##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549

FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 2001

OR

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

For the transition period from                      to

Commission file Number

NEW DRAGON ASIA CORP.

---

(Name of Small Business Issuer in
Its Charter)


|                                                                      |  |                                     
|--------------------------------------------------------------------- |  | ------------------------------------
|Florida                                                               |  | 88-0404114                          
|                                                                      |  |                                     
|(State or other Jurisdiction of Incorporation)                        |  | (I.R.S. Employer Identification No.)
|                                                                     
|Room 1304, 13/F Wing On Centre,
111 Connaught Road
Central, Hong Kong
|                                                                      |  |                                     
|(Address of Principal Executive Offices)                              |  | (Zip Code)                          

(852) 2815-9892

---

(Issuers Telephone Number, Including Area Code)


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

|                    |  |                      
|------------------- |  | ---------------------
|                    |  | Name of Each Exchange
|Title of Each Class |  | on Which Registered  
|                    |  |                      
|                   
|                    |  |                      
|                   
|                    |  |                      

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

Common Stock

---

(Title of Class)




---

(Title of Class)




---



##### Table of Contents



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

Yes [X]  No [  ]

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

State issuers revenue for its most recent fiscal year

State the aggregate market value of the voting and non-voting common
equity held by no-affiliates computed by reference to the price at which the
common equity as sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date. As of December 31, 2001
there were 40,911,242 shares outstanding

Transitional Small Business Disclosure Format (check one):

Yes [  ] No [  ]



---

TABLE OF CONTENTS



|            |                                                                                                                          |  |  |  |  |  |  | 
|----------- | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I     
|            | ITEM 1. DESCRIPTION OF BUSINESS.                                                                                        
|            | ITEM 2. DESCRIPTION OF PROPERTIES.                                                                                      
|            | ITEM 3. LEGAL PROCEEDINGS.                                                                                              
|            | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                            
|PART II    
|            | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.                                          
|            | ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                          
|            | ITEM 7. FINANCIAL STATEMENTS.                                                                                           
|            | ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                           
|PART III   
|            | ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
|            | ITEM 10. EXECUTIVE COMPENSATION                                                                                         
|            | ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                 
|            | ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                                                
|            | ITEM 13. EXHIBITS AND REPORTS ON 8K.                                                                                    
|SIGNATURES 
|EXHIBIT 3.1



---



##### Table of Contents



NEW DRAGON ASIA CORP.
FORM 10-KSB
INDEX

|                    |                                                                                                                    |     |     
|------------------- | ------------------------------------------------------------------------------------------------------------------ | --- | ----
|                    |                                                                                                                    |     | Page
|                    |                                                                                                                    |     |     
|                    | PART I                                                                                                             |     |     
|Item 1.             | Description of Business                                                                                            |     | 1   
|                   
|Item 2.             | Description of Properties                                                                                          |     | 7   
|                   
|Item 3.             | Legal Proceedings                                                                                                  |     | 8   
|                   
|Item 4.             | Submission of Matters of a Vote of Security Holders                                                                |     | 8   
|                   
|                    | PART II                                                                                                            |     |     
|                   
|Item 5.             | Market for Registrants Common Equity and Related
Stockholder Matters                                              |     | 8   
|                   
|Item 6.             | Managements Discussion and Analysis of Financial
Condition and Results of Operations                              |     | 9   
|                   
|Item 7.             | Financial Statements                                                                                               |     | 10  
|                   
|Item 8.             | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure                               |     | 10  
|                   
|                    | PART III                                                                                                           |     |     
|                   
|Item 9.             | Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act |     | 10  
|                   
|Item 10.            | Executive Compensation                                                                                             |     | 11  
|                   
|Item 11.            | Security Ownership of Certain Beneficial Owners and Management                                                     |     | 12  
|                   
|Item 12.            | Certain Relationships and Related Transactions                                                                     |     | 12  
|                   
|Item 13.            | Exhibits, List and Reports on Form 8-K                                                                             |     | 13  
|                   
|Signatures          |                                                                                                                    | 14 
|                   
|Financial Statement |                                                                                                                    | F-1



---



##### Table of Contents






PART I




ITEM 1. DESCRIPTION OF BUSINESS.

When used in this Form 10-KSB, the words expects, anticipates,
estimates and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties, including
those set forth below under Risks and Uncertainties, that could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. We expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based. This discussion should be read
together with the financial statements and other financial information included
in this Form 10-KSB.

Company History

New Dragon Asia Corp., formerly Bio-Aqua Systems, Inc., a Florida
corporation, was incorporated in March 1999 as a holding company to acquire
Tepual, S.A., a Chilean corporation (the Company or company). Until business
operations were suspended, Tepual, S.A. was in the business of research and
development and sales of vaccine products and production and control systems
related to animal nutrition and health. We also sold, brokered and provided
technical advice in the production of meals for feed used by the aquaculture,
poultry and cattle farming industries. In addition, the company acquired 75% of
Krisel, S.A. in 2000, a krill fishing company operating in Uruguay. Bio-Aquas
historical and current operations will sometimes be referred to as Tepual
operations throughout this filing. Due to lack of working capital Bio Aqua
suspended all of its operations early last year. On August 7, 2001, it was
announced that it would seek to divest its current operations and acquire a new
operating company with the goal of enhancing shareholder value.

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

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

As a result of the share exchange the registrant continued the operations
of New Dragon Asia Food Limited. All operations of New Dragon Asia Food
Limited are conducted through a Sino Joint Venture discussed below. A report
on Form 8-K was filed with the Securities and Exchange Commission on December
27, 2001 with respect to the share exchange.

OVERVIEW OF NEW DRAGON ASIA FOOD LIMITED

The New Dragon Asia Food Group was established in 1952 under the name
Long Feng Foods, as a grain and oil processing enterprise in the Shandong
Province of the Peoples Republic of China



---



##### Table of Contents



(PRC or China) and developed as one of the Provinces leading flour
millers. Long Feng developed into the leading flour milling group in China. In
1992 Long Feng established a manufacturing operation for instant noodles as the
Chinese market for convenience foods was entering a prolonged growth phase.
Through rapid increases in capacity and maintenance of consistent quality, Long
Feng has established itself as one of Chinas leading manufacturers of flour
and instant noodles with seven manufacturing plants, nationwide distribution
and an approximately 10% market share in China.

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

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



| |  |  | New Dragon Asia Flour (Yantai) Company Limited
| | - |  | ----------------------------------------------
|
| |  |  | New Dragon Asia Food (Yantai) Company Limited 
|
| |  |  | New Dragon Asia Food (Dalian) Company Limited 
|
| |  |  | Sanhe New Dragon Asia Food Company Limited    

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

INDUSTRY BACKGROUND

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

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

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



2




---



##### Table of Contents



Products



| |  |  | Flour
| | - |  | -----

We produce and market a broad range of wheat flour for use in bread,
dumplings, noodles and confectionary. Our flour products are marketed under
the Long Feng brand name and sold throughout the country at both wholesale
and retail level. At the end of 2001, our product was split approximately 60%
for flour products and 40% for instant noodles.



| |  |  | Noodles
| | - |  | -------

We provide a wide range of instant noodles products to our customers. Our
products can be separated into two broad categories for selling and marketing
purposes: packet noodles for home preparation and cup noodles for instant
consumption.

Product Quality

Long Feng has a reputation for of producing some of the highest quality
food products in China. Our production plants operate to the highest level of
hygiene and efficiency and are certified at the ISO9002 level. All of our
state of the art equipment is imported from Switzerland and Korea. We also
operate strict quality control systems, resulting in a favorable customer
perception of the Long Feng brand.

Production

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

We own and operate our manufacturing plants, which have an annual
aggregate production capacity of approximately 130,000 tons of flour products
and in excess of 60 million packets of instant noodles.

Transportation and Distribution

Our distribution system is a key to our continued success in developing
Long Feng as the leading domestic brand in China. We have over 220 points of
distribution of which 20 are direct sales offices, spread over 27 provinces in
China. Most of our distributors have long-term relationships with us and are
loyal and efficient vendors of our products.

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

Raw Materials

The noodles primary ingredient is flour, which is extracted from wheat
through a milling process. A large percentage of our flour needs are sourced
from within the group with occasional



3




---



##### Table of Contents



purchases of high quality wheat from Australia and Canada. Wheat sourced
by our milling operating from Shangdong province is generally regarded as being
the highest quality available in China. Other ingredients such as flavourings
and additives are manufactured or processed within the group.

A breakdown of the major input costs in our noodle manufacturing process are as follows:

|  |  |                   |  |  |    |  
|- |  | ----------------- |  |  | -- | -
| |  | Flour             |  |  | 26 | %
| |  | Palm Oil          |  |  | 17 | %
| |  | Other Ingredients |  |  | 35 | %
| |  | Packaging         |  |  | 22 | %

MARKETING AND SALES

In China, marketing and promotion costs for manufactured products are
generally absorbed by the distributor and the cost covered in the price
ex-factory. As the China market has yet to be developed into a nationwide
branded image market, most products are regionally marketed and distributed.
Our sales and marketing strategy revolves principally around maintaining strong
distribution relationships and continuously innovating with products and
improving on our quality/price dynamic.

CUSTOMERS

Our primary customer base for both flour and noodles is in rural areas
throughout China, where our brand has long been recognized as the highest
quality available for the price. This market is growing rapidly as rural and
middle class incomes have increased. Brand loyalty is strongest in this
sector. In contrast with our major competitors, Master Kang and President,
which are focused predominately in the more developed and competitive urban
markets, our strength in these rapidly growing areas is underpinning our growth

REGULATION

We are subject, from time to time, to various laws and regulations
administered by various state and local government bodies relating to the
operation of our production facilities, as well as environmental and pollution
control, including air emissions. We believe that we are in compliance with all
governmental laws and regulations related to our products and facilities, and
we do not expect to make any material expenditures in 2002 with respect to
compliance with any such regulations.

STRATEGY

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



| |  | increase the quantity of our products in rural distribution centers                                   
|- |  | ------------------------------------------------------------------------------------------------------
| 
| |  | Continue to enhance our distributor relationships                                                     
| 
| |  | Continuously improve product quality and diversify our product range with
higher value added products.



4




---



##### Table of Contents





| |  | Build strategic joint venture relationships with multinational food
groups to enhance product range and capitalize on our China distribution
network
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | strengthen the training of our employees                                                                                                            
| 
| |  | implement the use of technical software to increase labor efficiency                                                                                

SALES AND MARKETING

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

COMPETITION

The instant noodles segment is highly competitive. We compete against
well-established companies, and many smaller companies. Our largest competitors
are the Master Kang and President groups, both based in Taiwan. We believe that
we were one of the largest local manufacturers of noodles and flour in terms of
production in China in 2001, with an approximately 10% market share.

EMPLOYEES

We employ approximately 2,000 employees.

GOVERNMENTAL REGULATION OF OUR OPERATIONS IN CHINA

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

The Chinese Legal System

The practical effect of the Peoples Republic of China legal system on our
business operations in China can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws which are applied to our operation in China provide significant
protection from government interference. In addition, these laws guarantee the
full enjoyment of the benefits of corporate Articles and contracts to Foreign
Invested Enterprise participants. These laws, however, do impose standards
concerning corporate formation and governance, which are not qualitatively
different from the General Corporation Laws of the States. Similarly, the
Peoples Republic of China accounting laws mandate accounting practices, which
are mostly consistent with US 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.

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



5




---



##### Table of Contents



business disputes pertaining to Foreign Invested Enterprises are to be
resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in
Stockholm, Sweden applying Chinese substantive law, the Chinese minority
partner in our joint venture companies will not assume a privileged position
regarding such disputes. Any award rendered by this arbitration tribunal is, by
the express terms of the respective Articles of Association, enforceable in
accordance with the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958). Therefore, as a practical
matter, although no assurances can be given, the Chinese legal infrastructure,
while different in operation from its United States counterpart, should not
present any significant impediment to the operation of Foreign Invested
Enterprises.

Economic Reform Issues

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



| |  |  | We will be able to capitalize on economic reforms;                                  
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | The Chinese government will continue its pursuit of economic reform policies;       
|
| |  |  | The economic policies, even if pursued, will be successful;                         
|
| |  |  | Economic policies will not be significantly altered from time to time; and          
|
| |  |  | Business operations in China will not become subject to the risk of nationalization.

Negative impact upon economic reform policies or nationalization could
result in a total investment loss in our common stock.

Since 1979, the Chinese government has reformed its economic systems.
Because many reforms are unprecedented or experimental, they are expected to be
refined and improved. Other political, economic and social factors, such as
political changes, changes in the rates of economic growth, unemployment or
inflation, or in the disparities in per capita wealth between regions within
China, could lead to further readjustment of the reform measures. This refining
and readjustment process may negatively affect our operations.

Over the last few years, Chinas economy has registered a high growth
rate. Recently, there have been indications that rates of inflation have
increased. In response, the Chinese government has taken measures to curb this
excessively expansive economy. These measures have included devaluation of the
Chinese currency, the Renminbi, restrictions on the availability of domestic
credit, reducing the purchasing capability of certain of its customers, and
limited re-centralization of the approval process for purchases of some foreign
products. These austerity measures alone may not succeed in slowing down the
economys excessive expansion or control inflation, and may result in severe
dislocations in the Chinese economy. The Chinese government may adopt
additional measures to further combat inflation, including the establishment of
freezes or restraints on certain projects or markets. These measures may
adversely affect our telephone communications manufacturing companys
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, changes in the rate or
method of taxation, imposition of additional restrictions on



6




---



##### Table of Contents



currency conversion and remittance abroad, and reduction in tariff
protection and other import restrictions.

Chinas Accession into the WTO

On November 11, 2001, China signed an agreement to become a member of the
World Trade Organization sometimes referred to as the WTO, the international
body that sets most trade rules, further integrating China into the global
economy and significantly reducing the barriers to international commerce.
Chinas membership in the WTO was effective on December 11, 2001. China has
agreed upon its accession to the WTO to reduce tariffs and non-tariff barriers,
remove investment restrictions, provide trading and distribution rights for
foreign firms. The tariff rate reductions and other enhancements will enable
us to develop better investment strategies. In addition, the WTOs dispute
settlement mechanism provides a credible and effective tool to enforce members
commercial rights. Also, with Chinas entry to the WTO, it is believed that
the relevant laws on foreign investment in China will be amplified and will
follow common practices.




ITEM 2. DESCRIPTION OF PROPERTIES.

Our corporate headquarters are located in Hong Kong. Our four
manufacturing plants occupy over 538,670 sq. ft. of facilities with
over 24
noodle production lines and a 132,000 tons pa flour milling facility with 3
production lines, located in Yantai. Manufacturing operations are vertically
integrated, with the flour production utilized in the noodle manufacturing
process. All of New Dragons manufacturing facilities have been awarded ISO9002
quality certification.

|                  |  |                                                        |  |         |  |         |              |           |  |  |        | 
|----------------- |  | ------------------------------------------------------ |  | ------- |  | ------- | ------------ | --------- |  |  | ------ | 
|                  |  |                                                        |  | Rental  |  | Rental  | Monthly      |           |  | 
|Facility          |  | Address                                                |  | Begin   |  | Expire  | Rental (US$) | Area (m2)
|                  |  |                                                        |  |         |  |         |              |          
|Flour Mill,       |  | No.10 Huangcheng                                       |  |        |  |        |              |          |  |  | 25,345 | 
|Noodle Factory    |  | Road(N), Longkou,                                      |  |         |  |         |              |           |  |  |        | 
|Condiment
Factory |  | Shandong, P.R.C.                                       |  |         |  |         |              |           |  |  |        | 
|                 
|Noodle Factory    |  | 1 YanJiao Jung Ha                                      |  |        |  |        |              |          |  |  | 26,274 | 
|                  |  | Road(N), Beijing,
P.R.C.                               |  |         |  |         |              |           |  |  |        | 
|                 
|Noodle Factory    |  | 11 Dunhuang Street,                                    |  |        |  |        |              |          |  |  | 6,363  | 
|                  |  | Shahekou Zone,                                         |  |         |  |         |              |           |  |  |        | 
|                  |  | Dalian, Liaoning                                       |  |         |  |         |              |           |  |  |        | 
|                  |  | Province, P.R.C.                                       |  |         |  |         |              |           |  |  |        | 
|                 
|Warehouse         |  | Gong Ye Qu, Fu Hao                                     |  | 5/19/01 |  | 5/18/01 |              | 1,205     |  |  | 1,049  | 
|                  |  | Cun, Xu Xin Zhuang
Zhen, Tong Zhou Qu,
Beijing, P.R.C. |  |         |  |         |              |           |  |  |        | 

In March of 2002 we
purchased Shandong Long Feng Peng Lai Flour Co. Ltd. of Shangdong,
China. This facility will be used for high-quality wheat flour
principally for domestic sale within China.



7




---



##### Table of Contents






ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any pending or to the best of our knowledge, any
threatened legal proceedings. Non of our directors, officers or affiliates, or
owner of record or of more than five percent (5%) of our securities, or any
associate of any such director, officer or security holder is a party adverse
ours or have a material interest adverse to ours in reference to pending
litigation.




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

During the fourth quarter of the fiscal year the only matter submitted to
the shareholders for approval was our acquisition of the interest in New Asia
Dragon Limited pursuant to the Share Exchange Agreement. The matter was
approved by shareholders holding a majority of our issued shares.




PART II




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

(a) Market Prices of Common Stock

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

| |                                     |  |             |      |     |  |   |      | 
| | ----------------------------------- |  | ----------- | ---- | --- |  | - | ---- | 
| |                                     |  | Price Range
| |                                     |  |            
| |                                     |  | High        |      | Low
| |                                     |  |             |      |    
| | Fiscal Year Ended December 31, 2000 |  |             |      |     |  |   |      | 
| | First Quarter                       |  |             |     |     |  |   |     | 
| | Second Quarter                      |  | $           | 4.18 |     |  | $ | 2.50 | 
| | Third Quarter                       |  | $           | 3.00 |     |  | $ | 1.62 | 
| | Fourth Quarter                      |  | $           | 1.37 |     |  | $ | .25  | 
|
| | Fiscal Year Ended December 31, 2001 |  |             |      |     |  |   |      | 
| | First Quarter                       |  | $           | .18  |     |  | $ | .65  | 
| | Second Quarter                      |  | $           | .28  |     |  | $ | .20  | 
| | Third Quarter                       |  | $           | 1.20 |     |  | $ | .21  | 
| | Fourth Quarter                      |  | $           | 3.04 |     |  | $ | .81  | 

(b) Shareholders

Our common shares are issued in registered form. American Stock Transfer,
Brooklyn, New York, is the registrar and transfer agent for our common stock.
As of March 29, 2002, there were 40,911,242 shares of our common stock
outstanding and we had approximately 500 shareholders of record.

(c) Dividends

We have never declared or paid any cash dividends on our common stock and
we do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to finance operations and
the expansion of its business. Any future determination to pay cash dividends
will be at the discretion of the board of directors and will be based upon our
financial



8




---



##### Table of Contents



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.

On December 13, 2001 we issued 37,963,263 in
connection with the acquisition from New Dragon Asia Food Limited.
The shares were issued in a private placement pursuant to Section
4(2) of Securities Act. A Form 8-K was filed on December 27, 2001
related to this private placement.




ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is managements discussion and analysis of certain
significant factors which have affected our financial position and operating
results during the periods included in the accompanying financial statements,
as well as information relating to the plans our current management.

OVERVIEW

On December 13, 2001, we entered into a Share Exchange Agreement with, Max
Rutman, Flagship Import Export LLC, a Nevada limited liability company and New
Dragon Asia Food Limited, a company organized under the laws of the British
Virgin Islands. Pursuant to the Share Exchange Agreement, on December 3, 2001
(the Closing), we acquired from New Dragon Asia Food Limited all of its
equity interests of four companies organized under the laws of the British
Virgin Islands (each a Subsidiary and, collectively the Subsidiaries) each
of which in turn hold an interest in a separate sino-foreign joint venture,
which equity interests constituted all of the issued and outstanding equity
interests of the Subsidiaries in exchange for 37,963,263 shares of common stock
of the Registrant. At the closing, we transferred all of its assets to Mr.
Rutman and Mr. Rutman assumed all of our liabilities. As such the following
discussion relates to the financial results of New Dragon Asia Limited only.

The consolidated financial statements are presented in US dollars.
Transactions and monetary assets denominated in currencies other than the US
dollars are translated into US dollars at the respective applicable exchange
rates. Monetary assets and liabilities denominated in other currencies are
translated into US dollars at the applicable rate of exchange at the balance
sheet date. The resulting exchange gains or losses are credited or charged to
the consolidated statements of operations. Currency translation adjustments
arising from the use of different exchange rates from period to period are
included in comprehensive income.

RESULTS OF OPERATIONS

We generated
revenues of $30.3 million for the fiscal year ended
December 31, 2001, which was a $1 million or 3% decrease
from $31.5 million for
the fiscal year ended December 31, 2000. This decrease is the
result of a decline in the sale of instant noodles in the two of New
Dragon's joint ventures in Dilian and Beijing due to strong
competition, and an increase in the sale of flour products by
$2.7 million in New Dragon's flour production joint venture in Shandong which has expanded its product range. We are currently operating at or near full
capacity in both flour and noodle production. Acquisition of additional
capacity during 2002 will facilitate continued sales growth.

Net sales decreased
1.0 million or 3% compared to 2000. Despite this marginal decrease in sales revenues, operating margins
improved by 9% against the background of sharply lesser product
distribution expenses which declined by 53% over the year to
only $0.7 million. General and administrative
expenses increased by $0.39 million mainly due to an increase in
the provision for accounts receivable and inventories and an increase in
labor costs. Income before income for the period was
$4.3 million, an increase of 20% over the 2000 fiscal year
result as other income increased by $0.5 million. During 2001,
New Dragon received trademark income, VAT rebate and property
rentals. Interest expenses of $(200,000)
was lower than interest costs of $224,000 incurred in 2000 reflecting
a continued
reduction of bank debt during 2001.

We incurred
income taxes of $318,000 during 2001, up from zero in
2000. This increase represents the gradual phasing of income taxes on joint
venture operations pursuant to the Chinese joint ventures taxation guidelines.

Net income from
operations was $866,000 million or $0.02 per share on a fully
diluted basis. This represents a decrease of 75% from the net income
of $3.5 million in 2000. This decrease is a result of a one-time charge taken in connection with the issuance of
1.3 million shares of common stock issued to our advisers in
connection with the acquisition from New Dragon Asia Food Limited on
December 13, 2001. The charge is based on a discount to the
average ten-day closing bid price of our stock prior to
December 13, 2001.



9




---



##### Table of Contents



Financial Condition, Liquidity, Capital Resources

Net cash received in the operations of New Dragon during fiscal year 2001
was $5.6 million arising primarily from increased net income. We continued to
generate net positive cash from operations proceeds of which were applied
largely to an increase in accounts receivable ($2.3 million) and investment in
new production equipment ($2.7 million).

Inflation and Changing Prices

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




ITEM 7. FINANCIAL STATEMENTS.

(a) Financial Statements

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



| | 1. |  | Report of Independent Auditors                                                                                                                                                                 
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Consolidated Balance Sheets of New Dragon Asia Corp. and
Subsidiaries as of December 31, 2000 and December 31, 2001                                                                            
|
| | 3. |  | Consolidated Statements of Operations of New Dragon Asia
Corp. and Subsidiaries for the years ended December 31, 2001 and
December 31, 2000, for the year ended December 31, 2001 and 2000.    
|
| | 4. |  | Consolidated Statements of Changes in Stockholders Equity of
New Dragon Asia Corp. and Subsidiaries through December 31, 2001.                                                                
|
| | 5. |  | Consolidated Statements of Cash Flows of New Dragon Asia
Corp. and Subsidiaries for the years ended December 31, 2001 and
December 31, 2000, for the quarters ended December 31, 2001 and
2000.
|
| | 6. |  | Notes to Consolidated Financial Statements                                                                                                                                                     




ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.




PART III




|        |  |                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------
|ITEM 9. |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The following table and text sets forth the names and ages of all our
directors and executive officers and the key management personnel as of
December 31, 2001. Our Board of Directors is comprised of only one class. All
of the directors will serve until the next annual meeting of stockholders and
until their successors are elected and qualified, or until their earlier death,
retirement, resignation or removal. Executive officers serve at the discretion
of the Board of Directors, and are appointed to serve until the first Board of
Directors meeting following the annual meeting of stockholders. Also provided
is



10




---



##### Table of Contents



a brief description of the business experience of each director and
executive officer and the key management personnel during the past five years
and an indication of directorships held by each director in other companies
subject to the reporting requirements under the Federal securities laws.

|               |  |     |    |               |  |                                  
|-------------- |  | --- | -- | ------------- |  | ---------------------------------
|Name           |  | Age |    | Position Held
|               |  |     |    |              
|Xue Jun Song   |  |     | 54 |               |  | Chief Executive Officer, Director
|Wing Leung Lai |  |     | 40 |               |  | Chief Financial Officer, Director
|Shu Hua Zhang  |  |     | 46 |               |  | Deputy General Manager, Director 
|Man Fai Leung  |  |     | 45 |               |  | Director                         

Mr. Xue Jun Song is our chairman. He is the founder of the group and has
over 19 years experience in the food business. He is primarily responsible for
business development and overall company management. He is a member of
National Food Industry Entrepreneurs Council and a committee member of China
National Food Industry Association.

Mr. Wing Leung Lai has served as chief financial officer since September
2000. He received his bachelor degree in Banking and Insurance from the
University of North Wales, Bangor, in the United Kingdom, a masters degree in
Business Administration from the University of East Asia in Macau and a masters
degree in Accounting from the University of New South Wales in Australia. He
is a fellow member of the Australian Society of Certified Practising
Accountants and an associate member of the Hong Kong Society of Accountants. From
1990 to 1998, Mr. Lai served as finance director of Albatronics (Far East) Co.,
Ltd. and was the finance director of Ying Wing Holdings Ltd. from 1998 to 1999.

Ms. Shu Hua Zhang has served as deputy general manager for accounting and
administration since September 2000. She graduated from Shandong Central Radio
and TV University with a higher diploma in Business Management. She is an
associate member of The Chinese Institute of Certified Public Accountants. She
served as the assistant director of the Yantai Dongfang Certified Public
Accountants Co. Ltd. from 1988 to 2000.

Mr. Man Fai Leung graduated from Manchester Polytechnic in the U.K.
with a bachelors degree in accounting and finance and a masters degree from the
University of New South Wales in Australia in professional accounting. He is
an associate member of the Hong Kong Society of Accountants and the Australian
Society of Certified Practising Accountants. Since 1995, he is an executive
director of the Lerado Group (Holding) Company Ltd.

For the quarter ended December 31, 2001, certain corporate actions were
conducted by unanimous written consent of the Board of Directors, including the
acquisition of New Dragon Asia Food Limited.

Directors receive no compensation for serving on the Board of Directors,
but are reimbursed for any out-of-pocket expenses, if any, incurred in
attending board meetings.




ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid during fiscal years
ended December 31, 1999, 2000 and 2001 to our Chief Executive
Officer. None of
our executive officers received compensation in excess of $100,000.



11




---



##### Table of Contents



SUMMARY COMPENSATION TABLE

|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  |           |   |         |  |  |   |  |  |  |   | 
|------------------ |  | ---- | ---- | --- |  | ------------------- | - | ---------------------- |  | ------------ | - | -------- |  | ------------ | - | ------- |  | ------------ | - | ---------- |  | --------- | - | ------- |  |  | - |  |  |  | - | 
|                   |  |      |      |     |  | Annual Compensation |   | Long-Term Compensation
|                   |  |      |      |     |  |                     |   |                       
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  | Awards    |   | Payouts |  |  |   | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  |           |   |         |  |  |   | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  | Restricted   |   | Securities |  |           |   |         |  |  |   | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  | Other Annual |   | Stock   |  | Underlying   |   | LTIP       |  | All Other
|Name and Principal |  |      |      |     |  | Salary              |   | Bonus                  |  | Compensation |   | Award(s) |  | Options/SARs |   | Payouts |  | Compensation
|Position           |  | Year |      | ($) |  | ($)                 |   | ($)                    |  | ($)          |   | (#)      |  | ($)          |   | ($)    
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |        
|Xue Jun Song       |  |      | 2001 |     |  |                     |  |                        |  |              |  |          |  |              |  |         |  |              |  |            |  |           |  |         |  |  |  |  |  |  |  | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  |           |   |         |  |  |   |  |  |  |   | 
|Xue Jun Song       |  |      | 2000 |     |  |                     |  |                        |  |              |  |          |  |              |  |         |  |              |  |            |  |           |  |         |  |  |  |  |  |  |  | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  |           |   |         |  |  |   |  |  |  |   | 
|Xue Jun Song       |  |      | 1999 |     |  |                     |  |                        |  |              |  |          |  |              |  |         |  |              |  |            |  |           |  |         |  |  |  |  |  |  |  | 
|                   |  |      |      |     |  |                     |   |                        |  |              |   |          |  |              |   |         |  |              |   |            |  |           |   |         |  |  |   |  |  |  |   | 

We do not maintain, nor have we maintained in the past, any employee
benefit plans. No executive officer has been granted stock option.




ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of our common shares owned by
record, or to our knowledge, beneficially, by each of our Officer or Director
and by each person owning five percent or more of our outstanding shares, as of
December 31, 2001.

Each person listed below has personal and sole beneficial ownership of the
shares of common stock listed with their name:

|                                                 |  |              |            |                      |  |  |    |  
|------------------------------------------------ |  | ------------ | ---------- | -------------------- |  |  | -- | -
|                                                 |  | Total Number |            |                      |  | 
|Name                                             |  | Of Shares    |            | Percentage Ownership
|                                                 |  |              |            |                     
|New Dragon Asia Food Ltd.                        |  |              | 35,183,754 |                      |  |  | 86 | %
|All Directors and Executive Officers (4 persons) |  |              | -0-        |                      |  |  |   |  

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors and persons who own more than 10% of a
registered class of our equity securities to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of common
stock and other of our equity securities, on Forms 3, 4 and 5 respectively.
Executive officers, directors and greater than 10% shareholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file. To the best of our knowledge (based solely upon a review of
the Form 3, 4 and 5 filed), no officer, director or 10% beneficial shareholder
failed to file on a timely basis any reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Parties are considered to be related if one party has the liability,
directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operational decisions.
Parties are also considered to be related if they are subject to common control
or common significant influence. As used in this section the term Group shall
mean New Dragon and each of its subsidiaries.



12




---



##### Table of Contents



The particulars of significant related party transactions are summarized
below:

|                                                       |                                                           |       |     |           |       |           |    |             |     | 
|------------------------------------------------------ | --------------------------------------------------------- | ----- | --- | --------- | ----- | --------- | -- | ----------- | --- | 
|                                                       |                                                           |       |     | 2001      |       | 2000     
|                                                       |                                                           |       |     | (US$'000) |       | (US$'000)
|                                                       |                                                           |       |     |           |       |          
|                                                       |                                                           |       |     |           |       |           |    | (Unaudited)
|Sale of finished goods to:                             |                                                           |       |     |           |       |           |    |            
|                                                       | A joint venture partner, Shandong
Long Feng Group Company |       | $   | 83        |       |           | $  | 1           |    
|Related Parties:                                       |                                                           |       |     |           |       |           |    |            
|                                                       | New Dragon Asia Food (Yueyang) Company Limited(2)         |       |     |          |       |           |    | 29          |    
|                                                       | New Dragon Asia Food (Luoyang) Company Limited(2)         |       |     | 1         |       |           |    | 57          |    
|                                                       | New Dragon Asia Food (Chengau) Company Limited            |       |     |           |       |           |    | 8           |    
|                                                       |                                                           |       |     |           |       |           |    |            
|                                                       |                                                           | $     | 146 |           |       | $         | 95 |            
|                                                       |                                                           |       |     |           |       |           |    |            
|Purchase of raw materials from:                        |                                                           |       |     |           |       |           |    |            
|                                                       | A joint venture partner, Shandong
Long Feng Group Company |       | $   |          |       |           | $  | 264         |    
|Related Parties:                                       |                                                           |       |     |           |       |           |    |            
|Sanhe (Yantai) Food Company Limited                    |                                                           |       | 48  |           |       |           |   |            
|Shandong Long Feng Penglai Flour Company Limited(1)    |                                                           |       | 924 |           |       |           | 4  |            
|Longkou City Long Feng Colour Printing Packing Factory |                                                           |       | 688 |           |       |           |   |            
|Longkou City Long Feng Carton Packing Factory          |                                                           |       | 424 |           |       |           |   |            
|Xinxiang Guo Liang Flour Company Limited               |                                                           |       | 37  |           |       |           |   |            
|                                                       |                                                           |       |     |           |       |           |    |            
|                                                       |                                                           | Total |     | $         | 2,121 |           |    | $           | 268 | 
|                                                       |                                                           |       |     |           |       |           |    |            

|                                                                            |                                          |   |           |    |           |   |             |    | 
|--------------------------------------------------------------------------- | ---------------------------------------- | - | --------- | -- | --------- | - | ----------- | -- | 
|                                                                            |                                          |   | 2001      |    | 2000     
|                                                                            |                                          |   | (US$'000) |    | (US$'000)
|                                                                            |                                          |   |           |    |          
|                                                                            |                                          |   |           |    |           |   | (Unaudited)
|Pre-determined annual fee charged by
joint venture partners:                |                                          |   |           |    |           |   |             |   
|                                                                            | Shandong Long Feng Group Company         |   | $         | 78 |           |   | $           | 79 | 
|                                                                            | Shandong Long Feng Flour Company Limited |   |           | 36 |           |   |             | 36 | 
|                                                                            |                                          |   |           |    |           |   |             |   
|                                                                            |                                          | $ | 114       |    |           | $ | 115         |   
|                                                                            |                                          |   |           |    |           |   |             |   
|Interest income earned from short-term
advances to a joint venture partner: |                                          |   |           |    |           |   |             |   
|                                                                            | Shandong Long Feng Group Company         |   | $         |   |           |   | $           | 56 | 
|                                                                            |                                          |   |           |    |           |   |             |   

13



---



##### Table of Contents



|                                                                                |                                          |  |           |    |           |  |             |    | 
|------------------------------------------------------------------------------- | ---------------------------------------- |  | --------- | -- | --------- |  | ----------- | -- | 
|                                                                                |                                          |  | 2001      |    | 2000     
|                                                                                |                                          |  | (US$'000) |    | (US$'000)
|                                                                                |                                          |  |           |    |          
|                                                                                |                                          |  |           |    |           |  | (Unaudited)
|Interest income earned from short-term advances to
an immediate parent company: |                                          |  |           |    |           |  |             |   
|                                                                                | New Dragon Asia Food Limited             |  | $         | 67 |           |  | $           |   | 
|                                                                                |                                          |  |           |    |           |  |             |   
|Interest expenses paid to a joint venture partner:                              |                                          |  |           |    |           |  |             |   
|                                                                                | Shandong Long Feng Group Company         |  | $         | 18 |           |  | $           |   | 
|                                                                                |                                          |  |           |    |           |  |             |   
|Rental income from joint venture partner:                                       |                                          |  |           |    |           |  |             |   
|                                                                                | Shandong Long Feng Group Company         |  | $         | 64 |           |  | $           |   | 
|                                                                                |                                          |  |           |    |           |  |             |   
|Rental expense charged by a joint venture partner:                              |                                          |  |           |    |           |  |             |   
|                                                                                | Shandong Long Feng Flour Company Limited |  | $         |   |           |  | $           | 19 | 
|                                                                                |                                          |  |           |    |           |  |             |   

Summary of related party balances is as follows:

|                                                       |                              |  |           |       |           |  |             |        | 
|------------------------------------------------------ | ---------------------------- |  | --------- | ----- | --------- |  | ----------- | ------ | 
|                                                       |                              |  | 2001      |       | 2000     
|                                                       |                              |  | (US$'000) |       | (US$'000)
|                                                       |                              |  |           |       |          
|                                                       |                              |  |           |       |           |  | (Unaudited)
|Due to an immediate parent company,
net consisting of: |                              |  |           |       |           |  |             |       
|                                                       | New Dragon Asia Food Limited |  | $         | 7,044 |           |  | $           | 16,800 | 
|                                                       |                              |  |           |       |           |  |             |       

The net amount due to New Dragon Asia Food Limited is unsecured
and non-interest bearing, except for an amount due from that Company
of approximately $1,735,000 which bears interest at 6% per annum.

|                                             |                                          |                              |   |           |       |           |   |             |       | 
|-------------------------------------------- | ---------------------------------------- | ---------------------------- | - | --------- | ----- | --------- | - | ----------- | ----- | 
|                                             |                                          |                              |   | 2001      |       | 2000     
|                                             |                                          |                              |   | (US$'000) |       | (US$'000)
|                                             |                                          |                              |   |           |       |          
|                                             |                                          |                              |   |           |       |           |   | (Unaudited)
|Due to joint venture partners consisting of: |                                          |                              |   |           |       |           |   |            
|                                             | Shandong Long Feng Group Company         |                              | $ | 3,016     |       |           | $ | 1,198       |      
|                                             | Shandong Long Feng Flour Company Limited |                              |   | 1,980     |       |           |   |            |      
|                                             |                                          |                              |   |           |       |           |   |            
|                                             |                                          | New Dragon Asia Food Limited |   | $         | 4,996 |           |   | $           | 1,198 | 
|                                             |                                          |                              |   |           |       |           |   |            

The amounts due to joint venture partners are unsecured and
non-interest bearing, except for an amount due to Shandong Long Feng
Group Company of US $280,723 which bears interest at 6.435% per
annum.

|                                                  |                                                         |  |           |    |           |  |             |   | 
|------------------------------------------------- | ------------------------------------------------------- |  | --------- | -- | --------- |  | ----------- | - | 
|                                                  |                                                         |  | 2001      |    | 2000     
|                                                  |                                                         |  | (US$'000) |    | (US$'000)
|                                                  |                                                         |  |           |    |          
|                                                  |                                                         |  |           |    |           |  | (Unaudited)
|Due from related companies consisting of:         |                                                         |  |           |    |           |  |             |  
|                                                  | Sanhe Shi New Dragon Food Process Company Limited       |  | $         | 19 |           |  | $           |  | 
|                                                  | Shandong City Long Feng Soybean Food Company Limited(1) |  |           | 22 |           |  |             |  | 
|New Dragon Asia Food (Yueyang) Company Limited(2) |                                                         |  | 329       |    |           |  |            |  

14



---



##### Table of Contents



|                                                  |  |   |           |  |           |   |             |  | 
|------------------------------------------------- |  | - | --------- |  | --------- | - | ----------- |  | 
|                                                  |  |   | 2001      |  | 2000     
|                                                  |  |   | (US$'000) |  | (US$'000)
|                                                  |  |   |           |  |          
|                                                  |  |   |           |  |           |   | (Unaudited)
|New Dragon Asia Food (Luoyang) Company Limited(2) |  |   | 783       |  |           |   |            | 
|New Dragon Asia Food (Chengdu) Company Limited(2) |  |   |           |  |           |   |            | 
|                                                  |  | $ | 1,704     |  |           | $ |            | 
|                                                  |  |   |           |  |           |   |             | 

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

|                                        |                                                        |   |           |       |           |   |             |   | 
|--------------------------------------- | ------------------------------------------------------ | - | --------- | ----- | --------- | - | ----------- | - | 
|                                        |                                                        |   | 2001      |       | 2000     
|                                        |                                                        |   | (US$'000) |       | (US$'000)
|                                        |                                                        |   |           |       |          
|                                        |                                                        |   |           |       |           |   | (Unaudited)
|Due to related companies consisting of: |                                                        |   |           |       |           |   |             |  
|                                        | Dalian Mei Long Food Company Limited                   |   | $         | 1,052 |           |   | $           |  | 
|                                        | Longkou City Long Feng Colour
Printing Packing Factory |   |           | 123   |           |   |             |  | 
|                                        | Longkou City Long Feng Carton
Packing Factory          |   |           | 30    |           |   |             |  | 
|                                        | Shandong Long Feng Penglai
Flour Company Limited(1)    |   |           | 722   |           |   |             |  | 
|                                        | Long Feng Food Company Limited(1)                      |   |           | 169   |           |   |             |  | 
|                                        | Yantai Mei Long Oil and Food
Company Limited(1)        |   |           | 1,468 |           |   |             |  | 
|                                        | Sanhe (Yantai) Food Company
Limited                    |   |           | 220   |           |   |             |  | 
|                                        |                                                        |   |           |       |           |   |             |  
|                                        |                                                        | $ | 3,784     |       |           | $ |            |  
|                                        |                                                        |   |           |       |           |   |             |  

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

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

| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | (1) Mr. Song Xue Jun, a director of each of the Group companies, has
beneficial interest in these companies.

| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | (2) These companies are wholly owned subsidiaries of NDAFL, the immediate
parent company.

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

The Group did not properly report certain of its tax obligations in
Mainland China during the years ended December 25, 2001 and 2000. As a
consequence, the Group may be subject to additional surcharge or penalties as a
result of the unpaid taxes in accordance with tax laws in the PRC, of which the
amount cannot be reasonably estimated and is not recorded in the financial
statements as of December 25, 2001 and 2000. In addition, the holding
companies of the Group, namely New Dragon International Investment Limited and
Long Feng Food (Overseas) Company Limited, have agreed to indemnify the Group
against any liabilities which may arise as a result of the above surcharges or
penalties which are not recorded in the financial statements of the Group.

15



---



##### Table of Contents






ITEM 13. EXHIBITS AND REPORTS ON 8K.



|(a) |  | (1) The following is a
list of exhibits filed as a part of this Annual Report
on Form 10-KSB. Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|              |  |                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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           |  | Revised Articles of Incorporation*                                                                                                                              
|3.2           |  | Bylaws, incorporated herein by reference from our filing on the
Definitive Proxy 14/A filed on October 11, 2001.                                                



---

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



|(b) |  | There was a report filed on Form 8-K on December 27, 2001, regarding the
acquisition from New Dragon Asia Food Limited.
|--- |  | -----------------------------------------------------------------------------------------------------------------------



16




---



##### Table of Contents






SIGNATURES

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

|                       |  |                     |  |                                                            
|---------------------- |  | ------------------- |  | -----------------------------------------------------------
|                       |  |                     |  | NEW DRAGON ASIA CORP.                                      
|                      
|Dated:  April 15, 2002 |  | By /s/ Xue Jun
Song
|                       |  |                     |  | Name: Xue Jun Song
Title: Chief Executive Officer, Director

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

|                      |  |                                                                                     
|--------------------- |  | ------------------------------------------------------------------------------------
|Dated: April 15, 2002 |  | By /s/ Xue Jun Song

Name: Xue Jun Song
Title: Chief Executive Officer, Director    
|                     
|Dated: April 15, 2002 |  | By /s/ Shu Hua Zhang

Name: Shu Hua Zhang
Title: Deputy General Manager, Director   
|                     
|Dated: April 15, 2002 |  | By /s/ Wing Leung Lai

Name: Wing Leung Lai
Title: Chief Financial Officer, Director
|                     
|Dated: April 15, 2002 |  | By /s/ Man Fai Leung

Name: Man Fai Leung
Title: Director                           



17



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES
 
FINANCIAL STATEMENTS
 
DECEMBER 25, 2001 AND 2000 (UNAUDITED)



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES
 
FINANCIAL STATEMENTS
 
DECEMBER 25, 2001 AND 2000 (UNAUDITED)
 
 
 CONTENTS

|                                                               |  |      |        | 
|-------------------------------------------------------------- |  | ---- | ------ | 
|                                                               |  | Page
|                                                               |  |     
|Independent Auditors Report                                   |  |      | 1      | 
|                                                              
|Consolidated Balance Sheets                                    |  |      | 2      | 
|                                                              
|Consolidated Statements of Operations and Comprehensive Income |  |      | 3      | 
|                                                              
|Consolidated Statements of Changes in Stockholders Equity     |  |      | 4      | 
|                                                              
|Consolidated Statements of Cash Flows                          |  |      | 5 - 6  | 
|                                                              
|Notes to Financial Statements                                  |  |      | 7 - 26 | 



---



##### Table of Contents



(SPEAR, SAFER, HARMON & CO. LETTERHEAD)

INDEPENDENT AUDITORS REPORT

To the Stockholders
New Dragon Asia Corp. and Subsidiaries

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

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

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

-s- SPEAR, SAFER, HARMON & CO.

Miami, Florida
April 12, 2002



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

December 25, 2001 and 2000 (Unaudited)

|                                       |                                             |                                      |                            |           |      |        |        |       |             |        | 
|-------------------------------------- | ------------------------------------------- | ------------------------------------ | -------------------------- | --------- | ---- | ------ | ------ | ----- | ----------- | ------ | 
|                                       |                                             |                                      |                            |           | 2001 |        | 2000  
|A S S E T S                            |                                             | (US$'000)                            |                            | (US$'000)
|                                       |                                             |                                      |                            |          
|                                       |                                             |                                      |                            |           |      |        |        |       | (Unaudited)
|Current Assets:                        |                                             |                                      |                            |           |      |        |        |      
|                                       | Cash and bank deposits                      |                                      | $                          | 1,293     |      |        | $      | 1,015 |            
|                                       | Accounts receivable                         |                                      |                            | 5,110     |      |        |        | 2,737 |            
|                                       | Other receivables, deposits and prepayments |                                      |                            | 1,048     |      |        |        | 746   |            
|                                       | Inventories                                 |                                      |                            | 6,264     |      |        |        | 5,982 |            
|                                       | Due from related companies                  |                                      |                            | 1,704     |      |        |        |      |            
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             |                                      | Total Current Assets       |           |      | 15,419 |        |       |             | 10,480 | 
|Property, machinery and equipment, net |                                             |                                      | 23,728                     |           |      |        | 22,333 |      
|Investment                             |                                             |                                      | 72                         |           |      |        |       |      
|Prepaid rental expense                 |                                             |                                      |                           |           |      |        | 466    |      
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             | $                                    | 39,219                     |           |      | $      | 33,279 |      
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                      
|                                       |                                             | LIABILITIES AND STOCKHOLDERS EQUITY
|                                      
|Current Liabilities:                   |                                             |                                      |                            |           |      |        |        |      
|                                       | Short-term borrowings                       |                                      | $                          | 3,554     |      |        | $      | 3,587 |            
|                                       | Accounts payable                            |                                      |                            | 3,440     |      |        |        | 4,938 |            
|                                       | Other payables and accruals                 |                                      |                            | 738       |      |        |        | 429   |            
|                                       | Taxes payable                               |                                      |                            | 2,130     |      |        |        | 1,783 |            
|                                       | Due to related companies                    |                                      |                            | 3,784     |      |        |        |      |            
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             |                                      | Total Current Liabilities  |           |      | 13,646 |        |       |             | 10,737 | 
|Due to an immediate parent company     |                                             |                                      | 7,044                      |           |      |        | 16,800 |      
|Due to joint venture partners          |                                             |                                      | 4,996                      |           |      |        | 1,198  |      
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             |                                      | Total Liabilities          |           |      | 25,686 |        |       |             | 28,735 | 
|                                       |                                             |                                      |                            |           |      |        |        |      
|Stockholders Equity:                  |                                             |                                      |                            |           |      |        |        |      
|                                       | Common stock                                |                                      |                            | 40        |      |        |        |      |            
|                                       | Additional Paid-In Capital                  |                                      |                            | 8,096     |      |        |        |      |            
|                                       | Retained earnings                           |                                      |                            | 5,397     |      |        |        | 4,544 |            
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             |                                      | Total Stockholders Equity |           |      | 13,533 |        |       |             | 4,544  | 
|                                       |                                             |                                      |                            |           |      |        |        |      
|                                       |                                             | $                                    | 39,219                     |           |      | $      | 33,279 |      
|                                       |                                             |                                      |                            |           |      |        |        |      

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



2



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

Years Ended December 25, 2001 and 2000 (Unaudited)

|                                                               |                                       |   |           |        |           |   |             |      |  
|-------------------------------------------------------------- | ------------------------------------- | - | --------- | ------ | --------- | - | ----------- | ---- | -
|                                                               |                                       |   | 2001      |        | 2000     
|                                                               |                                       |   | (US$'000) |        | (US$'000)
|                                                               |                                       |   |           |        |          
|                                                               |                                       |   |           |        |           |   | (Unaudited)
|Net Sales                                                      |                                       | $ | 30,385    |        |           | $ | 31,532      |     
|Cost of Goods Sold                                             |                                       |   | (24,390   | )      |           |   | (25,426     | )   
|                                                               |                                       |   |           |        |           |   |             |     
|Gross Profit                                                   |                                       |   | 5,995     |        |           |   | 6,106       |     
|Selling and Distribution Expenses                              |                                       |   | (613      | )      |           |   | (1,520      | )   
|General and Administrative Expenses                            |                                       |   | (1477     | )      |           |   | (973        | )   
|                                                               |                                       |   |           |        |           |   |             |     
|Income from Operations                                         |                                       |   | 3,905     |        |           |   | 3,613       |     
|                                                              
|Other Income and Expenses:                                     |                                       |   |           |        |           |   |             |     
|                                                               | Interest Expense                      |   |           | (200   | )         |   |             | 161  |  
|                                                               | Interest Income                       |   |           | 88     |           |   |             |     |  
|                                                               | Other Income                          |   |           | 525    |           |   |             | (225 | )
|                                                               |                                       |   |           |        |           |   |             |     
|Income
Before Non-recurring items and Provision for income tax |                                       |   | 4,318     |        |           |   | 3,549       |     
|                                                               | Non-recurring
costs of share exchange |   |           | (3,134 | )         |   |             |     |  
|                                                               |                                       |   |           |        |           |   |             |     
|Income Before Provision for Income Tax                         |                                       |   | 1,184     |        |           |   | 3,549       |     
|Provision for Taxation                                         |                                       |   | (318      | )      |           |   |            |     
|                                                               |                                       |   |           |        |           |   |             |     
|Net Income and Comprehensive Income                            |                                       | $ | 866       |        |           | $ | 3,549       |     
|                                                               |                                       |   |           |        |           |   |             |     
|Basic Earnings per Common Share                                |                                       | $ | .02       |        |           |   |             |     
|                                                               |                                       |   |           |        |           |   |             |     

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



3



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Consolidated Statement of Stockholders Equity

Years Ended December 25, 2001 and 2000 (Unaudited)

|                                         |                                              |                                                   |    |           |    |            |       |           |       |               |       |       |     |   |        |  |       | 
|---------------------------------------- | -------------------------------------------- | ------------------------------------------------- | -- | --------- | -- | ---------- | ----- | --------- | ----- | ------------- | ----- | ----- | --- | - | ------ |  | ----- | 
|                                         |                                              |                                                   |    | Class A   |    | Additional |       |           |       |               |       | Total
|                                         |                                              |                                                   |    | Common    |    | Paid-In    |       | Retained  |       | Stockholders'
|                                         |                                              |                                                   |    | Stock     |    | Capital    |       | Earnings  |       | Equity       
|                                         |                                              |                                                   |    | (US$000) |    | (US$000)  |       | (US$000) |       | (US$000)    
|                                         |                                              |                                                   |    |           |    |            |       |           |       |              
|Balance at December 25, 1999
(unaudited) |                                              | $                                                 |   |           |    | $          |      |           |       | $             | 995   |       |     | $ | 995    | 
|Net Income (unaudited)                   |                                              |                                                   |   |           |    |            |      |           |       |               | 3,549 |       |     |   | 3,549  | 
|                                         |                                              |                                                   |    |           |    |            |       |           |       |               |       |       |     |   |        | 
|Balance at December 25, 2000
(unaudited) |                                              |                                                   |   |           |    |            |      |           |       |               | 4,544 |       |     |   | 4,544  | 
|Conversion
of Bio Aqua shares            |                                              |                                                   | 2  |           |    |            |      |           |       |               |      |       |     |   | 2      | 
|                                         | Issuance of common stock
in connection with: |                                                   |    |           |    |            |       |           |       |               |       |       |     |   |        |  |      
|                                         |                                              | Exchange agreement                                |    |           | 37 |            |       |           | 4,963 |               |       |       | (13 | ) |        |  | 4,987 | 
|                                         |                                              | Consulting, investment banking
and legal services |    |           | 1  |            |       |           | 3,133 |               |       |       |    |   |        |  | 3,134 | 
|Net Income                               |                                              |                                                   |   |           |    |            |      |           |       |               | 866   |       |     |   | 866    | 
|                                         |                                              |                                                   |    |           |    |            |       |           |       |               |       |       |     |   |        | 
|Balance at December 25, 2001             |                                              | $                                                 | 40 |           |    | $          | 8,096 |           |       | $             | 5,397 |       |     | $ | 13,533 | 
|                                         |                                              |                                                   |    |           |    |            |       |           |       |               |       |       |     |   |        | 

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



4



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended December 25, 2001 and 2000 (Unaudited)

|                                      |                                                                                   |                                                     |                                             |        |           |        |           |       |             |        |  
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------- | ------ | --------- | ------ | --------- | ----- | ----------- | ------ | -
|                                      |                                                                                   |                                                     |                                             |        | 2001      |        | 2000     
|                                      |                                                                                   |                                                     |                                             |        | (US$'000) |        | (US$'000)
|                                      |                                                                                   |                                                     |                                             |        |           |        |          
|                                      |                                                                                   |                                                     |                                             |        |           |        |           |       | (Unaudited)
|Cash Flows from Operating Activities: |                                                                                   |                                                     |                                             |        |           |        |           |      
|                                      | Net income                                                                        |                                                     | $                                           | 1,184  |           |        | $         | 3,549 |            
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                     |                                             |        |           |        |           |       |            
|                                      |                                                                                   | Stock issued in connection with investment services |                                             |        | 3,134     |        |           |       |            |       
|                                      |                                                                                   | Amortization of land use rights                     |                                             |        | 169       |        |           |       | 92          |       
|                                      |                                                                                   | Loss on disposal of machinery and equipment         |                                             |        | 4         |        |           |       | 605         |       
|                                      |                                                                                   | Depreciation of property, machinery and equipment   |                                             |        | 1,095     |        |           |       | 1,060       |       
|                                      |                                                                                   | (Increase) decrease in operating assets:            |                                             |        |           |        |           |       |             |       
|                                      |                                                                                   |                                                     | Accounts receivable, net                    |        |           | (2,380 | )         |       |             | (1,289 | )
|                                      |                                                                                   |                                                     | Other receivables, deposits and prepayments |        |           | (97    | )         |       |             | (74    | )
|                                      |                                                                                   |                                                     | Inventories                                 |        |           | (297   | )         |       |             | (560   | )
|                                      |                                                                                   |                                                     | Prepaid rental expense                      |        |           | 465    |           |       |             | 20     |  
|                                      |                                                                                   |                                                     | Due from related companies                  |        |           | (1,704 | )         |       |             |       |  
|                                      |                                                                                   | Increase (decrease) in operating liabilities:       |                                             |        |           |        |           |       |             |       
|                                      |                                                                                   |                                                     | Accounts payable                            |        |           | (1,485 | )         |       |             | 1,257  |  
|                                      |                                                                                   |                                                     | Other payables and accruals                 |        |           | 310    |           |       |             | 80     |  
|                                      |                                                                                   |                                                     | Tax payables                                |        |           | 32     |           |       |             | 746    |  
|                                      |                                                                                   |                                                     | Due to related companies                    |        |           | 3,784  |           |       |             |       |  
|                                      |                                                                                   |                                                     |                                             |        |           |        |           |      
|                                      |                                                                                   |                                                     | 4,214                                       |        |           |        | 5,486     |      
|                                      |                                                                                   |                                                     |                                             |        |           |        |           |      
|Cash Flows from Investing Activities: |                                                                                   |                                                     |                                             |        |           |        |           |      
|                                      | Acquisition of investment                                                         |                                                     |                                             | (72    | )         |        |           |      |            
|                                      | Sales proceeds of disposal of property,
machinery and equipment                   |                                                     |                                             | 1      |           |        |           |      |            
|                                      | Acquisition of property, machinery and equipment                                  |                                                     |                                             | (2,718 | )         |        |           | (588  | )          
|                                      | Deposits for purchase of property and equipment                                   |                                                     |                                             | (130   | )         |        |           | 82    |            
|                                      | Prepayments for construction in progress                                          |                                                     |                                             | (77    | )         |        |           | (7    | )          
|                                      |                                                                                   |                                                     |                                             |        |           |        |           |      
|Net Cash Used in Investing Activities |                                                                                   |                                                     | (2,996                                      | )      |           |        | (513      | )    
|                                      |                                                                                   |                                                     |                                             |        |           |        |           |      

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



5



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES
 
Consolidated Statements of Cash Flows (Continued)
 
Years Ended December 25, 2001 and 2000 (Unaudited)

|                                                   |                                                                |   |           |        |           |   |             |         |  
|-------------------------------------------------- | -------------------------------------------------------------- | - | --------- | ------ | --------- | - | ----------- | ------- | -
|                                                   |                                                                |   | 2001      |        | 2000     
|                                                   |                                                                |   | (US$'000) |        | (US$'000)
|                                                   |                                                                |   |           |        |          
|                                                   |                                                                |   |           |        |           |   | (Unaudited)
|Cash Flows from Financing Activities:              |                                                                |   |           |        |           |   |             |        
|                                                   | Issuance of common stock                                       |   | $         | 5,000  |           |   | $           |        |  
|                                                   | New short-term borrowings                                      |   |           |       |           |   |             | 3,200   |  
|                                                   | Repayment of short-term borrowings                             |   |           | (24    | )         |   |             | (2,151  | )
|                                                   | (Decrease) increase in due to an immediate
parent company      |   |           | (9,715 | )         |   |             | 7,584   |  
|                                                   | Increase (decrease) in due to joint venture
Partners           |   |           | 3,799  |           |   |             | (14,253 | )
|                                                   |                                                                |   |           |        |           |   |             |        
|Net Cash Used in Financing Activities              |                                                                |   | (940      | )      |           |   | (5,620      | )      
|                                                   |                                                                |   |           |        |           |   |             |        
|Net Increase (Decrease) in Cash and Bank Deposits  |                                                                |   | 278       |        |           |   | (647        | )      
|Cash and Bank Deposits  Beginning of Year         |                                                                |   | 1,015     |        |           |   | 1,662       |        
|                                                   |                                                                |   |           |        |           |   |             |        
|Cash and Bank Deposits  End of Year               |                                                                | $ | 1,293     |        |           | $ | 1,015       |        
|                                                   |                                                                |   |           |        |           |   |             |        
|Supplemental
disclosures of cash flow information: |                                                                |   |           |        |           |   |             |        
|Cash
paid during the year for:                     |                                                                |   |           |        |           |   |             |        
|                                                   | Interest
paid                                                  |   | $         | 125    |           |   | $           | 225     |  
|                                                   | Income
taxes paid                                              |   |           | 132    |           |   |             |        |  
|Non
cash investing and financing activities:       |                                                                |   |           |        |           |   |             |        
|                                                   | Conversion
of outstanding Bio Aqua shares                      |   |           | 2      |           |   |             |        |  
|                                                   | Issuance
of common stock in connection with exchange agreement |   |           | 5,000  |           |   |             |        |  
|                                                   | Stock
issued in connection with investment services            |   |           | 3,134  |           |   |             |        |  

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



6



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 25, 2001 and 2000 (Unaudited)

NOTE 1  ORGANIZATION AND NATURE OF OPERATIONS

New Dragon Asia Corporation (formerly Bio-Aqua Systems, Inc.) and its
subsidiaries (the Group or NDAC), a United States corporation
incorporated in the State of Florida, is principally engaged in the
manufacturing, marketing and distribution of instant noodles and flour
in the Peoples Republic of China (PRC). NDAC has its principal
offices in Hong Kong. The group of NDAC is composed of four limited
liability companies, incorporated under the laws of the British Virgin
Islands (BVI).

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

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

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

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

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



|1) |  | Change the name of the Company to New Dragon Asia Corp.                                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | To increase its authorized capital stock to
107,000,000 shares, increasing the authorized Class A common
stock to 100,000 shares.                                                                                                                                                                                                                                                                     
|  
|3) |  | Max Rutman (through his ownership interest in Flagship Import Export LLC) and Atik S.A., owners of all 1,700,000 shares of the Class
B common stock, have agreed to convert their Class B shares to Class A
common stock. Immediately after the share exchange, Bio-Aqua will
carry on New Dragon Asia Food Groups business, under the leadership
of New Dragon Asia Food Groups current management.

7



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 1  ORGANIZATION AND NATURE OF OPERATIONS (Continued)

New Dragon Asia Food Limited and its subsidiaries (the Group of
NDAC) a United States corporation incorporated in the State of
Florida, is principally engaged in the manufacturing, marketing and
distribution of instant noodles and flour in the Peoples Republic of
China (PRC).

In connection with the terms and provisions of the amended and
restated exchange agreement, Bio-Aqua issued 1,335,912 shares of
restricted common stock to investment advisors and attorneys in
connection with services rendered to effectuate the exchange of shares. At the date of issuance of the shares, the AMEX market
quotation of the stock was $3.00 per share. NDAC has included these
costs approximating $3,134,000 in other expenses in the accompanying
statements of consolidated operations and comprehensive income,
computed utilizing a 20% discount of the above AMEX market quotation
due to the restricted nature of the stock.

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

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

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

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

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

8



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 1  ORGANIZATION AND NATURE OF OPERATIONS (Continued)

Details of the companies comprising the Group are as follows:

|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                    |  | 
|---------------------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------ |  | --------------- |  | ------------------------------------------------------------------ |  | 
|                                                                 |  |                                                       |  |                          |  | Percentage of   |  |                                                                   
|                                                                 |  | Domicile and                                          |  |                          |  | Equity Interest |  |                                                                   
|                                                                 |  | Date of                                               |  | Paid-Up                  |  | Attributable to |  | Principle                                                         
|Name                                                             |  | Incorporation                                         |  | Capital                  |  | the Group       |  | Activities                                                        
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|Mix Creation Limited(MC)(a)                                    |  | The British Virgin Islands
          November 7, 1997 |  | US$1                     |  | 100%            |  | Investment holding                                                
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|New Dragon Asia Flour(Yantai) Company Limited
        (NDAFLY) |  | The PRC
          August 13, 1999                     |  | RMB
          28,000,000 |  | 90%(b)          |  | Manufacture, marketing and
        distribution of flour          
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|Rich Delta Limited(RD)(a)                                      |  | The British Virgin Islands
          October 28, 1998 |  | US$1                     |  | 100%            |  | Investment holding                                                
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|New Dragon Asia Food(Yantai) Company Limited
        (NDAFY)   |  | The PRC
          December 24, 1998                   |  | RMB
          17,462,000 |  | 90%(c)          |  | Manufacture, marketing and
        distribution of instant noodles
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|Noble Point Limited(NP)(a)                                     |  | The British Virgin Islands
          October 29, 1998 |  | US$1                     |  | 100%            |  | Investment holding                                                
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|New Dragon Asia Food(Dalian) Company Limited
        (NDAFD)   |  | The PRC
          December 25, 1998                   |  | RMB
          17,430,000 |  | 90%(c)          |  | Manufacture, marketing and
        distribution of instant noodles
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|Keen General Limited(KG)(a)                                    |  | The British Virgin Islands
          July 20, 1998    |  | US$1                     |  | 100%            |  | Investment holding                                                
|                                                                 |  |                                                       |  |                          |  |                 |  |                                                                   
|Sanhe New Dragon AsiaFood Company Limited
        (SNDAF)      |  | The PRC
          December 25, 1998                   |  | RMB
          51,191,432 |  | 80%(c)          |  | Manufacture, marketing and
        distribution of instant noodles



|(a) |  | MC, RD, NP and KG are wholly owned by New Dragon Asia
Food Limited (NDAFL) a company incorporated in the British
Virgin Islands. NDAFL is 51% owned by New Dragon International
Investment Limited and 49% owned by Long Feng Food (Overseas)
Company Limited, both incorporated in the British Virgin Islands,
through a number of intermediate holding companies.                                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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 is not responsible for any profit or loss to NDAFLY
effective from June 26, 1999. In view of the profit sharing
arrangement NDAFLY is regarded as 100% owned by the Group.

9



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 1  ORGANIZATION AND NATURE OF OPERATIONS (Continued)



|(c) |  | NDAFY, NDAFD and SNDAF are contractual joint ventures
established in the PRC to be operated for 50 years until December
24, 2048. In March 1999, RD and NP contributed 90% of the
registered capital to NDAFY and NDAFD, respectively, while KG
contributed 80% of the registered capital to SNDAF. Under the
joint venture agreements dated November 28, 1998 and the
supplemental agreement dated December 26, 1998, the PRC joint
venture partner is entitled to receive a pre-determined annual
fee and is not responsible for any profit or loss of NDAFY, NDAFD
and SNDAF effective from December 26, 1998. In view of the
profit sharing arrangements, NDAFY, NDAFD and SNDAF are regarded
as 100% owned by the Group.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2  BASIS OF PRESENTATION

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

The 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 report period. Actual results could differ from those estimates.
U.S. GAAP differs from that used in the statutory financial statements
of the major operating subsidiaries of the Group, which were prepared
in accordance with the relevant accounting principles and financial
reporting regulations applicable to joint venture enterprises as
established by the Ministry of Finance of the PRC. Certain accounting
principles stipulated under U.S. GAAP are not applicable in the PRC.

NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Revenue Recognition  The Group recognizes sales in accordance with
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements.

Sales represent the invoiced value of goods, net of value added tax
(VAT), supplied to customers, and are recognized upon delivery of
goods and passage of title.

10



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Sales made in the PRC are subject to VAT at rates ranging from 13% to
17% (output VAT). Such output VAT is payable after offsetting VAT
paid by the Group on purchases (input VAT).

Advertising  The costs of advertising are expensed in the year in
which the advertising first takes place. Total advertising expenses
were approximately $5,000 for the year ended December 25, 2001.

Cash Equivalents  Highly liquid investments with maturity of three
months or less at the time of acquisition are considered cash
equivalents.

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

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

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

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

11



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment  The Group accounts for property, machinery and equipment
and construction-in-progress in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed Of
which requires impairment loss to be recognized on the long-lived
assets when the sum of expected future cash flows (undiscounted and
without interest charges) resulting from the use of the asset and its
eventual disposition is less than the carrying amount of the asset.
Otherwise, an impairment loss is not recognized. Measurement of the
impairment loss for long-lived assets is based on the fair value of
the asset.

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

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

Foreign Currency Translation  The functional currency of the Group is
Renminbi (RMB). Transactions denominated in foreign currencies are
translated into RMB at the unified exchange rates quoted by the
Peoples Bank of China prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated into RMB using the applicable unified exchange rates
prevailing at the balance sheet dates. The resulting exchange
differences are included in the determination of income.

Translations of amounts from Renminbi (RMB) into United States
dollars (US$) were at US $1.00 = RMB 8.3 for the years ended
December 25, 2001 and 2000. No representation is made that the
Renminbi amounts could have been, or could be, converted into United
States dollars at that rate or at any other rate.

Earnings Per Share  Basic earnings per common rate (EPS) is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. As of December 25, 2001,
the diluted share base excludes incremental shares relating to stock
options and warrants since their effect was anti-dilutive. The
weighted-average number of common shares outstanding for computing
basic EPS was 40,911,242.

12



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income  The Group has adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income which
requires the Group to report all changes in equity during a period,
except for those resulting from investment by owners and distribution
to owners, in the financial statements for the period in which they
are recognized. The Group has disclosed comprehensive income, which
encompasses net income, in the statements of operations and
comprehensive income.

Financial Instruments  The Group accounts for financial instruments
under the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires that all
derivative financial instruments be recognized in the financial
statements and maintained at fair value regardless of the purpose or
intent for holding them. Changes in fair value of derivative
financial instruments are either recognized periodically in income or
stockholders equity (as a component of comprehensive income),
depending on whether the derivative is being used to hedge changes in
fair value or cash flows. The adoption of SFAS 133 did not have a
material impact on the Groups financial position or its results of
operations because the Group does not currently hold any derivative
financial instruments and does not engage in hedging activities.

The following method and assumption was used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.

Cash and bank deposits and short-term bank loans are stated at their
carrying amounts which approximates fair value due to the short
maturity of those instruments.

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

In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 supersedes SFAS No. 121. SFAS No. 144
primarily addresses significant issues relating to the implementation
of SFAS No. 121 and develops a single accounting model for long-lived
assets to be disposed of, whether primarily held, used or newly
acquired. The provisions of SFAS No. 144 will be effective for fiscal
years beginning after December 15, 2001. The Group will adopt this
standard January 1, 2002.

13



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 4  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 25,:

|                                |  |           |       |           |  |             |       |  
|------------------------------- |  | --------- | ----- | --------- |  | ----------- | ----- | -
|                                |  | 2001      |       | 2000     
|                                |  | (US$'000) |       | (US$'000)
|                                |  |           |       |          
|                                |  |           |       |           |  | (Unaudited)
|Total receivables               |  | $         | 5,391 |           |  | $           | 2,931 |  
|Allowance for doubtful accounts |  |           | (281  | )         |  |             | (194  | )
|                                |  |           |       |           |  |             |       |  
|                                |  | $         | 5,110 |           |  | $           | 2,737 |  
|                                |  |           |       |           |  |             |       |  

NOTE 5  OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

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

|                                         |                            |   |           |     |           |   |             |     | 
|---------------------------------------- | -------------------------- | - | --------- | --- | --------- | - | ----------- | --- | 
|                                         |                            |   | 2001      |     | 2000     
|                                         |                            |   | (US$'000) |     | (US$'000)
|                                         |                            |   |           |     |          
|                                         |                            |   |           |     |           |   | (Unaudited)
|Vendor deposits for the purchase of:     |                            |   |           |     |           |   |             |    
|                                         | Raw materials              |   | $         | 495 |           |   | $           | 67  | 
|                                         | Machinery and equipment    |   |           | 137 |           |   |             | 7   | 
|Prepayments for construction work        |                            |   | 202       |     |           |   | 125         |    
|Prepaid rental expenses, current portion |                            |   |          |     |           |   | 20          |    
|Others                                   |                            |   | 57        |     |           |   |            |    
|Advances to:                             |                            |   |           |     |           |   |             |    
|                                         | Staff(a)                   |   |           | 148 |           |   |             | 82  | 
|                                         | Unrelated third parties(a) |   |           | 9   |           |   |             | 445 | 
|                                         |                            |   |           |     |           |   |             |    
|                                         |                            | $ | 1,048     |     |           | $ | 746         |    
|                                         |                            |   |           |     |           |   |             |    



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

14



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 6  INVENTORIES

Inventories consisted of the following at December 25,:

|               |  |           |       |           |  |             |       | 
|-------------- |  | --------- | ----- | --------- |  | ----------- | ----- | 
|               |  | 2001      |       | 2000     
|               |  | (US$'000) |       | (US$'000)
|               |  |           |       |          
|               |  |           |       |           |  | (Unaudited)
|Raw materials  |  | $         | 3,730 |           |  | $           | 3,308 | 
|Finished goods |  |           | 2,534 |           |  |             | 2,674 | 
|               |  |           |       |           |  |             |       | 
|               |  | $         | 6,264 |           |  | $           | 5,982 | 
|               |  |           |       |           |  |             |       | 

NOTE 7  PROPERTY, MACHINERY AND EQUIPMENT, AND CONSTRUCTION-IN-PROGRESS

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

|                                          |  |           |        |           |  |             |        |  
|----------------------------------------- |  | --------- | ------ | --------- |  | ----------- | ------ | -
|                                          |  | 2001      |        | 2000     
|                                          |  | (US$'000) |        | (US$'000)
|                                          |  |           |        |          
|                                          |  |           |        |           |  | (Unaudited)
|Land use rights(a)                        |  | $         | 4,575  |           |  | $           | 4,039  |  
|Buildings                                 |  |           | 9,055  |           |  |             | 8,696  |  
|Machinery and equipment                   |  |           | 12,462 |           |  |             | 10,836 |  
|Furniture and office equipment            |  |           | 144    |           |  |             | 138    |  
|Motor vehicles                            |  |           | 525    |           |  |             | 447    |  
|Construction-in-progress                  |  |           | 212    |           |  |             | 164    |  
|                                          |  |           |        |           |  |             |        |  
|                                          |  |           | 26,973 |           |  |             | 24,320 |  
|Accumulated depreciation and
amortization |  |           | (3,245 | )         |  |             | (1,987 | )
|                                          |  |           |        |           |  |             |        |  
|Property, plant and equipment, net        |  | $         | 23,728 |           |  | $           | 22,333 |  
|                                          |  |           |        |           |  |             |        |  



|(a) |  | Land and buildings are located in the PRC, where
private ownership of land is not allowed. Rather, entities
acquire the rights to use land for a designated term. As of
December 25, 2001, the Group possessed rights to use five parcels
of land for periods ranging from 27 to 50 years; through 2025 to
2047.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Depreciation expense was approximately $1,095,000
as of December 25, 2001.

15



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 8  SHORT-TERM BORROWINGS

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

|                    |  |           |       |           |  |             |       | 
|------------------- |  | --------- | ----- | --------- |  | ----------- | ----- | 
|                    |  | 2001      |       | 2000     
|                    |  | (US$'000) |       | (US$'000)
|                    |  |           |       |          
|                    |  |           |       |           |  | (Unaudited)
|Bank loans(a)       |  | $         | 3,554 |           |  | $           | 3,419 | 
|Other borrowings(b) |  |           |      |           |  |             | 168   | 
|                    |  |           |       |           |  |             |       | 
|                    |  | $         | 3,554 |           |  | $           | 3,587 | 
|                    |  |           |       |           |  |             |       | 



|(a) |  | Bank loans are secured by corporate guarantees provided
by a PRC joint venture partner, and bear interest at prevailing
lending rates in the PRC ranging from 5.12% to 6.44% per annum
for the year ended December 25, 2001.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Other borrowings are unsecured, non-interest bearing
and without pre-determined repayment terms.                                                                                                                            

NOTE 9  OTHER PAYABLES AND ACCRUALS

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

|                                      |                          |   |           |    |           |   |             |     | 
|------------------------------------- | ------------------------ | - | --------- | -- | --------- | - | ----------- | --- | 
|                                      |                          |   | 2001      |    | 2000     
|                                      |                          |   | (US$'000) |    | (US$'000)
|                                      |                          |   |           |    |          
|                                      |                          |   |           |    |           |   | (Unaudited)
|Accruals for:                         |                          |   |           |    |           |   |             |    
|                                      | Staff welfare            |   | $         | 50 |           |   | $           | 112 | 
|                                      | Staff salaries and bonus |   |           | 10 |           |   |             | 46  | 
|                                      | Operating expenses       |   |           | 67 |           |   |             | 14  | 
|                                      | Property tax             |   |           | 40 |           |   |             | 27  | 
|Payables for construction-in-progress |                          |   |          |    |           |   | 85          |    
|Deposits from customers               |                          |   | 362       |    |           |   | 61          |    
|Others                                |                          |   | 209       |    |           |   | 84          |    
|                                      |                          |   |           |    |           |   |             |    
|                                      |                          | $ | 738       |    |           | $ | 429         |    
|                                      |                          |   |           |    |           |   |             |    

16



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 10  TAXATION

The PRC subsidiaries within the Group are subject to PRC income taxes
on an entity basis on income arising in or derived from the tax
jurisdiction in which they operate. The Groups 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, 2001 and 2000, substantially all of
the Groups income was generated in the PRC by NDAFLY, NDAFY, NDAFD
and SNDAF (the joint venture), which are subject to PRC income taxes
at rates ranging from 27% to 33% (24% to 30% income tax and 3% local
income tax). They are exempt from state income tax and local income
tax for two years starting from December 26, 1998, and then subject to
a 50% reduction in state income tax and a full exemption of local
income tax for the following three years.

As of December 25, 2001, there do not exist any material deferred tax
assets or deferred tax credits.

A reconciliation of income tax at the statutory rate to the Groups
effective tax rates is as follows:

|                                                                             |  |      |   | 
|---------------------------------------------------------------------------- |  | ---- | - | 
|Statutory
income tax, average rate                                           |  | 30   | %
|Impact
on preferential tax                                                   |  | (23  | )
|Various differences, especially as they relate
to expenses of share exchange |  | 20   |  
|                                                                             |  |     
|Effective rate                                                               |  | 27.0 | %
|                                                                             |  |     

NOTE 11  STOCK OPTION PLAN

During 1999, the Board of Directors and a majority of Bio-Aquas
stockholders adopted a stock option plan (the Plan). Currently,
there are outstanding options to purchase an aggregate of 300,000 shares of Class A common stock. The options are exercisable at prices
ranging from $1.50 per share to $1.65 per share. As of December 25,
2001, no options have been issued.

NOTE 12  STOCK PURCHASE WARRANTS

Bio Aquas common stock and common stock purchase warrants began
trading as a unit on the American Stock Exchange on or about March 29,
2000. The shares of common stock and common stock purchase warrants
automatically separated on May 1, 2000 after which Bio-Aquas common
stock and common stock purchase warrants began trading separately on
the American Stock Exchange. Currently, 850,000 warrants, trading
under the symbol NWD/WS, are outstanding; 52 week high and low are
$.89 and $.01, respectively.

17



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 13  COMMON STOCK

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

As of December 25, 2001 the Group had approximately 39,703,000 shares
of common stock issued and outstanding.

NOTE 14  COMMITMENTS

Annual Fees  Under the supplementary joint venture agreements, the
Group has committed to pay predetermined annual fees to the Chinese
joint venture partners for the period from December 26, 1998 to 2049.
As of December 25, 2001 and 2000, total commitments under these
arrangements are as follows:

|                           |                                               |   |           |       |           |   |             |       | 
|-------------------------- | --------------------------------------------- | - | --------- | ----- | --------- | - | ----------- | ----- | 
|                           |                                               |   | 2001      |       | 2000     
|                           |                                               |   | (US$'000) |       | (US$'000)
|                           |                                               |   |           |       |          
|                           |                                               |   |           |       |           |   | (Unaudited)
|Payable during the period: |                                               |   |           |       |           |   |             |      
|                           | Within one year                               |   | $         | 114   |           |   | $           | 115   | 
|                           | Over one year but not exceeding
two years     |   |           | 114   |           |   |             | 115   | 
|                           | Over two years but not exceeding
three years  |   |           | 114   |           |   |             | 115   | 
|                           | Over three years but not exceeding
four years |   |           | 114   |           |   |             | 115   | 
|                           | Over four years but not exceeding
five years  |   |           | 114   |           |   |             | 115   | 
|                           | Over five years                               |   |           | 4,810 |           |   |             | 5,163 | 
|                           |                                               |   |           |       |           |   |             |      
|                           |                                               | $ | 5,380     |       |           | $ | 5,738       |      
|                           |                                               |   |           |       |           |   |             |      

NOTE 15  BANK FACILITIES

As of December 25, 2001 and 2000, the Group had banking facilities of
approximately US $3,554,000 and US $3,419,000 respectively for
short-term bank loans. All the Groups banking facilities were utilized as of December 25, 2001.
These banking facilities were secured by corporate guarantees provided
by a PRC joint venture partner.

18



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the liability,
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.

19



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS (Continued)

Particulars of significant transactions between the Group and related
companies are summarized below:

|                                |                                                           |                                                        |       |           |     |           |     |             |    | 
|------------------------------- | --------------------------------------------------------- | ------------------------------------------------------ | ----- | --------- | --- | --------- | --- | ----------- | -- | 
|                                |                                                           |                                                        |       | 2001      |     | 2000     
|                                |                                                           |                                                        |       | (US$'000) |     | (US$'000)
|                                |                                                           |                                                        |       |           |     |          
|                                |                                                           |                                                        |       |           |     |           |     | (Unaudited)
|Sale of finished goods to:      |                                                           |                                                        |       |           |     |           |     |            
|                                | A joint venture partner, Shandong
Long Feng Group Company |                                                        | $     | 83        |     |           | $   | 1           |   
|                                | Related parties:                                          |                                                        |       |           |     |           |     |             |   
|                                |                                                           | New Dragon Asia Food (Yueyang)
Company Limited (2)     |       |           |    |           |     |             | 29 | 
|                                |                                                           | New Dragon Asia Food (Luoyang)
Company Limited (2)     |       |           | 1   |           |     |             | 57 | 
|                                |                                                           | Shandong Long Feng Penglai Flour
Company Limited       |       |           | 62  |           |     |             |   | 
|                                |                                                           | New Dragon Asia Food (Chengau)
Company Limited         |       |           |    |           |     |             | 8  | 
|                                |                                                           |                                                        |       |           |     |           |     |            
|                                |                                                           | $                                                      | 146   |           |     | $         | 95  |            
|                                |                                                           |                                                        |       |           |     |           |     |            
|Purchase of raw materials from: |                                                           |                                                        |       |           |     |           |     |            
|                                | A joint venture partner, Shandong
Long Feng Group Company |                                                        | $     |          |     |           | $   | 264         |   
|                                | Related parties:                                          |                                                        |       |           |     |           |     |             |   
|                                |                                                           | Sanhe (Yantai) Food Company
Limited                    |       |           | 48  |           |     |             |   | 
|                                |                                                           | Shandong Long Feng Penglai Flour
Company Limited (1)   |       |           | 924 |           |     |             | 4  | 
|                                |                                                           | Longkou City Long Feng Colour
Printing Packing Factory |       |           | 688 |           |     |             |   | 
|                                |                                                           | Longkou City Long Feng Carton
Packing Factory          |       |           | 424 |           |     |             |   | 
|                                |                                                           | Xinxiang Guo Liang Flour
Company Limited               |       |           | 37  |           |     |             |   | 
|                                |                                                           |                                                        |       |           |     |           |     |            
|                                |                                                           | $                                                      | 2,121 |           |     | $         | 268 |            
|                                |                                                           |                                                        |       |           |     |           |     |            

20



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS (Continued)

|                                                                                |                                          |   |           |    |           |   |             |    | 
|------------------------------------------------------------------------------- | ---------------------------------------- | - | --------- | -- | --------- | - | ----------- | -- | 
|                                                                                |                                          |   | 2001      |    | 2000     
|                                                                                |                                          |   | (US$'000) |    | (US$'000)
|                                                                                |                                          |   |           |    |          
|                                                                                |                                          |   |           |    |           |   | (Unaudited)
|Pre-determined annual fee charged by
joint venture partners:                    |                                          |   |           |    |           |   |             |   
|                                                                                | Shandong Long Feng Group Company         |   | $         | 78 |           |   | $           | 79 | 
|                                                                                | Shandong Long Feng Flour Company
Limited |   |           | 36 |           |   |             | 36 | 
|                                                                                |                                          |   |           |    |           |   |             |   
|                                                                                |                                          | $ | 114       |    |           | $ | 115         |   
|                                                                                |                                          |   |           |    |           |   |             |   
|Interest income earned from short-term
advances to a joint venture partner:     |                                          |   |           |    |           |   |             |   
|                                                                                | Shandong Long Feng Group Company         |   | $         |   |           |   | $           | 56 | 
|                                                                                |                                          |   |           |    |           |   |             |   
|Interest income earned from short-term
advances to an immediate parent
company: |                                          |   |           |    |           |   |             |   
|                                                                                | New Dragon Asia Food Limited             |   | $         | 67 |           |   | $           |   | 
|                                                                                |                                          |   |           |    |           |   |             |   
|Interest expenses paid to a joint venture
partner:                              |                                          |   |           |    |           |   |             |   
|                                                                                | Shandong Long Feng Group Company         |   | $         | 18 |           |   | $           |   | 
|                                                                                |                                          |   |           |    |           |   |             |   
|Rental income from joint venture
partner:                                       |                                          |   |           |    |           |   |             |   
|                                                                                | Shandong Long Feng Group Company         |   | $         | 64 |           |   | $           |   | 
|                                                                                |                                          |   |           |    |           |   |             |   
|Rental expense charged by a joint venture
partner:                              |                                          |   |           |    |           |   |             |   
|                                                                                | Shandong Long Feng Flour
Company Limited |   | $         |   |           |   | $           | 19 | 
|                                                                                |                                          |   |           |    |           |   |             |   

21



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS (Continued)

Summary of related party balances is as follows:

|                                                       |                              |  |           |       |           |  |             |        | 
|------------------------------------------------------ | ---------------------------- |  | --------- | ----- | --------- |  | ----------- | ------ | 
|                                                       |                              |  | 2001      |       | 2000     
|                                                       |                              |  | (US$'000) |       | (US$'000)
|                                                       |                              |  |           |       |          
|                                                       |                              |  |           |       |           |  | (Unaudited)
|Due to an immediate parent company,
net consisting of: |                              |  |           |       |           |  |             |       
|                                                       | New Dragon Asia Food Limited |  | $         | 7,044 |           |  | $           | 16,800 | 
|                                                       |                              |  |           |       |           |  |             |       

The net amount due to New Dragon Asia Food Limited is unsecured and
non-interest bearing, except for an amount due from that Company of
approximately $1,735,000 which bears interest at 6% per annum.

|                                             |                                          |  |           |       |           |  |             |       | 
|-------------------------------------------- | ---------------------------------------- |  | --------- | ----- | --------- |  | ----------- | ----- | 
|                                             |                                          |  | 2001      |       | 2000     
|                                             |                                          |  | (US$'000) |       | (US$'000)
|                                             |                                          |  |           |       |          
|                                             |                                          |  |           |       |           |  | (Unaudited)
|Due to joint venture partners consisting
of: |                                          |  |           |       |           |  |             |      
|                                             | Shandong Long Feng Group Company         |  | $         | 3,016 |           |  | $           | 1,198 | 
|                                             | Shandong Long Feng Flour Company
Limited |  |           | 1,980 |           |  |             |      | 
|                                             |                                          |  |           |       |           |  |             |      
|                                             |                                          |  | $         | 4,996 |           |  | $           | 1,198 | 
|                                             |                                          |  |           |       |           |  |             |      

The amounts due to joint venture partners are unsecured and
non-interest bearing, except for an amount due to Shandong Long Feng
Group Company of US $280,723 which bears interest at 6.435% per annum.

22



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS (Continued)

|                                          |                                                          |   |           |     |           |   |             |   | 
|----------------------------------------- | -------------------------------------------------------- | - | --------- | --- | --------- | - | ----------- | - | 
|                                          |                                                          |   | 2001      |     | 2000     
|                                          |                                                          |   | (US$'000) |     | (US$'000)
|                                          |                                                          |   |           |     |          
|                                          |                                                          |   |           |     |           |   | (Unaudited)
|Due from related companies
consisting of: |                                                          |   |           |     |           |   |             |  
|                                          | Sanhe Shi New Dragon Food
Process Company Limited        |   | $         | 19  |           |   | $           |  | 
|                                          | Shandong City Long Feng Soybean
Food Company Limited (1) |   |           | 22  |           |   |             |  | 
|                                          | New Dragon Asia Food (Yueyang)
Company Limited (2)       |   |           | 329 |           |   |             |  | 
|                                          | New Dragon Asia Food (Luoyang)
Company Limited (2)       |   |           | 783 |           |   |             |  | 
|                                          | New Dragon Asia Food (Chengdu)
Company Limited (2)       |   |           | 551 |           |   |             |  | 
|                                          |                                                          |   |           |     |           |   |             |  
|                                          |                                                          | $ | 1,704     |     |           | $ |            |  
|                                          |                                                          |   |           |     |           |   |             |  

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

|                                        |                                                        |   |           |       |           |   |             |   | 
|--------------------------------------- | ------------------------------------------------------ | - | --------- | ----- | --------- | - | ----------- | - | 
|                                        |                                                        |   | 2001      |       | 2000     
|                                        |                                                        |   | (US$'000) |       | (US$'000)
|                                        |                                                        |   |           |       |          
|                                        |                                                        |   |           |       |           |   | (Unaudited)
|Due to related companies consisting of: |                                                        |   |           |       |           |   |             |  
|                                        | Dalian Mei Long Food Company
Limited                   |   | $         | 1,052 |           |   | $           |  | 
|                                        | Longkou City Long Feng Colour
Printing Packing Factory |   |           | 123   |           |   |             |  | 
|                                        | Longkou City Long Feng Carton
Packing Factory          |   |           | 30    |           |   |             |  | 
|                                        | Shandong Long Feng Penglai
Flour Company Limited (1)   |   |           | 722   |           |   |             |  | 
|                                        | Long Feng Food Company Limited (1)                     |   |           | 169   |           |   |             |  | 
|                                        | Yantai Mei Long Oil and Food
Company Limited (1)       |   |           | 1,468 |           |   |             |  | 
|                                        | Sanhe (Yantai) Food Company
Limited                    |   |           | 220   |           |   |             |  | 
|                                        |                                                        |   |           |       |           |   |             |  
|                                        |                                                        | $ | 3,784     |       |           | $ |            |  
|                                        |                                                        |   |           |       |           |   |             |  

23



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 16  RELATED PARTY TRANSACTIONS (Continued)

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

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



|(1) |  | Mr. Song Xue Jun, a director of each of the Group
companies, has beneficial interest in these companies.
|--- |  | --------------------------------------------------------------------------------------------------------
|   
|(2) |  | These companies are wholly owned subsidiaries of NDAFL,
the immediate parent company.                   

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

Taxes  The Group did not properly report certain of its tax
obligations in Mainland China during the years ended December 25, 2001
and 2000. As a consequence, the Group may be subject to additional
surcharge or penalties as a result of the unpaid taxes in accordance
with tax laws in the PRC, of which the amount cannot be reasonably
estimated and is not recorded in the financial statements as of
December 25, 2001 and 2000. In addition, the holding companies of the
Group, namely New Dragon International Investment Limited and Long
Feng Food (Overseas) Company Limited, have agreed to indemnify the
Group against any liabilities which may arise as a result of the above
surcharges or penalties which are not recorded in the financial
statements of the Group.

NOTE 17  SEGMENT INFORMATION

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

Net Sales

|                |  |           |        |           |  |             |        | 
|--------------- |  | --------- | ------ | --------- |  | ----------- | ------ | 
|                |  | 2001      |        | 2000     
|                |  | (US$'000) |        | (US$'000)
|                |  |           |        |          
|                |  |           |        |           |  | (Unaudited)
|Instant noodles |  | $         | 9,990  |           |  | $           | 13,415 | 
|Flour           |  |           | 20,395 |           |  |             | 18,117 | 
|                |  |           |        |           |  |             |        | 
|                |  | $         | 30,385 |           |  | $           | 31,532 | 
|                |  |           |        |           |  |             |        | 

24



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 17  SEGMENT INFORMATION

Income from Operations

|                |  |           |       |           |  |             |       | 
|--------------- |  | --------- | ----- | --------- |  | ----------- | ----- | 
|                |  | 2001      |       | 2000     
|                |  | (US$'000) |       | (US$'000)
|                |  |           |       |          
|                |  |           |       |           |  | (Unaudited)
|Instant noodles |  | $         | 1,480 |           |  | $           | 2,393 | 
|Flour           |  |           | 2,425 |           |  |             | 1,220 | 
|                |  |           |       |           |  |             |       | 
|                |  | $         | 3,905 |           |  | $           | 3,613 | 
|                |  |           |       |           |  |             |       | 

|                    |  |           |        |           |  |             |        | 
|------------------- |  | --------- | ------ | --------- |  | ----------- | ------ | 
|                    |  | 2001      |        | 2000     
|Identifiable Assets |  | (US$'000) |        | (US$'000)
|                    |  |           |        |          
|                    |  |           |        |           |  | (Unaudited)
|Instant noodles     |  | $         | 17,869 |           |  | $           | 19,308 | 
|Flour               |  |           | 9,104  |           |  |             | 14,212 | 
|                    |  |           |        |           |  |             |        | 
|                    |  | $         | 26,973 |           |  | $           | 33,520 | 
|                    |  |           |        |           |  |             |        | 

Other

|                |  |           |    |           |  |             |     | 
|--------------- |  | --------- | -- | --------- |  | ----------- | --- | 
|                |  | 2001      |    | 2000     
|Interest Income |  | (US$'000) |    | (US$'000)
|                |  |           |    |          
|                |  |           |    |           |  | (Unaudited)
|Instant noodles |  | $         | 78 |           |  | $           | 34  | 
|Flour           |  |           | 10 |           |  |             | 127 | 
|                |  |           |    |           |  |             |     | 
|                |  | $         | 88 |           |  | $           | 161 | 
|                |  |           |    |           |  |             |     | 

Interest Expense

|                |  |           |     |           |  |             |     | 
|--------------- |  | --------- | --- | --------- |  | ----------- | --- | 
|                |  | 2001      |     | 2000     
|                |  | (US$'000) |     | (US$'000)
|                |  |           |     |          
|                |  |           |     |           |  | (Unaudited)
|Instant noodles |  | $         | 27  |           |  | $           | 76  | 
|Flour           |  |           | 173 |           |  |             | 149 | 
|                |  |           |     |           |  |             |     | 
|                |  | $         | 200 |           |  | $           | 225 | 
|                |  |           |     |           |  |             |     | 

25



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 17  SEGMENT INFORMATION (Continued)

Depreciation and Amortization

|                |  |           |       |           |  |             |       | 
|--------------- |  | --------- | ----- | --------- |  | ----------- | ----- | 
|                |  | 2001      |       | 2000     
|                |  | (US$'000) |       | (US$'000)
|                |  |           |       |          
|                |  |           |       |           |  | (Unaudited)
|Instant noodles |  | $         | 794   |           |  | $           | 762   | 
|Flour           |  |           | 470   |           |  |             | 389   | 
|                |  |           |       |           |  |             |       | 
|                |  | $         | 1,264 |           |  | $           | 1,151 | 
|                |  |           |       |           |  |             |       | 

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

|               |  |           |   |           |  |             |   |  
|-------------- |  | --------- | - | --------- |  | ----------- | - | -
|               |  | 2001      |   | 2000     
|               |  | (US$'000) |   | (US$'000)
|               |  |           |   |          
|               |  |           |   |           |  | (Unaudited)
|Li Yi          |  |           | 7 | %         |  |             |  | %
|               |  |           |   |           |  |             |   |  
|Zhang Guo Quan |  |           | 5 | %         |  |             |  | %
|               |  |           |   |           |  |             |   |  
|Fu Jun Chun    |  |           | 4 | %         |  |             | 6 | %
|               |  |           |   |           |  |             |   |  

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

|                                                      |  |           |    |           |  |             |    |  
|----------------------------------------------------- |  | --------- | -- | --------- |  | ----------- | -- | -
|                                                      |  | 2001      |    | 2000     
|                                                      |  | (US$'000) |    | (US$'000)
|                                                      |  |           |    |          
|                                                      |  |           |    |           |  | (Unaudited)
|Longkou City Food Collect and
Store Control Center    |  |           | 15 | %         |  |             | 10 | %
|                                                      |  |           |    |           |  |             |    |  
|Hui Town Food Institution Yu Lian
Food Control Center |  |           | 5  | %         |  |             |   | %
|                                                      |  |           |    |           |  |             |    |  
|Henan Xinxiang Northbound of the
Nation Storeroom     |  |           |   | %         |  |             | 6  | %
|                                                      |  |           |    |           |  |             |    |  

26



---



##### Table of Contents



NEW DRAGON ASIA CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

NOTE 18  RETIREMENT PLAN

As stipulated by the regulations of the PRC government, companies of
the Group operating in the PRC have defined contribution retirement
plans for their employees. The PRC government is responsible for the
pension liability to these retired employees. Commencing December 26,
1998, the Group was required to make specified contributions to the
state-sponsored retirement plan at 23% of the basic salary cost of
their staff. Each of the employees of the PRC subsidiaries is
required to contribute 5% of his/her basic salary, with the maximum
amount of contribution by each of the employees to be at the rate of
8%. For the year ended December 25, 2001, contributions made by the
Group were approximately US$118,000.

NOTE 19  SUBSEQUENT EVENT

Subsequent to December 25, 2001, NDAC agreed to acquire Shangdong Long
Feng Peng Lai Flour Co. Ltd. (Shangdong) a flour milling operation
located in Shangdong, China. Shangdong produces wheat flour,
principally for domestic sale within China.

27