel expense and related
        headcount increases .
 
 ***General
        and administrative expenses*** ******
 
 For
        the
        year ended December 25, 2007, general and administrative expenses decreased
        $8.30 million to $2.61 million from $10.91 million of 2005. The decrease
        was
        primarily due to the fact that stock-based compensation expense of $8.1 million
        in 2006 was zero in 2007. Our general and administrative expenses expense
        returned to normal level without the stock compensation expense.
  15
  ***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. T he
        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, 2007, the gain in this regard was
        $8.41
        million. For the corresponding period of 2006, the loss in this regard was
        $1.43
        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 $1.38 million to $0.95 million for the year ended December
        25,
        2007 as compared to $2.33 million for the year ended December 25, 2006. This
        primarily represents less tax refund from the municipal government during
        the
        current year.
 
 ***Net
        income/(loss)***
 
 For
        the
        year ended December 25, 2007, net income was $14.12 million, or $0.22 per
        share,
        an increase of $16.72 million, or 643.08% as compared to net loss of $2.60
        million for 2006. As a percentage of revenue, net income was 25.33% for the
        year
        ended December 25, 2007 as compared to the net loss of 4.87% for that of
        the
        prior year. The increase was primarily due to the fact that stock-based
        compensation decreased by $8.1 million for 2007 and the gain on fair value
        adjustments to embedded derivatives was $9.85 million higher than the loss
        of
        $1.43 million in 2006 offset by the other factor above.
 
 ***EBITDA***
 
 EBITDA
        decreased $0.83 million, or 8.16%, to $9.34 million for the year ended December
        25, 2007 as compared to $10.17 million for the year ended December 25, 2006.
        Such decrease was primarily due to a lower VAT refund received from the
        municipal government of China.
 
 For
        the
        year ended December 25, 2007, as a percentage of revenue, EBITDA margin slightly
        decreased to 17% as compared to 19% of the year ended December 25,
        2006.
 
 **YEAR
        ENDED DECEMBER 25, 2006 COMPARED TO YEAR ENDED DECEMBER 25, 2005**
 
 Selected
        Information from the Consolidated Statements of Operations (in
        thousands)
 **For the years ended December 25,****2006**
                
                **2005**Net
                    revenue
                
                $
                53,439
                
                $
                44,180Cost
                    of goods sold
                
                
                (43,404
                )
                
                (36,151
                )Selling
                    and distribution expenses
                
                
                (1,045
                )
                
                (721
                )General
                    and administrative expenses(including
                    stock-based compensation of $8,140 for 2006)
                
                
                (10,908
                )
                
                (2,358
                )Gain
                    (loss) on fair value adjustments to embedded derivatives
                
                
                (1,434
                )
                
                (4,064
                )VAT
                    refund
                
                
                2,328
                
                
                2,158Net
                    income/(loss)
                
                
                (2,604
                )
                
                1,747EBITDA
                
                
                10,173
                
                
                8,659EBITDA
                    margin on revenue
                
                
                19
                %
                
                20
                %
 
 ***Net
        Revenue***
 
 Net
        revenue for the year ended December 25, 2006 was $53.44 million, an increase
        of
        $9.26 million, or 20.96%, as compared to $44.18 million for the prior
        year.
  16


Approximately
      20% of the increase was due to the growth in market demand for flour and instant
      noodles, and the remaining 80% of the increase derived from the addition of
      the
      soybean products business. The selling prices for all our products remained
      stable.





***Cost
      of goods sold***





For
      the
      year ended December 25, 2006, cost of goods sold was $43.40 million, an increase
      of $7.25 million, or 20.06%, as compared to $36.15 million for 2005. The
      increase was primarily due to the growth of business.





For
      the
      year ended December 25, 2006, as a percentage of revenue, cost of goods sold
      decreased slightly to 81.22% as compared to 81.83% for that of the prior year.
      For the year ended December 25, 2006, gross margin increased slightly to 19%
      as
      compared to 18% for the prior year.





***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, 2006, selling and distribution expenses increased 45.83%
      to $1.05 million from $0.72 million in 2005. The increase was primarily due
      to
      the expansion
      of marketing activities and higher amounts of travel expenses and related
      headcount increases .





***General
      and administrative expenses***





For
      the
      year ended December 25, 2006, general and administrative expenses increased
      $8.55 million to $10.91 million from $2.36 million of 2005. The increase was
      primarily due to the stock-based compensation cost, which amounted to $8.14
      million and is non-cash in nature and non-recurring. The charge for stock-based
      compensation was related to the granting of options to purchase up to 2,000,000
      shares of Class A Common Stock on January 20, 2006 and 6,000,000 shares of
      Class
      A Common Stock on December 13, 2006.





***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. T he
      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, 2006, the loss in this regard was $1.43
      million. For the corresponding period of 2005, the loss in this regard was
      $4.06
      million.





***VAT
      refund***





VAT
      refund increased $0.17 million to $2.33 million for the year ended December
      25,
      2006 as compared to $2.16 million for the year ended December 25, 2005. This
      primarily represents the tax refund from the municipal government to encourage
      foreign investment.





***Net
      income/(loss)***





For
      the
      year ended December 25, 2006, net loss was $2.60 million, or $0.10 per share,
      a
      decrease of $4.35 million, or 249.06% as compared to net income of $1.75 million
      for 2005. The decrease was primarily due to the stock-based compensation cost
      and the loss on fair value adjustments to embedded derivatives.





For
      the
      year ended December 25, 2006, as a percentage of revenue, net loss was 4.87%
      as
      compared to the net income of 3.95% for that of the prior year. The decrease
      was
      primarily due to the stock-based compensation cost and the loss on fair value
      adjustments to embedded derivatives.


17





***EBITDA***





EBITDA
      increased $1,514,000, or 17,48%, to $10,173,000 for the year ended December
      25,
      2006 as compared to $8,659,000 for the year ended December 25, 2005. Such
      increase was consistent with our business growth.





For
      the
      year ended December 25, 2006, as a percentage of revenue, EBITDA margin slightly
      decreased to 19% as compared to 20% of the year ended December 25,
      2005.





***Fourth
      Quarter Adjustments***





In
      the
      fourth quarter of fiscal 2006, the Company recorded two significant accounting
      adjustments that related to previously issued 2006 interim periods. The
      adjustments of approximately $264 resulted in decrease to pretax income and
      related principally to revenue recognition errors and the correction of
      amortization of land use rights. The full amount of this charge to income was
      recorded in the fourth quarter of fiscal 2006, rather than charging the prior
      quarters in the fiscal year. Management evaluated the quantitative and
      qualitative impact of these interim period errors and concluded that the effect
      was not material. As a result, previously issued 2006 quarterly financial
      information has not been restated.





**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS**





On
      July
      11, 2005, we issued 6,000 shares of Series A 7% Convertible Preferred Stock
      (“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, raising $6.0
      million in gross proceeds.





On
      December 22, 2005, we issued 9,500 shares of Series B 7% Convertible Preferred
      Stock (“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, 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.




18





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, 2007, 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:





Payment
                Obligations By Period2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            Total(In
                thousands)Redeemable
                convertible preferred stock
            
            $
            3,590
            
            $
            3,070
            
            $
            2,774
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            9,434Pre-determined
                annual fee charged by joint venture partners
            
            
            118
            
            
            118
            
            
            118
            
            
            118
            
            
            118
            
            
            3,886
            
            
            4,476Total
            
            $
            3,708
            
            $
            3,188
            
            $
            2,892
            
            $
            118
            
            $
            118
            
            $
            3,886
            
            $
            13,910





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
            )$
            9,434





**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.





The
      Company’s working capital increased $18.65 million to $36.21 million at December
      25, 2007 as compared to $17.56 million at December 25, 2006. The increase was
      primarily due to (i) the increased inventory and (ii) the change in the fair
      value of derivative instruments.





Cash
      and
      cash equivalents were $3.65 million as of December 25, 2007, a decrease of
      $6.63
      million as compared to the balance at December 25, 2006 of $10.28 million.
      Net
      cash used by operating activities for the year ended December 25, 2007 was
      $8.94
      million, as compared to $2.49 million net cash provided for the year ended
      December 25, 2006. The decrease was primarily due to (i) additional deposits
      and
      prepayments of $5,597,000 paid to suppliers for wheat and soybean in order
      to
      secure additional supplies and (ii) increase in inventories of $10,452,000
      in
      anticipation of price increases. Net cash used by investing activities for
      the
      year ended December 25, 2007 was $1.35 million, as compared to $ 9.36 million
      for the year ended December 25, 2006. The decrease was primarily due to the
      fact
      that no new business establishment and acquisition was incurred in 2007. Net
      cash provided by financing activities of $1.21 million for the year ended
      December 25, 2006, as compared to $0.90 million for the year ended December
      25,
      2006 was primarily the net balance due to the parent company. The Company
      believes that it has enough cash available and expects to have enough income
      from operations to operate for the next 12 months.


19




***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 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.





***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
      income (loss). 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.


20




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 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.





***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
      September 2006, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 157, *Fair
      Value Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. We do not expect the adoption of SFAS No. 157 to have a
      material impact on our consolidated financial statements. The FASB may delay
      a
      portion of this standard.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits companies to choose to measure many financial instruments
      and certain other items at fair value. SFAS No. 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007. We do not expect the adoption of SFAS No. 159 to have a material impact
      on
      our consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (R), *Business
      Combinations* ,
      and
      SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* .
      SFAS
      No. 141 (R) requires an acquirer to measure the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree at their fair values on the acquisition date, with goodwill being
      the
      excess value over the net identifiable assets acquired. SFAS No. 160
      clarifies that a noncontrolling interest in a subsidiary should be reported
      as
      equity in the consolidated financial statements. The calculation of earnings
      per
      share will continue to be based on income amounts attributable to the parent.
      SFAS No. 141 (R) and SFAS No. 160 are effective for financial
      statements issued for fiscal years beginning after December 15, 2008. Early
      adoption is prohibited. We have not yet determined the effect on our
      consolidated financial statements, if any, upon adoption of SFAS No. 141
      (R) or SFAS No. 160. We are aware that our accounting for minority
      interest will change and we are considering those effects now but believe we
      will only be a reclassification of minority interest from mezzanine equity
      to
      our stockholder’s equity section in the balance sheet, in any case we do not
      believe the implementation of SFAS 160 will be material to our financial
      position. SFAS 141 (R) will significantly affect the accounting for future
      business combinations and we will determine the accounting as new combinations
      are determined.


21




**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 related 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 exchange rate is considered minimal to our business
      operations.. However, we use the United States dollar for financial reporting
      purposes. 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 devalue significantly against the US dollar. Exchange
      rate fluctuations may adversely affect the value, in US dollar terms, of the
      our
      net assets and income derived from its 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.
            Report
                of Independent Registered Public Accounting
                Firm.


2.
            Consolidated
                Balance Sheets as of December 25, 2007 and
                2006.


3.
            Consolidated
                Statements of Operations for each of the three years in the period
                ended
                December 25, 2007, 2006 and 2005.


4.
            Consolidated
                Statements of Stockholders’ Equity and Comprehensive Income for each of
                the three years in the period endedDecember
                25, 2007, 2006 and 2005.


22





5.
            Consolidated
                Statements of Cash Flows for each of the three years in the period
                ended
                December 25, 2007, 2006 and 2005.


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 and financial
      disclosure.




**ITEM
      9A** **(T).
      CONTROLS AND PROCEDURES.** ****





*Conclusion
      Regarding the Effectiveness of 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 our disclosure controls and procedures, as such term is defined
      in
      Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.
      Based on this evaluation, our
      principal executive officer and principal financial officer have concluded
      that
      during the period covered by this report, such disclosure controls and
      procedures were not effective to detect the inappropriate application of US
      GAAP. This was due to deficiencies that existed in the design or operation
      of
      our internal control over financial reporting that adversely affected our
      disclosure controls and that may be considered “material weaknesses.” The Public
      Company Accounting Oversight Board has defined a material
      weakness as a “significant deficiency or combination of significant deficiencies
      that results in more than a remote likelihood that a material misstatement
      of
      the annual or interim financial statements will not be prevented or
      detected.”





*Management’s
      Report on Internal Control over Financial Reporting*





This
      annual report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management’s 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 management’s report in this annual
      report.





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). 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
      of
      our internal control over financial reporting based on the framework in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. In
      addition, in August 2004, we engaged a consulting firm to assist our management
      in evaluating and strengthening our internal control over financial reporting
      with the objective of full compliance with the Sarbanes-Oxley Act of 2002.
      Based
      on our evaluation, our principal executive officer and principal financial
      officer have concluded that during the period covered by this report, our
      internal controls over financial reporting were not effective. We have
      identified the following material weakness:





-
            absence
                of written audit program of the Internal Audit Department and shortage
                of
                internal audit staff;


-
            absence
                of Whistleblower Policy and Procedures;
                and


-
            absence
                of related party transaction control
                system.





*Remediation
      of Material Weaknesses*





We
      have
      started to formulate a program, which we believe will finish at the end of
      2008
      and will remedy the material weaknesses described above. The program includes
      (i) a series of education sessions for our staff with the objective of helping
      them to understand the meaning and value of a whistleblower policy and
      procedures, and (ii) recruitment of a competent head internal auditor to develop
      an internal audit program.





We
      are
      reviewing and revising our internal accounting policies and procedures,
      increasing the training of our accounting personnel in the application of U.S.
      GAAP, and, as appropriate, expanding the resources allocated to our internal
      audit department, including hiring new personnel experienced in the financial
      reporting and the financial control function. We
      will
      continue these efforts until we are satisfied that all “material weaknesses”
have been eliminated. We expect that resolution of all of these issues will
      take
      several months. Our principal executive officer will monitor the remediation
      process to ensure that we address all material weaknesses and that our internal
      controls system is strengthened.


23




All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can only
      provide reasonable assurances with respect to financial statement preparation
      and presentation. In addition, any evaluation of effectiveness for future
      periods is subject to the risk that controls may become inadequate because
      of
      changes in conditions in the future.





*Changes
      in Internal Control over Financial Reporting*





There
      have been no changes in our internal controls over financial reporting that
      occurred during the year ended December 25, 2007 that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.




**ITEM
      9B. OTHER INFORMATION** ****





None.


24





**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**
              **SINCE**Heng
                Jing Lu
            
            56
            
            Chairman
            
            2003Li
                Xia Wang
            
            49
            
            Director
                and Chief Executive Officer
            
            2003Ling
                Wang
            
            43
            
            Director
                and Vice President
            
            2003Zhi
                Yong Jiang
            
            41
            
            Independent
                Non-Executive Director
            
            2003De
                Lin Yang
            
            53
            
            Independent
                Non-Executive Director
            
            2003Qi
                Xue
            
            55
            
            Independent
                Non-Executive Director
            
            2003Feng
                Ju Chen
            
            52
            
            Independent
                Non-Executive Director
            
            2004Peter
                Mak
            
            46
            
            Chief
                Financial Officer
            
            N/A




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 Vice President 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.


25




**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.




**Mr.
      Peter Mak** ,
      joined
      the Company as Chief Financial Officer in November 2004. He graduated from
      Hong
      Kong Polytechnic University. He is a fellow of the Chartered Association of
      Certified Accountants in the U.K. and a fellow of the Hong Kong Institute of
      Certified Public Accountants. He was the founder and managing director of
      Venfund Investment in Hong Kong and Venfund Investment Management Ltd. in
      Shenzhen. Previously, he was the managing partner of Arthur Andersen Southern
      China and also a partner of Arthur Andersen Worldwide.





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 Mr. Peter Mak, Suite 2808, International Chamber of Commerce
      Tower, Fuhua Three Road, Shenzhen, 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, 2007 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 the American Stock Exchange (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.


26




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
      the American Stock Exchange 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 the
      American Stock Exchange. 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.





**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, 2007.








**ITEM
      11. EXECUTIVE COMPENSATION.** ****





**COMPENSATION
      DISCUSSION AND ANALYSIS**





The
      Compensation Committee of our board of directors and our CEO, CFO and head
      of
      Human Resources are collectively
      responsible for implementing and administering all aspects of our benefit and
      compensation plans and programs, as well as developing specific policies
      regarding compensation of our executive officers. All of the members of our
      Compensation Committee, Qi Xue, Feng Ju Chen and Zhi Yong Jiang, are independent
      directors.





**Compensation
      Objectives**





Our
      primary goal with respect to executive compensation has been to set compensation
      at levels that attract and retain the most talented and dedicated executives
      possible. Individual executive compensation is set at levels believed to be
      comparable with executives in other companies of similar size and stage of
      development operating in China .
      We also
      link long-term stock-based incentives to the achievement of specified
      performance objectives and to align executives’ incentives with stockholder
      value creation.





The
      Committee has implemented and maintained compensation policies that tie a
      portion of executives’ overall compensation to our financial and operational
      performance, as measured by revenues and net income, and to accomplishing
      strategic goals such as merger and acquisitions, and fund raising. In addition,
      as a policy for determining compensation, our Compensation Committee has
      determined that an executive officer who is a Chinese national will be entitled
      to a locally competitive package and an executive officer who is an expatriate
      from Hong Kong will be paid a salary commensurate with those paid to Hong Kong
      executives working in Hong Kong.





**Elements
      of Compensation**





*Base
      Salary* .
      All
      full time executives are paid a base salary. For executives who are Chinese
      nationals, including our CEO and Chairman, we do not have employment agreements.
      However, we have an employment agreement with our CFO, a Hong Kong expatriate,
      which sets forth certain elements of base salary and option grants as
      compensation. In all cases, the Committee establishes a minimum base salary
      for
      our executive officers. Base salaries for our executives are established based
      on the scope of their responsibilities, taking into account competitive market
      compensation paid by other companies in our industry for similar positions,
      professional qualifications, academic background, and the other elements of
      the
      executive’s compensation, including stock-based compensation. Our intent is to
      set executives ’
base
      salaries near the median of the range of salaries for executives in similar
      positions with similar responsibilities at comparable companies, in line with
      our compensation philosophy. Base salaries are reviewed annually, and may be
      increased to align salaries with market levels after taking into account the
      subjective evaluation described previously.


27





*Equity
      Incentive Compensation* .
      We
      believe that long-term performance is achieved through an ownership culture
      participated in by our executive officers through the use of stock-based awards.
      Currently, we do not maintain any incentive compensation plans based on
      pre-defined performance criteria. The Compensation Committee has the general
      authority, however, to award equity incentive compensation, i.e. stock options,
      to our executive officers in such amounts and on such terms as the committee
      determines in its sole discretion. The Committee does not have a determined
      formula for determining the number of options available to be granted. Incentive
      compensation is intended to compensate officers for accomplishing strategic
      goals such as mergers and
      acquisitions and fund raising. The Compensation Committee will review each
      executive’s individual performance and his or
      her contribution to our strategic goals periodically and determine the amount of
      incentive compensation towards the end of the fiscal year. Our Compensation
      Committee grants equity incentive compensation at times when we do not have
      material non-public information to avoid timing issues and the appearance that
      such awards are made based on any such information.





*Chinese
      Government Imposed Compensation* .
      As a
      result of mandatory government employment standards, our executives are also
      entitled to certain annual statutory benefits, including fully subsidized,
      Company-paid health insurance, seven days of paid vacation and unlimited paid
      sick leave . ****





**Determination
      of Compensation**





Our
      CEO,
      CFO and head of Human Resources meet frequently during the last several weeks
      of
      our fiscal year to evaluate each non-executive employee’s performance and
      determine his or her compensation for the following year. In the case of our
      executive officers, the Compensation Committee similarly evaluates the
      executive’s performance and the objectives set forth above at or about the end
      of our fiscal year to determine executive compensation. The Compensation
      Committee will also determine whether an executive officer is eligible for
      incentive compensation and if it is deemed in the best interests of the Company,
      the Committee may recommend that a certain number of stock options be granted
      to
      the executive officer as compensation for certain qualitative success during
      the
      fiscal year.





The
      following table sets forth the cash and other compensation paid by us in 2007
      to
      all individuals who served as our chief executive officer and chief financial
      officer, who we collectively refer to as the named executive officers (“NEOs”).
      No other executives received total compensation greater than $100,000 in
      2007.





**Summary
      Compensation Table**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            ****Option
                Awards****
              **($)(i)**
            
            ****Total****
              **($)****Li
                Xia Wang**(ii)
              Chief
                Executive Officer
              and
                Director
            
            
            2007
              2006
            
            
            20,000
              20,000
            
            
            —
              —
            
            
            20,000
              20,000**Peter
                Mak**(iii)
              Chief
                Financial Officer
            
            
            2007
              2006
            
            
            180,000
              180,000
            
            
            —
              8,140,000(iv
            )
            
            180,000
              8,320,000





(i)
      Amount reflects the compensation cost for the fiscal years ended December 25,
      2007 and 2006, of the named executive officer’s options to purchase shares of
      our common stock, calculated in accordance with SFAS 123R. See Note 15 to the
      Company’s audited financial statements for the fiscal year ended December 25,
      2007, included in Item 8 of this Annual Report for a discussion of assumptions
      made by the Company in determining the grant date fair value and compensation
      costs of these equity awards.





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





(iii)
      Peter Mak joined the Company as CFO in 2004. He is a Hong Kong expatriate.
      His
      annual base salary is $180,000.





(iv)
      On
      January 20, 2006, the Company and Mr. Mak further amended the Employment
      Agreement by entering into a second Supplementary Agreement (the “Second
      Employment Supplement,” and the Employment Agreement as supplemented by the
      Employment Supplement and the Second Employment Supplement, the “Supplemented
      Employment Agreement”) in order to further extend the contractual terms of his
      employment to December 31, 2008. Pursuant to the terms of the Second Employment
      Supplement, Mr. Mak was granted additional options to purchase up to 2,000,000
      shares of Common Stock at an exercise price of $1.60 per share. Upon issuance,
      such options were fully vested and immediately exercisable. As of January 29,
      2007 none of the options have been exercised. Mr. Mak may exercise the options
      without tendering cash consideration by surrendering shares then issuable upon
      exercise of the options having a fair market value on the date of exercise
      equal
      to the aggregate exercise price of the exercised options. On December 13, 2006,
      the Company and Mr. Mak entered into an Option Agreement whereby the Company
      granted options to purchase up to 6,000,000 shares of Common Stock, which
      options are fully vested on the same day, at an exercise price of $1.82 per
      share. Mr. Mak may exercise the options without tendering cash consideration
      by
      surrendering shares then issuable upon exercise of the options having a fair
      market value on the date of exercise equal to the aggregate exercise price
      of
      the exercised options.


28




**Grants
      of Plan-Based Awards**




**Name**
            
            **Grant
                Date**
            
            **Approval
                Date**
            
            **All
                Other**
              **Option Awards:
                Number of Securities Underlying
                Options (#)**
            
            **Exercise or**
              **Base Price**
              **of Option**
              **Awards**
              **($/Sh)**
            
            **Grant Date Fair
                Value of Stock and Option**
              **Awards**
              **($)**
            
            **Grant Date**
              **Fair Market****Value of****a**
              **Share**
              **($/Sh)**Li
                Xia Wang
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Peter
                Mak
            
            
            January
                20, 2006
              December
                13, 2006
            
            
            January
                20, 2006
              December
                19, 2006 (2)
            
            
            2,000,0006,000,000
            (1)
              (3)
            $
              $
            1.60
              1.82
            
            $
              $
            2,320,000
              5,820,000
            
            $
              $
            1.16
              0.97
            (4)
              (4)





(1)
      Options to purchase up to 2,000,000 shares of common stock **





In
      2006,
      our Compensation Committee met two times and made two grants of
      options **** to
      purchase up to an aggregate of 8 million shares of our Class A Common Stock.
      All
      options were granted to Peter Mak, our Chief Financial Officer, to compensate
      him for his extraordinary contributions towards accomplishing our strategic
      goals, including fund raising and acquisitions and to incentivize him to make
      further contributions in the future. The options were granted on January 20,
      2006 with an exercise price of $1.60. The closing market price of our Class
      A
      Common Stock on the American Stock Exchange on January 20, 2006 was $1.54.
      The
      exercise price was determined by the Compensation Committee by comparing the
      average of the previous 10 days’ market price. The FAS 123R fair value of the
      options at the grant date is $2,320,000. These options were granted to the
      CFO
      as a reward for the extraordinary effort made by the CFO in successfully
      completing the $9.5 million financing prior to the end of the fiscal year in
      December 2005.





(2)
      Any
      exercise of such options granted on December 13, 2006 is contingent upon the
      effectiveness of shareholder consent, which shall occur no sooner than 20 days
      following the distribution of a Definitive Information Statement disclosing
      the
      approval of the option agreement between the Company and Peter Mak dated
      December 13, 2006.





(3)
      Options to purchase up to 6,000,000 shares of common stock.





The
      options were granted on December 13, 2006 with an exercise price of $1.82.
      The
      closing market price of our Class A Common Stock on the American Stock Exchange
      on December 13, 2006 was also $1.82. The exercise price was determined by the
      Compensation Committee by comparing the average of the previous 10 days’ market
      price. The FAS 123R fair value of the options is $5,820,000. These options
      were
      granted to recognize the CFO’s contributions in negotiating the terms and
      closing the acquisition of the Company’s Chengdu Plant and to incentivize him to
      make further contributions in the future.





(4)
      Determination of Grant Date Fair Value.





In
      order
      to determine the grant date fair value of the options, we used a Black-Scholes
      option-pricing model. Under the Black-Scholes model, we considered several
      factors and made several assumptions, including the strike price, time to
      maturity, volatility of the underlying shares, and a risk-free interest rate.





Based
      on
      the above Black-Scholes option-pricing model, the fair value per share was
      $1.16
      and $0.97 for options granted on January 20 and December 13, 2006,
      respectively.


29




**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
                Date**Li
                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.





**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.





**EMPLOYMENT
      CONTRACTS**





We
      have
      an Employment Contract with Mr. Peter Mak, our Chief Financial Officer. Mr.
      Mak
      is entitled to an annual compensation of US$180,000 per year until December
      31,
      2008 and under the agreement he has been granted stock options to acquire
      400,000 shares of Class A Common Stock at an exercise price of $1.00 per share,
      600,000 shares of Class A Common Stock at an exercise price of $1.20 per share,
      2,000,000 shares of Class A Common Stock at an exercise price of $1.60 per
      share
      and 6,000,000 shares of Class A Common Stock at an exercise price of $1.82
      per
      share. During the year ended December 25, 2007, Mr. Mak had not exercised any
      options to purchase Class A Common Stock.





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





The
      following table sets forth, as of March 9, 2008, 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, 2008, there were 56,071,947 shares
      of Common Stock outstanding.





**Name
                and Address of Beneficial Owner**
            
            **Amount and Nature of**
              **Beneficial Ownership**
            
            **Percent of**
              **Class**New
                Dragon Asia Food Ltd.
              Suite
                2808, International Chamber of Commerce Tower,
              Fuhua
                Three Road, Shenzhen, PRC 518048
            
            
            28,323,954
            
            
            50.51
            %Heng
                Jing Lu†
              Chairman
            
            
            28,323,954(1
            )
            
            50.51
            %Peter
                Mak†
              Chief
                Financial Officer
            
            
            8,000,000(2)(3
            )
            
            12.49
            %Li
                Xia Wang†
              Chief
                Executive Officer and Director
            
            
            -0-
            
            
            *Ling
                Wang†
              Director
                and Vice President
            
            
            -0-
            
            
            *Zhi
                Yong Jiang†
              Director
            
            
            -0-
            
            
            *De
                Lin Yang†
              Director
            
            
            -0-
            
            
            *Qi
                Xue†
              Director
            
            
            -0-
            
            
            *Feng
                Ju Chen†
              DirectorAll
                Directors and Executive Officers (8 people)
            
            
            36,323,954
            
            
            56.69
            %







*
      Less
      than one percent.


30




†
Address
      of referenced person is c/o New Dragon Asia Corp. Suite 2808, International
      Chamber of Commerce Tower, Fuhua Three Road, Shenzhen, PRC 518048.





(1)
      Represents shares owned by New Dragon Asia Food Ltd. 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.




(2)
      Includes shares underlying options fully exercisable for up to 2,000,000 shares
      at an exercise price of $1.60 per share granted on January 20,
      2006.




(3)
      Includes shares underlying options fully exercisable for up to 6,000,000 shares
      at an exercise price of $1.82 per share pursuant to an option granted on
      December 13, 2006.




**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.




**ITEM
      14. PRINCIPAL ACCOUNTING FEES AND SERVICES.** ****





The
      Audit
      Committee has selected Grobstein, Horwath & Company LLP as our independent
      accountants for the fiscal year ending December 25, 2007. Grobstein, Horwath
      & Company LLP was our independent accounting firm for the fiscal year ended
      December 25, 2006.





***Public
      Accountants’ fees***





For
      fiscal years ended December 25, 2007 and 2006, fees for services provided by
      Grobstein, Horwath & Company LLP were as follows:





2007
            
            2006Audit
                Fees
            
            $
            204,545
            
            $
            138,000Audit
                Related Fees
            
            $
            0
            
            $
            100,500Tax
                Fees
            
            $
            8,000
            
            $
            5,000All
                other fees
            
            $
            0
            
            $
            0




31





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.





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.




32





**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**
            
            **Description**2.1
            
            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).




33





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).




34





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 Grobstein, Horwath & Company LLP, Independent Registered Public
                Accounting Firm, filed herewith.31.1
            
            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.


35





**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:
                March 14, 2008
            By:
            /s/
                Li Xia WangName:
            Li
                Xia WangTitle:
            Chief
                Executive Officer





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:
                March 14, 2008
            By:
            /s/
                Heng Jing LuName:
            Heng
                Jing LuTitle:
            ChairmanDated:
                March 14, 2008
            By:
            /s/
                Peter MakName:
            Peter
                MakTitle:
            Chief
                Financial OfficerDated:
                March 14, 2008
            By:
            /s/
                Ling WangName:
            Ling
                WangTitle:
            DirectorDated:
                March 14, 2008
            By:
            /s/
                De Lin YangName:
            De
                Lin YangTitle:
            DirectorDated:
                March 14, 2008
            By:
            /s/
                Zhi Yong JiangName:
            Zhi
                Yong JiangTitle:
            DirectorDated:
                March 14, 2008
            By:
            /s/
                Qi XueName:
            Qi
                XueTitle:
            DirectorDated:
                March 14, 2008
            By:
            /s/
                Feng Ju ChenName:
            Feng
                Ju ChenTitle:
            Director




36





**NEW
      DRAGON ASIA CORP.**





**FINANCIAL
      STATEMENTS**





**TABLE
      OF CONTENTS**


Report
                  of Independent Registered Public Accounting Firm
              
              
              F-2Consolidated
                  Balance Sheets as of December 25, 2007 and 2006
              
              
              F-3Consolidated
                  Statements of Operations for each of the three years in the period
                  ended
                  December 25, 2007, 2006 and 2005
              
              
              F-4Consolidated
                  Statements of Stockholders’ Equity and Comprehensive Income for each of
                  the three years in the period ended December 25, 2007, 2006 and
                  2005
              
              
              F-5Consolidated
                  Statements of Cash Flows for each of the three years in the period
                  ended
                  December 25, 2007, 2006 and 2005
              
              
              F-6Notes
                  to Consolidated Financial Statements
              
              
              F-8




F-1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** ****





To
      the
      Stockholders and Board of Directors of New Dragon Asia Corp. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of New Dragon Asia Corp.
      and Subsidiaries (the “Company”) as of December 25, 2007 and 2006 and the
      related consolidated statements of operations, stockholders’ equity and
      comprehensive income and cash flows for each of the three years in the period
      ended December 25, 2007. 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 audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits 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 audits 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 audits provide 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, 2007 and 2006, and the consolidated
      results of their operations and their cash flows for each of the three years
      in
      the period ended December 25, 2007 in conformity with U.S. generally accepted
      accounting principles.




**/s/
      GROBSTEIN, HORWATH & COMPANY LLP**





Sherman
      Oaks, California


March
      11,
      2008




F-2





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS** ****


(Amounts
      in thousands, except share data)





**December 25,**
              **2007**
            
            **December 25,**
              **2006****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            3,646
            
            $
            10,276Accounts
                receivable, net
            
            
            9,223
            
            
            8,835Deposits
                and prepayments, net
            
            
            12,183
            
            
            6,586Inventories,
                net
            
            
            22,050
            
            
            11,598Due
                from related companies
            
            
            913
            
            
            857Total
                current assets
            
            
            48,015
            
            
            38,152Property,
                machinery and equipment, net
            
            
            25,986
            
            
            24,248Land
                use rights, net
            
            
            7,294
            
            
            6,983Goodwill
            
            
            125
            
            
            125Total
                assets
            
            $
            81,420
            
            $
            69,508**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            2,982
            
            $
            2,723Other
                payables and accruals
            
            
            2,765
            
            
            3,255Taxes
                payable
            
            
            3,530
            
            
            3,453Due
                to related companies
            
            
            36
            
            
            28Embedded
                derivatives at fair value
            
            
            2,493
            
            
            11,138Total
                current liabilities
            
            
            11,806
            
            
            20,597Due
                to New Dragon Asia Food Limited
            
            
            1,405
            
            
            317Due
                to joint venture partners
            
            
            272
            
            
            102Total
                liabilities
            
            
            13,483
            
            
            21,016Minority
                interests
            
            
            294
            
            
            276Series
                A & B Redeemable Convertible Preferred Stock, $0.0001 par
                value:
              Authorized
                shares – 5,000,000
              Issued
                and outstanding – 9,434 shares and 10,162 shares at December 25, 2007 and
                2006, respectively
            
            
            5,321
            
            
            4,204CommitmentsStockholders’
                equity:Class
                A Common Stock, $0.0001 par value:
              Authorized
                shares – 102,000,000
              Issued
                and outstanding – 55,195,385 in 2007 and 53,614,723 in
                2006
            
            
            5
            
            
            5Class
                B Common Stock, $0.0001 par value:
              Authorized
                  shares – 2,000,000 – none issued and
                  outstanding
            
            
            —
            
            
            —Additional
                paid-in capital
            
            
            29,982
            
            
            28,411Retained
                earnings
            
            
            24,568
            
            
            12,668Accumulated
                other comprehensive income
            
            
            7,767
            
            
            2,928Total
                stockholders’ equity
            
            
            62,322
            
            
            44,012Total
                liabilities and stockholders’ equity
            
            $
            81,420
            
            $
            69,508





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




F-3





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS** ****





(Amounts
      in thousands, except per share data)





**For
                the years ended December 25,****2007**
            
            **2006**
            
            **2005**Net
                revenue
            
            $
            55,738
            
            $
            53,439
            
            $
            44,180Cost
                of goods sold
            
            
            (45,427
            )
            
            (43,404
            )
            
            (36,151
            )Gross
                profit
            
            
            10,311
            
            
            10,035
            
            
            8,029Operating
                expenses:Selling
                and distribution expenses
            
            
            (1,279
            )
            
            (1,045
            )
            
            (721
            )General
                and administrative expenses
            
            
            (2,606
            )
            
            (10,908
            )
            
            (2,358
            )Income/(loss)
                from operations
            
            
            6,426
            
            
            (1,918
            )
            
            4,950Other
                income (expense):Other
                income
            
            
            252
            
            
            144
            
            
            186Interest
                income
            
            
            41
            
            
            67
            
            
            10Gain(loss)
                on fair value adjustments toembedded
                derivatives
            
            
            8,412
            
            
            (1,434
            )
            
            (4,064
            )VAT
                refund
            
            
            952
            
            
            2,328
            
            
            2,158Income/(loss)
                before income taxes and minority interests
            
            
            16,083
            
            
            (813
            )
            
            3,240Provision
                for income taxes
            
            
            (1,968
            )
            
            (1,657
            )
            
            (1,487
            )Income/(loss)
                before minority interests
            
            
            14,115
            
            
            (2,470
            )
            
            1,753Minority
                interests
            
            
            —
            
            
            (134
            )
            
            (6
            )Net
                income/(loss)
            
            $
            14,115
            
            $
            (2,604
            )
            $
            1,747Accretion
                of redeemable preferred stock
            
            
            (1,512
            )
            
            (1,882
            )
            
            (454
            )Preferred
                stock dividends
            
            
            (703
            )
            
            (875
            )
            
            (187
            )Income
                (loss) available to common stockholders
            
            $
            11,900
            
            $
            (5,361
            )
            $
            1,106Earnings
                per common shareBasic
            
            $
            0.22
            
            $
            (0.10
            )
            $
            0.02Diluted
            
            $
            0.21
            
            $
            (0.10
            )
            $
            0.02Weighted
                average number of common shares outstandingBasic
            
            
            54,109
            
            
            51,485
            
            
            46,051Diluted
            
            
            55,519
            
            
            51,485
            
            
            46,949





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




F-4





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME** ****





**(Amounts
      in the thousands)**




Class A
              Common StockShares
            
            
            Amount
            
            
            Additional
              Paid-in
              Capital
            
            
            Receivable
                from Stockholder
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Income
            
            
            Total
              Stockholders’
              Equity
            
            
            Comprehensive
              IncomeBalance
                at
              December
                25, 2004
            
            
            45,061
            
            
            4
            
            
            9,909
            
            
            -
            
            
            16,922
            
            
            -
            
            
            26,835
            
            
            -Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,747
            
            
            -
            
            
            1,747
            
            
            1,747Accretion
                of redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (454
            )
            
            
            
            
            (454
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (187
            )
            
            
            
            
            (187
            )Stock-based
              compensation
                expense
            
            
            -
            
            
            -
            
            
            105
            
            
            -
            
            
            -
            
            
            -
            
            
            105
            
            
            -Foreign
                currency
              translation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            798
            
            
            798
            
            
            798Preferred
                stock issuance cost
            
            
            -
            
            
            -
            
            
            565
            
            
            -
            
            
            -
            
            
            -
            
            
            565
            
            
            -Conversion
                of preferred stocks and related dividend payments made in Class A
                Common
                Stock
            
            
            2,039
            
            
            0.5
            
            
            2,611
            
            
            -
            
            
            -
            
            
            -
            
            
            2,611.5
            
            
            -Exercise
                of warrants
            
            
            2,222
            
            
            0.5
            
            
            2,025
            
            
            -
            
            
            -
            
            
            -
            
            
            2,025.5
            
            
            -Receivable
                from stockholder
            
            
            -
            
            
            -
            
            
            -
            
            
            (49
            )
            
            -
            
            
            -
            
            
            (49
            )
            
            -Balance
                at
              December
                25, 2005
            
            
            49,322
            
            $
            5
            
            $
            15,216
            
            $
            (49
            )
            $
            18,029
            
            $
            798
            
            $
            33,999
            
            $
            2,545Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,604
            )
            
            -
            
            
            (2,604
            )
            
            (2,604
            )Write
                off receivable from stockholder
            
            
            -
            
            
            -
            
            
            -
            
            
            49
            
            
            -
            
            
            -
            
            
            49Accretion
                of redeemable preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,882
            )
            
            -
            
            
            (1,882
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (875
            )
            
            
            
            
            (875
            )Stock-based
              compensation
                expense
            
            
            -
            
            
            -
            
            
            8,140
            
            
            -
            
            
            -
            
            
            -
            
            
            8,140
            
            
            -Foreign
                currency
              translation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,130
            
            
            2,130
            
            
            2,130Conversion
                of preferred stocks and related dividend payments made in Class A
                Common
                Stock
            
            
            3,292
            
            
            -
            
            
            3,935
            
            
            -
            
            
            -
            
            
            -
            
            
            3,935
            
            
            -Exercise
                of stock option
            
            
            1,000
            
            
            -
            
            
            1,120
            
            
            -
            
            
            -
            
            
            -
            
            
            1,120
            
            
            -Balance
                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
            
            $
            18,954





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


F-5


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS** ****





**(Amounts
      in thousands)**





**For
                the years ended December 25,****2007**
            
            **2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            14,115
            
            $
            (2,604
            )
            $
            1,747Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Provision
                for doubtful accounts
            
            
            272
            
            
            83
            
            
            250Provision
                for inventory reserve
            
            
            20
            
            
            —
            
            
            —Depreciation
                and amortization of land use rights
            
            
            1,889
            
            
            1,613
            
            
            1,266Loss
                (gain) on sale of machinery and equipment
            
            
            20
            
            
            —
            
            
            5Loss(gain)
                on fair value adjustments to embedded derivatives
            
            
            (8,412
            )
            
            1,434
            
            
            4,064Minority
                interests
            
            
            —
            
            
            134
            
            
            6Stock-based
                compensation expense
            
            
            —
            
            
            8,140
            
            
            105Non-cash
                service payment
            
            
            269
            
            
            —
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (660
            )
            
            (2,340
            )
            
            (351
            )Deposits
                and prepayments
            
            
            (5,597
            )
            
            (1,616
            )
            
            (3,450
            )Inventories
            
            
            (10,472
            )
            
            (3,968
            )
            
            (3,640
            )Due
                from related companies
            
            
            (20
            )
            
            (178
            )
            
            504Accounts
                payable
            
            
            259
            
            
            14
            
            
            —Other
                payables and accruals
            
            
            (494
            )
            
            774
            
            
            316Taxes
                payable
            
            
            77
            
            
            1,599
            
            
            363Due
                to related companies
            
            
            —
            
            
            (598
            )
            
            (233
            )Net
                cash provided by (used in) operating activities
            
            
            (8,734
            )
            
            2,487
            
            
            952**Cash
                flows from investing activities:**Acquisition
                of Chengdu Plant
            
            
            —
            
            
            (2,414
            )
            
            —Proceeds
                from sale of property, machinery and equipment
            
            
            49
            
            
            —
            
            
            22Purchases
                of property, machinery and equipment
            
            
            (1,603
            )
            
            (5,129
            )
            
            (3,395
            )Purchases
                of land use rights
            
            
            —
            
            
            (2,084
            )
            
            (273
            )Minority
                interest
            
            
            —
            
            
            266
            
            
            —Net
                cash provided by (used in) investing activities
            
            
            (1,554
            )
            
            (9,361
            )
            
            (3,646
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of preferred stock
            
            
            —
            
            
            —
            
            
            15,500Payments
                of issuance costs related to preferred stock
            
            
            —
            
            
            (58
            )
            
            (1,218
            )Preferred
                Stock Dividends
            
            
            (49
            )
            
            (387
            )
            
            (30
            )Proceeds
                from parent company
            
            
            1,088
            
            
            —
            
            
            —Repayment
                to parent company
            
            
            —
            
            
            180
            
            
            (166
            )Repayment
                to joint venture partners
            
            
            170
            
            
            48
            
            
            (56
            )Proceeds
                from exercise of warrants
            
            
            —
            
            
            —
            
            
            1,977Proceeds
                from exercise of stock options
            
            
            —
            
            
            1,120
            
            
            —Net
                cash provided by (used in) financing activities
            
            
            1,209
            
            
            903
            
            
            16,007Foreign
                currency translation adjustment
            
            
            2,449
            
            
            1,915
            
            
            800Net
                increase (decrease) in cash and cash equivalents
            
            
            (6,630
            )
            
            (4,056
            )
            
            14,113Cash
                and cash equivalents at the beginning of the period
            
            
            10,276
            
            
            14,332
            
            
            219Cash
                and cash equivalents at the end of the period
            
            $
            3,646
            
            $
            10,276
                $
            
            
            14,332


F-6





**Non-cash
                Investing and Financing Activities**Conversion
                of preferred stock to common stock
            
            $
            730
            
            $
            3,438
            
            $
            2,611Dividend
                payments on preferred stock in form of common stock
            
            $
            678
            
            $
            277
            
            $
            72**Supplemental
                disclosure of cash flows information:**Income
                taxes paid
            
            $
            1,274
            
            $
            3
            
            $
            1,865





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, 2007, 2006 and 2005.





(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, 2007,
      2006
      and 2005.





**NOTE
      2. BASIS OF PRESENTATION**





The
      consolidated financial statements include the financial statements of New Dragon
      Asia Corp. and all of its subsidiaries (Note 1) required to be consolidated
      in
      accordance with accounting principles generally accepted in the United States
      of
      America (“U.S. GAAP”). Intercompany balances and transactions have been
      eliminated in consolidation.





Investments
      in companies in which the Company has significant influence, or ownership
      between 20% and 50% of the investees, are accounted for using the equity method.
      Under the equity method, the investment is originally recorded at cost and
      adjusted to recognize the Company’s share of net earnings or losses of the
      investees. The adjustment is limited to the extent of the Company’s investment
      in and advances to the investees and financial guarantees made on behalf of
      the
      investees. The Company’s investments in other entities are accounted for using
      the cost method.





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.





The
      consolidated financial statements for the year ended December 25, 2005 included
      in this report have previously been restated to reflect additional non-operating
      gains and losses related to the classification of and accounting for: (1) the
      conversion features of Series A & B Preferred Stock and associated warrants,
      (2) the amortization associated with the discount recorded with respect to
      our
      Series A & B Preferred Stock as a preferred stock dividend, and (3)
      the conversion features associated with the preferred stock issued by us
      and associated warrants. The Company filed Form 10K/A with the SEC on November
      30, 2006 restating the year ended December 25, 2005. For further details,
      consult that filing.


F-9





**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. 101, “Revenue
      Recognition in Financial Statements” and 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”).





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, 2007, 2006 and 2005, shipping and handling
      costs
      were all related to exports of noodle and included in selling expenses amounting
      to $937, $681 and $297.





***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 balance sheet at fair value. These derivatives, including
      embedded derivatives in our Series A & B Preferred Stock, are separately
      valued and accounted for on our balance sheet.





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.





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, 2007 and 2006, 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 “(Loss) gain on fair value adjustments to embedded
      derivatives.”


F-10





The
      consolidated statements of operations for the years ended December 25, 2007
      and
      2006 and 2005 included in this report have reflected additional non-operating
      gains and losses related to the classification of and accounting for: (1) the
      conversion features of Series A & B Preferred Stock and associated warrants,
      (2) the amortization associated with the discount recorded with respect to
      our
      Series A & B Preferred Stock as a preferred stock dividend, and (3)
      the conversion features associated with the preferred stock issued by us
      and associated warrants.





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 $0.90
      to a
      high $1.59 during last six months of 2007. We were required to report a
      change of $8,412 as a gain on the embedded derivative liability in other income
      on our statement of operations for the year ended December 25, 2007 and a loss
      of $1,434 for 2006 and a loss of $4,024 for 2005.




***Financial
      instruments***





The
      carrying amounts for cash and cash equivalents, accounts receivable, deposits
      and prepayments, accounts payable, other payables and accruals approximate
      their
      fair values because of their nature and respective duration. The Company
      accounts for its embedded derivatives at their fair values at each reporting
      period.





***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.





***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.


F-11





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 believes
      no permanent impairment has occurred as of December 25, 2007.





***Land
      use rights***





Land
      use
      rights are stated at cost, less accumulated amortization. Amortization is
      computed using the straight-line method over the estimated useful 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.” No event has occurred that would trigger an
      impairment assessment of the Company’s intangible assets with finite lives as of
      December 25, 2007.





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, 2007 the Company had goodwill of $125 related to the
      acquisition of Delta Link Ltd in 2006 and will be subject to annual
      evaluation.





***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.





***Operating
      lease***





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.





***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.





***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, 2007,
      the revenues and expenses of the Company were translated to U.S. dollars based
      on an average rate of US$1.00 = RMB 7.6149 and the assets and liabilities of
      the
      Company maintained in Renminbi translated to U.S. dollars at US$1.00 = RMB
      7.3261. The foreign currency translation adjustment of $7,767, $2,928 and $798
      have been reported as comprehensive income in the consolidated statement of
      stockholders’ equity and comprehensive income for 2007, 2006 and
      2005.


F-12





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 expenditures. 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 6,447dilutive shares on an “as
      converted” basis for the Redeemable Convertible Preferred stock for the twelve
      months ended December 25, 2007 were excluded from the calculation of diluted
      gain per share since their effect would have been anti-dilutive. Approximately
      7,254 dilutive shares on an “as converted” basis for the Redeemable Convertible
      Preferred stock for the twelve months ended December 25, 2006 were excluded
      from
      the calculation of diluted loss per share since their effect would have been
      anti-dilutive. Approximately 10,353 dilutive shares on an “as converted” basis
      for the Redeemable Convertible Preferred stock for the twelve months ended
      December 25, 2005 were excluded from the calculation of diluted loss per share
      since their effect would have been anti-dilutive.





The
      calculation of diluted weighted average common shares outstanding for the twelve
      months ended December 25, 2007, 2006 and 2005 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. For the year ended December 25, 2006 the options and warrants were
      anti 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,****2007**
            
            **2006**
            
            **2005**Weighted
            
            
            
            
            
            Weighted
            
            
            
            
            
            WeightedIncome(Loss)
            
            AverageShares
            
            Per-Share
            
            Income(Loss)
            
            AverageShares
            
            Per-Share
            
            Income(Loss)
            
            AverageShares
            
            Per-ShareEarnings
                per share – basicIncome
                available to common stockholders
            
            $
            11,900
            
            
            54,109
            
            $
            0.22
            
            $
            (5,361
            )
            
            51,485
            
            $
            (0.10
            )
            $
            1,106
            
            
            46,051
            
            $
            0.02Effect
                of dilutive securitiesRedeemable
                Convertible Preferred
                Stock
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —Options
                and Warrants
            
            
            —
            
            
            1,410
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            898Earnings
                per share – dilutedEliminate
                underscoreIncome
                available to common stockholders
            
            $
            11,900
            
            
            55,519
            
            $
            0.21
            
            $
            (5,361
            )
            
            51,485
            
            $
            (0.10
            )
            $
            1,106
            
            
            46,949
            
            $
            0.02




F-13





***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 supersedes 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. The
      Company has 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 existing prior to the adoption during the
      period.





***Recent
      accounting pronouncements***





In
      September 2006, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 157, Fair *Value
      Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. We do not expect the adoption of SFAS No. 157 to have a
      material impact on our consolidated financial statements. The FASB may delay
      a
      portion of this standard.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits companies to choose to measure many financial instruments
      and certain other items at fair value. SFAS No. 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007. We do not expect the adoption of SFAS No. 159 to have a material impact
      on
      our consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (R), *Business
      Combinations* ,
      and
      SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* .
      SFAS
      No. 141 (R) requires an acquirer to measure the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree at their fair values on the acquisition date, with goodwill being
      the
      excess value over the net identifiable assets acquired. SFAS No. 160
      clarifies that a noncontrolling interest in a subsidiary should be reported
      as
      equity in the consolidated financial statements. The calculation of earnings
      per
      share will continue to be based on income amounts attributable to the parent.
      SFAS No. 141 (R) and SFAS No. 160 are effective for financial
      statements issued for fiscal years beginning after December 15, 2008. Early
      adoption is prohibited. We have not yet determined the effect on our
      consolidated financial statements, if any, upon adoption of SFAS No. 141
      (R) or SFAS No. 160. We are aware that our accounting for minority
      interest will change and we are considering those effect now but believe we
      will
      only have a reclassification of minority interest to our stockholder’s equity
      section the balance sheet in any case we do not believe the implementation
      of
      SFAS 160 will be material to our financial position. SFAS 141 (R) will
      significantly affect the accounting for future business
      combinations.





***Business
      Acquisition and Combination***





**Delta
      Link Limited and Chengdu Plant** **(in thousands)**





On
      February 24, 2006, the Company acquired 100% of the equity interest shares
      of
      Delta Link Ltd. (“Delta Link”) for a cash consideration of $3,300. Delta Link is
      a holding company ,
      which
      owns a 90% equity interest in a noodle manufacturing facility in Chengdu,
      Sichuan Province. The Chengdu Plant serves the western China
      market.





This
      acquisition has been accounted for using the purchase method pursuant to SFAS
      No. 141, “Business Combinations.” The consolidated financial statements include
      the results of operations of the acquired company commencing as of the
      acquisition date. No pro forma information is presented due to the immaterial
      effect of this acquisition on the consolidated result of
      operations.





In
      connection with the acquisition, the assets acquired and the liabilities assumed
      from Delta Link and the Chengdu Plant were recorded at their fair values on
      the
      consolidated balance sheet. Based on the initial purchase price allocation,
      the
      Company recorded goodwill in the amount of approximately $125.





The
      long-lived assets and goodwill are subject to periodic review to determine
      if
      impairment has occurred and, if so, the amount of such impairment. If the
      Company determines that impairment exists, the Company will be required to
      reduce the carrying value of the impaired assets by the amount of impairment
      and
      to record a corresponding charge to operations in the period of
      impairment.


F-14





The
      allocation of initial purchase consideration was as follows (in
      thousands):





Acquisition
                consideration
            
            $
            3,300Accounts
                receivable
            
            
            62Property,
                machinery and equipment
            
            
            2,167Land
                use rights
            
            
            1,056Accounts
                payable
            
            
            (13
            )Other
                payable and accruals
            
            
            (97
            )Net
                assets value
            
            
            3,175Goodwill
            
            $
            125





**Longyuan
      Packaging Plant**





On
      January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
      Materials Company Limited, 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.




**NOTE****4.
      ACCOUNTS RECEIVABLE**





Accounts
      receivable consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In
                thousands)
            
            (In
                thousands)Accounts
                receivable
            
            $
            10,167
            
            $
            9,554Less:
                Allowance for doubtful accounts
            
            
            (944
            )
            
            (719
            )$
            9,223
            
            $
            8,835





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





**December
                25,**
              **2007**
            
            **December
                25,**
              **2006**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            719
            
            $
            893Add:
                provision during the year
            
            
            272
            
            
            83Less:
                write-offs during the year
            
            
            (47
            )
            
            (257
            )Balance
                at the end of the year
            
            $
            944
            
            $
            719





**NOTE****5.
      DEPOSITS AND PREPAYMENTS**





Deposits
      and prepayments consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In thousands)
            
            (In thousands)Deposits
                for raw materials
            
            $
            12,053
            
            $
            6,394Prepayments
                and advances
            
            
            130
            
            
            192$
            12,183
            
            $
            6,586





**NOTE****6.
      INVENTORIES**





Inventories
      consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In thousands)
            
            (In thousands)Raw
                materials (including packing materials)
            
            $
            20,403
            
            $
            9,807Finished
                goods
            
            
            1,743
            
            
            1,89522,146
            
            
            11,702Less:
                Inventory reserve
            
            
            (96
            )
            
            (104
            )$
            22,050
            
            $
            11,598


F-15





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





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            104
            
            $
            134Add:
                provision during the year
            
            
            20
            
            
            -Less:
                write-offs during the year
            
            
            (28
            )
            
            (30
            )Balance
                at the end of the year
            
            $
            96
            
            $
            104




**NOTE** **7.
      DUE FROM RELATED COMPANIES**





Due
      from
      related companies consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In
                thousands)
            
            (In
                thousands)Due
                from affiliated companies for sales
            
            $
            913
            
            $
            857




**NOTE** **8.
      PROPERTY, MACHINERY AND EQUIPMENT**





Property,
      machinery and equipment consist of the following:





Useful Life
            
            **December 25,**
              **2007**
            
            **December 25,**
              **2006**(In years)
            
            (In thousands)
            
            (In thousands)Buildings
            
            
            40
            
            $
            13,839
            
            $
            12,935Machinery
                and equipment
            
            
            5-
                12
            
            
            20,229
            
            
            19,067Construction
                in process
            
            
            
            
            
            1,124
            
            
            —35,192
            
            
            32,002Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (9,206
            )
            
            (7,754
            )$
            25,986
            
            $
            24,248





Depreciation
      and amortization expense was approximately $1,488, $1,439 and $1,151 for the
      years ended December 25, 2007, 2006 and 2005, respectively.




**NOTE** **9.
      LAND USE RIGHTS**





Land
      use
      rights consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In thousands)
            
            (In thousands)Land
                use rights
            
            $
            8,415
            
            $
            7,882Less:
                Accumulated amortization
            
            
            (1,121
            )
            
            (899
            )$
            7,294
            
            $
            6,983





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, 2007 and 2006,
      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.


F-16





Amortization
      expense was approximately $222, $174, and $115for the years ended December
      25,
      2007, 2006 and 2005, respectively.




**NOTE
      1****0.
      OTHER PAYABLES AND ACCRUALS**





Other
      payables and accruals consist of the following:





**December 25,**
              **2007**
            
            **December 25,**
              **2006**(In thousands)
            
            (In thousands)Deposits
                from customers
            
            $
            566
            
            $
            1,094Accruals
                for payroll, bonus and benefits
            
            
            294
            
            
            290Utilities
                and accrued expenses
            
            
            1,905
            
            
            1,871$
            2,765
            
            $
            3,255





**NOTE
      1** **1.
      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, 2007, 2006 and 2005, substantially all of the Company’s
      income was generated in the PRC, which is subject to PRC income taxes at rates
      ranging from 24% to a statutory rate of 33%. Four of the PRC subsidiaries of
      the
      Company will be eligible to be exempt from income taxes for a two-year period
      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 operate and are also entitled
      to
      partial tax refunds from those tax bureaus.





As
      of
      December 25, 2007, 2006 and 2005, 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:





**2007**
            
            **2006**
            
            **2005**Expected
                tax provision
            
            
            33
            %
            
            33
            %
            
            33
            %Non
                deductible expenses:Stock
                compensation
            
            
            —
            
            
            (330
            )%
            
            1
            %Change
                in fair value of derivatives
            
            
            (17
            )%
            
            (58
            )%
            
            41
            %Expenses
                outside of China
            
            
            3
            %
            
            (51
            )%
            
            9
            %Governmental
                tax rate effects:Reduction
                for preferential tax rate
            
            
            (4
            )%
            
            68
            %
            
            (15
            )%Impact
                of effective tax holiday and lower factory rates
            
            
            (3
            )%
            
            134
            %
            
            (23
            )%Effective
                tax rate
            
            
            12
            %
            
            (204
            )%
            
            46
            %




***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, 2007, 2006 and 2005, the tax
      years, which remain subject to examination by major tax jurisdictions (PRC)
      as
      of December 31, 2007.


F-17




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
      1** **2.
      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, 2007, all of the warrants issued to the
      placement agent were exercised cashless and 4,616 shares of Series A Preferred
      Stock were converted into 4,858,947 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, 2007, 1,450 shares of
      Series B Preferred Stock were converted into 906,250 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:





Preferred
                Stock A
            
            Preferred
                Stock BPreferred
                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
            
            December
                22, 2010Mandatory
                Conversion
            
            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.
              
              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.
            
            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 orClass
                A Common Stock valued at 90% of the volume-weighted current market
                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.




F-18





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 right
                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 right
                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, 827,000 since
      the
      issuance of the Redeemable Convertible Preferred Stocks. The Company also
      identified freestanding financials 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****Number
                of**
              **shares**
            
            **Series
                A**
            
            **Series
                B**
            
            **Combined**Sale
                of Series A Preferred Stock
            
            
            6,000
            
            $
            6,000
            
            
            
            
            $
            6,000Sale
                of Series B Preferred Stock
            
            
            9,500
            
            
            
            
            $
            9,500
            
            
            9,500Expenses
                of Offering
            
            
            
            
            
            (685
            )
            
            (1,142
            )
            
            (1,827
            )Original
                Discounts
            
            
            
            
            
            (4,558
            )
            
            (5,686
            )
            
            (10,244
            )Initial
                Balance of Redeemable Preferred Stock
            
            
            
            
            
            757
            
            
            2,672
            
            
            3,429Net
                value at Conversion of Preferred Stock to common stocks
            
            
            (6,066
            )
            
            (1,363
            )
            
            (578
            )
            
            (1,941
            )Accumulated
                Accretion of original discounts
            
            
            
            
            
            1,361
            
            
            2,472
            
            
            3,833Balance
                December 25, 2007
            
            
            9,434
            
            $
            755
            
            $
            4,566
            
            $
            5,321





Embedded
      Derivative s
      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 $0.90 to a high $1.95 during last six
      months of 2007. We were required to report a change of $8,412 as gain on
      the embedded derivative liability in other income on our statement of operations
      for the year ended December 25, 2007, a change of $1,434 as loss for 2006 and
      a
      change of $4,064 as loss for 2005.





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 valuation firm to
      support its estimates. The principal assumptions used to value these complex
      freestanding financial instruments were as follows:


F-19





Warrants
            
            Embedded
                Conversion FeatureExpected
                life (in years)
            
            
            Remaining
                term at valuationdate
            
            
            Remaining
                Term to conversion or
              redemption
                date at each valuation dateExpected
                volatility
            
            
            50%
            
            
            50%Risk-free
                interest rate
            
            
            3.52%
            
            
            3.21%
                to 3.63%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 issuances
            
            $
            10,259Loss
                on change in value of derivatives during 2005
            
            
            4,064Conversion
                of 1900 shares of Series A Preferred Stock to common stock during
                2005
            
            
            (2,188
            )Fair
                Value at December 25, 2005
            
            $
            12,135Loss
                on change in value of derivatives during the period
            
            
            1,434Conversion
                of 3,438 shares of Series A & B Preferred Stock to common stock during
                2006
            
            
            (2,431
            )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
            
            $
            2,493





**NOTE
      1** **3.
      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, 2007, all such warrants have 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, 2007, warrants to purchase 25,000
      shares of Class A Common Shares were outstanding.




**NOTE
      1** **4.
      WARRANTS**





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





Shares
            
            Weighted
                Average Exercise PriceOutstanding
                at December 25, 2004
            
            
            2,075,000
            
            
            0.9883Issued
            
            
            6,861,842
            
            
            1.3889Exercised
            
            
            2,327,368
            
            
            0.9945Forfeited/Cancelled
            
            
            —
            
            
            —Outstanding
                at December 25, 2005
            
            
            6,609,474
            
            
            1.4020Issued
            
            
            —
            
            
            —Exercised
            
            
            101,579
            
            
            1.0400Forfeited/Cancelled
            
            
            —
            
            
            —Outstanding
                at December 25, 2006
            
            
            6,507,895
            
            
            1.4093Warrants
                exercisable at December 25, 2005
            
            
            6,609,474
            
            
            1.4020Warrants
                exercisable at December 25, 2006
            
            
            6,507,895
            
            
            1.4093Warrants
                exercisable at December 25, 2007
            
            
            6,507,895
            
            
            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
                PriceOctober
                  2003 private placement
              
              
              25,000
              
              $
              0.979July
                  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, 2007
              
              
              6,507,895





As
      of
      December 25, 2007, our warrants had no intrinsic value.





**NOTE
      1** **5.
      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 2006 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, 2007, 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, 2007, 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, 2007, none of these
      options were 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, 2006**Life
                (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 but
      became exercisable on April 3, 2007. The market price of the Class A Common
      Stock as of the grant date was $1.82 per share. As of December 25, 2006, 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, 2006**Life
                (years)
            
            
            6Dividend
                yield
            
            
            NoneRisk
                - free interest rate
            
            
            4.55
            %Volatility
            
            
            50
            %





The
      following table summarizes outstanding options as at December 25, 2007, related
      weighted average fair value and life information:





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
              Price Per Share
            
            
            Number Outstanding
              at December 25,
              2007
            
            
            Weighted
              Average
              Fair Value
            
            
            Weighted Average
              Remaining Life
              (Years)
            
            
            Number Exercisable
              at December 25,
              2007
            
            
            Weighted Average
              Exercise Price$
                1.60-1.82
            
            
            8,000,000
            
            $
            1.02
            
            
            4.73
            
            
            8,000,000
            
            $
            1.75





The
      Company recorded compensation expense of $8,140,000 based on the fair value
      of
      the options granted during the year of 2006. Any exercise of such options
      granted on December 13, 2006 was contingent upon the effectiveness of a
      shareholder consent, which occurred on April 3, 2007. The Company has no future
      compensation expense to record from this option outstanding at December 25,
      2006
      because they were fully vested upon grant and compensation cost was recorded
      as
      of that date. As of December 25, 2007, our options granted had no intrinsic
      value.





**NOTE** **16.
      COMMITMENTS**





***Annual
      fees***





Under
      the
      supplementary joint venture agreements, the Company has committed to pay
      predetermined annual fees of $113,000 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, 2007, total commitments
      under these arrangements were as follows (in thousands):





2008
            
            
            1182009
            
            
            1182010
            
            
            1182011
            
            
            1182012
            
            
            118Thereafter
            
            
            3,886Total
            
            $
            4,476








**NOTE
      1** **7.
      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.





Particulars
      of significant transactions between the New Dragon Asia Corp. and related
      companies are summarized below (in thousands):





**2007**
            
            **2006**
            
            **2005**Sales
                of finished goods to:Related
                parties (b)
            
            $
            28
            
            $
            7
            
            $
            8Pre-determined
                annual fees charged by joint venture partners:Shandong
                Longfeng Group Company (a)
            
            $
            79
            
            $
            75
            
            $
            75Shandong
                Longfeng Flour Company Limited (b)
            
            
            39
            
            
            38
            
            
            36$
            118
            
            $
            113
            
            $
            111Sales
                of machinery to Shandong Longfeng Group Company
            
            $
            10
            
            $
            —
            
            $
            —Management
                fees charged by a related party (b)
            
            $
            —
            
            $
            —
            
            $
            12Rental
                income from a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            69
            
            $
            66
            
            $
            64Purchase
                of machinery from a related party (b)
            
            $
            —
            
            $
            —
            
            $
            70


F-22


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





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





The
      amounts due to New Dragon Asia Food Limited (the parent company) and joint
      venture partners are unsecured and non-interest bearing. Balances are the result
      of normal commercial transactions.




**NOTE** **18.
      CONDENSED GEOGRAPHIC 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





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





See
      Note
      23 for condensed parent company financial information.





Condensed
      balance sheet information as of December 25, 2006 consisted of the following
      (in
      thousands):





Inside China
            
            Outside China
            
            TotalAssets-
                Cash and cash equivalents
            
            $
            9,919
            
            $
            357
            
            $
            10,276-
                Others
            
            
            59,179
            
            
            53
            
            
            59,232Total
                Assets
            
            
            69,098
            
            
            410
            
            
            69,508Liabilities
            
            
            5,246
            
            
            15,770
            
            
            21,016Minority
                interests
            
            
            276
            
            
            —
            
            
            276Intercompany
            
            
            12,536
            
            
            (12,536
            )
            
            —Equity
            
            
            40,803
            
            
            3,209
            
            
            44,012


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, 2006
      consisted of the following (in thousands):





Inside China
            
            Outside China
            
            TotalNet
                revenue
            
            $
            53,439
            
            $
            —
            
            $
            53,439Cost
                of goods sold
            
            
            (43,404
            )
            
            —
            
            
            (43,404
            )General
                and administrative expenses
            
            
            (1,350
            )
            
            (9,558
            )
            
            (10,908
            )Income
                (loss) from operation
            
            
            7,640
            
            
            (9,558
            )
            
            (1,918
            )Other
                income (loss)
            
            
            2,515
            
            
            (1,410
            )
            
            1,105Provision
                for income taxes
            
            
            (1,657
            )
            
            —
            
            
            (1,657
            )Net
                income (loss)
            
            
            8,364
            
            
            (10,968
            )
            
            (2,604
            )





Condensed
      balance sheet information as of December 25, 2005 consisted of the following
      (in
      thousands):





Inside China
            
            Outside China
            
            TotalAssets-
                Cash and cash equivalents
            
            $
            4,180
            
            $
            10,152
            
            $
            14,332-
                Others
            
            
            41,988
            
            
            1,101
            
            
            43,089Total
                Assets
            
            
            46,168
            
            
            11,253
            
            
            57,421Liabilities
            
            
            7,006
            
            
            12,766
            
            
            19,772Minority
                interests
            
            
            91
            
            
            —
            
            
            91Intercompany
            
            
            8,743
            
            
            (8,743
            )
            
            —Equity
            
            
            30,328
            
            
            3,671
            
            
            33,999





Assets
      located outside of China consist primarily of cash and cash equivalents,
      deposits, and deferred financing costs related to the issuance of the preferred
      stock. 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, 2005
      consisted of the following (in thousands):





Inside China
            
            Outside China
            
            TotalNet
                revenue
            
            $
            44,180
            
            $
            —
            
            $
            44,180Cost
                of goods sold
            
            
            (36,151
            )
            
            —
            
            
            (36,151
            )General
                and administrative expenses
            
            
            (1,330
            )
            
            (1,028
            )
            
            (2,358
            )Income
                (loss) from operation
            
            
            5,978
            
            
            (1,028
            )
            
            4,950Provision
                for income taxes
            
            
            (1,487
            )
            
            —
            
            
            (1,487
            )Other
                income (loss)
            
            
            2,352
            
            
            (4,062
            )
            
            (1,710
            )Net
                income (loss)
            
            
            6,837
            
            
            (5,090
            )
            
            1,747





**NOTE
      1** **9.
      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.





**2007**
            
            **2006**
            
            **2005**(In
                thousands)Net
                revenue:Instant
                noodles
            
            $
            15,262
            
            $
            15,799
            
            $
            15,353Flour
            
            
            30,903
            
            
            30,263
            
            
            28,827Soybean
            
            
            9,573
            
            
            7,377
            
            
            —$
            55,738
            
            $
            53,439
            
            $
            44,180Income
                (loss) from operations:Instant
                noodles
            
            $
            1,208
            
            $
            1,268
            
            $
            1,336Flour
            
            
            5,526
            
            
            5,356
            
            
            3,614Soybean
            
            
            (308
            )
            
            (8,542
            )
            
            —$
            6,426
            
            $
            (1,918
            )
            $
            4,950Depreciation
                and amortization:Instant
                noodles
            
            $
            841
            
            $
            808
            
            $
            537Flour
            
            
            615
            
            
            550
            
            
            729Soybean
            
            
            218
            
            
            255
            
            
            —$
            1,674
            
            $
            1,613
            
            $
            1,266Identifiable
                long-term assets:Instant
                noodles
            
            $
            22,640
            
            $
            20,864
            
            $
            11,836Flour
            
            
            7,470
            
            
            7,377
            
            
            10,459Soybean
            
            
            3,170
            
            
            2,990
            
            
            —$
            33,280
            
            $
            31,231
            
            $
            22,295


F-24





**NOTE****20.
      MAJOR CUSTOMERS**





No
      single
      customer accounted for more than 5%, 5% and 5% of sales for the years ended
      December 25, 2007, 2006 and 2005, respectively.





**NOTE** **21.
      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,
      2007,
      2006 and 2005, contributions made by the Company were approximately $365, $315,
      $161 respectively.





**NOTE** **22.
      QUARTERLY FINANCIAL DATA (UNAUDITED)**


Net
                  Income (loss) per
                shareNet Revenue
              
              Gross Profit
              
              Net Income (loss)
              
              Basic
              
              Diluted(In thousands, except per share data)Year
                  Ended December 25, 2007First
                  Quarter
              
              $
              11,160
              
              $
              1,922
              
              $
              3,449
              
              $
              0.05
              
              $
              0.05Second
                  Quarter
              
              
              13,035
              
              
              2,556
              
              
              4,813
              
              
              0.08
              
              
              0.08Third
                  Quarter
              
              
              13,955
              
              
              2,807
              
              
              3,204
              
              
              0.05
              
              
              0.05Fourth
                  Quarter
              
              
              17,588
              
              
              3,026
              
              
              2,649
              
              
              0.04
              
              
              0.04$
              55,738
              
              $
              10,311
              
              $
              14,115Year
                  Ended December 25, 2006First
                  Quarter
              
              $
              11,096
              
              $
              1,854
              
              $
              (7,852
              )
              $
              (0.17
              )
              $
              (0.17
              )Second
                  Quarter
              
              
              11,544
              
              
              2,172
              
              
              9,087
              
              
              0.16
              
              
              0.15Third
                  Quarter
              
              
              12,964
              
              
              2,522
              
              
              4,790
              
              
              0.08
              
              
              0.08Fourth
                  Quarter
              
              
              17,835
              
              
              3,487
              
              
              (8,629
              )
              
              (0.17
              )
              
              (0.17
              )$
              53,439
              
              $
              10,035
              
              $
              (2,604
              )Year
                  Ended December 25, 2005First
                  Quarter
              
              $
              8,282
              
              $
              1,492
              
              $
              588
              
              $
              0.01
              
              $
              0.01Second
                  Quarter
              
              
              8,993
              
              
              1,409
              
              
              1,372
              
              
              0.03
              
              
              0.03Third
                  Quarter
              
              
              11,645
              
              
              2,157
              
              
              (6,440
              )
              
              (0.14
              )
              
              (0.14
              )Fourth
                  Quarter
              
              
              15,260
              
              
              2,971
              
              
              6,227
              
              
              0.14
              
              
              0.13$
              44,180
              
              $
              8,029
              
              $
              1,747


F-25


**NOTE** **23.
      CONDENSED 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-26





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY BALANCE SHEETS**





(Amounts
      in thousands, except share data)


**December
                    25,**
                  **2007**
                
                **December
                    25,**
                  **2006****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                141
                
                $
                355Other
                    receivable
                
                
                20
                
                
                20Deferred
                    expenses, net
                
                
                29
                
                
                33Total
                    current assets
                
                
                190
                
                
                408Investment
                    in and advances to subsidiaries
                
                
                72,001
                
                
                60,163Total
                    assets
                
                $
                72,191
                
                $
                60,571**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**Current
                    liabilities:Other
                    payables and accruals
                
                $
                792
                
                $
                684Dividend
                    payable on preferred shares
                
                
                173
                
                
                193Embedded
                    derivatives at fair value
                
                
                2,493
                
                
                11,138Total
                    current liabilities
                
                
                3,458
                
                
                12,015Due
                    to New Dragon Asia Food Limited
                
                
                1,090
                
                
                340Total
                    liabilities
                
                
                4,548
                
                
                12,355Series
                    A & B Redeemable Convertible Preferred Stock, $0.0001 par
                    value:
                  Authorized
                    shares – 5,000,000Issued
                    and outstanding – 9,434 shares and 10,162 shares at December
                    25,2007
                    and 2006, respectively
                
                
                5,321
                
                
                4,204CommitmentsStockholders’
                    equity:Class
                  A Common Stock, $0.0001 par value:Authorized
                    shares – 102,000,000
                  Issued
                    and outstanding –55,195,385 in 2007 and 53,614,723 in
                    2006
                
                
                5
                
                
                5Class
                  B Common Stock, $0.0001 par value:Authorized
                    shares – 2,000,000 – none issued and outstanding
                
                
                —
                
                
                —Additional
                    paid-in capital
                
                
                29,982
                
                
                28,411Retained
                    earnings
                
                
                24,568
                
                
                12,668Accumulated
                    other comprehensive income
                
                
                7,767
                
                
                2,928Total
                    stockholders’ equity
                
                
                62,322
                
                
                44,012Total
                    liabilities and stockholders’ equity
                
                $
                72,191
                
                $
                60,571


F-27


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY STATEMENTS OF OPERATIONS**





**(Amounts
      in thousands)**


**For
                  the years ended December 25,****2007**
              
              **2006**
              
              **2005**General
                  and administrative expenses
              
              
              (1,297
              )
              
              (9,558
              )
              
              (1,020
              )Loss
                  from operations
              
              
              (1,297
              )
              
              (9,558
              )
              
              (1,020
              )Other
                  income (expense):Interest
                  income
              
              
              —
              
              
              25
              
              
              9Loss
                  on fair value adjustments toembedded
                  derivatives
              
              
              8,412
              
              
              (1,434
              )
              
              (4,064
              )Total
                  parent only gain (loss)
              
              
              7,115
              
              
              (10,967
              )
              
              (5,075
              )Equity
                  in subsidiary earnings, net of taxes
              
              
              7,000
              
              
              8,363
              
              
              6,822Net
                  income (loss)
              
              $
              14,115
              
              $
              (2,604
              )
              $
              1,747Accretion
                  of redeemable preferred stock
              
              
              (1,512
              )
              
              (1,882
              )
              
              (454
              )Preferred
                  stock dividends
              
              
              (703
              )
              
              (875
              )
              
              (187
              )Income
                  (loss) available to common stockholders
              
              $
              11,900
              
              $
              (5,361
              )
              $
              1,106


F-28




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY STATEMENTS OF CASH FLOWS**





**(Amounts
      in thousands)**


**For
                  the years ended December 25,****2007**
              
              **2006**
              
              **2005****Cash
                  flows from operating activities:**Total
                  parent only gain (loss)
              
              $
              7,115
              
              $
              (10,967
              )
              $
              (5,075
              )Adjustments
                  to reconcile total parent only loss to net cash provided by (used
                  in)
                  operating activities:Losson
                  fair value adjustments toembedded
                  derivatives
              
              
              (8,412
              )
              
              1,434
              
              
              4,064Stock-based
                  compensation expense
              
              
              —
              
              
              8,140
              
              
              105Non-cash
                  service payment
              
              
              269
              
              
              —
              
              
              —Changes
                  in operating assets and liabilities:Other
                  receivable
              
              
              4
              
              
              —
              
              
              (1,032
              )Other
                  payables and accruals
              
              
              108
              
              
              24
              
              
              459Net
                  cash provided by (used in) operating activities
              
              
              (916
              )
              
              (1,369
              )
              
              (1,479
              )**Cash
                  flows from investing activities:**Investment
                  and advances to subsidiaries
              
              
              (2,447
              )
              
              (11,016
              )
              
              (4,848
              )Net
                  cash provided by (used in) investing activities
              
              
              (2,447
              )
              
              (11,016
              )
              
              (4,848
              )**Cash
                  flows from financing activities:**Proceeds
                  from issuance of preferred stock
              
              
              —
              
              
              —
              
              
              15,500Payments
                  of issuance costs related to preferred stock
              
              
              —
              
              
              (58
              )
              
              (1,218
              )Preferred
                  Stock Dividends
              
              
              (49
              )
              
              (387
              )
              
              (30
              )Repayment
                  to parent company
              
              
              —
              
              
              —
              
              
              (550
              )Increase
                  in due to parent company
              
              
              750
              
              
              —
              
              
              —Proceeds
                  from exercise of warrants
              
              
              —
              
              
              —
              
              
              1,977Proceeds
                  from exercise of stock options
              
              
              —
              
              
              1,120
              
              
              —Net
                  cash provided by financing activities
              
              
              701
              
              
              675
              
              
              15,679Foreign
                  currency translation adjustment
              
              
              2,448
              
              
              1,915
              
              
              798Net
                  increase (decrease) in cash and cash equivalents
              
              
              (214
              )
              
              (9,795
              )
              
              10,150Cash
                  and cash equivalents at the beginning of the period
              
              
              355
              
              
              10,150
              
              
              —Cash
                  and cash equivalents at the end of the period
              
              $
              141
              
              $
              355
              
              $
              10,150


F-29


**EXHIBIT
      INDEX**




**Exhibit**
                **Number**
              
              **Description**2.1
              
              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 Grobstein, Horwath & Company LLP, Independent Registered Public
                Accounting Firm, filed herewith.31.1
            
            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.