SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549
                                    FORM 10-K

(Mark One)

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

For the fiscal year ended December 25, 2003

OR

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

For the transition period from                  to


                             Commission file Number


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


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


      2/F Kam Chung Commercial Building
             19-21 Hennessy Road
              Wanchai, Hong Kong
-----------------------------------------------          -----------
    (Address of Principal Executive Offices)             (Zip Code)


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

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


                                           Name of Each Exchange
          Title of Each Class               on Which Registered
             Common Stock                 American Stock Exchange
             ------------                 -----------------------


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


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


<PAGE>


     Indicate by check mark whether the issuer:  (1) filed all reports  required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such  shorter  period  that the  registrant  was  required  to file such
reports), and (2) has been subject to such filing requirements for past 90 days.

Yes [X]  No [_]

     Indicate by check mark if there is no disclosure  of  delinquent  filers in
response to Item 405 of  Regulation  S-K is not  contained in this form,  and no
disclosure  will  be  contained  to  the  best  of  registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K. [X]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

Yes [X]  No [_]

     State issuer's revenue for its most recent fiscal year : $30,773,000

     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity as sold, or the average bid and asked price of such common equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter.  As of June 25, 2003 the  aggregate  market value of the common  equity
held by non-affiliates was $4,181,066.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity,  as of the latest  practicable  date. As of March 31, 2004, there
were 45,061,342 shares outstanding.

Portions of the registrant's  definitive proxy statement (the "Proxy Statement")
related to the 2004 annual meeting of shareholders are incorporated by reference
into Part III of this Form 10-K.


<PAGE>


                              NEW DRAGON ASIA CORP.
                                    FORM 10-K
                                TABLE OF CONTENTS
                     ---------------------------------------

                                                                            PAGE
                                                                            ----

                                     PART I

Item 1.    Business                                                           1
Item 2.    Properties                                                         8
Item 3.    Legal Proceedings                                                  9
Item 4.    Submission of Matters of a Vote of Security Holders                9

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder
          Matters                                                             9
Item 6.    Selected Financial Data                                           10
Item 7.    Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                          11
Item 7A.   Quantitative and Qualitative Disclosure About Market Risk         14
Item 8.    Financial statements and Supplementary Data                       15
Item 9.    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                           15
Item 9A.   Controls Procedures                                               16

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                16
Item 11.   Executive Compensation                                            18
Item 12.   Security Ownership of Certain Beneficial Owners and Management
          and Related Stock Matters                                          20
Item 13.   Certain Relationships and Related Transactions                    20
Item 14.   Principal Accountant Fees and Services                            24
Item 15.   Exhibits, List and Reports on Form 8-K                            24
Signatures                                                                   25

Financial Statements                                                         F1

<PAGE>


                                     PART I

ITEM 1.       BUSINESS

     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 Business
Risks  contained  in Part 1 of this Annual  Report that 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.

OVERVIEW

Company History

     New  Dragon  Asia  Corp.,  formerly  Bio-Aqua  Systems,   Inc.,  a  Florida
corporation (the "Company"),  was incorporated in March 1999. On August 7, 2001,
the  Company  was  announced  that it would  seek to  divest  its  then  current
operations  and  acquire  a new  operating  company  with the goal of  enhancing
shareholder  value.  On December  13,  2001,  the Company  entered  into a Share
Exchange  Agreement with Max Rutman,  Flagship  Import Export LLC and New Dragon
Asia Food  Limited,  a company  organized  under the laws of the British  Virgin
Islands.  Pursuant to the Share Exchange  Agreement,  the Company  acquired (the
"Acquisition")  from New Dragon Asia Food Limited all of its equity interests of
four  companies  organized  under the laws of the British Virgin Islands (each a
"Subsidiary" and, collectively the "Subsidiaries") each of which in turn hold an
interest  in a separate  sino-foreign  joint  venture,  which  equity  interests
constituted  all  of  the  issued  and  outstanding   equity  interests  of  the
Subsidiaries, in exchange for 37,963,263 shares of common stock of the Company.

     As a result of the Acquisition, the Company continued the operations of New
Dragon Asia Food  Limited.  All  operations  of New Dragon Asia Food Limited are
conducted through the sino-foreign joint ventures discussed below.

OVERVIEW OF NEW DRAGON ASIA FOOD LIMITED

     The New Dragon Asia Food Group was established in 1952 under the name "Long
Feng Foods",  as a grain and oil processing  enterprise in the Shandong Province
of the People's Republic of China ("PRC" or "China") and developed as one of the
Province's  leading flour  millers.  Long Feng  developed into the leading flour
milling group in China. In 1992, Long Feng established a manufacturing operation
for instant noodles as the Chinese market for "convenience foods" was entering a
prolonged  growth phase.  Through rapid increases in capacity and maintenance of
consistent  quality,  Long Feng has established itself as one of China's leading
manufacturers of flour and instant noodles with seven  manufacturing  plants and
nationwide distribution.

                                        1

<PAGE>


     In 1998, the Hong Kong based New World Industrial  Holdings Ltd.,  together
with one of the  largest  Hong  Kong food  groups  formed a Sino  Foreign  Joint
Venture  under the name "New Dragon Asia Food  Limited" to acquire a controlling
interest  in  seven  of Long  Feng's  largest  manufacturing  subsidiaries.  The
objective  of this  venture  was to  combine  Long  Feng's  China  manufacturing
capabilities  and  distribution  network,  New World  Industrial  Holdings Ltd's
financial  strength and the joint venture  partner's  food  industry  management
expertise so as to  capitalize on the rapid growth  potential  available for the
Chinese fast food industry, both within China and internationally.

     New  Dragon  Asia  Food  Limited  combined  four of its  largest  and  most
profitable  joint  ventures  as the "New Dragon  Asia Food  Group".  These joint
ventures are located in Dalian, Yantai and Sanhe and are listed as follows:

          -    New Dragon Asia Flour (Yantai) Company Limited

          -    New Dragon Asia Food (Yantai) Company Limited

          -    New Dragon Asia Food (Dalian) Company Limited

          -    Sanhe New Dragon Asia Food Company Limited

     Headquartered in the Shandong Province,  PRC, management of New Dragon also
operates  sales and  corporate  offices  in Hong Kong.  Management  draws on the
unique  combination of China food  manufacturing  experience,  together with the
marketing and branding skills of the Hong Kong partners.

     Our core business is twofold:  (1) the milling,  sale and  distribution  of
flour and related products,  and (2) the production of instant noodles, which we
market and sell under regional brands through  supermarkets and food stores. Our
principal brand is "Long Feng". On a consolidated  basis,  management  estimates
the Long  Feng  brand to be one of the top  brands  in the  China  instant  food
industry.

INDUSTRY BACKGROUND

     "Fast food" in the form of instant  noodles was  introduced to China in the
early 1980's  following the  commencement  of the market  economy in 1979.  With
rapidly rising income and living  standards and rapid growth of the urban middle
class, demand for quality convenience food grew rapidly.

     The increasing  market for instant  noodles,  a staple "fast food" in Asia,
has attracted  foreign  producers from Japan,  Korea and Taiwan.  While this has
generated  increased  competition  for high  end  manufacturers,  more  popular,
national brand names such as Long Feng;  are well  entrenched and are increasing
in both sales and market  share as less  efficient  local brands are absorbed or
eliminated.  In a  national  survey  taken in 2001,  average  annual  per capita
consumption of instant noodles in China was 15 packets compared with 80 in Korea
and 44 in Japan.  Management believes that growth potential in the China market,
as consumers become increasingly affluent, is considerable.

     Consumption of instant noodles in China has increased  dramatically as more
women enter the work force.  Further,  sharply  higher sales at airports,  train
stations and bus stations throughout the country reflect increasing business and
leisure travel by the rapidly expanding middle class.

                                        2

<PAGE>


                                    Products

     *  Flour

     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.  At the end of 2003,  our product  breakdown  was
approximately 60% for flour products and 40% for instant noodles.

     *  Noodles

     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: packet noodles for home preparation and for snacks.

                                 Product Quality

     Long Feng has a reputation for producing  some of the highest  quality food
products in China. Our production plants operate to the highest level of hygiene
and efficiency  and most of our plants are certified at the ISO9002 level.  Most
of our "state of the art"  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.

                                   Production

     Flour  and  water are the two main  ingredients  used to  produce a quality
noodle  product.  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.

     We own and operate our manufacturing  plants which have an annual aggregate
production  capacity of  approximately  110,000  tons of flour  products  and in
excess of 110 million packets of instant noodles.

     We closed our  factory in  Xinxiang in January  2003.  Total  assets of the
Xinxiang  factory  were  approximately  $33,000 and $26,000  transferred  to New
Dragon Asia Flour (Yantai) Co Ltd and Xinxiang  Guoliang Flour Company  Limited,
the lessor of the factory.  The remaining assets of the factory were written off
in the first quarter of 2003.

     Due to the negative effects of SARS, the Company closed its Xinxian factory
in May 2003. Fixed assets of the Xinxian factory were approximately  $44,000, of
which $26,000 were transferred to New Dragon Asia Flour (Yantai) Company Limited
and the Taian  factory.  Approximately  $8,000 of the fixed  assets were sold to
Shandong Long Feng Flour Company  Limited,  a related entity,  and the remaining
$10,000 was written off. Inventory and related packaging  materials amounting to
$45,000 have been written off to operations  for the period ended June 25, 2003.
The Company also charged $30 thousand of penalties and taxes the  termination of
the lease,  $10,000 of salaries and severance pay and $28,000 of other operating
expenses and operations.

     We also closed our noodle factory in Taian in December 2003.


                                        3

<PAGE>

                         Transportation and Distribution

     The Company's  distribution  system is the key to its continued  success in
developing  "Long  Feng" as one of the  leading  domestic  brands in China.  The
Company  has over 216  points  of  distribution  of  which 16 are  direct  sales
offices,  spread  over 27  provinces  in China.  Most of our  distributors  have
long-term  relationships  with us and are loyal  and  efficient  vendors  of our
products.

     Rural  distribution  operations are  facilitated by a large fleet of trucks
owned by the New Dragon  Asia Food Group  which  carry  products  bound for both
wholesale and retail customers in outlying areas.

                                  Raw Materials

     The noodle's  primary  ingredient is flour,  which is extracted  from wheat
through a milling process. A certain percentage of the flour needs of New Dragon
Asia Food (Yantai)  Company  Limited and New Dragon Asia Food  (Dalian)  Company
Limited are  sourced  from New Dragon Asia Flour  (Yantai)  Company  Limited who
occasional  purchases of high quality  wheat from  Australia  and Canada.  Wheat
sourced by our milling operating from Shandong province is generally regarded as
being  the  highest  quality  available  in  China.  Other  ingredients  such as
flavorings and additives are  manufactured  or processed by New Dragon Asia Food
(Yantai) Company Limited and Sanhe New Dragon Asia Food Company Limited. We also
use paper products such as corrugated  cardboard,  as well as films and plastics
to package  products.  Raw and packaging  materials are readily  available  from
various suppliers. There is no reliance on any one supplier.

MARKETING AND SALES

     In China,  marketing  and  promotion  costs for  manufactured  products are
generally absorbed by the distributor. Most products are regionally marketed and
distributed.  Our sales and  marketing  strategy  focuses on around  maintaining
strong distribution  relationships,  continually  innovating our products and an
excellent quality/price dynamic.

COMPETITION

     The  instant  noodle  segment is highly  competitive.  We  compete  against
well-established  companies, and many smaller companies. Our largest competitors
are the Master Kang and President Groups, both based in Taiwan.

     Competition  in the flour  industry is also 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.


                                        4

<PAGE>


There are  several  key  marketing  and sales  initiatives  that can  impact the
Company's competitive position in the Chinese market, including:

o      establishing favorable brand recognition;
o      developing products sought by consumers;
o      implementing appropriate pricing;
o      providing strong marketing support; and
o      obtaining access to retail outlets and sufficient shelf space.


CUSTOMERS

     Our primary  customer  base for both our flour  products and noodles is  in
stores  in the  rural  areas  throughout  China,  where  our brand has long been
recognized as the highest quality  available for the price, in contrast with our
major   competitors,   "Master   Kang"  and   "President",   which  are  focused
predominately  in the more developed and  competitive  urban markets.  The rural
market is growing rapidly  benefiting  from increases in rural consumer  income.
Brand  loyalty  is  strongest  in  this  sector.   The  Company  also  sells  to
supermarkets mainly in urban areas.

     In addition to domestic  sales,  the Company also exports  noodles to other
countries such as Korea. In 2003, the Company  exported over 80,000,000  packets
of noodles to Korea which accounts for 3% of total sales.

No customer accounted for more than 10% of our sales.

     The  Company also received orders from certain KFC Corporation locations in
China and KFC's intermediary  suppliers for flour. KFC requires rigorous quality
control  standards of at least the ISO9002  level.  These orders  highlight  the
brand  reputation of Long Feng for and quality and  recognition of the Company's
commitment to international standards.

REGULATION

     We are  subject to various  laws and  regulations  administered  by various
local government bodies 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,  and we do not  expect  to make  any
material   expenditure  in  2004  with  respect  to  compliance  with  any  such
regulations.

STRATEGY

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

     -    Increase the quantity of our products in rural distribution centers

     -    Continue to enhance our distributor relationships

     -    Continue to improve  product  quality and  diversify our product range
          with higher value-added products

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


                                        5

<PAGE>


     -    Strengthen the training of our employees

     -    Implement the use of technical software to increase labor efficiency

EMPLOYEES

     We  employ   approximately  1,400  employees.   The  Company  believes  its
relationships with its employees are good.

AVAILABLE INFORMATION


     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 SEC's Public  Reference  Room at 450 Fifth  Street,  NW,
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  reports  filed  with the SEC,  free of  charge,  on our  website  at
http://www.newdragonasia.com

GOVERNMENTAL REGULATION OF OUR OPERATIONS IN CHINA

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

     The Chinese Legal System

     The practical effect of the People's  Republic of China 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 which are applied to our operation in China 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 United States. Similarly, the
People's Republic of China accounting laws mandate accounting  practices,  which
are mostly  consistent  with  accounting  principles  generally  accepted in the
United States.  The Chinese  accounting  laws require that an annual  "statutory
audit" be performed in accordance with the People's Republic of China 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.


                                        6

<PAGE>


     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.

     Economic Reform Issues

     Although  the  majority  of  productive  assets  in China  are owned by the
Chinese  government,  in the past several years the government  has  implemented
economic reform measures that emphasize  decentralization  and encourage private
economic activity. Because these economic reform measures may be inconsistent or
ineffectual, there are no assurances that:

      -     We will be able to capitalize on economic reforms;

      -     The Chinese  government will continue its pursuit of economic reform
            policies;

      -     The economic policies, even if pursued, will be successful;

      -     Economic  policies  will not be  significantly  altered from time to
            time; and

      -     Business  operations in China will not become subject to the risk of
            nationalization.

     Negative  impact upon economic  reform  policies or  nationalization  could
result in a total investment loss in our 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  have included  devaluation  of the Chinese
currency,  the Renminbi,  restrictions on the  availability of domestic  credit,
reducing the  purchasing  capability  of certain of its  customers,  and limited
re-centralization  of  the  approval  process  for  purchases  of  some  foreign
products.  These  austerity  measures  alone may not succeed in slowing down the
economy's  excessive  expansion or control  inflation,  and may result in severe
dislocations in the Chinese economy. 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 company's operations.

                                        7

<PAGE>


     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,  changes in the rate or
method of taxation, imposition of additional restrictions on currency conversion
and  remittance  abroad,  and  reduction in tariff  protection  and other import
restrictions.

     China's Accession into the WTO

     On November 11,  2001,  China signed an agreement to become a member of the
World Trade  Organization  sometimes  referred to as the 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,  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.

ITEM 2.       PROPERTIES

     Our corporate headquarters are located in Hong Kong. Our four manufacturing
plants  consist of over  71,397  sq.  meters of  facilities  with over 29 noodle
production  lines  and a  110,000  tons  p.a.  flour  milling  facility  with  3
production  lines,  located  in  Dalian,   Beijing  and  Yantai.   Manufacturing
operations are vertically integrated,  with the flour production utilized in the
noodle manufacturing process. Most of New Dragon's manufacturing facilities have
been awarded ISO9002 quality certification.

<TABLE>
<CAPTION>

                                                      RENTAL       RENTAL        ANNUAL              SIZE
FACILITY             ADDRESS                          BEGIN        EXPIRE        RENTAL (US$)       (sq meters)
---------------      --------------------------       ----------   -----------   -------------      --------
<S>                  <C>                              <C>          <C>           <C>                <C>
Flour Mill,          No.10 Huangcheng,                     -            -               -            25,345
Noodle Factory,      Road (N), Longkou,
Condiment Factory    Shandong, P.R.C.

Noodle Factory       1 Yanjiao Jing ha Road(N),            -            -               -            26,274
                     Beijing, P.R.C.

Noodle Factory       11 Dunhuang Street,                   -            -               -             6,363
                     Shahekou Zone, Dalian
                     Liaoning Province, P.R.C.

Flour Packaging      Fuhao Village, Xu Xin             03/18/01     03/18/31          1,204           1,049
                     ZhuangTown, Tong Zhou
                     District, Beijing, P.R.C.
</TABLE>


                                        8

<PAGE>


ITEM 3.       LEGAL PROCEEDINGS

     We are not a party  to any  pending  or to the best of our  knowledge,  any
threatened legal proceedings.  None of our directors, officers or affiliates, or
owner of  record or of more than five  percent  (5%) of our  securities,  or any
associate of any such director, officer or security holder is a party adverse to
ours or have a  material  interest  adverse  to ours  in  reference  to  pending
litigation.

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

     There were no matters  submitted to a vote of security  holders  during the
quarter ended December 25, 2003.

                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

(a) Market Prices of Common Stock

     Our common stock is traded on the American  Stock Exchange under the symbol
NWD. The high and low bid prices of the common stock as reported on AMEX for the
time periods indicated are set forth on the table below.


                                                         PRICE RANGE
                                                    ----------------------
                                                       HIGH         LOW
                                                    ---------    ---------
  FISCAL YEAR ENDED DECEMBER 25, 2002
  First Quarter                                     $    2.30    $    1.16
  Second Quarter                                    $    2.20    $    1.20
  Third Quarter                                     $    1.94    $    0.35
  Fourth Quarter                                    $    1.04    $    0.30

  FISCAL YEAR ENDED DECEMBER 25, 2003
  First Quarter                                     $    0.43    $    0.15
  Second Quarter                                    $    0.97    $    0.24
  Third Quarter                                     $    1.65    $    0.50
  Fourth Quarter                                    $    0.95    $    0.55


(b) Shareholders

     Our common shares are issued in registered  form.  American Stock Transfer,
Brooklyn, New York, is the registrar and transfer agent for our common stock. As
of March 15, 2004, there were 45,061,342  shares of our common stock outstanding
and we had approximately 500 shareholders of record.


                                        9

<PAGE>

(c) Dividends

     We have never  declared or paid any cash  dividends on our 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 its 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.

(d) Recent Sales of Unregistered Securities

       On  September  4 and  October 7,  2003,  we issued  3,300,000  shares and
850,000 shares respectively,  in connection with a private placement for working
capital for an aggregate  purchase price of  $2,075,000.  The shares were issued
pursuant to an  exemption  provided by Section 4(2) of the  Securities  Act. The
investors  also  received  warrants to  purchase  1,650,000  and 425,000  shares
respectively, of our common stock which have a term of five years at an exercise
price of $0.99 and $0.98 per share,  respectively.  Commissions of $214,021 were
paid to the placement agent.

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, 2003,  2002, 2001 and 2000.
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
Operations.

<TABLE>
<CAPTION>
                                                                        2003        2002          2001           2000
                                                                      --------    --------      --------       --------
                                                                               (US$'000 except per share data)
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<S>                                                                   <C>         <C>           <C>            <C>
Revenues                                                              $ 30,773    $ 33,704      $ 30,135       $ 31,532
Operating expenses:
   Selling and distribution                                              1,330       1,161           613          1,520
   General and administrative                                            2,398         601          1341            995
Operating income                                                         2,193       4,346         4,089          3,591
Income from operations before tax                                        3,174       4,762         4,619          3,549
Net income                                                               2,727       4,153           866          3,549
Earnings per share-- basic:
   Operations                                                             0.06        0.10          0.22            N/A
   Net income                                                             0.06        0.10          0.22            N/A
Earnings per share -- diluted:
   Operations                                                             0.06        0.10          0.22            N/A
   Net income                                                            $0.06       $0.10        $ 0.22          $ N/A
                                                                      ========    ========      ========       ========

SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                                              $ 1,783       $ 628       $ 1,293        $ 1,015
Total assets                                                            34,357      40,354        38,643         33,279
Long-term debt                                                              --          --            --             --
Long-term obligations                                                       --          --            --             --
Total stockholders' equity                                              22,190      17,686        13,533          4,544
</TABLE>


                                       10

<PAGE>


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 place on these  forward-looking  statements which speak only as of
the date  hereof.  We undertake no  obligation  to update these  forward-looking
statements.

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

OVERVIEW

     On December 13, 2001, the Company  entered into a Share Exchange  Agreement
with Max Rutman,  Flagship Import Export LLC, a Nevada limited liability company
and New Dragon  Asia Food  Limited,  a company  organized  under the laws of the
British Virgin Islands.  Pursuant to the Share Exchange  Agreement,  on December
13, 2001 (the "Closing"), the Company acquired from New Dragon Asia Food Limited
all of its equity  interests in four companies  organized  under the laws of the
British   Virgin   Islands   (each  a   "Subsidiary"   and,   collectively   the
"Subsidiaries")   each  of  which  in  turn  hold  an  interest  in  a  separate
Sino-foreign joint venture, which equity interests constituted all of the issued
and outstanding  equity interests of the Subsidiaries in exchange for 37,963,263
shares  of  common  stock  of  the  Registrant.  At  the  closing,  the  Company
transferred  all of its assets to Mr. Rutman and Mr.  Rutman  assumed all of the
Company's  liabilities.  As  such,  the  following  discussion  relates  to  the
consolidated financial results of New Dragon Asia Limited only.

     The  consolidated   financial  statements  are  presented  in  US  dollars.
Transactions and monetary assets in currency denominations other than US dollars
are  converted  into US dollars at the  respective  applicable  exchange  rates.
Monetary  assets  and  liabilities  denominated  in  other  currencies  are also
converted  into US dollars at the  applicable  rate of  exchange  at the balance
sheet  date.  There  are no  material  exchange  differences  as a result of the
stability of the Renminbi ("RMB") during the periods covered by the consolidated
financial statements.

RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED DECEMBER 25, 2003 AND 2002

     The Company  generated  revenues of $30.8 million for the fiscal year ended
December 25, 2003,  which was a $2.9 million or 8.7% decrease from $33.7 million
for the fiscal year ended  December  25, 2002.  The  Company's  operations  were
adversely  affected by the  decrease in consumer  demand for retail  commodities
caused  by  widespread  public  concerns  over  the  outbreak  of  Severe  Acute
Respiratory Syndrome, or SARS during the year.

THE SARS EFFECT

The outbreak of SARS, is believed to have started in Guangdong  Province,  China
in late 2002 and to have later spread to Beijing. The SARS outbreak impacted our
revenues by disrupting  travel  throughout  China and causing  delays in service
delivery to our customers.


                                       11

<PAGE>


Although  the  spread  of SARS in China  has  been  contained  and our  business
activities  resumed  normal  operations  during the third  quarter of 2003,  the
medical community  worldwide has not fully understood the origin of SARS and has
not found a well-recognized effective treatment for SARS. As a consequence,  the
potential  long-term  effects  of SARS on  economic  growth  in China  are still
unknown.  Since  January  5,  2004,  a small  number of new SARS cases have been
reported  in China.  Any future  worsening  of the SARS  epidemic  could have an
adverse impact on our business.  The outbreak of SARS impacted New Dragon Asia's
business as follows:

1) Blockage of Distribution Network

           Since  the  Company's   major   markets  are  in  rural  areas,   the
           transportation of New Dragon Asia products was adversely  affected by
           attempts of some  villagers to block roads and  establish  quarantine
           areas to prevent the spread of SARS.

2) Additional Operating Expenses

           Manufacturing  expenses  increased  due to the  need  for  additional
           preventative measures, related to SARS, such as more hygienic product
           requirements.

3) Curtailment of Sales and Promotional Activities

           During the height of the SARS outbreak,  the  provincial  governments
           imposed strict travel controls.  As a result, the Company's staff was
           prohibited from leaving the factory area. These restrictions affected
           sales activities and product promotional events had to be cancelled.

4) Deterioration in Consumer Demand

           Restrictions  on travel and a  reluctance  of people to  venture  out
           provided more available time for preparation of meals at home,  which
           impacted demand for convenience food such as instant noodles.

5) Interruption in Collection Efforts

         Outbreak of SARS  interrupted  our  collection  efforts,  causing gross
         accounts  receivables and our days sales outstanding to increase at the
         end of 2003.

     There  was a  substantial  increase in the gross profit margin as the gross
profit for the  fourth  quarter of 2003  increased  by $1 million  over the same
period  last  year.  The  increase  is mainly  due to the  result of a change in
product  sales mix and an increase in demand for our  products at the end of the
third and fourth quarter of 2003.

     The  Company  exported over  80,000,000  packets of noodles to Korea during
2003 which accounted for 3% of our total sales.  We have also commenced  selling
our products to supermarkets  located in urban areas.  Taken  together,  this is
expected to prolong the receivable cycle of the Company.

     Selling  and  distribution  expenses  increased  from $1.2  million for the
fiscal year ended  December  25, 2002 to $1.3  million for the fiscal year ended
December 25, 2003 due to increased  transportation  costs  associated  with more
stringent  weight  load  restrictions.   General  and  administrative   expenses
increased by $1.8 million primarily due to expenses  associated with the closure
of three factories and the write off of inventory,


                                       12

<PAGE>


and deferred  expenses,  as well an  additional  general  provision for obsolete
inventory  and  doubtful  debts.  Additionally,  certain  professional  expenses
related to the Company,  previously borne by the parent company, were charged to
the  Company  in the  current  year.  Income  before  non-recurring  items and a
provision  for  income  taxes  for the year  ended  December  25,  2003 was $3.2
million,  representing  a decrease of 33% from $4.8 million in 2002 result.  The
decrease  is mainly due to the effect of SARS and the tax relief  granted by the
government.

     Net income for 2003 was $2.7  million,  or $0.06 per share,  compared  with
$4.2  million  in 2002.  The 35%  decrease  in net  income was mainly due to the
impact of SARS and closure of our plants.

COMPARISON OF YEARS ENDED DECEMBER 25, 2002 AND 2001

     The Company  generated  revenues of $33.7 million for the fiscal year ended
December 25, 2002,  which was a $3.6 million or 12% increase  from $30.1 million
for the fiscal year ended  December  25,  2001.  This  increase is the result of
increased  sales of instant  noodles in two of New  Dragon's  joint  ventures in
Dalian and Yantai, and an increase in the sale of flour products of $2.7 million
in New Dragon's  flour  production  joint venture in Shandong which has expanded
its product line. The Company is currently operating at or near full capacity in
both flour and noodle  production in the peak season.  Acquisition of additional
capacity in the future will facilitate continued sales growth.

     The  Company's  sale  promotion  programs  have  resulted in an increase in
selling and  distribution  expenses of 89%.  Selling and  distribution  expenses
increased  from $613  thousands  for the fiscal year ended  December 25, 2001 to
$1.2  million  for  the  fiscal  year  ended  December  25,  2002.  General  and
administrative  expenses decreased by $740 thousand mainly due to the collection
of previously  written off accounts  receivable and current year reallocation of
various general and  administrative  expenses into cost of sales.  Income before
non-recurring  item and provision  for income taxes for the year ended  December
25, 2002 was $4.8 million, an increase of 3% over the 2001 fiscal year results.

     Net income was $4.2  million or $0.10 per share on a fully  diluted  basis.
This  represents  an  increase  of 380% from the net income of $866  thousand in
2001.  This  increase  is mainly  due to a  one-time  charge  taken last year in
connection with the issuance of 1.3 million shares of common stock issued to our
advisers in connection with the acquisition from New Dragon Asia Food Limited on
December  13,  2001.  The charge is based on a discount to the  average  ten-day
closing bid price of our stock prior to December 13, 2001.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

     The following table  aggregates all contractual  commitments and commercial
obligations that affect the Company's financial condition and liquidity position
as of December 25, 2003:

<TABLE>
<CAPTION>
                                                                      PAYMENTS DUE BY PERIOD
                                                                   (U.S. DOLLARS IN THOUSANDS)
                                                ------------------------------------------------------------------
                                                             LESS THAN                                    MORE THAN
                                                TOTAL         1 YEAR        1-3 YEARS      3-5 YEARS       5 YEARS
                                                -----         ------        ---------      ---------       -------
<S>                                              <C>            <C>           <C>             <C>           <C>
CONTRACTUAL OBLIGATIONS:

Long-term debt                                 $    --      $    --       $     --        $    --          $    --
Capital lease obligations                           --           --             --             --               --
Operating leases                                     37            2              4              4               27
Unconditional purchase obligations                  --           --             --             --               --
Other long-term obligations                       5,152          114            228            228            4,582
Total contractual cash obligations                5,189          116            232            232            4,609
</TABLE>

                                       13

<PAGE>


     FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES

     Net cash  provided by the operating  activities  of the Company  during the
year ended  December 25, 2003 was $6.2 million.  The Company  believes that with
its existing  working capital  together with cash flow from  operations,  it has
sufficient  resources to meet the capital requirements of its existing business.
However,  the  Company  may  seek  financing  in the  form of debt  equity  or a
combination thereof to fund acquisition of complementary business.

     INFLATION AND CHANGING PRICES

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

APPLICATION  OF  CRITICAL  ACCOUNTING  POLICIES

     The  preparation  of  the  Company's   financial   statements  and  related
disclosures in conformity with generally accepted  accounting  principles in the
United States  requires  management to make  estimates and judgments that affect
the  reported  amounts of assets and  liabilities,  revenues  and  expenses  and
related disclosures of contingent assets and liabilities.  On an on-going basis,
management  evaluates  the  estimates  and  assumptions  based  upon  historical
experience and various other factors and circumstances. Management believes that
the Company's  estimates and assumptions are reasonable under the  circumstance;
however,  actual  results may vary from these  estimates and  assumptions  under
different future circumstances. Management has identified the following critical
accounting  policies  that affect the more  significant  judgments and estimates
used in the preparation of the Company's consolidated financial statements.

Contractual   Joint  Ventures  -  A  contractual  joint  venture  is  an  entity
established between the Group and another joint venture partner, with the rights
and  obligations  of each party  governed by a contract.  If the Group owns more
than 50% of the joint  venture and is able to govern and  control its  financial
and  operating  policies  and its board of  directors,  such  joint  venture  is
considered as a de facto subsidiary and is accounted for as a subsidiary.

Revenue  Recognition - The Company recognizes sales in accordance with SEC Staff
Accounting  Bulletin No. 101,  "Revenue  Recognition  in Financial  Statements".
Sales  represent  the invoiced  value of goods,  net of value added tax ("VAT"),
supplied to customers,  and are recognized upon delivery of goods and passage of
title.

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

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

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

        The Company is exposed to changes in financial market  conditions in the
normal  course of  business  due to its use of  certain  financial  instruments.
Market risk generally represents the risk that losses may occur in the values of
financial  instruments  as a result of  movements  in interest  rates and equity
prices.


                                       14

<PAGE>


Currency Fluctuations and Foreign Currency Risk

     As all of the Company's operations are conducted in the PRC except for some
export  business and limited  foreign  purchases of raw  materials,  most of our
products  are sold and raw  materials  are  sourced  within  the PRC in  Chinese
Renminbi  ("RMB").  Thus,  the  effect of the  currency  fluctuations  should be
minimal.

     Beginning on December 1, 1996,  there are no restrictions on  trade-related
foreign exchange receipts and disbursements in China. Since all of the Company's
revenue is  denominated  in RMB which must be  converted  into other  currencies
before  remittance  out of the PRC, we may expose to the risk in  fluctuation of
exchange rate on conversion of RMB into foreign currencies and the remittance of
foreign currencies.  Capital account foreign exchange receipts and disbursements
are subject to control and require the approval of the PRC government.

Interest Rate Risk

     All of our cash reserves and  short-term  borrowings are subject to changes
in  interest  rates  and our  interest  expense  and  interest  income  are also
sensitive to changes in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a) Financial Statements

The following financial statements are set forth at the end hereof.

     1.   Independent Auditors` Reports

     2.   Consolidated  Balance Sheets of New Dragon Asia Corp. and Subsidiaries
          as of December 25, 2003 and 2002

     3.   Consolidated  Statements  of Income  and  Comprehensive  Income of New
          Dragon Asia Corp.  and  Subsidiaries  for the years ended December 25,
          2003, 2002 and 2001

     4.   Consolidated Statements of Stockholder Equity of New Dragon Asia Corp.
          and Subsidiaries for the years ended December 25, 2003, 2002 and 2001

     5.   Consolidated  Statements  of Cash Flows of New Dragon  Asia Corp.  and
          Subsidiaries for the years ended December 25, 2003, 2002 and 2001

     6.   Notes to Consolidated Financial Statements


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

     Effective,  August 1, 2002, the Company disengaged Spear,  Safer,  Harmon &
Co. ("SSHC"), as the Company's independent auditors.  Effective August 13, 2002,
the Company engaged Grobstein,  Horwath & Company, LLP ("GH&C") as the Company's
new independent  auditors.  The disengagement of SSHC and the engagement of GH&C
were each approved by the Company's Board of Directors.


                                       15

<PAGE>


       Prior to the  engagement  of GH&C,  neither the Company nor anyone on its
behalf  consulted  with  such  firm  regarding  the  application  of  accounting
principles to a specified transaction,  either completed or uncompleted, or type
of audit opinion that might be rendered on the Company's  consolidated financial
statements.

       SSHC audited the  Company's  consolidated  financial  statements  for the
period from  December 26, 2000 to December  25, 2001 and reviewed the  Company's
interim  consolidated  financial  statements  through  March  25,  2002.  SSCH's
Independent  Auditors`  Report as of  December  25, 2001 for this period did not
contain  an adverse  opinion  or a  disclaimer  of  opinion,  nor was the report
qualified or modified as to uncertainty, audit scope or accounting principles.

       During the  period  from  inception  to August  21,  2002,  there were no
disagreements  with SSHC on any matter of  accounting  principles  or practices,
consolidated  financial  statement  disclosure,  or auditing scope or procedure,
which  disagreements,  if not resolved to the  satisfaction of SSHC,  would have
caused such firm to make reference to the subject matter of the disagreements in
connection with its Independent  Auditors` Report on the Company's  consolidated
financial statements.  In addition, there were no such events as described under
Item  304(a)(1)(IV)(B)  of  Regulation  S-B during the period from  inception to
August 12, 2002.

ITEM 9A.  CONTROL PROCEDURES

     (a) Evaluation of disclosure  controls and  procedures:  As of December 25,
2003,  the  end of the  period  covered  by this  report,  the  Company's  chief
executive  officer and its chief  financial  officer  reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rule  13a-15(e) and  15d-15(e)),  which are designed to ensure that
material  information the Company must disclose in its report filed or submitted
under the Securities  Exchange Act of 1934, as amended (the  "Exchange  Act") is
recorded,  processed,  summarized,  and  reported  on a timely  basis,  and have
concluded,  based  on  that  evaluation,  that as of such  date,  the  Company's
disclosure  controls and procedures  were  effective to ensure that  information
required  to be  disclosed  by the  Company in reports  that it files or submits
under the Exchange Act is accumulated  and  communicated  to the Company's chief
executive  officer and chief  financial  officer as  appropriate to allow timely
decisions regarding required disclosure.

     (b) Changes in internal  control over financial  reporting:  For the fiscal
year ended December 25, 2003, there has been no change in the Company's internal
control over financial reporting that has materially affected,  or is reasonably
likely to materially affect, its internal control over financial reporting.


                                    PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT

     The   information  required by Item 10 is set forth in the Proxy  Statement
under the caption "Election of Directors".



                                       16
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     The  information  required  by Item 11 is set forth in the Proxy  Statement
under the caption  "Executive  Compensation" and is incorporated  herein by this
reference.

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

     The  information  required  by Item 12 is set forth in the Proxy  Statement
under  the  caption  "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" and is incorporated herein by this reference.

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.  As used in this  section  the term Group shall mean New
Dragon and each of its subsidiaries.

The particulars of significant related party transactions are summarized below:

                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------
Sale of finished goods to:
  A joint venture partner, Shandong
  Longfeng Group Company                                    $   --     $  419
  Related parties:
    Zhang Guo Quan(5)                                           --        980
    Penglai Jinhai Food Company Limited(4)                      --        344
    Longkou City Longfeng Colour Printing Factory(3)(6)         --          7
    Longkou City Longfeng Soybean Food Company Ltd. (1)          1         --
    Shandong Longfeng Group Trading Company(1)                 110          2
    Sanhe (Yantai) Food Company Limited (1)(7)                   2          1
                                                            ------     ------
                                                            $  113     $1,753
                                                            ======     ======


                                       17
<PAGE>


                                                              2003       2002
                                                            (US$'000)  (US$'000)
                                                            ---------  ---------

Purchase of raw materials from:
  A joint venture partner, Shandong
  Longfeng Group Company                                      $   --     $    8
  Related parties:
    Sanhe (Yantai) Food Company Limited (1) (7)                    8         19
    Shandong Longfeng Packing Manufacturing Factory (1)        1,330         --
    Longkou City Longfeng Colour Printing Packing
    Factory (3)(6)                                                --        907
    Longkou City Longfeng Carton Packing Factory (3)(6)           --        710
    Longkou City Longfeng Soybean Food Company Limited (1)         6         --
    New Dragon Asia Food (Yueyang) Company Limited (2)            --          1
    New Dragon Asia Food (Chengdu) Company Limited (2)            --         11
    New Dragon Asia Food (Luoyang) Company Limited (2)            --          1
                                                              ------     ------
                                                              $1,344     $1,657
                                                              ======     ======

Pre-determined annual fee charged by joint
  venture partners:
    Shandong Longfeng Group Company                           $   78     $   78
    Shandong Longfeng Flour Company Limited                       36         36
                                                              ------     ------
                                                              $  114     $  114
                                                              ======     ======


                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------
Interest income earned from short-term
 advances to an immediate parent company:
  New Dragon Asia Food Limited                                $ --         $188
                                                              ----         ----
Interest expenses paid to a joint
 venture partner:
  Shandong Longfeng Group Company                             $ 17         $ 18
                                                              ----         ----
Rental income from joint venture partner:
  Shandong Longfeng Group Company                             $ 64         $ 64
                                                              ----         ----


Summary of related party balances is as follows:

                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------

Other income from:
  Related parties
    Sanhe (Yantai) Food Company Limited (1)(7)               $    2     $   --
    Longkou City Longfeng Soybean Food Co Ltd (1)                49         --
  Joint Venture Partners
    Shandong Longfeng Group Company                               2         --

Due to an immediate parent company, net consisting of:
  New Dragon Asia Food Limited                               $  196     $5,782
                                                             ------     ------


                                       18

<PAGE>

     The  net  amount  due  to  New  Dragon  Asia  Food  Limited  is  unsecured,
non-interest bearing and repayable upon demand.


     During the year ended December 25, 2003, the Group sold some machinery to
Shandong Longfeng Group Company for consideration of $992,540.

                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------
Due to joint venture partners, net, consisting of:
 Shandong Longfeng Group Company                             $1,034      $3,762
 Shandong Longfeng Flour Company Limited                        170       1,809
                                                             ------      ------
                                                              1,204       5,571
                                                             ------      ------


     The amounts  due to joint  venture  partners  are  unsecured,  non-interest
bearing and repayable upon demand, except for an amount due to Shandong Longfeng
Group Company of $280,723 which bears interest at 6.48% per annum.

                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------
Due from related companies consisting of:
  New Dragon Asia Food (Yueyang)
  Company Limited (2)                                        $   --     $  329
  New Dragon Asia Food (Luoyang)
  Company Limited (2)                                            --        791
  New Dragon Asia Food (Chengdu)
  Company Limited (2)                                            --        551
  Penglai Jinhai Food Company Limited (4)                        --        372
  Shandong Longfeng Packing Manufacturing Factory (1)             1         --
  Longkou City Longfeng Food Company Limited (1)                 13         --
  Shandong Longfeng Group Trading Company (1)                   110         12
  Shandong Longfeng Oceanic Foodstuff                            --         10
    Company Limited(1)
  Zhang Guo Quan(5)                                              --        434
                                                             ------     ------
                                                             $  124     $2,499
                                                             ======     ======


     The amounts due from  related  companies  are  unsecured  and  non-interest
bearing, and are repayable upon demand.


                                       19
<PAGE>


                                                             2003       2002
                                                           (US$'000)  (US$'000)
                                                           ---------  ---------
Due to related companies consisting of:
  Longkou City Longfeng Colour Printing Packing
  Factory (3)(6)                                           $   --       $  463
  Shandong Longfeng Packing Manufacturing
  Factory (1)                                                 609           --
  Longfeng Food Company Limited(3) (6)                        234          133
  New Dragon Asia Food (Luoyang) Co Ltd (2)                    --            6
  Ningbo Hai Fu Sheng (4)                                      --            2
  Penglai Jinhai Food Company Limited (4)                      --            2
  Sanhe (Yantai) Food Company Limited(1) (7)                   66           76
  Sanhe Senji Food Technology Development
  Company Limited (1)                                         120          120
  Longkou City Longfeng Soybean Food Co Ltd (1)                83           --
  Long Feng Food (H.K.) Company Limited (1)                    55           --
  Shandong Longfeng Group Trading Company (1)                  35           --
                                                           ------       ------
                                                           $1,202       $  802
                                                           ======       ======


     The amounts due to related  Companies are unsecured,  non-interest  bearing
and are repayable upon demand.

     The bank  facilities  of the  Group  are  secured  by  corporate  guarantee
provided by Shandong Longfeng Group Company, a joint venture partner.

      (1) Shandong  Longfeng  Group  Company has a beneficial  interest in these
companies.

      (2) These companies are wholly owned subsidiaries of NDAFL.

      (3) Mr. Xue Jun Song, our former Chief Executive  Officer,  an ex-director
of each of the companies, has a beneficial interest in these companies.

      (4) Mr.  Zhen Gu  Song,  the son of Mr.  Xue Jun  Song,  has a  beneficial
interest in these companies.

      (5) Lessor of one of our sub-contracted factories.

      (6) Mr. Xue Jun Song ceased to be a director of  Shandong  Longfeng  Group
Company on January 7, 2002.

      (7) Shandong  Longfeng Group Company  withdrew their investment on Feb 25,
2004.

      In the opinion of the directors of each of the Group companies,  the above
related party transactions were carried out in the usual course of business.


                                       20
<PAGE>


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The   information  required under by Item 14 is  incorporated  by reference
from the Registrant's definitive Proxy Statement.

ITEM 15. EXHIBITS AND REPORTS ON 8K

(a)    The following is a list of exhibits filed as a part of this Annual Report
       on Form  10-K.  Where  so  indicated  by  footnote  exhibits  which  were
       previously filed are incorporated by reference.


 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 on October 11, 2001

3.1            Revised  Articles  of  Incorporation,   incorporated   herein  by
               reference from the Definitive Proxy filed on October 11, 2001

3.2            Bylaws,  incorporated  herein by reference from our filing on the
               Definitive Proxy filed on October 11, 2001

23.1           Consent of Spear Safer and Harmon & Co.*

31.1           Certification pursuant to Rule 13a-14*

31.2           Certification pursuant to Rule 13a-14*

32.1           Certification of Chief Executive  Officer pursuant to Section 906
               of the Sarbanes- Oxley Act of 2002*

32.2           Certification of Chief Financial  Officer pursuant to Section 906
               of the Sarbanes- Oxley Act of 2002*

----------
 * Filed herewith.

(b)    Reports on Form 8-K

       None


                                       21
<PAGE>


                                   SIGNATURES

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


                                       NEW DRAGON ASIA CORP.


Dated: April 8, 2004                By /s/ Heng Jing Lu
                                       ------------------------------
                                       Name: Heng Jing Lu
                                       Title: Chief Executive Officer, Director


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


Dated: April 8, 2004                By /s/ Heng Jing Lu
                                       ------------------------------
                                       Name: Heng Jing Lu
                                       Title: Chief Executive Officer, Director


Dated: April 8, 2004                By /s/ Li Xia Wang
                                       ------------------------------
                                       Name: Li Xia Wang
                                       Title: Chief Financial Officer, Director


Dated: April 8, 2004                By /s/ Ling Wang
                                       ------------------------------
                                       Name: Ling Wang
                                       Title: Deputy General Manager, Director


Dated: April 8, 2004                By /s/ Wing Leung Lai
                                       ------------------------------
                                       Name: Wing Leung Lai
                                       Title: Director


Dated: April 8, 2004                By /s/ Zhi Yong Jiang
                                       ------------------------------
                                       Name: Zhi Yong Jiang
                                       Title: Director


Dated: April 8, 2004                By /s/ Qi Xue
                                       ------------------------------
                                       Name: Qi Xue
                                       Title: Director


Dated: April 8, 2004                By /s/ De Lin Yang
                                       ------------------------------
                                       Name: De Lin Yang
                                       Title: Director


                                       22
<PAGE>


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


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                         DECEMBER 25, 2003,2002 AND 2001



                                    CONTENTS


                                                                       PAGE
                                                                       ----

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

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

Consolidated Balance Sheets                                             F-3

Consolidated Statements of Income and Comprehensive Income              F-4

Consolidated Statements of Stockholders' Equity                         F-5

Consolidated Statements of Cash Flow                                 F-6 - F-7

Notes Consolidated Financial Statements                              F-8 - F-26


<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying  consolidated balance sheets of New Dragon Asia
Corp.  and  Subsidiaries  as of  December  25,  2003 and  2002  and the  related
consolidated statements of income and comprehensive income, stockholders` equity
and cash flows for the years then ended. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  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, 2003 and 2002,  and the
consolidated results of their operations and cash flows for the years then ended
in  conformity  with  accounting  principles  generally  accepted  in the United
States.

Grobstein, Horwath & Company LLP

Sherman Oaks, California
March 25, 2004


                                      F-1


<PAGE>


                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying  consolidated  balance sheet of New Dragon Asia
Corp. and  Subsidiaries  as of December 25, 2001,  and the related  consolidated
statements of operations and comprehensive  income, cash flows and stockholders'
equity  for the year ended  December  25,  2001.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used an significant estimates made by management,  as well
as evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of New
Dragon Asia Corp. and Subsidiaries as of December 25, 2001, and the consolidated
results of their operations and cash flows for the year ended December 25, 2001,
in accordance with accounting principles generally accepted in the United States
of America.

Spear, Safer, Harmon & Co.

Miami, Florida
April 12, 2002

                                      F-2

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 25, 2003 and 2002


                                                           2003        2002
                                                         (US$'000)   (US$'000)
                                                         ---------   ---------

                ASSETS

Current Assets:
    Cash and cash equivalents                             $ 1,783     $   628
    Restricted cash                                            --         181
    Accounts receivable, net                                6,936       7,328
    Other receivables, deposits and prepayments             1,282       1,066
    Inventories                                             2,763       5,202
    Due from related companies                                124       2,499
                                                          -------     -------
          Total Current Assets                             12,888      16,904
    Property, machinery and equipment, net                 17,471      19,340
    Land use rights, net                                    3,998       4,110
                                                          -------     -------
           Total Assets                                   $34,357     $40,354
                                                          =======     =======
                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Short-term borrowings                                 $ 2,845     $ 3,614
    Accounts payable                                        4,565       4,728
    Other payables and accruals                             1,234       1,282
    Taxes payable                                             921         889
    Due to related companies                                1,202         802
                                                          -------     -------
          Total Current Liabilities                        10,767      11,315
    Due to New Dragon Asia Food Limited                       196       5,782
    Due to joint venture partners                           1,204       5,571
                                                          -------     -------

          Total Liabilities                                12,167      26,668

Stockholders' Equity:
    Common stock, par value US$0.0001;
    authorized - 107,000,000  shares;
    outstanding and fully paid - 45,061,342
    shares as of December 25, 2003 and
    40,911,342 shares as of December 25, 2002                   4           4
    Additional paid-in capital                              9,909       8,132
    Retained earnings                                      12,277       9,550
                                                          -------     -------
          Total Stockholders' Equity                       22,190      17,686
                                                          -------     -------
          Total Liabilities and Stockholders' Equity      $34,357     $40,354
                                                          =======     =======


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

                                       F-3


<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

           Consolidated Statements of Income and Comprehensive Income

              For the Years Ended December 25, 2003, 2002 and 2001


<TABLE>
<CAPTION>
                                                     2003           2002             2001
                                                  (US$'000)       (US$'000)       (US$'000)
                                                  --------        --------        --------
<S>                                               <C>             <C>             <C>
Net Sales                                         $ 30,773        $ 33,704        $ 30,135
Cost of Goods Sold                                 (24,852)        (27,596)        (24,092)
                                                  --------        --------        --------
Gross Profit                                         5,921           6,108           6,043

Operating Expenses:
     Selling and distribution expenses              (1,330)         (1,161)           (613)
        General and administrative expenses         (2,398)           (601)         (1,341)
                                                  --------        --------        --------
Income from Operations                               2,193           4,346           4,089
Other Income and Expenses:
        Interest expense                              (249)           (265)           (200)
     Interest income                                     4             194              88
     Other income                                    1,226             487             642
                                                  --------        --------        --------
Income Before Non-recurring Item and

Provision for Income Taxes                           3,174           4,762           4,619

Non-recurring Costs of Share Exchange                   --              --          (3,134)
                                                  --------        --------        --------
                                                     3,174           4,762           1,485

Provision for Income Taxes                            (447)           (609)           (619)
                                                  --------        --------        --------

Net Income and Comprehensive Income               $  2,727        $  4,153        $    866
                                                  ========        ========        ========
Earnings Per Common Share
  Basic and Diluted                               $   0.06        $   0.10        $   0.22
                                                  ========        ========        ========

Weighted Average Shares Used to
Compute Earnings per Common Share
  Basic and Diluted                                 42,108          40,911           3,895
                                                  ========        ========        ========
</TABLE>


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

                                       F-4

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

              For the Years Ended December 25, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                            Common               Additional                       Total
                                             Stock                Paid -In       Retained      Stockholders'
                                 No. of shares      Amount        Capital        Earnings         Equity
                                     (000)        (US$' 000)     (US$' 000)     (US$' 000)      (US$' 000)
                                    --------       --------       --------       --------        --------
<S>                                  <C>            <C>            <C>            <C>             <C>
Balance at December 25, 2000            1,049       $     --       $     --       $  4,544        $  4,544
Conversion of Bio Aqua Shares           1,700             --              2             --               2
Issuance of Common Stock in
 Connection with:
    Exchange agreement                 35,184              4          4,996            (13)          4,987
    Consulting, investment
    banking and legal services          2,978             --          3,134             --           3,134
Net Income for the Year Ended
  December 25, 2001                        --             --             --            866             866
                                     --------       --------       --------       --------        --------

Balance at December 25, 2001           40,911              4          8,132          5,397          13,533

Net Income for the Year Ended
  December 25, 2002                        --             --             --          4,153           4,153
                                     --------       --------       --------       --------        --------
Balance at December 25, 2002           40,911              4          8,132          9,550          17,686

Issuance of Common Stock in
   Connection with:
      Private placement                 3,300             --          1,405             --           1,405
      Private placement                   850             --            372             --             372

Net Income for the Year Ended
  December 25, 2003                        --             --             --          2,727           2,727
                                     --------       --------       --------       --------        --------
Balance at December 25, 2003           45,061              4          9,909         12,277          22,190
                                     ========       ========       ========       ========        ========
</TABLE>


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

                                       F-5

<PAGE>



                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

              For the Years Ended December 25, 2003, 2002 and 2001

<TABLE>
<CAPTION>

                                                           2003            2002          2001
                                                         (US$'000)      (US$'000)      (US$'000)
                                                         ---------      ---------      ---------
<S>                                                      <C>            <C>            <C>
Cash Flows from Operating Activities:
    Net income                                            $ 2,727        $ 4,153        $   866
    Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
         Depreciation and amortization                      1,425          1,251          1,264
         Stock issued in connection with
           investment services                                 --             --          3,134
         Provision for bad debts                              578            134             87
         (Gain) loss on disposal of machinery
           and equipment                                     (346)             5              4
         Sources and (uses) of cash from changes in
         operating assets and liabilities:
           Accounts receivable                               (186)        (2,352)        (2,460)
           Other receivables, deposits and
             prepayments                                     (216)           343           (197)
           Inventories                                      2,439            125            655
           Accounts payable                                  (163)         1,288         (1,498)
           Other payables and accruals                        (48)           544            309
           Taxes payable                                       32            420         (1,314)
                                                          -------        -------        -------
Net Cash Provided by Operating Activities                   6,242          5,911            850
                                                          -------        -------        -------


Cash Flows from Investing Activities:
    Decrease (increase) in amounts due from related
      companies                                             2,375           (795)        (1,704)
    Decrease (increase) in investment                          --             72            (72)
    Increase (decrease) in amounts due to related
      companies                                               400         (2,982)         3,784
    Purchases of property, machinery and equipment            (92)          (978)        (2,663)
    Proceeds from disposal of property, machinery
      and equipment                                           994             --             --
                                                          -------        -------        -------
Net Cash Provided by (Used in) Investing Activities         3,677         (4,683)          (655)
                                                          -------        -------        -------
</TABLE>


                                       F-6

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (Continued)

              For the Years Ended December 25, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                             2003          2002           2001
                                                          (US$'000)      (US$'000)      (US$'000)
                                                           -------        -------        -------
<S>                                                        <C>            <C>            <C>
Cash Flows from Financing Activities:
   Issuance of common stock                                  1,777             --             --
   Decrease (increase) in restricted cash                      181           (181)            --
   Proceeds from short-term borrowings                       4,325          6,988             --
   Payments on short-term borrowings                        (5,094)        (6,928)           (33)
   Decrease in due to New Dragon Asia
     Food Limited                                           (5,586)        (1,262)        (9,756)
   (Decrease) increase in due to joint venture
      partners                                              (4,367)          (510)         4,883
                                                           -------        -------        -------
  Net Cash (Used in) Provided by

    Financing Activities                                    (8,764)        (1,893)            83
                                                           -------        -------        -------
  Net Change in Cash and Cash Equivalents                    1,155           (665)           278

  Beginning Cash and Cash Equivalents                          628          1,293          1,015
                                                           -------        -------        -------
  Ending Cash and Cash Equivalents                         $ 1,783        $   628        $ 1,293
                                                           =======        =======        =======

  Supplemental disclosures of cash flow information:
  Cash paid during the year for:
     Interest                                              $   249        $   292        $   125
     Income taxes                                              380            426            132
  Non cash investing and financing activities:
     Conversion of outstanding Bio Aqua shares                  --             --              2
     Issuance of common stock in connection
       with exchange agreement                                  --             --          5,000
</TABLE>


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

                                       F-7

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  Years Ended December 25, 2003, 2002 and 2001

NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS

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

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

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

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

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

                                       F-8


<PAGE>


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

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

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

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

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

In connection with the terms and provisions of the Exchange Agreement,  Bio-Aqua
issued  1,335,912 shares of restricted  common stock to investment  advisors and
attorneys in  connection  with services  rendered to effectuate  the exchange of
shares. At the date of issuance of the shares,  the AMEX market quotation of the
stock  was  $3.00  per  share.  NDAC  has  included  these  costs  approximating
$3,134,000  in other  expenses in the  accompanying  statement  of  consolidated
income and comprehensive  income for the year ended December 25, 2001,  computed
by  applying  a 20%  discount  to the above  AMEX  market  quotation  due to the
restricted nature of the stock.

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

COUNTRY RISK -- As all of the Group's  operations  are conducted in the PRC, the
Group is subject to special  considerations  and significant risks not typically
associated with companies  operating in North America and Western Europe.  These
include risks associated with, among others,  the political,  economic and legal
environments and foreign currency exchange. The Group's results may be adversely
affected by changes in the  political  and social  conditions in the PRC, and by
changes  in  governmental   policies  with  respect  to  laws  and  regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.

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

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

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


                                      F-9

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


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

Details of the companies comprising the Group are as follows:


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

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

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

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

New Dragon Asia         The PRC                 RMB28,500,000            90% (b)    Manufacture,
Flour (Yantai)          August 13, 1999                                             marketing and
Company Limited                                                                     distribution of flour
("NDAFLY")

New Dragon Asia Food    The PRC                 RMB17,462,000            90% (c)    Manufacture, marketing
(Yantai) Company        December 24, 1998                                           and distribution of
Limited ("NDAFY")                                                                   instant noodles

New Dragon Asia Food    The PRC                 RMB17,430,000            90% (c)    Manufacture, marketing
(Dalian) Company        December 28, 1998                                           and distribution of
Limited ("NDAFD")                                                                   instant noodles

Sanhe New Dragon        The PRC                 RMB51,191,432         79.64% (c)    Manufacture, marketing
Asia Food Company       December 25, 1998                                           and  distribution of
Limited ("SNDAF")                                                                   instant noodles

Penglai New Dragon      The PRC                 US$850,000              100% (d)    Manufacture, marketing
Jin Qiao Food           December 5, 2003                                            and distribution of flour
Company Limited
("PNDJQ")
</TABLE>

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


                                      F-10


<PAGE>


(b)    NDAFLY  is a  contractual  joint  venture  established  in the  PRC to be
       operated  for 50 years until  August 13,  2049.  In  September  2000,  MC
       contributed  90% of the  registered  capital to  NDAFLY.  Under the joint
       venture agreement dated June 1, 1999 and the supplemental agreement dated
       June 26, 1999, the Chinese joint venture partner is entitled to receive a
       pre-determined  annual fee and all  profits or loss,  net of annual  fees
       from the joint venture are to be allocated to NDAFLY  effective from June
       26, 1999. In view of the profit sharing arrangement NDAFLY is regarded as
       100%  owned  by the  Group.  The  minority  interest  component  has been
       included as a component  of General and  Administrative  Expenses for the
       years ended December 25, 2003, 2002 and 2001.

(c)    NDAFY, NDAFD and SNDAF are contractual joint ventures  established in the
       PRC to be operated for 50 years until  December 24, 2048.  In March 1999,
       RD and NP contributed  90% of the registered  capital to NDAFY and NDAFD,
       respectively,  while KG contributed  79.64% of the registered  capital to
       SNDAF. Under the joint venture agreements dated November 28, 1998 and the
       supplemental  agreement  dated  December 26, 1998,  the PRC joint venture
       partner is  entitled  to receive a  pre-determined  annual fee and is not
       responsible  for any profit or loss of NDAFY,  NDAFD and SNDAF  effective
       from  December  26,  1998.  In view of the profit  sharing  arrangements,
       NDAFY, NDAFD and SNDAF are regarded as 100% owned by the Group.

(d)    PNDJQ is a wholly owned subsidiary of MC established in PRC.


NOTE 2 -- BASIS OF PRESENTATION

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

The  consolidated   financial   statements  were  prepared  in  accordance  with
accounting principles generally accepted in the United States ("U.S. GAAP"). The
preparation  of financial  statements  in  conformity  with U.S.  GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  U.S.  GAAP  differs  from  that  used  in  the  statutory  financial
statements of the major operating subsidiaries of the Group, which were prepared
in accordance with the relevant  accounting  principles and financial  reporting
regulations  applicable  to joint  venture  enterprises  as  established  by the
Ministry of Finance of the PRC. Certain accounting  principles  stipulated under
U.S. GAAP are not applicable in the PRC.


                                     F-11
<PAGE>


NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue  Recognition -- The Group  recognizes sales in accordance with SEC Staff
Accounting  Bulletin No. 101,  "Revenue  Recognition  in Financial  Statements."
Sales  represent  the invoiced  value of goods,  net of value added tax ("VAT"),
supplied to customers,  and are recognized upon delivery of goods and passage of
title.

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

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

Advertising  -- The costs of  advertising  are expensed in the year in which the
advertising first takes place.  Total advertising  expense was $81,637,  $13,821
and $5,000 for the years ended December 25, 2003, 2002 and 2001, respectively.

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

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

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

Inventories  --  Inventories  are stated at the lower of cost,  determined  on a
weighted average basis, and net realizable value.  Work-in-progress and finished
goods  are  composed  of  direct  material,   direct  labor  and  a  portion  of
manufacturing  overhead. Net realizable value is the estimated selling price, in
the ordinary course of business, less estimated costs to complete and dispose.


                                      F-12

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


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

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

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


Construction-in-progress  represents  land costs as well as  factory  and office
buildings  under  construction.   The  Group  capitalizes  interest  during  the
construction  phase  of  qualifying  assets  in  accordance  with  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 34,  "Capitalization  of Interest
Cost."  No  interest  was  capitalized   during  2003,  2002  and  2001  as  the
construction-in-progress was minimal.

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

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

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


                                      F-13

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

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


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

Translations of amounts from Renminbi ("RMB") into United States dollars ("US$")
were at US $1.00 = RMB 8.3 for the years ended December 25, 2003, 2002 and 2001.
No  representation  is made that the Renminbi  amounts could have been, or could
be, converted into United States dollars at that rate or at any other rate.

Earnings  Per Share -- Basic  earnings  per common  rate  ("EPS") is computed in
accordance  with SFAS  No.128:  "Earnings  Per  Share" by  dividing  net  income
available to common stockholders by the weighted-average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.  The  weighted-average  number of
common shares outstanding for computing basic EPS was 42,107,917, 40,911,342 and
3,894,960 for years ended December 25, 2003, 2002 and 2001 respectively.

Recently Issued Accounting Standards --

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

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

                                      F-14


<PAGE>

                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


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

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

(d) In May 2003, the FASB issued SFAS No. 150: "Accounting for Certain Financial
Instruments with  Characteristics  of Both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously  classified as equity. This statement is effective for financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003. On November 7, 2003,  the FASB deferred for an indefinite  period  certain
provisions of SFAS No. 150 relating to the  classification  and  measurement  of
mandatorily redeemable  non-controlling interests. The Group does not believe it
has any such interests. The implementation of the remaining effective provisions
of SFAS No. 150 did not have any impact on the  Group's  consolidated  financial
statements.

(e) In  November  2002,  the FASB  issued  Interpretation  No. 45:  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  including  Indirect
Guarantees  of  Indebtedness  of  Others  ("FIN45")."  FIN45  elaborates  on the
existing disclosure requirements for most guarantees,  including loan guarantees
such as standby letters of credit.  It also clarifies that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair
market  value of the  obligations  it  assumes  under  that  guarantee  and must
disclose that  information in its interim and annual financial  statements.  The
initial recognition and measurement  provisions of FIN 45 apply on a prospective
basis to guarantees  issued or modified  after  December 31, 2002. The Group has
implemented  the  disclosure  provisions  of  FIN 45 in its  December  25,  2003
consolidated financial statements.

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


                                      F-15

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


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


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

NOTE 4 -- ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 25:

                                                2003           2002
                                              (US$'000)      (US$'000)
                                              ---------      ---------
         Accounts receivable                   $ 7,929        $ 7,743
         Less:
         Allowance for doubtful accounts          (993)          (415)
                                               -------        -------
                                               $ 6,936        $ 7,328
                                               =======        =======


NOTE 5 -- OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

As of December 25, other receivables, deposits and prepayments were as follows:

                                                     2003        2002
                                                  (US$'000)    (US$'000)
                                                  ---------    ---------
        Vendor deposits for the purchase of:
          Raw materials                             $1,208       $  424
          Machinery and equipment                       --           11
        Prepayments for construction work               --           60
        Advances to:

          Staff (a)                                     63           88
          Unrelated third parties (a)                   --            2
        Others                                          11          418
                                                    ------       ------
                                                    $1,282       $1,066
                                                    ======       ======


(a)   Advances to staff and unrelated third parties are unsecured,  non-interest
      bearing and without predetermined repayment terms.

                                      F-16


<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 6 -- INVENTORIES

Inventories consisted of the following at December 25:

                                          2003        2002
                                       (US$'000)   (US$'000)
                                       ---------   ---------
                    Raw materials        $1,648       $2,981
                    Finished goods        1,115        2,221
                                         ------       ------
                                         $2,763       $5,202
                                         ======       ======


NOTE 7 -- PROPERTY, MACHINERY AND EQUIPMENT, AND CONTRUCTION-
          -IN-PROGRESS

Property, machinery and equipment, and construction-in-progress consisted of the
following at December 25:

                                                  2003            2002
                                                (US$'000)      (US$'000)
                                                ---------      ---------
       Buildings                                $  9,548        $  9,623
       Machinery and equipment                    12,055          12,816
       Furniture and office equipment                177             158
       Motor vehicles                                586             592
       Construction-in-progress                        3             169
                                                --------        --------
                                                  22,369          23,358
       Less:  Accumulated depreciation            (4,898)         (4,018)
                                                --------        --------
       Property, plant and equipment, net       $ 17,471        $ 19,340
                                                ========        ========


Depreciation expense was approximately $1,314,000, $1,141,000 and $1,095,000 for
the years ended December 25, 2003, 2002 and 2001, respectively.


                                      F-17


<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 8 -- LAND USE RIGHTS

Land use rights consisted of the following at December 25:

                                             2003            2002
                                           (US$'000)      (US$'000)
                                           ---------      ---------
             Land use rights                $ 4,575        $ 4,575
             Less:
             Accumulated amortization          (577)          (465)
                                            -------        -------
             Land use rights, net           $ 3,998        $ 4,110
                                            =======        =======


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, 2003 and
2002, the land use rights  consisted of four parcels of land located in Mainland
China  with  a  net  book  value  of  approximated   $3,998,000  and  $4,110,000
respectively, held under land use rights of 27 to 50 years through 2025 to 2047.

Amortization  expense was  approximately  $112,000,  $110,000 and $169,000 as of
December 25, 2003, 2002 and 2001, respectively.

NOTE 9 -- SHORT-TERM BORROWINGS

Short-term borrowings consisted of the following at December 25:


                                         2003         2002
                                       (US$'000)    (US$'000)
                                       ---------    ---------
                    Bank loans          $2,518       $3,012
                    Bills payable          327          602
                                        ------       ------
                                        $2,845       $3,614
                                        ======       ======


Bank loans are secured by corporate  guarantees  provided by a PRC joint venture
partner and a third party and bear interest at  prevailing  lending rates in the
PRC ranging from 6.01% to 6.435% per annum for the year ended December 25, 2003.

Bills  payable are a form of bank  borrowings  with payment due within 180 days.
The bills  payable  were  secured  by pledged  bank  deposits  of  approximately
$181,000 in 2002.


                                      F-18

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 10 -- OTHER PAYABLES AND ACCRUALS

Other payables and accruals consisted of the following at December 25:

                                                2003         2002
                                              (US$'000)   (US$'000)
                                              ---------    ---------
              Deposits from customers          $  612       $  315
              Others                              112          743
              Accruals for:
                Staff welfare                      29           18
                Staff salaries and bonus           68           50
                Operating expenses                 64          105
                Property taxes                     62           51
                Social insurance                  287           --
                                               ------       ------
                                               $1,234       $1,282
                                               ======       ======


NOTE 11 -- TAXATION

The PRC  subsidiaries  within the Group 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, 2003, 2002 and 2001,  substantially  all of the
Group's income was generated in the PRC by NDAFLY,  NDAFY,  NDAFD and SNDAF (the
"joint  venture"),  which are subject to PRC income taxes at rates  ranging from
27% to 33% (24% to 30% state income tax and 3% local  income tax).  The Group is
exempt from state  income  taxes and local  income  taxes for a two-year  period
ending on December 25, 1999 and then subject to a 50%  reduction in state income
taxes,  and a full  exemption  from local income taxes for the  following  three
years ending on December 25, 2003.

As of December 25, 2003, 2002 and 2001, there do not exist any 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 Group's effective income tax rate
is as follows:

                                                   2003        2002       2001
                                                  -----       -----       -----
Statutory income tax                                33%         33%        33%
Impact of effective tax holiday
  discussed above                                  (21)        (21)       (21)
Various differences, especially as
  they related to expenses of share exchange         2           1         30
                                                   ---         ---        ---
Effective rate                                      14%         13%        42%
                                                   ===         ===        ===


                                      F-19

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 12 -- COMMON STOCK

Prior to the  execution of the Exchange  Agreement,  Bio Aqua was  authorized to
issue  100,000,000  shares of Class A common stock;  2,000,000 shares of Class B
common stock and  5,000,000  shares of  preferred  stock.  Immediately  upon the
exchange  taking  place,  all Class A and Class B shares were  converted  into a
single  class of  common  stock.  Currently  the  Group is  authorized  to issue
107,000,000  shares of common stock and 5,000,000  shares of preferred stock all
at $ .0001 par value.

On September 4, 2003, the Group issued  3,300,000  shares of common stock for an
aggregate  purchase  amount of  $1,650,000  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  1,650,000  shares of the
Group's  common stock which have a term of 5 years at an exercise price of $0.99
per share. As of December 25, 2003, no warrants were exercised.

On October 7,  2003,  the Group  issued  850,000  shares of 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  850,000 shares of the Group's
common  stock  which have a term of 5 years and an  exercise  price of $0.98 per
share. As of December 25, 2003, no warrants were exercised.

Transaction  costs  related to the private  placements  amounted to $298,000 and
have been presented as a reduction in the proceeds from the sale of shares.

As of December 25, 2003 the Group had  approximately  45,061,342 of common stock
issued   outstanding.   As  of  December  25,  2002  and  2001,  the  Group  had
approximately  40,911,342  shares of common  stock  issued and  outstanding.  No
preferred stock has been issued.

NOTE 13 -- COMMITMENTS

Lease  Commitments -- The Group leases  manufacturing  and warehouse  facilities
under  operating  leases which expire at various  dates  through  March 2031. At
December 25, 2003, the Group's  future  minimum lease  payments under  operating
leases were as follows:

                                (US$'000)
                                ----------
    2004                         $     2
    2005                               2
    2006                               2
    2007                               2
    2008                               2
    Thereafter                        27
                                --------
                                $     37
                                ========


Total  lease  expense  was  $46,000,  $74,000  and  $2,000,  for the years ended
December 25, 2003, 2002 and 2001 respectively.


                                      F-20

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 13 -- COMMITMENTS (CONTINUED)

Annual Fees -- Under the supplementary joint venture  agreements,  the Group has
committed  to pay  predetermined  annual fees of  $114,000 to the Chinese  joint
venture  partners for each of the years in the period from  December 26, 1998 to
2049. As of December 25, 2003, total commitments  under these  arrangements were
as follows:

                                                                (US$'000)
                                                                ---------
         Payable during the period:
             Within one year                                     $  114
             Over one year but not exceeding two years              114
             Over two years but not exceeding three years           114
             Over three years but not exceeding four years          114
             Over four years but not exceeding five years           114
             Over five years                                      4,582
                                                                 ------
                                                                 $5,152
                                                                 ======


NOTE 14 -- 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 Group and related companies
are summarized below:

<TABLE>
<CAPTION>
                                                           2003         2002          2001
                                                         (US$'000)    (US$'000)     (US$'000)
                                                         --------     --------      --------
<S>                                                      <C>          <C>           <C>
Sale of finished goods to:
  A joint venture partner, Shandong Longfeng Group
  Company                                                 $   --       $  419       $   83
  Related parties:
    Zhang Guo Quan(5)                                         --          980           --
    Penglai Jinhai Food Company Limited(4)                    --          344           --
    Longkou City Longfeng Colour Printing
      Factory(3)(6)                                           --            7           --
    New Dragon Asia Food (Luoyang) Company
      Limited (2)                                             --           --            1
    Longkou City Longfeng Soybean Food Company                 1           --           --
    Shandong Longfeng Group Trading Company (1)(7)           110            2           --
    Sanhe (Yantai) Food Company Limited (1)                    2            1           --
    Shandong Longfeng Penglai Flour Company Ltd (3)           --           --           62
                                                          ------       ------       ------
                                                          $  113       $1,753       $  146
                                                          ======       ======       ======
</TABLE>

                                      F-21

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 14 -- RELATED PARTY TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                     2003         2002        2001
                                                                   (US$'000)    (US$'000)   (US$'000)
                                                                   --------     --------    --------
<S>                                                                <C>          <C>          <C>
Purchase of raw materials from:
  A joint venture partner, Shandong Longfeng Group
  Company                                                          $   --       $    8       $   --
  Related parties:
    Sanhe (Yantai) Food Company Limited (1) (7)                         8           19           48
    Shandong Longfeng Penglai Flour Company Ltd (3)                    --           --          924
    Shandong Longfeng Packing Manufacturing
      Factory (1)                                                   1,330           --           --
    Longkou City Longfeng Colour Printing Packing
    Factory (3)(6)                                                     --          907          688
    Longkou City Longfeng Carton Packing Factory (3)(6)                --          710          424
    Longkou City Longfeng Soybean Food
          Company Limited (1)                                           6           --
    New Dragon Asia Food (Yueyang) Company Limited (2)                 --            1           --
    New Dragon Asia Food (Chengdu) Company Limited (2)                 --           11           --
    New Dragon Asia Food (Luoyang) Company Limited (2)                 --            1           --
    Xinxiang Guo Liang Flour Company Limited (5)                       --           --           37
                                                                   ------       ------       ------
                                                                   $1,344       $1,657       $2,121
                                                                   ======       ======       ======


Pre-determined annual fee charged by joint venture partners:
  Shandong Longfeng Group Company                                  $   78       $   78       $   78
  Shandong Longfeng Flour Company Limited                              36           36           36
                                                                   ------       ------       ------
                                                                   $  114       $  114       $  114
                                                                   ------       ------       ------


Interest income earned from short-term advances
 to an immediate parent company:
  New Dragon Asia Food Limited                                     $   --       $  188       $   67
                                                                   ------       ------       ------

Interest expenses paid to a joint venture partner:
  Shandong Longfeng Group Company                                  $   17       $   18       $   18
                                                                   ------       ------       ------

Rental income from joint venture partner:
  Shandong Longfeng Group Company                                  $   64       $   64       $   64
                                                                   ------       ------       ------
</TABLE>


                                      F-22

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 14 -- RELATED PARTY TRANSACTIONS (CONTINUED)

Summary of related party balances is as follows:

                                                             2003        2002
                                                           (US$'000)   (US$'000)
                                                           ---------   ---------

Due to an immediate parent company, net consisting of:

  New Dragon Asia Food Limited                              $  196       $5,782
                                                            ------       ------


The net amount due to New Dragon Asia Food  Limited is  unsecured,  non-interest
bearing and repayable upon demand.

During the year ended December 25, 2003, the Group sold some machinery to
Shandong Longfeng Group Company for consideration of $992,540.

                                                         2003        2002
                                                       (US$'000)   (US$'000)
                                                       ---------   ---------
Due to joint venture partners, net consisting of:
  Shandong Longfeng Group Company                       $1,034       $3,762
  Shandong Longfeng Flour Company Limited                  170        1,809
                                                        ------       ------
                                                        $1,204       $5,571
                                                        ======       ======


The amounts due to joint venture  partners are unsecured,  non-interest  bearing
and repayable upon demand,  except for an amount due to Shandong  Longfeng Group
Company of $280,723 which bears interest at 6.48% per annum.

                                                             2003        2002
                                                           (US$'000)   (US$'000)
                                                           ---------   ---------
Due from related companies consisting of:
  New Dragon Asia Food (Yueyang)
  Company Limited (2)                                       $   --       $  329
  New Dragon Asia Food (Luoyang)
  Company Limited (2)                                           --          791
  New Dragon Asia Food (Chengdu)
  Company Limited (2)                                           --          551
  Penglai Jinhai Food Company Limited (4)                       --          372
  Shandong Longfeng Packing Manufacturing Factory (1)            1           --
  Longkou City Longfeng Food Company Limited (1)                13           --
  Shandong Longfeng Group Trading Company (1)                  110           12
  Shandong Longfeng Oceanic Foodstuff                           --           10
    Company Limited(1)
  Zhang Guo Quan(5)                                             --          434
                                                            ------       ------
                                                            $  124       $2,499
                                                            ======       ======


                                      F-23


<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 14 -- RELATED PARTY TRANSACTIONS (CONTINUED)

The amounts due from related  companies are unsecured and non-interest  bearing,
and are repayable upon demand.

                                                       2003         2002
                                                     (US$'000)    (US$'000)
                                                     ---------    ---------
Due to related companies consisting of:
  Longkou City Longfeng Colour Printing Packing
  Factory (3)(6)                                      $   --       $  463
  Shandong Longfeng Packing Manufacturing
  Factory (1)                                            609           --
  Longfeng Food Company Limited(3) (6)                   234          133
  New Dragon Asia Food (Luoyang) Co Ltd (2)               --            6
  Ningbo Hai Fu Sheng (4)                                 --            2
  Penglai Jinhai Food Company Limited (4)                 --            2
  Sanhe (Yantai) Food Company Limited(1) (7)              66           76
  Sanhe Senji Food Technology Development
  Company Limited (1)                                    120          120
  Longkou City Longfeng Soybean Food Co Ltd (1)           83           --
  Long Feng Food (H.K.) Company Limited (1)               55           --
  Shandong Longfeng Group Trading Company (1)             35           --
                                                      ------       ------
                                                      $1,202       $  802
                                                      ======       ======


The amounts due to related Companies are unsecured, non-interest bearing and are
repayable upon demand.

The bank facilities of the Group are secured by corporate  guarantee provided by
Shandong Longfeng Group Company, a joint venture partner.

(1)   Shandong  Longfeng  Group  Company  has a  beneficial  interest  in  these
      companies.

(2)   These  companies  are wholly owned  subsidiaries  of New Dragon Asian Food
      Limited.

(3)   Mr. Xue Jun Song, an ex-director  of each the companies,  has a beneficial
      interest in these companies.

(4)   Mr.  Zhen Gu Song,  is the son of Mr.  Xu Jun Song,  and has a  beneficial
      interest in these companies.

(5)   Lessor of one of our sub-contracted factories.

(6)   Mr.  Xue Jun Song  ceased to be a  director  of  Shandong  Longfeng  Group
      Company on January 7, 2002.

(7)   Shandong Longfeng Group Company withdrew their investment on Feb 25, 2004.


In the  opinion  of the  directors  of each of the  group  companies,  the above
related party transactions were carried out in the usual course of business.


                                      F-24

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 15 -- SEGMENT INFORMATION

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



Net Sales

                                   2003         2002           2001
                                (US$'000)     (US$'000)     (US$'000)
                                 -------       -------       -------
           Instant noodles       $11,703       $10,847       $ 9,990
           Flour                  19,070        22,857        20,145
                                 -------       -------       -------
                                 $30,773       $33,704       $30,135
                                 =======       =======       =======


Income from Operations

                                   2003          2002          2001
                                (US$'000)     (US$'000)     (US$'000)
                                 -------       -------       -------
           Instant noodles       $   296        $ 1,621       $ 1,574
           Flour                   1,897          2,725         2,515
                                 -------        -------       -------
                                 $ 2,193        $ 4,346       $ 4,089
                                 =======        =======       =======


Identifiable Assets

                                         2003           2002
                                       (US$'000)     (US$'000)
                                        -------       -------
                  Instant noodles       $17,372       $18,390
                  Flour                   9,572         9,543
                                        -------       -------
                                        $26,944       $27,933
                                        =======       =======


Interest Income

                                       2003       2002       2001
                                    (US$'000)  (US$'000)  (US$'000)
                                    --------   --------   --------
                Instant noodles       $  2       $192       $ 78
                Flour                    2          2         10
                                      ----       ----       ----
                                      $  4       $194       $ 88
                                      ====       ====       ====


                                      F-25


<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 15 -- SEGMENT INFORMATION (CONTINUED)

Interest Expense

                                       2003       2002       2001
                                     (US$'000)  (US$'000)  (US$'000)
                                     --------   --------   --------
                Instant noodles       $ 22       $ 18       $ 27
                Flour                  227        247        173
                                      ----       ----       ----
                                      $249       $265       $200
                                      ====       ====       ====


Depreciation and Amortization

                                     2003        2002         2001
                                   (US$'000)   (US$'000)    (US$'000)
                                   --------    --------     --------
             Instant noodles       $  867       $  703       $  794
             Flour                    557          548          470
                                   ------       ------       ------
                                   $1,424       $1,251       $1,246
                                   ======       ======       ======


Major Customers -- Details of individual  customers  accounting for more than 5%
of the Group's sales are as follows:

                                    2003        2002         2001
                                    ----        ----         ----
              Li Yi                   --           6%           7%
                                   =====       =====        =====

              Zhang Guo Quan          --           3%           5%
                                   =====       =====        =====


Major  Suppliers  -- Details  of  suppliers  accounting  for more than 5% of the
Group's purchases are as follows:

                                               2003        2002        2001
                                               ----        ----        ----
   Longkou City Food Collect
   and Store Control Center                      --         2 %          15%
                                              =====       =====       =====

   Hui Town Food Institute Yu Lain Food
   Control Centre                                --         2 %           5%
                                              =====       =====       =====


                                      F-26

<PAGE>


                     NEW DRAGON ASIA CORP. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 16 -- RETIREMENT PLAN

As stipulated by the regulations of the PRC  government,  companies of the Group
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  January 1, 2002, the Group 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 year ended
December  25,  2003,  2002  and  2001,  contributions  made  by the  Group  were
approximately $151,000, $97,000 and $118,000 respectively.

NOTE 17 - SUBSEQUENT EVENT

In  December  2003,  the  Group's  management  decided to  temporarily  idle the
operations of NDAFD. On February 27, 2004, the Group received a letter of intent
from an unrelated party to purchase the assets and assume certain liabilities of
NDAFD. As required by PRC regulations, determination of the final purchase price
and execution of a sales and purchase  agreement is contingent  upon a completed
asset valuation  report which the Group's  management  expects will result in an
amount equal to the net carrying value of the assets.  As of March 25, 2004, the
Group's  management and the unrelated  party have not yet engaged an independent
party to complete the valuation report. However, the Group's management believes
that this transaction will be completed during the year ended December 25, 2004.
The carrying  amount of the NDAFD assets and related  liabilities as of December
25, 2003 are as follows:

              Current assets                               $  112
              Property, plant, equipment and
                land use rights, net                       $2,244
              Current liabilities                          $  621


                                      F-27