**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-K/A**
 **Amendment
        No. 2**
 **(Mark
        One)**
 **x ANNUAL
        REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES** **EXCHANGE
        ACT OF 1934.**
  **For the Fiscal year
        ended December 25, 2004**
 
 **OR**
  **oTRANSACTION
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934.**
  **For the
        transition period from______** **to_______**
 
 **Commission
        File Number: 001-15046**
  **NEW
        DRAGON ASIA CORP.**
 **(Exact
        name of Registrant as specified in its charter)**
  **Florida**
              
              **88-0404114****(State
                  or other jurisdiction of incorporation or
                  organization)**
              
              **(IRS
                  Employer Identification
                  Number)**
  **Suite
        2808, International Chamber of Commerce Tower**
 **Fuhua
        Three Road, Shenzhen, China**
 **(Address
        of Principal Executive Offices) (Zip Code)**
 
 **(86
        755) 8831-2115**
 **(Registrant's
        telephone number, including area code)**
 
 **Securities
        registered pursuant Section 12(b) of the Exchange Act:**
 **None.**
 
 **Securities
        registered pursuant Section 12(g) of the Exchange Act:**
 **Class
        A Common Stock, $ 0.0001 par value**
 
 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 o
  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
oNo
x
  State
        issuer's revenue for its most recent fiscal year: approximately $39
        million
 
 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, 2004 the aggregate market value of the common equity held
        by
        non-affiliates was approximately $ 7.9 million.
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date. As of June 23, 2005, there were 45,061,242
        shares of Class A Common Stock outstanding.
  -1-
   **EXPLANATORY
        NOTE**
 
 We
        are
        filing this Annual Report on Form 10-K/A for the fiscal year ended December
        25,
        2004 to (i) amend the financial statements and the notes to the financial
        statements to correctly reflect the Company’s authorized capital stock (i.e., 107,000,000
        shares, of which 100,000,000 shares are Class A Common Stock, 2,000,000 shares
        are Class B Common Stock and 5,000,000 shares are “blank check” Preferred
        Stock); (ii) to
        correct information with respect to Section 16(a) Beneficial
        Ownership
        Reporting Compliance in Item 10. Directors, Executive Officers of the
        Registrant; and (iii) to include the Exhibit Index required by Item 15. Except
        as specifically referenced herein, this Annual Report on Form 10-K/A does
        not
        reflect any event occurring subsequent to March 24, 2005, the filing date
        of the
        original report.
 
 **PART
        I**
  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.
 
 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.
 
 **ITEM
        1. BUSINESS**
 
 **1.1
        Overview**
 
 New
        Dragon Asia Corp. (“NWD” or the “Company”) is one of the largest flour and
        instant noodle producers in Northern China. 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 through distributors,
        supermarkets and food stores. Our principal brand is “Long Feng”. Long Feng
        brand has been awarded the designation of a “Famous Brand” in
        China.
 
 -2-
 Our
        business was established in 1952 under the name "Long Feng Foods", as a grain
        and oil processing enterprise in the Shandong Province of China and developed
        as
        one of China’s leading flour mills. In 1992, Long Feng established a
        manufacturing operation for instant noodles in Shandong as the Chinese market
        for "convenience foods" was entering a prolonged growth phase. Through rapid
        increases in capacity and maintenance of consistent high 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.
 
 In
        1998, Long
        Feng
        Foods and the Hong Kong based New World Group, together with Hong Kong Maxim
        Group, 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 manufacturing capabilities
        and distribution network, New World Group's financial strength and Maxim’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.
 
 On
        December 13, 2001, NWD closed a reverse merger with Bio-Aqua Systems, Inc.,
        a
        Florida corporation, which is listed on the American Stock Exchange. As a
        result
        of the transaction, NWD 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
        in
        the People’s Republic of China (“PRC” or “China”), 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 the
        sino-foreign joint ventures. Headquartered in the Shandong Province, PRC,
        management of New Dragon also operates a corporate office in Shenzhen.
 
 **1.2
        Our** **Products
        and production**
 
 We
        produce and market a broad range of wheat flour for use in bread, dumplings,
        noodles and confectionary products. Our flour products are marketed under
        the
        "Long Feng" brand name and sold throughout the country at both wholesale
        and
        retail levels.
 
 We
        provide a wide range of instant noodle products to our customers. Our products
        can be separated into two broad categories for selling and marketing purposes:
        (i) packet noodles for home preparation and (ii) snacks and cup noodles for
        outdoor convenience.
 
 Our
        product breakdown for the year ended December 25, 2004 was approximately
        67% for
        flour products and 33% for instant noodles.
 
 We
        believe that NWD
        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 under the ISO9002 standards. Most of our
        "state
        of the art" manufacturing equipment is imported from Switzerland, Japan and
        Korea. We also operate strict quality control systems, resulting in a favorable
        customer perception of the "Long Feng" brand.
 
 -3-
 Flour
        and
        water are the two main ingredients used to produce a quality noodle product.
        Flour is extracted from wheat through a milling process. Wheat sourced by
        our
        milling operation in Shandong Province is generally regarded as being the
        highest quality available in China. To produce our noodles, we mix flour
        with
        water and other ingredients and then extrude or roll the mixture into the
        desired shape of the noodle. The mixture then travels through a series of
        state-of-the-art dryers before being stabilized at room temperature. After
        stabilization, the noodles are steamed and cooked in deep fryers, cooled
        and
        then mixed with various seasonings and freeze dried additives such as chicken,
        vegetables or beef which are prepared from raw ingredients in a separate
        building within our production complex. The finished product is then packed,
        palletized and shipped.
 
 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
        1.1
        billion packets of instant noodles.
 
 **1.3
        Marketing and Sales**
 
 Most
        of
        our products are regionally marketed and distributed. Our sales and marketing
        strategy focuses on maintaining strong distribution relationships with annual
        sales order meetings and regular distributor conferences and an excellent
        quality/price dynamic.
 
 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
        more
        than 200 points of distribution of which 10 are our direct sales offices,
        spread
        over 27 provinces in China. The remaining 190 sales points are owned and
        managed
        by distributors. Most of our distributors have long-term relationships with
        us
        and are loyal and efficient vendors of our products.
 
 Our
        primary customer base for both our flour products and instant noodles consists
        of stores in the rural areas throughout China, where, we believe, our brand
        has
        long been recognized as the highest quality available for the price. The
        rural
        market is rapidly growing benefiting from increases in rural consumer income.
        We
        believe that brand loyalty is strongest in this sector. The Company also
        sells
        to supermarkets mainly in urban areas.
 
 In
        addition to domestic sales, the Company also exports noodles to other countries
        such as Korea, Australia, Malaysia, Indonesia, etc. In 2004, export sales
        accounted for approximately 5% of our instant noodle 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. We believe that these orders highlight
        the brand reputation and quality of Long Feng as well as the Company's
        commitment to international standards.
 
  -4-
  **1.4
        Competition**
 
 The
        flour
        industry is very competitive. Our largest competitors are Shandong Guang
        Rao Ban
        Qiu Flour and Hebei Wu De Li Flour in the Northern market and Shenzhen Nanshun
        Flour in the Southern market.
 
 The
        instant noodle segment is also highly competitive. We compete against
        well-established foreign companies, and many smaller companies. Our largest
        competitors are “Master Kang” and “President”, both based in Taiwan. Both are
        focused predominately in the more developed and competitive urban
        markets.
 
 **1.5**  **Strategy**
 
 Our
        strategy is to capitalize on our strong brand name and pursue strategic
        partnerships and acquisitions that will enhance our sales. The following
        are
        some of the key elements of our business strategy:
  -
                Expand
                    export sales-
                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
  **1.6
        Employees**
 
 We
        employ
        approximately 1,500 employees. We believe our relations with our employees
        are
        generally good and we have no collective bargaining agreements with any labor
        unions.
 
 **1.** **7
        Governmental Regulations on our Operations in China**
 
 All
        of
        our PRC subsidiary companies operate in facilities that are located in China.
        Accordingly, our PRC subsidiaries' operations have to conform to the
        governmental regulations and rules of China.
 
 We
        are
        subject to 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.
  We
        are
        subject to the People’s Republic of China’s national Environmental Protection
        Law, which was enacted on December 26, 1989, as well as a number of other
        national and local laws and regulations regulating air, water, and noise
        pollution and setting pollutant discharge standards. Violation of such laws
        and
        regulations could result in warnings, fines, orders to cease operations,
        and
        even criminal penalties, depending on the circumstances of such violation.
        We
        believe that all manufacturing operations are in compliance with applicable
        environmental laws, including those laws relating to air, water, and noise
        pollution.
  -5-
   **The
        Chinese Legal System**
  The
        practical effect of the People’s Republic of China’s legal system on our
        business operations in China can be viewed from two separate but intertwined
        considerations.
  First,
        as
        a matter of substantive law, the Foreign Invested Enterprise laws provide
        significant protection from government interference. In addition, these laws
        guarantee the full enjoyment of the benefits of corporate Articles and contracts
        to Foreign Invested Enterprise participants. These laws, however, do impose
        standards concerning corporate formation and governance, which are not
        qualitatively different from the General Corporation Laws of the several
        states.
        Therefore, as a practical matter, a Foreign Invested Enterprise needs to
        retain
        or have ready access to a local Chinese law firm for routine compliance
        purposes.
  Similarly,
        the People’s Republic of China accounting laws mandate accounting practices,
        which are not co-existent with U.S. Generally Accepted Accounting Principles.
        The China accounting laws require that an annual “statutory audit” be performed
        in accordance with 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. As a practical
        matter, a Foreign Invested Enterprise must retain a local Chinese accounting
        firm that has experience with both the Chinese standards and U.S. Generally
        Accepted Accounting Principles. This type of accounting firm can serve the
        dual
        function of performing the annual Chinese statutory audit and preparing the
        Foreign Invested Enterprise’s financial statements in a form acceptable for an
        independent U.S. certified public accountant to issue an audit report in
        accordance with Generally Accepted Accounting Auditing Standards.
  Second,
        while the enforcement of substantive rights may appear less clear than United
        States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned
        Enterprises are Chinese registered companies which enjoy the same status
        as
        other Chinese registered companies in business-to-business dispute resolution.
        Because the terms of the respective Articles of Association provide that
        all
        business disputes pertaining to Foreign Invested Enterprises are to be resolved
        by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
        Sweden applying Chinese substantive law, the Chinese minority partner in
        our
        joint venture companies will not assume a privileged position regarding such
        disputes. Any award rendered by this arbitration tribunal is, by the express
        terms of the respective Articles of Association, enforceable in accordance
        with
        the “United Nations Convention on the Recognition and Enforcement of Foreign
        Arbitral Awards (1958).” Therefore, as a practical matter, although no
        assurances can be given, the Chinese legal infrastructure, while different
        in
        operation from its United States counterpart, should not present any significant
        impediment to the operation of Foreign Invested Enterprises.
  **Currency
        Conversion and Exchange**
  The
        currency in China is designated as the Renminbi. Although the Renminbi/United
        States dollar exchange rate has been relatively stable in the past twenty
        years
        there can be no assurance that the exchange rate will not become volatile
        or
        that the Renminbi will not be officially devalued against the United States
        dollar by direction of the Chinese government.
  -6-
 Exchange
        rate fluctuations may adversely affect our financial performance because
        of our
        foreign currency denominated assets and liabilities, and may reduce the value,
        translated or converted, as applicable into United States dollars, of our
        net
        fixed assets, our earnings and our declared dividends. We do not engage in
        any
        hedging activities in order to minimize the effect of exchange rate risks.
 
 **ITEM
        2. PROPERTIES**
 
 Our
        corporate office is located in Shenzhen. Our five manufacturing plants consist
        of 29 noodle production lines and 2 flour milling lines, located in Yantai,
        Penglai and Beijing. Manufacturing operations are vertically integrated,
        with
        the flour production utilized in the noodle manufacturing process. Most of
        our
        manufacturing facilities have been awarded ISO9002 quality
        certification.
 
 **FACILITY**
                
                **ADDRESS**
                
                **OWNED/**
                  **RENTED**
                
                **SIZE**
                  **(sq
                    meters)**Yantai
                    Flour Mill & Yantai Noodle Factory
                
                No.
                    10 Huangcheng Road (N), Longkou, Shandong
                
                Owned
                
                25,345SanheNoodle Factory
                
                1
                    Yanjiao Jing Ha Road (N), Beijing
                
                Owned
                
                26,274Penglai
                    Flour Mill
                
                Xiao
                    Men Town, Penglai, Shandong
                
                Owned
                
                33,330Longyuan
                    Plant
                
                Huangcheng
                    Beihuan Road, Longkou, Shandong
                
                Rented
                  ($
                    0.12 million per annual)
                
                35,000
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 We
        are
        not a party to any pending or, to the best of our knowledge, any threatened
        legal proceedings.
 
 **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, 2004.
 
  -7-
   **PART
        II**
 
 
 **ITEM
        5.** **MARKET
        FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS**
 
 **5.1
        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 of Common Stock****High**
              
              **Low**Fiscal
                  2003:First
                  Quarter
              
              $
              0.43
              
              $
              0.15Second
                  Quarter
              
              $
              0.97
              
              $
              0.24Third
                  Quarter
              
              $
              1.65
              
              $
              0.50Fourth
                  Quarter
              
              $
              0.95
              
              $
              0.55Fiscal
                  2004:First
                  Quarter
              
              $
              1.18
              
              $
              0.74Second
                  Quarter
              
              $
              1.10
              
              $
              0.50Third
                  Quarter
              
              $
              0.82
              
              $
              0.55Fourth
                  Quarter
              
              $
              0.93
              
              $
              0.61
 
 **5.2
        Shareholders**
 
 As
        of
        March 23, 2005, there were 45,061,242 shares of our common stock outstanding
        and
        we had approximately 2,400 shareholders of record. American Stock Transfer,
        Brooklyn, New York, is the registrar and transfer agent for our common stock.
 
 **5.3
        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 our business. Any future determination to pay cash dividends
        will
        be at the discretion of the board of directors and will be based upon our
        financial condition, operating results, capital requirements, plans for
        expansion, restrictions imposed by any financing arrangements and any other
        factors that the board of directors deems relevant.
 
 **5.4
        Recent Sales of Unregistered Securities**
 
 There
        were no sales of common stock during the year ended December 25,
        2004
  -8-
 **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, 2004, 2003, 2002 and 2001. 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.
 
 **Years
                  ended December 25,****2004**
              
              **2003**
              
              **2002**
              
              **2001****(in
                  thousand, except per share data)****Consolidated
                  Statements of Income Data:**Net
                  Sales
              
              $
              39,221
              
              $
              30,773
              
              $
              33,704
              
              $
              30,135Operating
                  expenses:Selling
                  and distribution
              
              
              1,178
              
              
              1,330
              
              
              1,161
              
              
              613General
                  and administrative
              
              
              1,611
              
              
              2,398
              
              
              601
              
              
              1,341Operating
                  income
              
              
              4,545
              
              
              2,193
              
              
              4,346
              
              
              4,089Income
                  before tax and minority interests
              
              
              5,900
              
              
              3,174
              
              
              4,762
              
              
              4,619Net
                  income
              
              
              4,645
              
              
              2,727
              
              
              4,153
              
              
              866Earnings
                  per share:Basic
                  and diluted
              
              
              0.10
              
              
              0.06
              
              
              0.10
              
              
              0.02Weighted
                  average common shares outstanding:Basic
                  and diluted
              
              
              45,061
              
              
              42,108
              
              
              40,911
              
              
              40,911**Consolidated
                  balance sheet data:**Cash
                  and cash equivalents
              
              
              219
              
              
              1,783
              
              
              628
              
              
              1,293Total
                  assets
              
              
              34,246
              
              
              34,357
              
              
              40,354
              
              
              38,643Total
                  stockholders’ equity
              
              
              26,835
              
              
              22,190
              
              
              17,686
              
              
              13,533
  **ITEM
        7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF
        OPERATIONS**
 
 This
        report includes forward-looking statements. Generally, the words "believes,"
        "anticipates," "may," "will," "should," "expect," "intend," "estimate,"
        "continue," and similar expressions or the negative thereof or comparable
        terminology are intended to identify forward-looking statements. Such statements
        are subject to certain risks and uncertainties, including the matters set
        forth
        in this report or other reports or documents we file with the Securities
        and
        Exchange Commission from time to time, which could cause actual results or
        outcomes to differ materially from those projected. Undue reliance should
        not be
        placed on these forward-looking statements which speak only as of the date
        hereof. We undertake no obligation to update these forward-looking statements.
 
 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**
 
 Headquartered
        in Shandong Province, PRC, New Dragon Asia Corp. is engaged in the milling,
        sale
        and distribution of flour and related products, including instant noodles,
        to
        retail and wholesale customers throughout China. With a well known brand
        name
        called LONG FENG, we market our well-established product line through a
        countrywide network of more than 200 key distributors and 16 regional offices
        in
        27 Chinese provinces. We have five manufacturing plants in the PRC with an
        aggregate production capacity of approximately 110,000 tons of flour and
        approximately 1.1 billion packets of instant noodles.
 
 **Operation
        Plan**
 
 Our
        current strategies are:
 •
                to
                    expand our customer base and production lines and•
                to
                    acquire additional plants with regional brand recognition to
                    increase our
                    market share in China.
 Plans
        for
        expansion of the existing plants are expected to be funded through current
        working capital from ongoing sales. A significant acquisition will require
        additional funds in the form of debt or equity, or a combination of both.
        However, there can be no assurance these funds will be available.
 
 **Significant
        Establishment, Acquisition and Disposal**
 
 ***The
        Longyuan Plant***
 
 In
        March
        2004, we established the Longyuan Plant together with a third party in order
        to
        support our growth in the flour and instant noodles businesses and to add
        additional revenue streams. The Longyuan Plant is engaged in the manufacture
        and
        sale of packing material. We own 55% of the equity of the Longyuan
        Plant
 
 ***The
        Dalian Plant***
 
 The
        Dalian Plant was established ten years ago and its facilities needed to be
        overhauled completely in order to meet PRC environmental requirements. In
        consideration of the costs that would be incurred and the past performance
        of
        the operation, management decided to temporarily cease its operations in
        December 2003 in view of the fact that the local market can be satisfied
        by the
        Yantai Plant. In May 2004, a sale agreement was signed with an independent
        buyer
        where the buyer acquired the assets and certain liabilities of the Dalian
        Plant.
        The loans made by the owners were not assumed in the transaction and remain
        as
        liabilities of the Company. Accordingly, the Company has recorded a gain
        on
        disposal of approximately US$162,000 of the loans in the second quarter of
        2004.
        On December 25, 2004, the Company sold its equity interest in the Dalian
        company
        together with its holding company, Noble Point Limited, to its parent company
        and assumed the outstanding loan due to the parent company, at a consideration
        of US$20,000 which approximates the net asset value in aggregate after the
        assignment of the loan. Management believes that the disposal of the Dalian
        operation will improve the Company's profitability in the future and will
        not
        result in further liabilities to the Company.
 -9-
  ***The
        Penglai Plant***
 
 On
        May
        25, 2004, the Company completed an asset purchase agreement with a third
        party
        to purchase property, machinery and equipment, and land use rights of a flour
        mill in Penglai, Shandong Province, (the “Penglai Plant”) at a consideration of
        approximately $1.3 million. The acquisition of the Penglai Plant will expand
        the
        Company's production capacity by approximately 30% and contribute additional
        sales in coming years. It currently serves the North, Northeast and Central
        regions of China.
 
 **7.1
        Year Ended December 25, 2004 Compared to Year Ended December 25,
        2003**
 
 **Results
        of Operations**
 
 ***Revenue***
 
 Revenue
        for the year ended December 25, 2004 was $39.2 million, an increase of $8.5
        million, or 27.7%, as compared to $30.7 million for the prior year. This
        increase was primarily due to organic revenue growth, recovery from the negative
        effects of Severe Acute Respiratory Syndrome, or SARS in 2003 and the revenue
        contribution of $1.0 million and $0.3 million from the Longyuan Plant and
        the
        Penglai Plant, respectively.
 
 ***Cost
        of Goods Sold***
 
 For
        the
        year ended December 25, 2004, cost of goods sold was $31.9 million, an increase
        of $7.1 million, or 29%, as compared to $24.8 million for 2003. The increase
        was
        primarily to support the growth in related revenue. ****
 
 For
        the
        year ended December 25, 2004, as a percentage of revenue, cost of goods sold
        increased slightly to 81.3% as compared to 80.8% for that of the prior year,
        which represents a stable gross margin of 19%. Such reduction in gross margin
        is
        primarily attributable to the costs incurred for strengthening quality assurance
        procedures.
 
 ***Selling
        and Distribution Expenses***
 
 Selling
        and distribution expenses consist primarily of salaries, commissions and
        associated employee benefits, travel expenses of sales and marketing personnel
        and promotional expenses.
 
 For
        the
        year ended December 25, 2004, selling and distribution expenses
        decrease d
        11% to
        $1.2 million from
        $1.3
        million in 2003. The decrease was primarily due to cost savings from the
        closure
        of six sales offices.
 
 ***General
        and Administrative Expenses***
 
 For
        the
        year ended December 25, 2004, general and administrative expenses decreased
        $0.8
        million to $1.6 million from $2.4 million of 2003. The decrease was primarily
        due to cost control and provisions written-back on allowance for doubtful
        accounts and inventory.
 
  -10-
  ***Other
        income (expenses)***
 
 Other
        income increase d
        $0.2
        million to $1.4 million for
        the
        year ended December 25, 2004 as compared to $1.2 million for the year ended
        December 25, 2003, this was primarily due to the tax refund from the municipal
        government as an encouragement for foreign investment which is recurring
        in
        nature.
 
 ***Net
        Income***
 
 For
        the
        year ended December 25, 2004, net income was $4.6
        million ,
        or
        $0.10 per share ,
        an
        increase of $1.9 million, or 70% a s
        compared to $2.7 million for 2003. The increase was primarily due to the
        revenue
        growth and the earnings contribution of the new plants.
 
 For
        the
        year ended December 25, 2004, as a percentage of revenue, net income increased
        to 11.8% as
        compared to 8.9% for
        that
        of the prior year. The significant increase was primarily due to the improvement
        in expense controls, and the recovery from the prior negative effects of
        SARS in
        2003.
 
 ***Off
        Balance Sheet Arrangements***
 
 We
        have
        never entered into any off-balance sheet financing arrangements and have
        never
        established any special purpose entities. We have not guaranteed any debt
        or
        commitments of other entities or entered into any options on non-financial
        assets.
 
 **7.2
        Year Ended December 25, 2003 Compared to Year Ended December 25,
        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 SARS, during the year.
 
 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 for the
        prior 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 instant noodle sales. We have also commenced selling
        our
        products to supermarkets located in urban areas. Taken together, this is
        expected to lengthen the collection of the receivables 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 and deferred expenses, as well as additional provisions
        for obsolete inventory and doubtful accounts.
 
 -11-
 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.
 
 **7.3
        Contractual Obligations and Commercial Commitments**
 
 As
        of
        December 25, 2004, the Company had operating leases for manufacturing and
        warehouse facilities expiring at various dates through March 2031. As of
        December 25, 2004, the Company had no significant capital leases. Future
        minimum
        rental commitments under operating leases are as follows:
 
 **Payment
                  due by period****Less
                  than**
                **1
                  year**
              
              **1-3
                  years**
              
              **3-5
                  years**
              
              **More
                  than 5 years**
              
              **Total**Operating
                  lease obligations
              
              
              123,000
              
              
              123,000
              
              
              123,000
              
              
              47,000
              
              
              662,000
 
 
 **7.4
        Financial Condition, Liquidity, Capital Resources**
 
 The
        Company ’s
        primary liquidity needs are to purchase inventories and fund accounts receivable
        and capital expenditures. The Company has financed its working capital
        requirements through a combination of internally generated cash, short-term
        borrowings and advances from related companies.
 
 The
        Company’s working capital increased $ 5.3 million
        to $7.4 million at December 25, 2004 as compared to $2.1 million
        at December 25, 2003. The increase was primarily due to the growth and
        profitability of the business and improved collections of receivables during
        the
        year ended December 25, 2004.
 
 Cash
        and
        cash equivalents we re
        $0.2
        million as of December 25, 2004, a decrease of $1.6 million from that of
        December 25, 2003. The decrease was mainly due to the repayment of short-term
        borrowings.
 
 Net
        cash
        provided by operating activities for the year ended December 25, 2004
        was $3.7
        million which
        was attributable to the growth and profitability of the
        business and changes in operating assets and liabilities. Net cash used in
        financing activities decreased $6.6 million to $2.1 million in the year ended
        December 25, 2004 as compared to $8.7 million for 2003. The primary use of
        funds
        in financing activities in the year ended December 25, 2004 was the repayment
        of
        short -term
        bank borrowings and settlement of related company balances.
 
 **7.5
        Inflation and Changing Prices** ****
 
 The
        Company does not foresee any adverse effects on its earnings as a result
        of
        inflation or changing prices.
 
 **7.6
        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 circumstances; 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.
  -12-
 
 ***Contractual
        Joint Ventures -*** A
        contractual joint venture is an entity established between the Company and
        another joint venture partner, with the rights and obligations of each party
        governed by a contract. If the Company 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 Company 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 attributable portion
        of
        manufacturing overhead. Net realizable value is the estimated selling price,
        in
        the ordinary course of business, less estimated costs to complete and dispose.
 
 In
        December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), a revision to
        FIN 46, “Consolidation of Variable Interest Entities”. FIN 46R clarifies some of
        the provisions of FIN46 and exempts certain entities from its requirements.
        FIN
        46R is effective at the end of the first interim period ending after March
        15,
        2004. Entities that have adopted FIN 46 prior to this effective date can
        continue to apply the provisions of FIN 46 until the effective date of Fin
        46R.
        The adoption of FIN 46R did not have any effect on our consolidated financial
        statements.
 
 In
        November 2004, the FASB issued Statement of Financial Accounting Standards
        (SFAS) No. 151, *Inventory
        Costs* ,
        which
        clarifies the accounting for abnormal amounts of idle facility expense, freight,
        handling costs, and wasted material. SFAS No. 151 will be effective for
        inventory costs incurred during fiscal years beginning after June 15, 2005.
        We
        do not believe the adoption of SFAS No. 151 will have a material impact on
        our
        financial statements.
 
 In
        December 2004, the FASB issued SFAS No. 123(R), *Share-Based
        Payment* ,
        which
        establishes standards for transactions in which an entity exchanges its equity
        instruments for goods or services. This standard requires a public entity
        to
        measure the cost of employee services received in exchange for an award of
        equity instruments based on the grant-date fair value of the award. This
        eliminates the exception to account for such awards using the intrinsic method
        previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective
        for interim or annual reporting periods beginning on or after June 15, 2005.
        We
        do not believe the adoption of SFAS No. 123(R) will not have a material impact
        on our financial statements.
  -13-
 
 **7.7
        Risks Factors Related to Our Business**
 
 In
        addition to the other information in this annual report, the following factors
        should be considered carefully in evaluating the Company’s business and
        prospects. THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE
        EFFECT ON THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS
        OR
        PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
        STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL
        BE
        DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY
        CAUSE
        ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
        OR STATEMENTS. We
        are
        subject to, among others, the following risks:
  **RISKS
        ASSOCIATED WITH OUR BUSINESS.**
 
 ***Our
        business may result in adverse effects from competition in the noodle and
        flour
        product markets.***
 
 The
        noodle and flour product markets are highly competitive. Competition in these
        markets takes many forms, including the following:
 •
                establishing
                    favorable brand recognition;•
                developing
                    products sought by consumers;•
                implementing
                    appropriate pricing;•
                providing
                    strong marketing support; and•
                obtaining
                    access to retain outlets and sufficient shelf
                    space
 Many
        of
        our competitors are larger and have greater financial resources, including
        our
        primary competitors, Master Kang and President. We may not be able to compete
        successfully with such competitors. Competition could cause us to lose our
        market share, increase expenditures or reduce pricing, each of which could
        have
        a material adverse effect on our business and financial results.
  ***An
        inability to respond quickly and effectively to new trends would adversely
        impact our competitive position.***
 
 Our
        failure to maintain the superiority of our technological capabilities or
        to
        respond effectively to technological changes could adversely affect our ability
        to retain existing business and secure new business. We will need to constantly
        seek out new products and develop new solutions to maintain in our portfolio.
        If
        we are unable to keep current with new trends, our competitors’ technologies or
        products may render us noncompetitive and our products obsolete.
 
  -14-
  ***Increases
        in prices of main ingredients and other materials could adversely affect
        our
        business.***
  The
        main
        ingredients that we use to manufacture our products are flour and eggs. We
        also
        use paper products, such as corrugated cardboard, as well as films and plastics,
        to package our products. The prices of these materials have been, and we
        expect
        them to continue to be, subject to volatility. We may not be able to pass
        price
        increases in these materials onto our customers which could have an adverse
        effect on our financial results.
  ***We
        are subject to risks associated with joint ventures and third party
        agreements.***
  We
        conduct our milling and sales operations through joint ventures established
        with
        certain Chinese parties. Any deterioration of these strategic relationships
        may
        have an adverse effect on our operation. Changes in laws and regulations,
        or
        their interpretation, or the imposition of confiscatory taxation, restrictions
        on currency conversion, imports and sources of supply, devaluations of currency
        or the nationalization or other expropriation of private enterprises could
        have
        a material adverse effect on our business, results of operations and financial
        condition. Under its current leadership, the Chinese government has been
        pursuing economic reform policies that encourage private economic activity
        and
        greater economic decentralization. There is no assurance, however, that the
        Chinese government will continue to pursue these policies, or that it will
        not
        significantly alter these policies from time to time without
        notice.
 
 We
        may
        have limited legal recourse under Chinese law if disputes arise under our
        agreements with joint ventures or third parties. The Chinese government has
        enacted some laws and regulations dealing with matters such as corporate
        organization and governance, foreign investment, commerce, taxation and trade.
        However, their experience in implementing, interpreting and enforcing these
        laws
        and regulations is limited, and our ability to enforce commercial claims
        or to
        resolve commercial disputes is unpredictable. If our new business ventures
        are
        unsuccessful, or other adverse circumstances arise from these transactions,
        we
        face the risk that the parties to these ventures may seek ways to terminate
        the
        transactions, or, may hinder or prevent us from accessing important information
        regarding the financial and business operations of these acquired companies.
        The
        resolution of these matters may be subject to the exercise of considerable
        discretion by agencies of the Chinese government, and forces unrelated to
        the
        legal merits of a particular matter or dispute may influence their
        determination. Any rights we may have to specific performance, or to seek
        an
        injunction under Chinese law, in either of these cases, are severely limited,
        and without a means of recourse by virtue of the Chinese legal system, we
        may be
        unable to prevent these situations from occurring. The occurrence of any
        such
        events could have a material adverse effect on our business, financial condition
        and results of operations.
 
 ***The
        company may be subject to product liability claims and product recalls, which
        could negatively impact its profitability.***
 
 We
        sell
        food products for human consumption, which involves risks such as product
        contamination or spoilage, product tampering and other adulteration of food
        products. We may be subject to liability if the consumption of any
        of its
        products causes injury, illness or death.  In addition, we will voluntarily
        recall products in the event of contamination or damage.  A significant
        product liability judgment or a widespread product recall may negatively
        impact
        our profitability for a period of time depending on product availability,
        competitive reaction and consumer attitudes.  Even if a product liability
        claim is unsuccessful or is not fully pursued, the negative publicity
        surrounding any assertion that company products caused illness or injury
        could
        adversely affect our reputation with existing and potential customers and
        its
        corporate and brand image.
 
 -15-
 ***We
        have limited business insurance coverage.***
 
 The
        insurance industry in China is still in an its early stage of development.
        Insurance companies in China offer limited business insurance. As a result,
        we
        do not have any business liability insurance coverage for our operations.
        Moreover, while business disruption insurance is available, we have determined
        that the risks of disruption and cost of the insurance are such that we do
        not
        require it at this time. Any business disruption, litigation or natural disaster
        might result in substantial costs and diversion of resources.
 
 ***We
        have a limited concentration of credit risk.***
  Concentration
        of credit risk with respect to customer receivables are limited due to the
        large
        number of customers comprising our customer base, and their dispersion across
        the PRC. In addition, we perform 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.
 
 ***We
        may experience risks resulting from our plans for
        expansion.***
 
 We
        have
        acquired several companies and businesses and may continue to acquire companies
        in the future. Entering into an acquisition entails many risks, any of which
        could harm our business, including: (a) diversion of management’s attention from
        other business concerns; (b) failure to integrate the acquired company with
        our
        existing business; (c) additional operating expenses not offset by additional
        revenue; and (d) dilution of our stock as a result of issuing equity
        securities.
 
 If
        we are
        unable to implement our acquisition strategy, we may be less successful in
        the
        future. A key component of our growth strategy is accomplished by acquiring
        additional flour and noodle factories. While there are many such companies,
        we
        may not always be able to identify and acquire companies meeting our acquisition
        criteria on terms acceptable to us. Additionally, financing to complete
        significant acquisitions may not always be available on satisfactory terms.
        Further, our acquisition strategy presents a number of special risks to us
        that
        it would not otherwise contend with absent such strategy, including possible
        adverse effects on our earnings after each acquisition, diversion of
        management's attention from our core business due to the special attention
        that
        a particular acquisition may require, failure to retain key acquired personnel
        and risks associated with unanticipated events or liabilities arising after
        each
        acquisition, some or all of which could have a material adverse effect on
        our
        business, financial condition and results of operations.
  **RISKS
        ASSOCIATED WITH DOING BUSINESS IN THE PEOPLE’S REPUBLIC OF
        CHINA.**
 
 ***We
        are subject to the risks associated with doing business in the People’s Republic
        of China.***
 
 As
        most
        of our operations are conducted in the PRC, the Company 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. Our results may be adversely affected by changes in the
        political and social conditions in the PRC, and by changes in governmental
        policies with respect to laws and regulations, anti-inflationary measures,
        currency conversion and remittance abroad, and rates and methods of taxation,
        among other things.
 
 -16-
 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.
 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 include 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. The Chinese government may adopt additional measures to further
        combat
        inflation, including the establishment of freezes or restraints on certain
        projects or markets. These measures may adversely affect our manufacturing
        operations.
 
 To
        date,
        reforms to China's economic system have not adversely impacted our operations
        and are not expected to adversely impact operations in the foreseeable future;
        however, there can be no assurance that the reforms to China's economic system
        will continue or that we will not be adversely affected by changes in China's
        political, economic, and social conditions and by changes in policies of
        the
        Chinese government, such as changes in laws and regulations, measures which
        may
        be introduced to control inflation and changes in the rate or method of
        taxation.
 
 On
        November 11, 2001, China signed an agreement to become a member of the World
        Trade Organization (“WTO”),
        the international body that sets most trade rules, further integrating China
        into the global economy and significantly reducing the barriers to international
        commerce. China's membership in the WTO was effective on December 11, 2001.
        China has agreed upon its accession to the WTO to reduce tariffs and non-tariff
        barriers, remove investment restrictions and provide trading and distribution
        rights for foreign firms. The tariff rate reductions and other enhancements
        will
        enable us to develop better investment strategies. In addition, the WTO's
        dispute settlement mechanism provides a credible and effective tool to enforce
        members' commercial rights. Also, with China's entry to the WTO, it is believed
        that the relevant laws on foreign investment in China will be amplified and
        will
        follow common practices.
 
 -17-
 ***The
        PRC legal system is not fully developed and has inherent uncertainties that
        could limit the legal protections available to
        investors.***
  The
        PRC
        legal system is a system based on written statutes and their interpretation
        by
        the Supreme People's Court. Prior court decisions may be cited for reference
        but
        have limited precedential value. Since 1979, the PRC government has been
        developing a comprehensive system of commercial laws, and considerable progress
        has been made in introducing laws and regulations dealing with economic matters
        such as foreign investment, corporate organization and governance, commerce,
        taxation and trade. Two examples are the promulgation of the Contract Law
        of the
        PRC to unify the various economic contract laws into a single code, which
        went
        into effect on October 1, 1999, and the Securities Law of the PRC, which
        went
        into effect on July 1, 1999. However, because these laws and regulations
        are
        relatively new, and because of the limited volume of published cases and
        their
        non-binding nature, interpretation and enforcement of these laws and regulations
        involve uncertainties. In addition, as the PRC legal system develops, changes
        in
        such laws and regulations, their interpretation or their enforcement may
        have a
        material adverse effect on our business operations.
 
 ***Enforcement
        of regulations in China may be inconsistent.***
 
 Although
        the Chinese government has introduced new laws and regulations to modernize
        its
        securities and tax systems on January 1, 1994, China does not yet possess
        a
        comprehensive body of business law. As a result, the enforcement, interpretation
        and implementation of regulations may prove to be inconsistent and it may
        be
        difficult to enforce contracts.
 
 ***We
        may experience lengthy delays in resolution of legal
        disputes.***
  As
        China
        has not developed a dispute resolution mechanism similar to the Western court
        system, dispute resolution over Chinese projects and joint ventures can be
        difficult and there is no assurance that any dispute involving our business
        in
        China can be resolved expeditiously and satisfactorily.
  ***We
        may experience an impact of the United States Foreign Corrupt Practices Act
        on
        our Business.***
  Compliance
        with the Foreign Corrupt Practices Act could adversely impact our competitive
        position; failure to comply could subject us to penalties and other adverse
        consequences. We are subject to the United States Foreign Corrupt Practices
        Act,
        which generally prohibits United States companies from engaging in bribery
        or
        other prohibited payments to foreign officials for the purpose of obtaining
        or
        retaining business. Foreign companies, including some that may compete with
        us,
        are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
        theft and other fraudulent practices occur from time-to-time in mainland
        China.
        We have attempted to implement safeguards to prevent and discourage such
        practices by our employees and agents. We can make no assurance, however,
        that
        our employees or other agents will not engage in such conduct for which we
        might
        be held responsible. If our employees or other agents are found to have engaged
        in such practices, we could suffer severe penalties and other consequences
        that
        may have a material adverse effect on our business, financial condition and
        results of operations.
  -18-
 ***We
        may experience a risk of revenue reduction due to currency
        conversions.***
  Most
        of
        our revenue is denominated in Renminbi which must be converted into other
        currencies before remittance out of the PRC. Both the conversion of Renminbi
        into foreign currencies and the remittance of foreign currencies abroad require
        approval of the PRC government. To the extent future revenue is denominated
        in
        foreign currencies, we would be subject to increased risks relating to foreign
        currency exchange rate fluctuations that could have a material adverse affect
        on
        our financial condition and operating results. To date, we have not engaged
        in
        any hedging transactions in connection with our operations.
 
 **ITEM
        7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 We
        are
        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.
 
 **Currency
        Fluctuations and Foreign Currency Risk**
 
 The
        majority of our
        operations are conducted in the PRC except for some minor export business
        and
        limited overseas purchases of raw materials. Most of our sales and purchases
        are
        conducted within the PRC in Chinese Renminbi. Hence, the effect of the
        fluctuations of exchange rate is considered minimal to our
        operation.
 
 Substantially
        all of our revenues and expenses are denominated in Renminbi, which is the
        official currency of China. However, we use the United States dollar for
        financial reporting purposes. Conversion of Renminbi into foreign currencies
        is
        regulated by The People's Bank of China through a unified floating exchange
        rate
        system. Although the PRC government has stated its intention to support the
        value of Renminbi, there can be no assurance that such exchange rate will
        not
        again become volatile or that Renminbi will not devalue significantly against
        the US dollar. Exchange rate fluctuations may adversely affect the value,
        in US
        dollar terms, of the our net assets and income derived from its operations
        in
        the PRC.
 
 **Interest
        Rate Risk**
 
 The
        Company does not have significant interest rate risk, as our
        debt
        obligations are primarily short-term in nature, with fixed interest
        rates.
  **ITEM
        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
  The
        following financial statements and the footnotes thereto are included in
        the
        section beginning on page F-1.
   -19-
  1.
                Report
                    of Independent Registered Public Accounting Firm2.
                Consolidated
                    Balance Sheetsas
                    of December 25, 2004 and 20033.
                Consolidated
                    Statements of Income foreach
                    of the three years ended December 25, 20044.
                Consolidated
                    Statements of Stockholders’
                    Equity for each of the three years ended December 25,
                    20045.
                Consolidated
                    Statements of Cash Flows foreach
                    of the three years ended December 25, 20046.
                Notes
                    to Consolidated Financial Statements
  
 **ITEM
        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 There
        were no changes in or disagreements with accountants on accounting and financial
        disclosure.
 
 **ITEM
        9A. CONTROL PROCEDURES**
  (a)
              Under
                  the supervision and with the participation of our management, including
                  our chief executive officer and the chief financial officer, we
                  conducted
                  an evaluation of the effectiveness of the design and operation
                  of its
                  disclosure controls and procedures, as defined in Rules 13a-15(e)
                  and
                  15d-15(e) under the Securities Exchange Act of 1934, as of December
                  25,
                  2004, the end of the period covered by this report (the “Evaluation
                  Date”). Based on this evaluation, our chief executive officer and chief
                  financial officer concluded as of the Evaluation Date that our
                  disclosure
                  controls and procedures were effective such that the material information
                  required to be included in our Securities and Exchange Commission
                  (“SEC”)
                  reports is recorded, processed, summarized and reported within
                  the time
                  periods specified in SEC rules and forms relating us, including
                  our
                  consolidating subsidiaries, and was made known to them by others
                  within
                  those entities, particularly during the period when this report
                  was being
                  prepared.
  (b)
              Additionally,
                  there were no significant changes in our internal controls or in
                  other
                  factors that could significantly affect these controls subsequent
                  to the
                  Evaluation Date. We have not identified any significant deficiencies
                  or
                  material weaknesses in our internal controls, and therefore there
                  were no
                  corrective actions taken.
 
 **ITEM
        9B. OTHER INFORMATION**
 
 (a)
              In
                  August 2004, the Company appointed a consulting firm to assist
                  the
                  management team to strengthen and to document the internal controls
                  and
                  processes with the objective of full compliance with the Sarbanes-Oxley
                  Act. This project is scheduled to be completed in late
                  2005.
 
  -20-
  **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 "Executive Compensation" and is incorporated herein by this
        reference.
 
 **Section 16(a) Beneficial
        Ownership Reporting Compliance**
 
 Based
        on
        the Company's review of copies of Forms 3, 4 and 5 filed with the Securities
        and
        Exchange Commission (the "SEC") or written representations from certain
        reporting persons, we believe that during fiscal year ended December 25,
        2004,
        all officers, directors, and greater than ten-percent beneficial owners timely
        complied with the applicable filing requirements of Section 16(a) of the
        Securities Exchange Act of 1934, except for Mr. Peter Mak, who did not file
        his
        Form 4 reporting options granted to him on November 22, 2004 on a timely
        basis.
 
 **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**
 
 The
        information required by Item 13 is set forth in the Proxy Statement under
        the
        caption “certain relationships and related transactions” and is incorporated
        herein by this reference.
 
 **ITEM
        14.** **PRINCIPAL
        ACCOUNTANT FEES AND SERVICES**
 
 The
        information required under by Item 14 is set forth in the Proxy Statement
        under
        the caption “Principal accountant fees and services” and is incorporated herein
        by this reference.
 ****
  -21-
  **PART
        IV**
 **ITEM
        15.**  **EXHIBITS
        AND FINANCIAL STATEMENT SCHEDULES**
 **Exhibit
                    Number**
                **Description**2.1
                Share
                    Exchange Agreement dated as of December 18, 2001 (incorporated
                    herein by
                    reference from our filing on the Definitive Proxy 14/A filed
                    on October
                    11, 2001).3.1
                Amended
                    Articles of Incorporation(incorporated herewith by reference to Exhibit 3.1 to ourDefinitive
                    Proxy 14/A filed on October 11, 2001).3.2
                By-laws
                    (incorporated herewith by reference to Exhibit 3.2 to ourDefinitive
                    Proxy 14/A filed on October 11, 2001).4.1
                Subscription
                    Agreement, dated September 4, 2003 (incorporated herewith by
                    reference to
                    Exhibit 4.1 to our Registration Statement on Form S-3 filed on
                    October 3,
                    2003).4.2
                Subscription
                    Agreement, dated October 3, 2003 (incorporated herewith by reference
                    to
                    Exhibit 4.2 to our Registration Statement on Form S-3 filed on
                    October 3,
                    2003).4.3
                Common
                    Stock Purchase Warrants for the September 4, 2003 Private Placement
                    (incorporated herewith by reference to Exhibit 4.3 to our Registration
                    Statement on Form S-3 filed on October 3, 2003).4.4
                Common
                    Stock Purchase Warrants the October 3, 2003 Private Placement
                    (incorporated herewith by reference to Exhibit 4.4 to our Registration
                    Statement on Form S-3 filed on October 3, 2003).10.1
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Flour (Yantai)
                    Company
                    Limited, dated June 1, 1999 (incorporated herewith by reference
                    to Exhibit
                    10.1 to our Registration Statement on Form S-3 filed on October
                    3,
                    2003).10.2
                Subcontracting
                    Agreement, for the New Dragon Asia Flour (Yantai) Company Limited,
                    dated
                    June 26, 1999 (incorporated herewith by reference to Exhibit
                    10.2 to our
                    Registration Statement on Form S-3 filed on October 3,
                    2003).10.3
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
                    Limited, dated November 28, 1998 (incorporated herewith by reference
                    to
                    Exhibit 10.3 to our Registration Statement on Form S-3 filed
                    on October 3,
                    2003).10.4
                Subcontracting
                    Agreement, for the New Dragon Asia Food (Yantai) Company Limited,
                    dated
                    December 26, 1998 (incorporated herewith by reference to Exhibit
                    10.4 to
                    our Registration Statement on Form S-3 filed on October 3,
                    2003).10.5
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Food (Dalian)
                    Company
                    Limited, dated November 28, 1998 (incorporated herewith by reference
                    to
                    Exhibit 10.5 to our Registration Statement on Form S-3 filed
                    on October 3,
                    2003).







-22-


10.6
            Subcontracting
                Agreement, for the New Dragon Asia Food (Dalian) Company Limited,
                dated
                December 26, 1998 (incorporated herewith by reference to Exhibit
                10.6 to
                our Registration Statement on Form S-3 filed on October 3,
                2003).10.7
            Sino-Foreign
                Joint Venture Contract for the Sanhe New Dragon Asia Food Company
                Limited,
                dated November 28, 1998 (incorporated herewith by reference to Exhibit
                10.7 to our Registration Statement on Form S-3 filed on October 3,
                2003).10.8
            Subcontracting
                Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated
                December 26, 1998 (incorporated herewith by reference to Exhibit
                10.8 to
                our Registration Statement on Form S-3 filed on October 3,
                2003).23.1
            Consent
                ofGrobstein,
                Horwath & Company LLP,
                Independent Registered Public Accounting Firm, filed
                herewith31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002, filed herewith.31.2
            Certification
                of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002, filed herewith.32.1
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906
                of the
                Sarbanes-Oxley Act of 2002), filed herewith.32.2
            Certification
                of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section
                906 of
                the Sarbanes-Oxley Act of 2002), filed
                herewith.








-23-




**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:
              June 24, 2005
            By:
            */s/
              Li Xia WANG*Name: Li Xia WANGTitle: 
              Chief Executive Officer




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


**NEW
                DRAGON ASIA CORP.**Dated:
                June 24, 2005
              By:
              */s/
                Heng Jing Lu*Name:
                Heng Jing LuTitle: 
                Chairman
  **NEW
                  DRAGON ASIA CORP.**Dated:
                  June 24, 2005
                By:
                */s/Peter
                  Mak*Name:
                  Peter MakTitle: 
                  Chief Financial Officer
  **NEW
                    DRAGON ASIA CORP.**Dated:
                    June 24, 2005
                  By:
                  /s*/Ling
                    Wang*Name:
                    Ling WangTitle: 
                    Director








**NEW
                  DRAGON ASIA CORP.**Dated:
                  June 24, 2005
                By:
                */s/
                  De Lin Yang*Name:
                  De Lin YangTitle: 
                  Director








-24-







**NEW
                    DRAGON ASIA CORP.**Dated:
                    June 24, 2005
                  By:
                  */s/Zhi
                    Yong Jiang*Name:
                    Zhi Yong JiangTitle: 
                    Director




**NEW
                      DRAGON ASIA CORP.**Dated:
                      June 24, 2005
                    By:
                    */s/
                      Qi Xue*Name: Qi
                      XueTitle: 
                      Director
 **NEW
                        DRAGON ASIA CORP.**Dated:
                        June 24, 2005
                      By:
                      */s/
                        Feng Ju Chen*Name: Feng
                        Ju ChenTitle: 
                        Director




-25-







**NEW
      DRAGON ASIA CORP.**





**FINANCIAL
      STATEMENTS**




**TABLE
      OF CONTENTS**








**Page**Report
                ofIndependent
                Registered Accounting Firm
            F-1Consolidated
                Balance Sheets as of December 25, 2004 and 2003
            F-2Consolidated
                Statements of Income for each of the three years ended December 25,
                2004
            F-4Consolidated
                Statements of Stockholders’
                Equity for each of the three years ended December 25, 2004
            F-5Consolidated
                Statements of Cash Flows for each of the three years ended December
                25,
                2004
            F-6Notes
                to Consolidated Financial Statements
            F-7








F-1





**REPORT
      OF INDEPENDENT REGISTERED ACCOUNTING FIRM**








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





We
      have
      audited the accompanying consolidated balance sheets of New Dragon Asia Corp.
      and Subsidiaries (the “Company”) as of December 25, 2004 and 2003 and the
      related consolidated statements of income, stockholders` equity and cash flows
      for each of the three years ended December 25, 2004. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the 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, 2004 and 2003, and the consolidated
      results of their operations and cash flows for each of the three years ended
      December 25, 2004 in conformity with accounting principles generally accepted
      in
      the United States of America.





**Grobstein,
      Horwath & Company LLP**





Sherman
      Oaks, California


February
      4, 2005





F-2




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEETS**


**(Amounts
      in thousands, except share data)**





**December
                25, 2004**
            
            **December
                25,**
              **2003****ASSETS**Current
                Assets:Cash and cash equivalents
            
            $
            219
            
            $
            1,783Accounts receivable, net
            
            
            6,414
            
            
            6,936Deposits and prepayments,
                net
            
            
            2,520
            
            
            1,282Inventories, net
            
            
            3,990
            
            
            2,763Due from related companies
            
            
            1,183
            
            
            124Total
                current assets
            
            
            14,326
            
            
            12,888Property,
                machinery and equipment, net
            
            
            16,098
            
            
            17,471Land
                use rights, net
            
            
            3,822
            
            
            3,998Total
                assets
            
            $
            34,246
            
            $
            34,357**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Short-term borrowings
            
            $
            —
            
            $
            2,845Accounts payable
            
            
            2,696
            
            
            4,565Other payables and accruals
            
            
            1,898
            
            
            1,234Taxes payable
            
            
            1,491
            
            
            921Due to related companies
            
            
            831
            
            
            1,202Total
                current liabilities
            
            
            6,916
            
            
            10,767Due
                toNew
                Dragon Asia Food Limited
            
            
            303
            
            
            196Due
                to joint venture partners
            
            
            110
            
            
            1,204Total
                liabilities
            
            
            7,329
            
            
            12,167Minority
                interests
            
            
            82
            
            
            —Stockholders'
                equity:Preferred
                stock, par value $0.0001; 5,000,000 sharesauthorized; no shares issued and outstanding
            
            
            —
            
            
            —Common
                stock, par value $0.0001; 102,000,000 shares authorized; 45,061,242
                shares
                ofClass A Common Stock issued and outstanding at December 25, 2004
                and2003;no
                shares of Class B Common Stock issued and outstanding
            
            
            4
            
            
            4Additional paid-in capital
            
            
            9,909
            
            
            9,909Retained earnings
            
            
            16,922
            
            
            12,277Totalstockholders’
                equity
            
            
            26,835
            
            
            22,190Total
                liabilities and stockholders' equity
            
            $
            34,246
            
            $
            34,357




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





F-3







**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF INCOME**




**(Amounts
      in thousands, except per share data)**







**For
                the years ended December 25,****2004**
            
            **2003**
            
            **2002**Net
                sales
            
            $
            39,221
            
            $
            30,773
            
            $
            33,704Cost
                of goods sold
            
            
            (31,887
            )
            
            (24,852
            )
            
            (27,596
            )Gross
                profit
            
            
            7,334
            
            
            5,921
            
            
            6,108Selling
                and distribution expenses
            
            
            (1,178
            )
            
            (1,330
            )
            
            (1,161
            )General
                and administrative expenses
            
            
            (1,611
            )
            
            (2,398
            )
            
            (601
            )Income
                from operations
            
            
            4,545
            
            
            2,193
            
            
            4,346Other
                income (expenses):Interest expense
            
            
            (72
            )
            
            (249
            )
            
            (265
            )Interest income
            
            
            3
            
            
            4
            
            
            194Other income,
                net
            
            
            1,424
            
            
            1,226
            
            
            487Income
                beforeprovision
                for income taxes and minority interests
            
            
            5,900
            
            
            3,174
            
            
            4,762Provision
                for income taxes
            
            
            (1,296
            )
            
            (447
            )
            
            (609
            )Income
                before minority interests
            
            
            4,604
            
            
            2,727
            
            
            4,153Minority
                interests
            
            
            41
            
            
            —
            
            
            —Net
                income
            
            $
            4,645
            
            $
            2,727
            
            $
            4,153Basic
                and diluted earnings per common share
            
            $
            0.10
            
            $
            0.06
            
            $
            0.10Weighted
                average common shares outstanding
            
            
            45,061
            
            
            42,108
            
            
            40,911








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








F-4









**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**




**(Amounts
      in thousands)**







**Class
                  A Common Stock****Shares**
              
              **Amount**
              
              **AdditionalPaid-in
                  Capital**
              
              **Retained**
                **Earnings**
              
              **Total
                  Stockholders’**
                **Equity**Balance
                  at December 25, 2001
              
              
              40,911
              
              $
              4
              
              $
              8,132
              
              $
              5,397
              
              $
              13,533Net
                  income for the year ended December 25, 2002
              
              
              —
              
              
              —
              
              
              —
              
              
              4,153
              
              
              4,153Balance
                  at December 25, 2002
              
              
              40,911
              
              
              4
              
              
              8,132
              
              
              9,550
              
              
              17,686Issuance
                  ofClass
                  A Common Stock in connection with:Private
                  placement in September
              
              
              3,300
              
              
              —
              
              
              1,405
              
              
              —
              
              
              1,405Private
                  placement in October
              
              
              850
              
              
              —
              
              
              372
              
              
              —
              
              
              372Net
                  income for the year ended December 25, 2003
              
              
              —
              
              
              —
              
              
              —
              
              
              2,727
              
              
              2,727Balance
                  at December 25, 2003
              
              
              45,061
              
              
              4
              
              
              9,909
              
              
              12,277
              
              
              22,190Net
                  income for the year ended December 25, 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              4,645
              
              
              4,645Balance
                  at December 25, 2004
              
              
              45,061
              
              $
              4
              
              $
              9,909
              
              $
              16,922
              
              $
              26,835








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










F-5





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Amounts
      in thousands)**


**For
                the years ended December 25,****2004**
            
            **2003**
            
            **2002****Cash
                flows from operating activities:**Net
                income
            
            $
            4,645
            
            $
            2,727
            
            $
            4,153Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for
                doubtful accounts
            
            
            (218
            )
            
            578
            
            
            134Depreciation
                and amortization
            
            
            1,187
            
            
            1,425
            
            
            1,251Gain
                on
                disposal ofPRC
                subsidiary
            
            
            (162
            )
            
            —
            
            
            —Loss
                (gain)
                on disposal of machinery and equipment
            
            
            199
            
            
            (346
            )
            
            5Minority
                interests
            
            
            (41
            )
            
            —
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            735
            
            
            (186
            )
            
            (2,352
            )Deposits
                and
                prepayments
            
            
            (1,242
            )
            
            (216
            )
            
            343Inventories
            
            
            (1,313
            )
            
            2,439
            
            
            125Accounts
                payable
            
            
            (1,583
            )
            
            (163
            )
            
            1,288Other
                payables and accruals
            
            
            920
            
            
            (48
            )
            
            544Taxes
                payable
            
            
            573
            
            
            32
            
            
            420Net
                cash provided by operating activities
            
            
            3,700
            
            
            6,242
            
            
            5,911**Cash
                flows from investing activities:**Decrease
                (increase) in amounts due from related companies
            
            
            (706
            )
            
            2,357
            
            
            (795
            )Decrease
                (increase) in investment
            
            
            —
            
            
            —
            
            
            72Decrease
                (increase) in amounts due to related companies
            
            
            (371
            )
            
            400
            
            
            (2,982
            )Purchases
                ofproperty,
                machinery and equipment
            
            
            (2,207
            )
            
            (92
            )
            
            (978
            )Proceeds
                from disposal of property, machinery and equipment
            
            
            126
            
            
            994
            
            
            —Net
                cash (used in) provided by investing activities
            
            
            (3,158
            )
            
            3,677
            
            
            (4,683
            )**Cash
                flows from financing activities:**Proceeds
                from issuance ofClass
                A Common Stock
            
            
            —
            
            
            1,777
            
            
            —Decrease
                (increase) in restricted cash
            
            
            —
            
            
            181
            
            
            (181
            )Proceeds
                from short-term borrowings
            
            
            —
            
            
            4,325
            
            
            6,988Payments
                on short-term borrowings
            
            
            (2,676
            )
            
            (5,094
            )
            
            (6,928
            )Increase
                (decrease)
                in due to parent company
            
            
            1,127
            
            
            (5,586
            )
            
            (1,262
            )Decrease
                in due to joint venture partners
            
            
            (681
            )
            
            (4,367
            )
            
            (510
            )Capital
                contribution from minority interests
            
            
            124
            
            
            —
            
            
            —Net
                cash used in provided by financing activities
            
            
            (2,106
            )
            
            (8,764
            )
            
            (1,893
            )Net
                change in cash and cash equivalents
            
            
            (1,564
            )
            
            1,155
            
            
            (665
            )Cash
                and cash equivalents at the beginning of the year
            
            
            1,783
            
            
            628
            
            
            1,293**Cash
                and cash equivalents at the end of the year**
            
            $
            219
            
            $
            1,783
            
            $
            628Supplemental
                disclosures of cash flows information:Cash
                paid during the year for:Interest
            
            $
            72
            
            $
            249
            
            $
            292Income
                taxes
            
            $
            10
            
            $
            380
            
            $
            426


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









F-6





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounted
      in thousands, except share data)**





**NOTE
      1. ORGANIZATION AND NATURE OF OPERATIONS**





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





Details
      of the subsidiaries are as follows:





**Name**
            
            **Domicile
                and Date of Incorporation**
            
            **Paid-up
                Capital**
            
            **Percentage
                of Ownership**
            
            **Principal
                Activities**Mix
                Creation Limited (“MC”)
            
            The
                British
              Virgin
                Islands
              November
                7, 1997
            
            US$1,500,000
            
            100%
                (a)
            
            Investment
                holdingRich
                Delta Limited
              (“RD”)
            
            The
                British
              Virgin
                Islands
              October
                28,1998
            
            US$1,000,000
            
            100%
                (a)
            
            Investment
                holdingKeen
                General Limited
              (“KG”)
            
            The
                British
              Virgin
                Islands
              July
                20,1998
            
            US$1,500,000
            
            100%
                (a)
            
            Investment
                holdingNew
                Dragon Asia Flour (Yantai) Company limited
              (“NDAFLY”)
            
            The
                PRC
              August
                13, 1999
            
            RMB28,500,000
            
            90%
                (b)
            
            Manufacture,
                marketing and distribution of flourNew
                Dragon Asia Food (Yantai) Company Limited
              (“NDAFY”)
            
            The
                PRC
              December
                24,1998
            
            RMB17,462,000
            
            90%
                (c)
            
            Manufacture,
                marketing and distribution of
              instant
                noodlesNew
                Dragon Asia Food (Sanhe) Company Limited
              (“NDAFS”)
            
            The
                PRC
              December
                25, 1998
            
            RMB51,191,432
            
            79.64%
                (c)
            
            Manufacture,
                marketing and distribution of
              instant
                noodlesPenglai
                New Dragon Jin Qiao Food Company Limited
              (“PNDJQ”)
            
            The
                PRC
              December
                5,2003
            
            US$850,000
            
            100%
                (d)
            
            Manufacture,
                marketing and distribution of flourLongkou
                City Longyuan Packing Materials
              Company
                Limited
              (“LCLPM”)
            
            The
                PRC
              March
                2004
            
            RMB2,280,000
            
            55%
                (e)
            
            Manufacture
                and sale of packing materials






F-7




(a)
              MC,
                  RD and KG are wholly owned bythe
                  Company.(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 Company. The minority interest component has been included
                  as a
                  component of General and Administrative Expenses for the years
                  ended
                  December 25,2004, 2003 and 2002.(c)
              NDAFY
                  and NDAFS
                  are contractual joint ventures established in the PRC to be operated
                  for
                  50 years until December 24, 2048. In March 1999, RD contributed
                  90% of the
                  registered capital to NDAFY, while KG contributed 79.64% of the
                  registered
                  capital to NDAFS. Under the joint venture agreements dated November
                  28,
                  1998 and the supplemental agreement dated December 26, 1998, the
                  PRC joint
                  venture partner is entitled to receive a pre-determined annual
                  fee and is
                  not responsible for any profit or loss of NDAFY and NDAFS effective
                  from
                  December 26, 1998. In view of the profit sharing arrangements,
                  NDAFY and
                  NDAFS are regarded as 100% owned by the Company.(d)
              PNDJQ
                  is a wholly owned subsidiary of MC established inthe
                  PRC.(e)
              LCLPM
                  is a 55% owned subsidiary of NDAFY established in the PRC in March
                  2004.
                  The remaining 45% equity is owned by Longkou City Longyuan Factory,
                  our
                  Chinese joint venture
                  partner.





**NOTE
      2. BASIS OF PRESENTATION**





The
      consolidated financial statements include the consolidated financial statements
      of New Dragon Asia Corp. and its subsidiaries. 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 of America ("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 Company, 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-8





**NOTE
      3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Revenue
      Recognition** ****





The
      Company recognizes sales in accordance with the United States Securities and
      Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, "Revenue
      Recognition." 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 the Mainland Chinese
      value-added tax at rates ranging from 13% to 17% ("output VAT"). Such output
      VAT
      is payable after offsetting VAT paid by the Company on purchases ("input VAT").





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





**Cash
      and Cash Equivalents**





The
      Company considers cash on hand, deposits in banks, and short-term investments
      purchased with an original maturity date of three months or less to be cash
      and
      cash equivalents. The carrying amounts reflected in the consolidated balance
      sheets for cash and cash equivalents approximate the fair values due to the
      short maturities of these instruments.





**Financial
      Instruments**





The
      Company accounts for financial instruments under the provisions of Statements
      of
      Financial Accounting Standards (“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 Company’s consolidated financial position or its results of
      operations because the Company does not currently hold any derivative financial
      instruments and does not engage in hedging activities. The carrying amounts
      for
      cash and cash equivalents, accounts receivable, deposits and prepayments,
      short-term borrowings, accounts payable, other payables and accruals approximate
      their fair values because of the short maturity of those instruments.





F-9





**Accounts
      Receivable**





Accounts
      receivable is stated at cost, net of allowance for doubtful accounts. Based
      on
      current practice in the PRC, management provides for an allowance for doubtful
      accounts equivalent to those accounts that are not collected within one
      year.





Financial
      instruments, which potentially subject the Company to concentration of credit
      risk, consist primarily of trade receivables. However, concentrations of credit
      risk are limited due to the large number of customers comprising the Company’s
      customer base and their dispersion across different business and geographic
      areas. The Company monitors its exposure to credit losses and maintains an
      allowance for anticipated losses. To reduce credit risk, the Company performs
      credit checks on certain customers.





**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 an attributable portion of manufacturing overhead.
      Net realizable value is the estimated selling price, in the ordinary course
      of
      business, less estimated costs to complete and dispose.





**Property,
      Machinery** **and Equipment**





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





Assessments
      of whether there has been a permanent impairment in the value of property,
      machinery and equipment are periodically performed by considering factors such
      as expected future operating income, trends and prospects, as well as the
      effects of demand, competition and other economic factors. Management believes
      no permanent impairment has occurred.





**Land
      Use Rights**





Land
      use
      rights are stated at cost, less accumulated amortization. Amortization is
      computed using the straight-line method over the estimated useful lives ranging
      from 27 to 50 years. In accordance with SFAS No. 142, “Goodwill and Other
      Intangible Assets,” intangible assets with finite lives are subject to
      amortization, and impairment reviews are performed in accordance with SFAS
      No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” No
      event has occurred that would trigger an impairment assessment of the Company’s
      intangible assets with finite lives.







F-10




**Advertising
      Expenses**





Advertising
      expenses are expensed in the period when incurred.





**Income
      Taxes**





The
      Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
      for Income Taxes". Under this method, deferred income taxes are recognized
      for
      the estimated tax consequences in future years of differences between the tax
      bases of assets and liabilities and their financial reporting amounts and each
      year-end based on enacted tax laws and statutory rates applicable to the periods
      in which the differences are expected to affect taxable income. Valuation
      allowances are established to reduce deferred tax assets to the amount expected
      to be realized when, in management’s opinion, it is more likely than not that
      some portion of the deferred tax assets will not be realized. The provision
      for
      income taxes represents current taxes payable net of the change during the
      period in deferred tax assets and liabilities.





**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.





**Foreign
      Currency Translation**





The
      functional currency of the Company 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 RMB into United States dollars ("US$") were at US $1.00 = RMB
      8.3 for each of the years ended December 25, 2004, 2003 and 2002. 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 share ("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.






F-11






**Recently
      Issued Accounting Standards**





(a)
            In
                December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), a
                revision to FIN 46, “Consolidation of Variable Interest Entities”. FIN 46R
                clarifies some of the provisions of FIN46 and exempts certain entities
                from its requirements. FIN 46R is effective at the end of the first
                interim period ending after March 15, 2004. Entities that have adopted
                FIN
                46 prior to this effective date can continue to apply the provisions
                of
                FIN 46 until the effective date of Fin 46R. The adoption of FIN 46R
                did
                not have any effect on our consolidated financial
                statements.





(b)
            In
                November 2004, the FASB issued Statement of Financial Accounting
                Standards
                (SFAS) No. 151,*Inventory
                Costs*,
                which clarifies the accounting for abnormal amounts of idle facility
                expense, freight, handling costs, and wasted material. SFAS No. 151
                will
                be effective for inventory costs incurred during fiscal years beginning
                after June 15, 2005. We do not believe the adoption of SFAS No. 151
                will
                have a material impact on our financial statements.





(c)
            In
                December 2004, the FASB issued SFAS No. 123(R),*Share-Based
                Payment*,
                which establishes standards for transactions in which an entity exchanges
                its equity instruments for goods or services. This standard requires
                a
                public entity to measure the cost of employee services received in
                exchange for an award of equity instruments based on the grant-date
                fair
                value of the award. This eliminates the exception to account for
                such
                awards using the intrinsic method previously allowable under APB
                Opinion
                No. 25. SFAS No. 123(R) will be effective for interim or annual reporting
                periods beginning on or after June 15, 2005. We do not believe the
                adoption of SFAS No. 123(R) will not have a material impact on our
                financial statements.





**Reclassification
      From Prior Year Audited Financial Statements**





Certain
      prior year comparative figures have been reclassified to conform to the current
      year presentation.





**NOTE
      4. ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Accounts
                receivable
            
            $
            7,189
            
            $
            7,929Less:
                Allowance for doubtful accounts
            
            
            (775
            )
            
            (993
            )$
            6,414
            
            $
            6,936







F-12




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





Deposits
      and prepayments consist of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Deposits
                for raw materials
            
            $
            2,291
            
            $
            1,508Advances
                to staff
            
            
            33
            
            
            63Others
            
            
            303
            
            
            11Less:
                Allowance for deposits
            
            
            (107
            )
            
            (300
            )$
            2,520
            
            $
            1,282





Advances
      to staff are unsecured, non-interest bearing and repayable on demand.





**NOTE
      6. INVENTORIES**





Inventories
      consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Raw
                materials (including packing materials)
            
            $
            2,812
            
            $
            2,222Finished
                goods
            
            
            1,725
            
            
            1,1234,537
            
            
            3,345Less:
                Provision for inventory obsolescence
            
            
            (547
            )
            
            (582
            )$
            3,990
            
            $
            2,763








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





Property,
      machinery and equipment consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Buildings
            
            $
            9,415
            
            $
            9,551Machinery
                and equipment
            
            
            11,940
            
            
            12,81821,355
            
            
            22,369Less:
                Accumulated depreciation and amortization
            
            
            (5,257
            )
            
            (4,898
            )$
            16,098
            
            $
            17,471





Depreciation
      and amortization expense was approximately $1,187,
      $1,314 and $1,141 for the years ended December 25, 2004, 2003 and 2002,
      respectively.








F-13




**NOTE** **8.
      LAND USE RIGHTS**





Land
      use
      rights consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Land
                use rights
            
            $
            4,432
            
            $
            4,575Less:
                Accumulated amortization
            
            
            (610
            )
            
            (577
            )$
            3,822
            
            $
            3,998





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, 2004 and 2003,
      the
      land use rights consisted of three parcels of land located in Mainland China
      with a net book value of approximately $3,822 and $3,998, respectively, held
      under land use rights of 27 to 50 years through 2025 to 2047.





Amortization
      expense was approximately $103, $112 and $110 for the years ended December
      25,
      2004, 2003 and 2002, respectively.








**NOTE
      9. SHORT-TERM BORROWINGS**





Short-term
      borrowings consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Bankloans
            
            $
            —
            
            $
            2,518Bills
                payable
            
            
            —
            
            
            327$
            —
            
            $
            2,845





Bank
      loans were secured by corporate guarantees provided by a PRC joint venture
      partner and a third party and bore interest at prevailing lending rates in
      the
      PRC ranging from 6.01% to 6.435% per annum and were fully repaid during the
      year
      ended December 25, 2004.





Bills
      payable are a form of bank borrowing with payment due within 180
      days.








F-14




**NOTE
      10. OTHER PAYABLES AND ACCRUALS**





Other
      payables and accruals consisted of the following:





**December
                25, 2004**
            
            **December
                25, 2003**Deposits
                from customers
            
            $
            554
            
            $
            612Accruals
                for staff salaries, bonus and benefit
            
            
            515
            
            
            510Utilities
                and accrued expenses
            
            
            829
            
            
            112$
            1,898
            
            $
            1,234








**NOTE
      11. TAXATION**





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





For
      the
      years ended December 25, 2004, 2003 and 2002, substantially all of the Company's
      income was generated in the PRC, which is subject to PRC income taxes at rates
      ranging from 24% to a statutory rate of 33%. Two of the PRC subsidiaries of
      the
      Company will be eligible to be exempt from income taxes for a two-year period
      and then subject to a 50% reduction in income taxes, starting from their first
      profitable year. Several PRC subsidiaries receive preferential tax rates in
      regions in which they operated and are also entitled to partial tax refunds
      from
      those tax bureaus.





As
      of
      December 25, 2004, 2003 and 2002, there are not 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 Company's effective income tax
      rate is as follows:





**2004**
            
            **2003**
            
            **2002**Statutory
                income tax
            
            
            33
            %
            
            33
            %
            
            33
            %Reduction
                for preferential
                tax rate
            
            
            (9
            )
            
            —
            
            
            —Impact
                of effective tax holiday
            
            
            —
            
            
            (21
            )
            
            (21
            )Various
                differences
            
            
            (2
            )
            
            2
            
            
            1Effective
                rate
            
            
            22
            %
            
            14
            %
            
            13
            %





**NOTE
      12. COMMON STOCK**





On
      September 4, 2003, the Company issued 3,300,000 shares of Class A Common Stock
      for an aggregate purchase amount of $1,650,000 or $0.50 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 Company's Class A Common Stock which have a term of 5 years at an exercise
      price of $0.99 per share. As of December 25, 2004, no warrants were exercised.





F-15




On
      October 7, 2003, the Company issued 850,000 shares of Class A Common Stock
      for
      an aggregate purchase amount of $425,000 or $0.50 per share. The shares were
      issued pursuant to an exemption provided by Section 4(2) of the Securities
      Act.
      The purchasers were also issued warrants to purchase 850,000 shares of the
      Company's Class A Common Stock which have a term of 5 years and an exercise
      price of $0.98 per share. As of December 25, 200 4,
      no
      warrants were exercised.





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




Currently
      the Company is authorized to issue 107,000,000
      shares of capital stock, of which 100,000,000 shares are Class A Common Stock,
      2,000,000 shares are Class B Common Stock and 5,000,000 shares are Preferred
      Stock. As
      of May
      31, 2005, there were 45,061,242 common shares issued and outstanding. No shares
      of Class B Common Stock or Preferred Stock are issued and
      outstanding.





**NOTE
      13. COMMITMENTS**





**Lease
      Commitments**





The
      Company leases manufacturing and warehouse facilities under operating leases
      which expire at various dates through March 2031. At December 25, 2004, the
      Company's future minimum lease payments under operating leases were as follows:








**Years
                ending December 25,**2005
            
            $
            1232006
            
            
            1232007
            
            
            1232008
            
            
            1232009
            
            
            123Thereafter
            
            
            47Total
            
            $
            662





Total
      lease expenses were $187, $46 and $74 for the years ended December 25, 2004,
      2003 and 2002, respectively.





**Annual
      Fees**





Under
      the
      supplementary joint venture agreements, the Company has committed to pay
      predetermined annual fees of $114 to the Chinese joint venture partners for
      each
      of the years in the period from December 26, 1998 to 2049. As of December 25,
      2004, total commitments under these arrangements were as follows:





F-16


Payable
                during the period:Within
                one year
            
            $
            108Over
                one year but not exceeding two years
            
            
            108Over
                two year but not exceeding three years
            
            
            108Over
                three year but not exceeding four years
            
            
            108Over
                four year but not exceeding five years
            
            
            108Over
                five years
            
            
            4,234Total
            
            $
            4,774








**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 New Dragon Asia Corp. and related companies
      are summarized below:




**2004**
            
            **2003**
            
            **2002**Sale
                of finished goods to:A
                joint
                venture partner, Shandong Longfeng Group Company
            
            $
            2
            
            $
            —
            
            $
            419Related
                parties
            
            
            33
            
            
            113
            
            
            1,334$
            35
            
            $
            113
            
            $
            1,753Sale
                of machinery to Shandong Longfeng Group Company
            
            $
            —
            
            $
            993
            
            
            —Purchasing
                of raw materials from:A
                joint
                venture partner, Shandong Longfeng Group Company
            
            $
            —
            
            $
            —
            
            $
            8Related
                parties
            
            
            914
            
            
            1,344
            
            
            1,649$
            914
            
            $
            1,344
            
            $
            1,657Pre-determined
                annual fee charged by joint venture partners:Shandong
                Longfeng Group Company
            
            $
            72
            
            $
            78
            
            $
            78Shandong
                Longfeng Flour Company Limited
            
            
            36
            
            
            36
            
            
            36$
            108
            
            $
            114
            
            $
            114Interest
                income from short-term advances to parent company
            
            $
            —
            
            $
            —
            
            $
            188Interest
                expenses paid to a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            3
            
            $
            17
            
            $
            18Rental
                expenses paid to related companies
            
            $
            120
            
            
            —
            
            
            —Rental
                income from a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            64
            
            $
            64
            
            $
            64Shandong
                Longfeng Group Company
            
            $
            —
            
            $
            64
            
            $
            64





F-17




A
      summary
      of related party balances is as follows:




**December
                25, 2004**
            
            **December
                25, 2003**Due
                to parent company
            
            $
            303
            
            $
            196Due
                to joint venture partners, consisting of:Shandong
                Longfeng Group Company
            
            
            1,027
            
            
            1,034Shandong
                Longfeng Flour Company Limited
            
            
            (917
            )
            
            170$
            110
            
            $
            1,204Due
                from related companies
            
            $
            1,183
            
            $
            124Due
                to related companies
            
            $
            831
            
            $
            1,202





The
      amounts due to parent company and joint venture partners are unsecured,
      non-interest bearing and repayable upon demand.





**NOTE
      15. DISPOSAL OF SUBSIDIARY**





On
      December 20, 2004, the Company sold its 100% shareholding in Noble Point Limited
      (“NP”) which in turn owned a 90% equity interest in New Dragon Asia Food
      (Dalian) Company limited (“NDAFD”), to its parent company and assumed its loan
      due to the parent company, at a consideration of US$20,000 which approximates
      to
      the net asset value of NP and NDAFD in aggregate after the assignment of the
      loan. NP had no business other than the investment holding in NDAFD whilst
      NDAFD
      had ceased business in December 2003.





**NOTE
      16. SEGMENT INFORMATION**





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





Net
      Sales


**2004**
            
            **2003**
            
            **2002**Instant
                noodles
            
            $
            12,909
            
            $
            11,702
            
            $
            10,847Flour
            
            
            26,312
            
            
            19,070
            
            
            22,857$
            39,221
            
            $
            30,773
            
            $
            33,704








F-18







Income
      from Operations


**2004**
            
            **2003**
            
            **2002**Instant
                noodles
            
            $
            607
            
            $
            296
            
            $
            1,621Flour
            
            
            3,938
            
            
            1,897
            
            
            2,725$
            4,545
            
            $
            2,193
            
            $
            4,346




Interest
      Income


**2004**
            
            **2003**
            
            **2002**Instant
                noodles
            
            $
            2
            
            $
            2
            
            $
            192Flour
            
            
            1
            
            
            2
            
            
            2$
            3
            
            $
            4
            
            $
            194







Interest
      Expenses


**2004**
            
            **2003**
            
            **2002**Instant
                noodles
            
            $
            6
            
            $
            22
            
            $
            18Flour
            
            
            66
            
            
            227
            
            
            247$
            72
            
            $
            249
            
            $
            265





Depreciation
      and Amortization


**2004**
            
            **2003**
            
            **2002**Instant
                noodles
            
            $
            587
            
            $
            867
            
            $
            703Flour
            
            
            660
            
            
            557
            
            
            548$
            1,187
            
            $
            1,424
            
            $
            1,251





Identifiable
      Long-term Assets


**2004**
            
            **2003**Instant
                noodles
            
            $
            12,031
            
            $
            14,001Flour
            
            
            7,889
            
            
            7,468$
            19,920
            
            $
            21,469







F-19




**NOTE
      17. MAJOR CUSTOMERS**





No
      single
      customer accounted for more than 5%, 5% and 6% of sales for the years ended
      December 25, 2004, 2003 and 2002, respectively.





**NOTE
      18. RETIREMENT PLAN**





As
      stipulated by the regulations of the PRC government, companies of the Company
      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 Company was required to
      make
      specified contributions to the state-sponsored retirement plan at 20% of the
      basic salary cost of their staff. Each of the employees of the PRC subsidiaries
      is required to contribute 6% of his/her basic salary. For the year ended
      December 25, 2004, 2003 and 2002, contributions made by the Company were
      approximately $122, $151 and $97, respectively.





**NOTE
      19. OTHER INCOME**





Other
      income consists primarily of VAT tax credits of approximately 1478, 699 and
      0
      for the years ended December 25, 2004, 2003 and 2002, respectively.








F-18