**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON** **,
      D.C. 20549**





**FORM
      10-K**


**ANNUAL
      REPORT**


**PURSUANT
      TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**(Mark
      One)**




x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE
                ACT OF 1934**




**For
      the Fiscal year ended December 25, 2006**





**OR**




o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from ___________** **to
      ___________**





**Commission
      File Number: 001-15046**





**NEW
      DRAGON ASIA CORP.**


**(Exact
      name of Registrant as Specified in its Charter)**




**Florida**
            
            **88-0404114****(State
                or Other Jurisdiction of Incorporation
                or Organization)**
            
            **(IRS
                Employer Identification
                No.)**





**Suite
      2808, International Chamber of Commerce Tower**


**Fuhua
      Three Road, Shenzhen, China**


**(Address
      of Principal Executive Offices) (Zip Code)**





**(86
      755) 8831-2115**


**(Registrant’s
      telephone number, including area code)**





**Securities
      registered pursuant to Section 12(b) of the Exchange Act:**





**Title
      of Each Class: Class A Common Stock, $ 0.0001 par value.**





**Name
      of Each Exchange on Which Registered: The American Stock
      Exchange.**





**Securities
      registered pursuant to Section 12(g) of the Exchange Act: None.**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o
      No x





Indicated
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o
      No x





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      past 90 days.


Yes x
      No o








Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large
      Accelerated Filer o   Accelerated
      Filer o   Non-Accelerated
      Filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o
      No x





As
      of
      June 25, 2006 the aggregate market value of the voting and non-voting equity
      held by non-affiliates was approximately $25 million.





As
      of
      March 9, 2007, there were 53,614,723 shares of Class A Common Stock outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**




None.








TABLE
      OF
      CONTENTS




PAGEPART IITEM 1.
            
            Business
            
            1ITEM 1A.
            
            Risk Factors
            
            3ITEM 1B.
            
            Unresolved Staff Comments
            
            10ITEM 2.
            
            Properties
            
            10ITEM 3.
            
            Legal Proceedings
            
            10ITEM 4.
            
            Submission of Matters to a Vote of Security
              Holders
            
            10PART IIITEM 5.
            
            Market for Registrant’s Common Equity,
              Related Stockholder Matters
              and Issuer Purchases of Equity Securities
            
            11ITEM 6.
            
            Selected Financial Data
            
            12ITEM 7.
            
            Management’s Discussion and Analysis of
              Financial Condition and
              Results of Operation
            
            12ITEM 7A.
            
            Quantitative and Qualitative Disclosure
              About
              Market Risk
            
            21ITEM 8.
            
            Financial Statements and Supplementary
              Data
            
            22ITEM 9.
            
            Changes in and Disagreements with Accountants
              on Accounting and
              Financial Disclosure
            
            22ITEM 9A.
            
            Controls and Procedures
            
            22ITEM 9B.
            
            Other Information
            
            23PART IIIITEM 10.
            
            Directors, Executive Officers and Corporate
              Governance
            
            24ITEM 11.
            
            Executive Compensation
            
            26ITEM 12.
            
            Security Ownership of Certain Beneficial
              Owners and Management and
              Related Stockholder Matters
            
            30ITEM 13.
            
            Certain Relationships and Related
              Transactions, and Director
              Independence
            
            30ITEM 14.
            
            Principal Accounting Fees and
              Services
            
            31PART IVITEM 15.
            
            Exhibits and Financial Statement
              Schedules
            
            33SIGNATURES
            
            36FINANCIAL STATEMENTS
            
            37










**Forward-Looking
      Information**





This
      Annual Report on Form 10-K contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
      Securities Exchange Act of 1934. These
      statements relate to future events or the Company’s future financial
      performance .
      The
      Company has attempted to identify forward-looking statements by terminology
      including “anticipates”, “believes”, “expects”, “can”, “continue”, “could”,
“estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predict”,
“should” or “will” or the negative of these terms or other comparable
      terminology. These statements are only predictions. Uncertainties and other
      factors, including the risks outlined under Risk Factors contained in Item
      1A of
      this Annual Report may cause the Company’s actual results, levels of activity,
      performance or achievements to be materially different from any future results,
      levels or activity, performance or achievements expressed or implied by these
      forward-looking statements. Although the Company believes that the expectations
      reflected in the forward-looking statements are reasonable, the Company cannot
      guarantee future results, levels of activity, performance or achievements.
      The
      Company expectations are as of the date this Form 10-K is filed, and the Company
      does not intend to update any of the forward-looking statements after the date
      this Annual Report on Form 10-K is filed to confirm these statements to actual
      results, unless required by law.





**Availability
      of SEC Filings**





The
      Company files annual reports on Form 10-K, quarterly reports on Form 10-Q,
      current reports on Form 8-K and proxy and information statements and amendments
      to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
      Securities Exchange Act of 1934, as amended. The public may read and copy these
      materials at the Securities and Exchange Commission’s (“SEC”) Public Reference
      Room at 450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain
      information on the operation of the public reference room by calling the SEC
      at
      1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that
      contains reports, proxy and information statements and other information
      regarding the Company and other companies that file materials with the SEC
      electronically. You may also obtain copies of the Company’s reports filed with
      the SEC, free of charge, on our website at http://www.newdragonasia.com .











**PART
      I**





**ITEM
              1.**
            **BUSINESS******





**OVERVIEW**





New
      Dragon Asia Corp. and its subsidiaries (collectively, “New Dragon”, “NWD” or
“the Company”, “we”, “us”, or “our”) are engaged in the milling, sale and
      distribution of flour and related products, including instant noodles and
      soybean-derived products, to retail and wholesale customers throughout China.
      We
      are headquartered in Shandong Province in the People’s Republic of China (“PRC”
or “China”). With a well-known brand name called “Long Feng”, we market our
      well-established product line through a countrywide network of over 200 key
      distributors and 16 regional offices in 27 Chinese provinces. We have eight
      manufacturing plants in the PRC with an aggregate annual production capacity
      of
      approximately 110,000 tons of flour and approximately 1.1 billion packets of
      instant noodles and 4,500 tons of Soybean powder. We were incorporated in the
      State of Florida on March 18, 1999 under the name Bio-Aqua Systems,
      Inc.





**OUR
      PRODUCTS AND PRODUCTION**





We
      produce and market a broad range of wheat flour for use in bread, dumplings,
      noodles and confectionary products. Our flour products are marketed under the
      “Long Feng” brand name and sold throughout the country at both wholesale and
      retail levels





We
      provide a wide range of instant noodle products to our customers. Our products
      can be separated into two broad categories for selling and marketing purposes:
      (i) packet noodles for home preparation and (ii) snacks and cup noodles for
      outdoor convenience.





In
      late
      2005, we started producing two types of soybean products - soybean protein
      powder and soybean powder. They are principally supplied to food and beverage
      manufacturers.





Our
      product breakdown for the year ended December 25, 2006 was approximately 57%
      for
      flour products, 30% for instant noodles and 14% for soybean products. For more
      information, please refer to Note 19 of the accompanying consolidated financial
      statements “Segment Information”.





We
      believe that we have developed a reputation in China for producing high quality
      food products. Our production plants operate at the highest level of hygiene
      and
      efficiency and all of our plants are certified under the ISO9002 standards.
      Most
      of our “state of the art” manufacturing equipment is imported from Switzerland,
      Japan, and Korea. We also operate strict quality control systems, resulting
      in a
      favorable customer perception of the “Long Feng” brand.





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





**MARKETING
      AND SALES**





Most
      of
      our products are regionally marketed and distributed throughout China. Our
      sales
      and marketing strategy focuses on maintaining our relationships with our
      distributors by holding annual sales order meetings and hosting regular
      distributor conferences. We also believe that we have an excellent quality/price
      dynamic.





Our
      domestic distribution system is the key to its continued success in developing
      “Long Feng” as one of the leading brands in China. We have more than 200 points
      of distribution, of which 10 are our direct sales offices, spread over 27
      provinces in China. The remaining 190 sales points are owned and managed by
      distributors. Most of our distributors have long-term relationships with us
      and
      are loyal and efficient vendors of our products.





1




Our
      primary customer base for both our flour products and instant noodles consists
      of stores in the rural areas throughout China, where, we believe; our brand
      has
      long been recognized as the highest quality available for the price. The rural
      market is rapidly growing, benefiting from increases in rural consumer income.
      We believe that brand loyalty is strongest in this sector. The Company also
      sells to supermarkets mainly in urban areas.




In
      addition to domestic sales, we also export noodles to other countries such
      as
      South Korea, Australia, Malaysia and Indonesia. We also obtained HACCP (Hazard
      Analysis Critical Control Point) certification from CCIC Conformity Assessment
      Services Co. Ltd., a Chinese quality assurance examination authority, enabling
      the company to begin exports of instant noodles and soybean powder to Europe.
      From the second quarter of the year, we began export sales to Sweden and Greece.
      During 2006, export sales accounted for approximately 8.8% of our instant noodle
      sales.





We
      also
      received orders for flour from certain KFC Corporation (“KFC”) locations in
      China and KFC’s intermediary suppliers for flour. KFC requires rigorous quality
      control standards for its flour of at least the ISO9002 level. We believe that
      KFC’s orders reflect the positive brand reputation and quality of Long Feng as
      well as the Company’s commitment to maintaining international quality standards.





**COMPETITION**





The
      flour
      industry in the PRC is very competitive. Our largest competitors are Shandong
      Guang Rao Ban Qiu Flour and Hebei Wu De Li Flour in the Northern market and
      Shenzhen Nanshun Flour in the Southern market.





The
      instant noodle segment in the PRC is also highly competitive. We compete against
      well-established foreign companies, and many smaller companies. Our largest
      competitors are the “Master Kang” brand manufactured by Tingyi (Cayman Island)
      Holdings Corporation and the “President” brand manufactured by Uni-President
      Group, both based in Taiwan. Both are focused predominately in the more
      developed and competitive urban markets.





**STRATEGY**





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





-
            Acquire
                additional locations to increase our production
                capacity


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





Plans
      for
      expansion of the existing plants are expected to be funded through current
      working capital from ongoing sales. Acquisitions of plants will require an
      additional infusion of funds in the form of debt or equity, or a combination
      of
      both. However, there can be no assurance these funds will be
      available.





**EMPLOYEES**





We
      employ
      approximately 1,500 employees. All of them are located in the eight plants
      and
      the executive office located in Shenzhen. We have maintained good relationships
      with our employees and no major disputes have incurred since our
      inception.





**GOVERNMENTAL
      REGULATIONS ON OUR OPERATIONS IN CHINA**





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





We
      are
      subject to the PRC’s national Environmental Protection Law, which was enacted on
      December 26, 1989, as well as a number of other national and local laws and
      regulations regulating air, water, and noise pollution and setting pollutant
      discharge standards. Violation of such laws and regulations could result in
      warnings, fines, orders to cease operations, and even criminal penalties,
      depending on the circumstances of such violation. We believe that all
      manufacturing operations comply with applicable environmental laws, including
      those laws relating to air, water, and noise pollution.





We
      are
      also subject to various laws and regulations administered by various local
      governments relating to the operation of our production facilities. We believe
      that we are in compliance with all governmental laws and regulations related
      to
      our products and facilities.





2


**THE
      CHINESE LEGAL SYSTEM**





The
      practical effect of the PRC’s legal system on our business operations in China
      can be viewed from two separate but intertwined considerations.





First,
      as
      a matter of substantive law, the Foreign Invested Enterprise laws provide
      significant protection from government interference. In addition, these laws
      guarantee the full enjoyment of the benefits of corporate articles and contracts
      to Foreign Invested Enterprise participants. These laws, however, do impose
      standards concerning corporate formation and governance, which are not
      qualitatively different from the General Corporation Laws of the several states.
      Therefore, as a practical matter, a Foreign Invested Enterprise needs to retain
      or have ready access to a local Chinese law firm for routine compliance
      purposes.





Similarly,
      the PRC accounting laws mandate accounting practices, which are not co-existent
      with U.S. Generally Accepted Accounting Principles. The China accounting laws
      require that an annual “statutory audit” be performed in accordance with PRC
      accounting standards and that the books of account of Foreign Invested
      Enterprises are maintained in accordance with Chinese accounting laws. Article
      14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law
      requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
      reports and statements to designated financial and tax authorities, at the
      risk
      of business license revocation. As a practical matter, a Foreign Invested
      Enterprise must retain a local Chinese accounting firm that has experience
      with
      both the Chinese standards and U.S. Generally Accepted Accounting Principles.
      This type of accounting firm can serve the dual function of performing the
      annual Chinese statutory audit and preparing the Foreign Invested Enterprise’s
      financial statements in a form acceptable for an independent U.S. certified
      public accountant to issue an audit report in accordance with Generally Accepted
      Auditing Standards.





Second,
      while the enforcement of substantive rights may appear less clear than United
      States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned
      Enterprises are Chinese registered companies, which enjoy the same status as
      other Chinese registered companies in business-to-business dispute resolution.
      Because the terms of the respective Articles of Association provide that all
      business disputes pertaining to Foreign Invested Enterprises are to be resolved
      by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
      Sweden applying Chinese substantive law, the Chinese minority partner in our
      joint venture companies will not assume a privileged position regarding such
      disputes. Any award rendered by this arbitration tribunal is, by the express
      terms of the respective Articles of Association, enforceable in accordance
      with
      the “United Nations Convention on the Recognition and Enforcement of Foreign
      Arbitral Awards (1958).” Therefore, as a practical matter, although no
      assurances can be given, the Chinese legal infrastructure, while different
      in
      operation from its United States counterpart, should not present any significant
      impediment to the operation of Foreign Invested Enterprises.





**CURRENCY
      CONVERSION AND EXCHANGE**





Substantially
      all our revenues and expenses are denominated in the Chinese Renminbi. However,
      we use the United States dollar for financial reporting purposes. The value
      of
      Chinese Renminbi against the United States dollar and other currencies may
      fluctuate as a result of changes in two countries’ economic conditions. To date,
      we have not engaged in any currency hedging transactions in connection with
      our
      operations.





**CUSTOMERS**





We
      have
      approximately 560 customers for our products. None of our customers account
      for
      more than 5% of our revenue. We source our wheat and soybean from approximately
      50 suppliers. None of the suppliers accounts for more than 5% of our purchases.
      Historically, our fourth quarter revenue is much higher than the other three
      quarters due to Chinese New Year holiday.





**ITEM
              1A.**
            **RISK
                FACTORS.**





In
      addition to the other information in this annual report, the following factors
      should be considered carefully in evaluating the Company’s business and
      prospects. THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE
      EFFECT ON THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS
      OR
      PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
      STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL
      BE
      DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY
      CAUSE
      ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
      OR STATEMENTS. We are subject to, among others, the following
      risks:




3




**RISKS
      RELATED TO OUR CLASS A COMMON STOCK**





We
      have
      never declared or paid any dividends on our Class A Common Stock. The
      declaration and payment in the future of any cash or stock dividends on the
      Class A Common Stock will be at the discretion of our Board of Directors and
      will depend upon a variety of factors, including our ability to service our
      outstanding indebtedness, if any, and to pay dividends on securities ranking
      senior to the Class A Common Stock, including the shares of our outstanding
      Series A and Series B Preferred Stock, our future earnings, if any, capital
      requirements, financial condition and such other factors as our Board of
      Directors may consider to be relevant from time to time. We do not expect to
      declare or pay any dividends on our Class A Common Stock in the foreseeable
      future.





We
      are
      controlled by our major shareholder, which is controlled by our Chairman, Mr.
      Heng Jing Lu. Mr. Heng Jing Lu, our Chairman, is the holder of record of 100%
      of
      the equity interests of New Dragon Asia Food Ltd. Mr. Lu has sole voting and
      dispositive control over the shares of us held by New Dragon Asia Food Ltd.,
      which is our majority shareholder. As a result, Mr. Lu, through this
      shareholder, effectively exercises control over all matters requiring
      shareholder approval, including the election of directors and approval of
      significant corporate transactions. This concentration of ownership may also
      have the effect of delaying or preventing a change in control of us that may
      not
      be viewed as beneficial by other shareholders.





***Our
      primary source of funds for dividends and other distributions from our operating
      subsidiary in China is subject to various legal and contractual restrictions
      and
      uncertainties, and our ability to pay dividends or make other distributions
      to
      our shareholders are negatively affected by those restrictions and uncertainties***





We
      are a
      holding company established in the state of Florida and conduct our core
      business operations through our operating subsidiaries, Hero Treasure Ltd.,
      Delta Link Ltd., Mix Creation Ltd., Rich Delta Ltd. and Keen General Ltd. and
      their respective subsidiaries in China. As a result, our profits available
      for
      distribution to our shareholders are dependent on the profits available for
      distribution from the Subsidiaries. If the Subsidiaries incur debt on their
      own
      behalf, the debt instruments may restrict their ability to pay dividends or
      make
      other distributions, which in turn would limit our ability to pay dividends
      on
      our shares. Under the current PRC laws, because we are incorporated in the
      State
      of Florida, our PRC subsidiaries are each regarded as a wholly foreign-owned
      enterprise in China. Although dividends paid by foreign invested enterprises,
      such as wholly foreign-owned enterprises and Sino-foreign joint ventures, are
      not subject to any PRC corporate withholding tax, the PRC laws permit payment
      of
      dividends only out of net income as determined in accordance with PRC accounting
      standards and regulations. Determination of net income under PRC accounting
      standards and regulations may differ from determination under U.S. GAAP in
      significant aspects, such as the use of different principles for recognition
      of
      revenues and expenses. In addition, distribution of additional equity interests
      by any of our PRC subsidiaries to us (which is credited as fully paid through
      capitalization of the PRC subsidiaries’ undistributed profits) requires
      additional approval of the PRC government due to an increase in our registered
      capital and total investment in the subsidiary. Under the current PRC laws,
      each
      of our subsidiaries is required to set aside a portion of its net income each
      year to fund designated statutory reserve funds. These reserves are not
      distributable as cash dividends. As a result, our primary internal source of
      funds for dividend payments from the subsidiaries are subject to these and
      other
      legal and contractual restrictions and uncertainties, which in turn may limit
      or
      impair our ability to pay dividends to our shareholders. Moreover, any transfer
      of funds from us to the subsidiaries, either as a shareholder loan or as an
      increase in registered capital, is subject to registration with or approval
      by
      PRC governmental authorities. These limitations on the flow of funds between
      us
      and the subsidiaries could restrict our ability to act in response to changing
      market conditions.





***Recent
      regulations relating to offshore investment activities by PRC residents may
      adversely affect our business and prospects***





On
      September 8, 2006, several agencies of the PRC government issued a new
      regulation concerning restrictions on investments in China through special
      purpose companies incorporated overseas and the listing of the shares of those
      companies in overseas markets. The regulation contains a number of provisions
      relating to the acquisition of Chinese domestic companies which involve
“important industries” and may affect the national economic safety or result in
      the transfer of actual control rights of any company having “famous brands” or
      any “old established Chinese brands,” and require that the parties to any such
      transaction report to the Ministry of Commerce for approval. Additionally,
      any
      foreign company directly or indirectly controlled by Chinese companies or
      individuals used as a vehicle for public listing in an overseas stock market
      will need China Securities Regulatory Commission approval in connection with
      such listing. As it is uncertain how this new regulation will be interpreted
      or
      implemented, we cannot predict how this regulation will affect our business
      operations or future strategies. For example, we may be subject to a more
      stringent review and approval process with respect to our acquisition
      activities, which may adversely affect our business and prospects.





4




***Dividend
      Policy***





We
      have
      never declared or paid any cash dividends on our Class A Common Stock and we
      do
      not anticipate paying any cash dividends in the foreseeable future. Our ability
      to pay such cash dividends is subject to our receipt of dividends from our
      operating subsidiaries, which are subject to legal restrictions in the PRC
      on
      making such payments. We currently intend to retain future earnings, if any,
      to
      finance operations and the expansion of our business. Any future determination
      to pay cash dividends will be at the discretion of the board of directors and
      will be based upon our financial condition, operating results, capital
      requirements, plans for expansion, restrictions imposed by PRC law and any
      financing arrangements and any other factors that the board of directors deems
      relevant.





**RISKS
      RELATED TO OUR BUSINESS**





***Our
      business may experience adverse effects from competition in the noodle, flour
      and soybean product markets.***





The
      noodle, flour and soybean product markets in the PRC are highly competitive.
      Competition in these markets takes many forms, including the following:




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




Many
      of
      our competitors are larger and have greater financial resources, including
      our
      primary competitors, the manufactures of each of the brand names “Master Kang”
and “President”. We may not be able to compete successfully with such
      competitors. Competition could cause us to lose our market share, increase
      expenditures or reduce pricing, each of which could have a material adverse
      effect on our business and financial results.





***An
      inability to respond quickly and effectively to new trends would adversely
      impact our competitive position.***





Our
      failure to maintain our technological capabilities or to respond effectively
      to
      technological changes could adversely affect our ability to retain existing
      business and secure new business. We will need to constantly seek out new
      products and develop new solutions to maintain in our portfolio. If we are
      unable to keep current with new trends, our competitors’ technologies or
      products may render us noncompetitive and our products obsolete.





***Increases
      in prices of main ingredients and other materials could adversely affect our
      business.***





The
      main
      ingredients that we use to manufacture our products are wheat, soybeans and
      eggs. We also use paper products, such as corrugated cardboard, as well as
      films
      and plastics, to package our products. The prices of these materials have been,
      and we expect them to continue to be, subject to volatility. We may not be
      able
      to pass price increases in these materials onto our customers, which could
      have
      an adverse effect on our financial results.





***We
      are subject to risks associated with joint ventures and third party agreements.***





We
      conduct certain of our milling and sales operations through joint ventures
      established with certain Chinese parties. Any deterioration of these strategic
      relationships may have an adverse effect on our operation. Changes in laws
      and
      regulations, or their interpretation, or the imposition of confiscatory
      taxation, restrictions on currency conversion, imports and sources of supply,
      devaluations of currency or the nationalization or other expropriation of
      private enterprises could have a material adverse effect on our business,
      results of operations and financial condition. Under its current leadership,
      the
      Chinese government has been pursuing economic reform policies that encourage
      private economic activity and greater economic decentralization. There is no
      assurance, however, that the Chinese government will continue to pursue these
      policies, or that it will not significantly alter these policies from time
      to
      time without notice.





We
      may
      have limited legal recourse under Chinese law if disputes arise under our
      agreements with joint ventures or third parties. The Chinese government has
      enacted some laws and regulations dealing with matters such as corporate
      organization and governance, foreign investment, commerce, taxation and trade.
      However, the government’s experience in implementing, interpreting and enforcing
      these laws and regulations is limited, and our ability to enforce commercial
      claims or to resolve commercial disputes is unpredictable. If our new business
      ventures are unsuccessful, or other adverse circumstances arise from these
      transactions, we face the risk that the parties to these ventures may seek
      ways
      to terminate the transactions, or, may hinder or prevent us from accessing
      important information regarding the financial and business operations of these
      acquired companies. The resolution of these matters may be subject to the
      exercise of considerable discretion by agencies of the Chinese government,
      and
      forces unrelated to the legal merits of a particular matter or dispute may
      influence their determination. Any rights we may have to specific performance,
      or to seek an injunction under Chinese law, in either of these cases, are
      severely limited, and without a means of recourse by virtue of the Chinese
      legal
      system, we may be unable to prevent these situations from occurring. The
      occurrence of any such events could have a material adverse effect on our
      business, financial condition and results of operations.





5




***We
      may be subject to product liability claims and product recalls, which could
      negatively impact its profitability.***





We
      sell
      food products for human consumption, which involves risks such as product
      contamination or spoilage, product tampering and other adulteration of food
      products. We may be subject to liability if the consumption of any of its
      products causes injury, illness or death.  In addition, we will voluntarily
      recall products in the event of contamination or damage.  A significant
      product liability judgment or a widespread product recall may negatively impact
      our profitability for a period of time depending on product availability,
      competitive reaction and consumer attitudes.  Even if a product liability
      claim is unsuccessful or is not fully pursued, the negative publicity
      surrounding any assertion that company products caused illness or injury could
      adversely affect our reputation with existing and potential customers and our
      corporate and brand image.





***We
      have limited business insurance coverage.***





The
      insurance industry in China is still in an early stage of development. Insurance
      companies in China offer limited business insurance coverage. As a result,
      we do
      not have any business liability insurance coverage for our operations. Moreover,
      while business disruption insurance is available, management has determined
      that
      the risks of disruption and cost of the insurance are such that we do not
      require it at this time. Any business disruption, litigation or natural disaster
      might result in substantial costs and diversion of resources.





***We
      have a limited concentration of credit risk.***





Concentration
      of credit risk with respect to customer receivables is limited due to the large
      number of customers comprising our customer base, and their dispersion across
      China. In addition, we perform ongoing credit evaluations of each customer’s
      financial condition and maintain reserves for potential credit losses. Such
      losses in the aggregate have not exceeded management’s expectations.





***We
      may experience risks resulting from our plans for expansion.***





We
      have
      acquired several companies and businesses and plan to continue to acquire
      companies in the future. Entering into an acquisition entails many risks, any
      of
      which could harm our business, including: (a) diversion of management’s
      attention from other business concerns; (b) failure to integrate the acquired
      company with our existing businesses; (c) additional operating expenses not
      offset by additional revenue; and (d) dilution of our stock as a result of
      issuing equity securities.





If
      we are
      unable to implement our acquisition strategy, we may be less successful in
      the
      future. A key component of our growth strategy is accomplished by acquiring
      additional flour and noodle factories and, if our acquisition of a soybean
      business proves successful, our acquisition strategy may expand to include
      future acquisitions of soybean businesses. While there are many such companies,
      we may not always be able to identify and acquire companies meeting our
      acquisition criteria on terms acceptable to us. Additionally, financing to
      complete significant acquisitions may not always be available on satisfactory
      terms. Further, our acquisition strategy presents a number of special risks
      to
      us that we would not otherwise contend with absent such strategy, including
      possible adverse effects on our earnings after each acquisition, diversion
      of
      management’s attention from our core business due to the special attention that
      a particular acquisition may require, failure to retain key acquired personnel
      and risks associated with unanticipated events or liabilities arising after
      each
      acquisition, some or all of which could have a material adverse effect on our
      business, financial condition and results of operations.





**RISKS
      ASSOCIATED WITH DOING BUSINESS IN THE PEOPLE’S REPUBLIC OF CHINA.**





***We
      are subject to the risks associated with doing business in the People’s Republic
      of China.***





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





6




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




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


***Economic
      reform policies or nationalization could result in a total investment loss
      in
      our Class A Common Stock.***





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





Over
      the
      last few years, China’s economy has registered a high growth rate. Recently,
      there have been indications that rates of inflation have increased. In response,
      the Chinese government has taken measures to curb this excessively expansive
      economy. These measures include restrictions on the availability of domestic
      credit, reducing the purchasing capability of certain of its customers, and
      limited re-centralization of the approval process for purchases of some foreign
      products. The Chinese government may adopt additional measures to further combat
      inflation, including the establishment of freezes or restraints on certain
      projects or markets. These measures may adversely affect our manufacturing
      operations.





To
      date,
      reforms to China’s economic system have not adversely impacted our operations
      and are not expected to adversely impact operations in the foreseeable future;
      however, there can be no assurance that the reforms to China’s economic system
      will continue or that we will not be adversely affected by changes in China’s
      political, economic, and social conditions and by changes in policies of the
      Chinese government, such as changes in laws and regulations, measures which
      may
      be introduced to control inflation and changes in the rate or method of
      taxation.





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





***The
      Chinese legal system is not fully developed and has inherent uncertainties
      that
      could limit the legal protections available to investors.***





The
      Chinese legal system is a system based on written statutes and their
      interpretation by the Supreme People’s Court. Prior court decisions may be cited
      for reference but have limited legal precedents. Since 1979, the PRC government
      has been developing a comprehensive system of commercial laws, and considerable
      progress has been made in introducing laws and regulations dealing with economic
      matters such as foreign investment, corporate organization and governance,
      commerce, taxation and trade. Two examples are the promulgation of the Contract
      Law of the PRC to unify the various economic contract laws into a single code,
      which went into effect on October 1, 1999, and the Securities Law of the
      People’s Republic of China, which went into effect on July 1, 1999. However,
      because these laws and regulations are relatively new, and because of the
      limited volume of published cases and their non-binding nature, interpretation
      and enforcement of these laws and regulations involve uncertainties. In
      addition, as the Chinese legal system develops, changes in such laws and
      regulations, their interpretation or their enforcement may have a material
      adverse effect on our business operations.





7





***Enforcement
      of regulations in China may be inconsistent.***





Although
      the Chinese government introduced new laws and regulations to modernize its
      securities and tax systems on January 1, 1994, China does not yet possess an
      expansive body of business law. As a result, the enforcement, interpretation
      and
      implementation of regulations may prove to be inconsistent and it may be
      difficult to enforce contracts.





***We
      may experience lengthy delays in resolution of legal disputes.***





As
      China
      has not developed a dispute resolution mechanism similar to the Western court
      system, dispute resolution over Chinese projects and joint ventures can be
      difficult and there is no assurance that any dispute involving our business
      in
      China can be resolved expeditiously and satisfactorily.




***We
      may experience an impact of the United States Foreign Corrupt Practices Act
      on
      our business.***





We
      are
      subject to the United States Foreign Corrupt Practices Act, which generally
      prohibits Unites States companies from engaging in bribery or other prohibited
      payments to foreign officials for the purpose of obtaining or retaining
      business. Foreign companies, including some that may compete with us, are not
      subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
      and other fraudulent practices occur from time-to-time in mainland China. We
      have attempted to implement safeguards to prevent and discourage such practices
      by our employees and agents. We cannot assure you, however, that our employees
      or other agents will not engage in such conduct for which we might be held
      responsible. If our employees or other agents are found to have engaged in
      such
      practices, we could suffer severe penalties and other consequences that may
      have
      a material adverse effect on our business, financial condition and results
      of
      operations.





***Impact
      of governmental regulation on our operations.***





We
      may be
      subjected to liability for product safety that could lead to a product recall.
      Our operations and properties are subject to regulation by various Chinese
      government entities and agencies. As a producer of food products, our operations
      are subject to production, packaging, quality, labeling and distribution
      standards. Our production and distribution facilities are also subject to
      various local environmental laws and workplace regulations.





We
      believe that our current legal and environmental compliance programs adequately
      address such concerns and that we are in compliance with applicable laws and
      regulations. However, compliance with, or any violation of, current and future
      laws or regulations could require material expenditures or otherwise adversely
      affect our business and financial results.





We
      may be
      liable if the consumption of any of our products cause injury, illness or death.
      We may also be required to recall certain of our products that become
      contaminated or are damaged. We are not aware of any material product liability
      judgment against us. However, a product liability judgment or a product recall
      could have a material adverse effect on our business or financial
      results.





***It
      may be difficult to serve us with legal process or enforce judgments against
      our
      management or us.***





All
      of
      our assets are located in China. In addition, all of our directors and officers
      are non-residents of the United States, and all, or substantial portions of
      the
      assets of such non-residents, are located outside the United States. As a
      result, it may not be possible to effect service of process within the United
      States upon such persons. Moreover, there is doubt as to whether the courts
      of
      China would enforce:





-
            Judgments
                of United States courts against us, our directors or our officers
                based on
                the civil liability provisions of the securities laws of the United
                States
                or any state; or


-
            Original
                actions brought in China relating to liabilities against non-residents
                or
                us based upon the securities laws of the United States or any
                state.





***The
      Chinese government could change its policies toward private enterprise or even
      nationalize or expropriate it, which could result in the total loss of your
      investment.***





Our
      business is subject to significant political and economic uncertainties and
      may
      be adversely affected by political, economic and social developments in China.
      Over the past several years, the Chinese government has pursued economic reform
      policies including the encouragement of private economic activity and greater
      economic decentralization. The Chinese government may not continue to pursue
      these policies or may significantly alter them to our detriment from time to
      time with little, if any, prior notice. Changes in policies, laws and
      regulations or in their interpretation or the imposition of confiscatory
      taxation, restrictions on currency conversion, restrictions or prohibitions
      on
      dividend payments to shareholders, devaluations of currency or the
      nationalization or other expropriation of private enterprises could have a
      material adverse effect on our business. Nationalization or expropriation could
      even result in the total loss of our investment in China and in the total loss
      of your investment.





8




***If
      relations between the United States and China worsen, our stock price may
      decrease and we may have difficulty accessing U.S. capital
      markets.***





At
      various times during recent years, the United States and China have had
      significant disagreements over political and economic issues. Controversies
      may
      arise in the future between these two countries. Any political or trade
      controversies between the United States and China, whether or not directly
      related to our business, could adversely affect the market price of our Class
      A
      Common Stock and our ability to access U.S. capital markets.





***The
      Chinese economic, political and social conditions as well as government policies
      could affect our business.***





All
      of
      our business, assets and operations are located in China. The economy of China
      differs from the economies of most developed countries in many respects,
      including:





-
            government
                involvement


-
            level
                of development


-
            growth
                rate


-
            control
                of foreign exchange; and


-
            allocation
                of resources





The
      economy of China has been transitioning from a planned economy to a more
      market-oriented economy. Although in recent years the Chinese government has
      implemented measures emphasizing the utilization of market forces for economic
      reform, the reduction of state ownership of productive assets and the
      establishment of sound corporate governance in business enterprises, a
      substantial portion of productive assets in China is still owned by the Chinese
      government. In addition, the Chinese government continues to play a significant
      role in regulating industry by imposing industrial policies. It also exercises
      significant control over China’s economic growth through the allocation of
      resources, controlling payment of foreign currency-denominated obligations,
      setting monetary policy and providing preferential treatment to particular
      industries or companies.





The
      economy of China has experienced significant growth in the past 20 years, but
      growth has been uneven both geographically and among various sectors of the
      economy. The Chinese government has implemented various measures from time
      to
      time to control the rate of economic growth. Some of these measures benefit
      the
      overall economy of China, but may have a negative effect on us. For example,
      our
      operating results and financial condition may be adversely affected
      by:





-
            changes
                in the rate or method of taxation


-
            imposition
                of additional restrictions on currency conversion and remittances
                abroad


-
            reduction
                in tariff or quota protection and other import restrictions;
                and


-
            changes
                in the usage and costs of state-controlled transportation
                services





***Fluctuations
      in the value of the Chinese Renminbi relative to foreign currencies could affect
      our operating results.***





Substantially
      all our revenues and expenses are denominated in the Chinese Renminbi. However,
      we use the United States dollar for financial reporting purposes. The value
      of
      Chinese Renminbi against the United States dollar and other currencies may
      fluctuate and is affected by, among other things, changes in China’s political
      and economic conditions. The Chinese government values the exchange rate of
      the
      Chinese Renminbi against a number of currencies, rather than just exclusively
      to
      the United States dollar. Although the Chinese government has stated its
      intention to support the value of the Chinese Renminbi, we cannot assure you
      that the government will not revalue it. As our operations are primarily in
      China, any significant revaluation of the Chinese Renminbi may materially and
      adversely affect our cash flows, revenues and financial condition. For example,
      to the extent that we need to convert United States dollars into Chinese
      Renminbi for our operations, appreciation of this currency against the United
      States dollar could have a material adverse effect on our business, financial
      condition and results of operation. Conversely, if we decide to convert our
      Chinese Renminbi into United States dollars for other business purposes and
      the
      United States dollar appreciates against this currency, the United States dollar
      equivalent of the Chinese Renminbi would be reduced. To date, we have not
      engaged in any hedging transactions in connection with our
      operations.





9




***The
      legal authorities in China are in the process of evaluating heretofore tax
      and
      fee benefits provided to foreign investors and companies to encourage
      development within the country such that these benefits may be lessened or
      removed with the consequence that expenses may rise impacting margins and net
      income.***





The
      legal
      authorities are evaluating tax and fee benefits that have been available to
      foreign investors and companies operating in China and tax holidays for new
      enterprises. It is anticipated, in the near term, there are going to be changes
      that substantially reduce or eliminate many, if not all, the tax and other
      governmental fee advantages that heretofore have been available to foreign
      entities and newly created entities whether or not such new entities are
      foreign. The goal is to institute greater equalization of tax and government
      fee
      treatment of all corporate and similar entities in China. China is being
      encouraged to create this more equal treatment because of its WTO obligations
      and public opinion within China. There may be phase-ins of various taxes and
      fees for entities that currently benefit from either no or lower tax rates
      and
      fees compared to wholly Chinese companies and entities, but there can be no
      assurance of this. Even if there are phase-in periods, the length of such
      periods is not known. Overall, it is expected that the cost of operating in
      China will increase for those companies and entities that have had various
      tax
      and fee advantages in the past.





**ITEM
              1B.**
            **UNRESOLVED
                STAFF COMMENTS.******





Not
      applicable.





**ITEM
              2.**
            **PROPERTIES.******





Our
      corporate office is located in Shenzhen. Our eight manufacturing plants, at
      five
      locations in Shandong, Beijing and Chengdu, consist of 30 noodle production
      lines and flour milling lines, located in Yantai, Penglai, Longkou and Beijing.
      Manufacturing operations are vertically integrated, with the flour production
      utilized in the noodle manufacturing process. All of our manufacturing
      facilities have been awarded ISO9002 quality certification. All of our
      properties are suitable and adequate for the purposes for which they are used
      in
      our business.





Facility
            
            Address
            
            Owned/Rented
            
            Size
                (Sq meters)Yantai
                Flour Mill, Yantai Noodle
              Factory
                & Soybean Plants
            
            No.
                10 Huancheng Road (N), Longkou, Shandong
            
            Owned
            
            25,345Sanhe
                Noodle Factory
            
            1
                Yanjiao Jing Ha Road (N), Beijing
            
            Owned
            
            26,274Penglai
                Flour Mill
            
            Xiao
                Men Town, Penglai, Shandong
            
            Rented
            
            33,330Longyuan
                Plant
            
            Huancheng
                Beihuan Road, Longkou, Shandong
            
            Owned
            
            35,000Chengdu
                Plant
            
            Chengdu
                Economic & Technical Development Zone, Chengdu,
                Sichuan
            
            Owned
            
            35,922





**ITEM
              3.**
            **LEGAL
                PROCEEDINGS.******





We
      are
      not a party to any material pending legal proceedings.





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





On
      December 13, 2006, the Board of Directors of the Company, by written consent,
      approved the terms of an option agreement between the Company and Peter Mak,
      its
      Chief Financial Officer, whereby the Company shall grant options to purchase
      up
      to 6,000,000 shares of our Class A Common Stock to Mr. Mak (the “Agreement”). On
      December 19, 2006, the Company sought and obtained the approval of New
      Dragon Asia Food Ltd., the majority stockholder of the Company, of
      the
      terms of the Agreement. The Company’s Chairman, Heng Jing Lu, has sole voting
      and dispositive power over the shares of Common Stock of the Company held by
      New
      Dragon Asia Food Ltd.





10





**PART
      II**





**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES.******





**MARKET
      PRICES OF COMMON STOCK**





Our Class
      A
      Common Stock is
      traded
      on the American Stock Exchange under the symbol NWD. The high and low sale
      prices of the Class
      A
      Common Stock as
      reported on AMEX for the periods indicated are set forth on the table below.





PRICE
                RANGE OF COMMON STOCKHIGH
            
            LOWYear
                Ended December 25, 2005:First
                Quarter
            
            $
                0.90
            
            $
                0.72Second
                Quarter
            
            $
                1.06
            
            $
                0.79Third
                Quarter
            
            $
                2.78
            
            $
                0.96Fourth
                Quarter
            
            $
                2.43
            
            $
                1.31Year
                Ended December 25, 2006:First
                Quarter
            
            $
                2.66
            
            $
                1.38Second
                Quarter
            
            $
                2.27
            
            $
                1.23Third
                Quarter
            
            $
                1.75
            
            $
                1.20Fourth
                Quarter
            
            $
                2.02
            
            $
                1.22





**SHAREHOLDERS**





As
      of
      March 9, 2007, there were 53,614,723 shares of our Class
      A
      Common Stock outstanding and we had approximately 5,000 shareholders of record. American
      Stock Transfer & Trust Company is the registrar and transfer agent for our Class
      A
      Common Stock .





**DIVIDEND
      POLICY**





We
      have
      never declared or paid any cash dividends on our Class
      A
      Common Stock and we
      do not anticipate paying any cash dividends in the foreseeable future. We
      currently intend to retain future earnings, if any, to finance operations and
      the expansion of our business. Any future determination to pay cash dividends
      will be at the discretion of the board of directors and will be based upon
      our
      financial condition, operating results, capital requirements, plans for
      expansion, restrictions imposed by any financing arrangements and any other
      factors that the board of directors deems relevant.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





All
      unregistered sales of equity securities during the year ended December 25, 2006 have been
      previously reported by the Company.





**ISSUER
      PURCHASES OF EQUITY SECURITIES**





None




11





**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA******





The
      following selected consolidated financial data of the Company is presented
      as of
      and for the years ended December 25, 2006, 2005 and 2004. The selected financial
      data should be read in conjunction with the Company’s audited consolidated
      financial statements and the notes thereto, and Management’s Discussion and
      Analysis of Financial Condition and Results of Operation.





YEARS
                ENDED DECEMBER 25,2006
            
            2005
            
            2004(in
                thousand, except per share data)CONSOLIDATED
                STATEMENTS OF OPERATIONS DATA:Net
                revenues
            
            $
            53,439
            
            $
            44,180
            
            $
            39,221Operating
                expenses:Selling
                and distribution
            
            
            (1,045
            )
            
            (721
            )
            
            (1,178
            )General
                and administrative(including
                stock-based compensation of $8,140 for 2006)
            
            
            (10,908
            )
            
            (2,358
            )
            
            (1,611
            )Income
                (loss) from operations
            
            
            (1,918
            )
            
            4,950
            
            
            4,545(Loss)
                on fair value adjustments to embedded derivatives
            
            
            (1,434
            )
            
            (4,064
            )
            
            **--**Income/(loss)
                before tax and minority interests
            
            
            (813
            )
            
            3,240
            
            
            5,900Net
                income/(loss)
            
            
            (2,604
            )
            
            1,747
            
            
            4,645Income
                (loss) available to common stockholders
            
            
            (5,361
            )
            
            (1,106
            )
            
            4,645Earnings
                per common shareBasic
            
            
            (0.10
            )
            
            0.02
            
            
            0.10Diluted
            
            
            (0.10
            )
            
            0.02
            
            
            0.10Weighted
                average common shares outstanding:Basic
            
            
            51,485
            
            
            46,051
            
            
            45,061Diluted
            
            
            51,485
            
            
            46,949
            
            
            45,061CONSOLIDATED
                BALANCE SHEET DATA:Cash
                and cash equivalents
            
            $
            10,276
            
            $
            14,332
            
            $
            219Total
                assets
            
            
            69,508
            
            
            57,421
            
            
            34,246Total
                stockholders’ equity
            
            
            44,012
            
            
            33,999
            
            
            26,835





**ITEM
              7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS.******





This
      report includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
      terminology are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties, including the matters set forth
      in this report or other reports or documents we file with the Securities and
      Exchange Commission from time to time, which could cause actual results or
      outcomes to differ materially from those projected. Undue reliance should not
      be
      placed on these forward-looking statements, which speak only as of the date
      hereof. We undertake no obligation to update these forward-looking statements.





To
      supplement our consolidated financial statements presented in accordance with
      GAAP, we discuss our results in terms of financial measures that may be deemed
      to be “non-GAAP financial measures” under the rules and regulations of the
      Securities and Exchange Commission. Our management believes that these measures
      provide meaningful information regarding the company’s performance and liquidity
      by excluding certain expenses that may not be indicative of its core operating
      results and facilitate comparisons to its historical operations and competitors’
operating results. To the extent such measures are not readily reconcilable
      to
      the comparable GAAP financial measures contained in its consolidated financial
      statements, we provide detailed reconciliations that permit investors to
      determine how such non-GAAP financial measures have been derived.





The
      following discussion and analysis should be read in conjunction with “Item 5.
      Selected Financial Data” and our consolidated financial statements and the
      related notes thereto and other financial information contained elsewhere in
      this Form 10-K.





12




**OVERVIEW**





Headquartered
      in Shandong Province, PRC, New Dragon Asia Corp. is engaged in the milling,
      sale
      and distribution of flour and related products, including instant noodles and
      soybean-derived products, to retail and wholesale customers throughout China.
      With a well-known brand name called LONG FENG, we market our well-established
      product line through a countrywide network of more than 200 key distributors
      and
      16 regional offices in 27 Chinese provinces. We have six manufacturing plants
      in
      the PRC with an aggregate production capacity of approximately 110,000 tons
      of
      flour and approximately 1.1 billion packets of instant noodles and 4,500 tons
      of
      soybean powder.





**OPERATION
      PLAN**





Our
      current strategies are:





-
            to
                acquire additional plants to enlarge our capacity,
                and


-
            to
                build strategic alliances with multinational food groups to enhance
                product range and capitalize on our China distribution
                network.





Plans
      for
      expansion of the existing plants are expected to be funded through current
      working capital from ongoing sales. A significant acquisition will require
      additional funds in the form of debt or equity, or a combination of both.
      However, there can be no assurance these funds will be available.





**ESTABLISHMENT
      AND ACQUISITIONS IN 2006**





***Delta
      Link Limited & Chengdu Plant***





On
      February 24, 2006, the Company acquired 100% of the equity interest shares
      of
      Delta Link Ltd. (“Delta Link”) for a cash consideration of $3,300,000. Delta
      Link is a holding company, which owns a 90% equity interest in a noodle
      manufacturing facility in Chengdu, Sichuan Province. The Chengdu Plant serves
      the western China market.





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





In
      connection with the acquisition, the assets acquired and the liabilities assumed
      from Delta Link and the Chengdu Plant were recorded at their fair values on
      the
      consolidated balance sheet. Based on the initial purchase price allocation,
      the
      Company recorded goodwill in the amount of approximately $125,000.





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





Allocation
      of initial purchase consideration (in thousands):




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





13





***Longyuan
      Packaging Plant***





On
      January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
      Materials Company Limited, a wholly-owned subsidiary in Longkou, Shandong
      Province. NDAPM is principally engaged in the manufacturing and sale of packing
      materials, with a registered capital of $3,600,000.





**YEAR
      ENDED DECEMBER 25, 2006 COMPARED TO YEAR ENDED DECEMBER 25,
      2005**





Selected
      Information from the Consolidated Statements of Operations




**For
                the years ended December 25,****2006**
            
            **2005**
            
            **2004**Net
                revenue
            
            $
            53,439
            
            $
            44,180
            
            $
            39,221Cost
                of goods sold
            
            
            (43,404
            )
            
            (36,151
            )
            
            (31,887
            )Selling
                and distribution expenses
            
            
            (1,045
            )
            
            (721
            )
            
            (1,178
            )General
                and administrative expenses(including
                stock-based compensation of $8,140 for 2006)
            
            
            (10,908
            )
            
            (2,358
            )
            
            (1,611
            )(Loss)
                on fair value adjustments to embedded derivatives
            
            
            (1,434
            )
            
            (4,064
            )
            
            --VAT
                refund
            
            
            2,328
            
            
            2,158
            
            
            1,478Net
                income/(loss)
            
            
            (2,604
            )
            
            1,747
            
            
            4,645EBITDA
                *
            
            
            10,173
            
            
            8,659
            
            
            7,197EBITDA
                margin on revenue
            
            
            19
            %
            
            20
            %
            
            18
            %





*  The
      Company uses EBITDA as an operating performance measure. EBITDA is defined
      as
      net earnings (loss) before interest, taxes, depreciation and amortization
      expense and in our case (Loss) gain on fair value adjustments to embedded
      derivatives. EBITDA is not a measure of operating performance under U.S.
      generally accepted accounting principles (“GAAP”) and should not be considered
      as an alternative or substitute for GAAP profitability measures such as
      operating earnings (loss) and net earnings (loss). EBITDA as an operating
      performance measure has material limitations since it excludes, among other
      things, the statement of operations impact of depreciation and amortization
      expense, interest expense, the provision (benefit) for income taxes and (loss)
      gain on fair value adjustments to embedded derivatives and therefore does not
      necessarily represent an accurate measure of profitability, particularly in
      situations where a company is highly leveraged or has a disadvantageous tax
      structure. The Company uses a significant amount of capital assets and
      depreciation and amortization expense is a necessary element of the Company’s
      costs and ability to generate revenue and therefore its exclusion from EBITDA
      is
      a material limitation. The Company generally incurs significant income taxes
      each year and the provision (benefit) for income taxes is a necessary element
      of
      the Company’s costs and therefore its exclusion from EBITDA is a material
      limitation. As a result, EBITDA should be evaluated in conjunction with net
      earnings (loss) for a more complete analysis of the Company’s profitability, as
      net earnings (loss) includes the financial statement impact of these items
      and
      is the most directly comparable GAAP operating performance measure to EBITDA.
      As
      EBITDA is not defined by GAAP, the Company’s definition of EBITDA may differ
      from and therefore may not be comparable to similarly titled measures used
      by
      other companies, thereby limiting its usefulness as a comparative measure.
      Because of the limitations that EBITDA has as an analytical tool, investors
      should not consider it in isolation, or as a substitute for analysis of the
      Company’s operating results as reported under GAAP.





***Net
      Revenue***





Net
      revenue for the year ended December 25, 2006 was $53.44 million, an increase
      of
      $9.26 million, or 20.96%, as compared to $44.18 million for the prior
      year.





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





***Cost
      of goods sold***





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





14




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





***Selling
      and distribution expenses***





Selling
      and distribution expenses consist primarily of salaries, commissions and
      associated employee benefits, travel expenses of sales and marketing personnel
      and promotional expenses.





For
      the
      year ended December 25, 2006, selling and distribution expenses increased 45.83%
      to $1.05 million from $0.72 million in 2005. The increase was primarily due
      to
      the expansion
      of marketing activities and the higher levels of travel expense and related
      headcount increases .





***General
      and administrative expenses***





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





***Loss
      on Fair Value Adjustments to Embedded Derivatives***





The
      Company issued Series A Redeemable Convertible Preferred Stock in July 2005,
      together with 3,157,895 warrants to purchase Class A Common Stock resulting
      in
      aggregate proceeds of $6 million. The Company also issued Series B Redeemable
      Convertible Preferred Stock in December 2005, together with 2,968,750 warrants
      to purchase Class A Common Stock resulting in aggregate proceeds of $9.5
      million. T he
      fair
      value of each instrument was recorded as a derivative liability on our balance
      sheet. The corresponding gain or loss, which was non-cash in nature, from
      changes in the fair values of these instruments was recorded in our statement
      of
      income. For the year ended December 25, 2006, the loss in this regard was $1.43
      million. For the corresponding period of 2005, the loss in this regard was
      $4.06
      million.





***VAT
      refund***





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





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





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





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





***EBITDA***





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





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





15




***Fourth
      Quarter Adjustments***





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





**YEAR
      ENDED DECEMBER 25, 2005 COMPARED TO YEAR ENDED DECEMBER 25, 2004**





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





***Net
      Revenue***





Net
      revenue for the year ended December 25, 2005 was $44.18 million, an increase
      of
      $4.96 million, or 12.64%, as compared to $39.22 million for the prior
      year.





Approximately
      90% of the increase was due to the growth in market demand for flour and instant
      noodles, and the remaining 10% of the increase derived from the addition of
      the
      soybean products business. The selling prices for all our products remained
      stable.





***Cost
      of goods sold***





For
      the
      year ended December 25, 2005, cost of goods sold was $36.15 million, an increase
      of $4.26 million, or 13.37%, as compared to $31.89 million for 2004. The
      increase was primarily due to the growth of business.





For
      the
      year ended December 25, 2005, as a percentage of revenue, cost of goods sold
      increased slightly to 81.83% as compared to 81.30% for that of the prior year.
      For the year ended December 25, 2005, gross margin decreased slightly to 18%
      as
      compared to 19% for the prior year.





***Selling
      and distribution expenses***





Selling
      and distribution expenses consist primarily of salaries, commissions and
      associated employee benefits, travel expenses of sales and marketing personnel
      and promotional expenses.





For
      the
      year ended December 25, 2005, selling and distribution expenses decreased 38.80%
      to $0.72 million from $1.18 million in 2004. The decrease was primarily due
      to
      cost controls implemented in early 2005. To control costs, the Company has
      proposed and implemented more effective staffing of our facilities, restricted
      traveling costs and developed a more efficient sales methodology.





***General
      and administrative expenses***





For
      the
      year ended December 25, 2005, general and administrative expenses increased
      $0.75 million to $2.36 million from $1.61 million of 2004. The increase was
      primarily due to expenses paid for public relations efforts and promotional
      activities implemented during 2005. In 2005, the Company successfully completed
      two private placements to raise $15.5 million. The Company also acquired the
      Soybean plant and the Longyuan plant to expand its business and, in connection
      therewith, the Company incurred various professional fees, which were recorded
      as G&A expenses.





***Loss
      on Fair Value Adjustments to Embedded Derivatives***





The
      Company issued Series A Redeemable Convertible Preferred Stock in July 2005,
      together with 3,157,896 warrants to purchase Class A Common Stock resulting
      in
      aggregate proceeds of $6 million. The Company also issued Series B Redeemable
      Convertible Preferred Stock in December 2005, together with 2,968,750 warrants
      to purchase Class A Common Stock resulting in aggregate proceeds of $9.5
      million. The fair value of each instrument was recorded as a derivative
      liability on our balance sheet. The corresponding gain or loss, which was
      non-cash in nature, from changes in the fair values of these instruments was
      recorded in our statement of income. For the year ended December 25, 2005,
      the
      loss in this regard was $4,064,000.





16




For
      the
      corresponding period of 2004, we did not issue any redeemable convertible
      preferred stock and there were no similar charges to the statements of
      income.





***VAT
      refund***





VAT
      refund increased $0.68 million to $2.16 million for the year ended December
      25,
      2005 as compared to $1.48 million for the year ended December 25, 2004. This
      primarily represents the tax refund from the municipal government to encourage
      foreign investment.





***Net
      income***





For
      the
      year ended December 25, 2005, net income was $2.0 million, or $0.02 per share,
      a
      decrease of $0.65 million, or 56.99% as compared to $4.65 million for 2004.
      The
      decrease was primarily due to accretion of redeemable preferred stock during
      the
      period.





For
      the
      year ended December 25, 2005, as a percentage of revenue, net income decreased
      to 3.95% as compared to 11.84% for that of the prior year. The decrease was
      primarily due to the accretion of redeemable preferred stock during the
      period.





***EBITDA***





EBITDA
      increased $1,462,000, or 20%, to $8,659,000 for the year ended December 25,
      2005
      as compared to $7,197,000 for the year ended December 25, 2004. Such increase
      was in consistent with our business growth.





**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS**





On
      July
      11, 2005, we issued 6,000 shares of Series A 7% Convertible Preferred Stock
      (“Series A Preferred Stock”), convertible into an aggregate of 6,315,789 shares
      of Class A Common Stock at a conversion price of $0.95 per share, raising $6.0
      million in gross proceeds.





On
      December 22, 2005, we issued 9,500 shares of Series B 7% Convertible Preferred
      Stock (“Series B Preferred Stock”), convertible into an aggregate of 5,937,500
      shares of Class A Common Stock at a conversion price of $1.60 per share, raising
      $9.5 million in gross proceeds.





The
      key
      terms of the Series A Preferred Stock and Series B Preferred Stock are as
      follows:





Series
                A Preferred Stock
            
            Series
                B Preferred StockPreferred
                Dividend
            7%
                per annum, payable quarterly in arrears in cash or, at the Company’s
                option subject to satisfaction of certain conditions, shares of Class
                A
                Common Stock valued at 95% of the volume-weighted current market
                price.
            
            7%
                per annum, payable quarterly in arrears in cash or, at the Company’s
                option subject to satisfaction of certain conditions, shares of Class
                A
                Common Stock valued at 95% of the volume-weighted current market
                price.Redemption
            July
                11, 2010
              
              Beginning
                on the 24th month following closing and each month thereafter, the
                Company
                shall redeem 1/37th of the face value of the Preferred Stock in either
                cash or Class A Common Stock valued at 90% of the volume-weighted
                current
                market price.
            
            December
                22, 2010
              
              Beginning
                at the end of the 24th month following closing and on each third
                monthly
                anniversary of that date (quarterly) thereafter, the Company shall
                redeem
                1/13th of the face value of the Preferred Stock in either cash or
                Class A
                Common Stock valued at 90% of the volume-weighted current market
                price.Mandatory
                Conversion
            The
                Company may at any time force the conversion of the Preferred Stock
                if the
                volume-weighted current market price of the Class A Common Stock
                exceeds
                300% of the then applicable conversion price.
            
            The
                Company may at any time force the conversion of the Preferred Stock
                if the
                volume-weighted current market price of the Class A Common Stock
                exceeds
                200% of its price at issuance of the Preferred
                Stock.




17




Registration
            The
                Company shall file to register the underlying Class A common shares
                within
                30 days of the closing date and make its best effects to have the
                Registration declared effective at the earliest date. In the event
                such
                Registration is not continuously effective during the period such
                shares
                are subject to transfer restrictions under the U.S. federal securities
                laws, then (subject to certain exceptions) the holders are entitled
                to
                receive liquidated damages equal to 2.0% of the purchase price of
                the
                Preferred Stock per month.
            
            The
                Company shall file to register the underlying Class A common shares
                with
                30 days of the closing date and make its best effects to have the
                Registration declared effective at the earliest date. In the event
                such
                Registration is not continuously effective during the period such
                shares
                are subject to transfer restrictions under the U.S. federal securities
                laws, then (subject to certain exceptions) the holders are entitled
                to
                receive liquidated damages equal to 2.0% of the purchase price of
                the
                Preferred Stock per month.Anti-dilution
            In
                the event the Company issues at any time while Preferred Stock are
                still
                outstanding Common Stock or any type of securities giving rights
                to Common
                Stock at a price below the Issue Price, the Company agrees to extend
                full-ratchet anti-dilution protection to the investors.
            
            In
                the event the Company issues at any time while Preferred Stock are
                still
                outstanding Common Stock or any type of securities giving rights
                to Common
                Stock at a price below the Issue Price, the Company agrees to extend
                full-ratchet anti-dilution protection to the
                investors.





As
      of
      December 25, 2006, the Company had long-term debt obligations that resulted
      from
      the mandatorily redeemable convertible preferred stock and the pre-determined
      annual fee charged by joint venture partners through February 2009 and other
      commitments and long-term liabilities through August 2049 as
      follows:





Payment
                Obligations By Period2007
            
            2008
            
            2009
            
            2010
            
            2011
            
            Thereafter
            
            Total(In
                thousands)Redeemable
                convertible preferred stock
            
            $
            400
            
            $
            3,162
            
            $
            3,162
            
            $
            3,438
            
            $
            --
            
            $
            --
            
            $
            10,162Pre-determined
                annual fee charged by joint venture partners
            
            
            113
            
            
            113
            
            
            113
            
            
            113
            
            
            113
            
            
            3,823
            
            
            4,388Total
            
            $
            513
            
            $
            3,275
            
            $
            3,275
            
            $
            3,551
            
            $
            113
            
            $
            3,823
            
            $
            14,550





Reconciliation
      of the outstanding payment obligations of redeemable convertible preferred
      stock:




(In
                thousands)Aggregated
                balance as of the issue date
            
            $
            15,500Partial
                redemption of Series A Preferred Stock in 2005
            
            
            (1,900
            )Partial
                redemption of Series A and B Preferred Stock in 2006
            
            
            (3,438
            )$
            10,162





**FINANCIAL
      CONDITION, LIQUIDITY AND CAPITAL RESOURCES**





The
      Company’s primary liquidity needs are to purchase inventories and fund accounts
      receivable and capital expenditures. Historically, the Company has financed
      its
      working capital requirements through a combination of internally generated
      cash,
      and advances from related companies.





The
      Company’s working capital increased $3.01 million to $17.56 million at December
      25, 2006 as compared to $14.55 million at December 25, 2005. The increase was
      primarily due to the growth and profitability of the business and improved
      collections of accounts receivable during the year ended December 25, 2006.
      The
      Company believes that it has adequate sources of liquidity to finance its
      business operations for the foreseeable future.





18




Cash
      and
      cash equivalents were $10.28 million as of December 25, 2006, a decrease of
      $4.05 million as compared to the balance at December 25, 2005 of $14.33 million.
      The decrease was mainly due to the acquisition of Chengdu Plant and the
      establishment of Longyuan Packaging Plant The Company believes that it has
      enough cash available and expects to have enough income from operations to
      operate for the next 12 months.





Net
      cash
      provided by operating activities for the year ended December 25, 2006 was $2.49
      million, as compared to $0.95 million for the year ended December 25, 2005.
      The
      increase was due to the increases in revenue combined with better account
      receivable collections. Net cash provided by financing activities of $0.90
      million for the year ended December 25, 2006 was primarily due to the proceeds
      from the exercise of option to purchase 1 million shares of common stocks.





Net
      cash
      used in investing activities for the year ended December 25, 2006 was $9.36
      million, which was mainly due to the acquisition of Chengdu Plant and the
      establishment of Longyuan Packaging Plant.





***Off-balance
      sheet arrangements***





We
      have
      never entered into any off-balance sheet financing arrangements and have not
      formed any special purpose entities. We have not guaranteed any debt or
      commitments of other entities or entered into any options on non-financial
      assets.





**INFLATION
      AND CHANGING PRICES**





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





**CRITICAL
      ACCOUNTING POLICIES**





Our
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these consolidated financial statements requires us to make
      estimates, judgments and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses, and the related disclosure of contingent
      assets and liabilities. We base our estimates on historical experience and
      on
      various other assumptions that we believe are reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying values of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates.





An
      accounting policy is considered to be critical if it requires an accounting
      estimate to be made based on assumptions about matters that are highly uncertain
      at the time the estimates are made, and if different estimates that reasonable
      could have been used, or changes in the accounting estimates that are reasonably
      likely to occur, could materially impact the consolidated financial statements.
      We believe the following critical accounting policies reflect the more
      significant estimates and assumptions used in the preparation of the
      consolidated financial statements.





Management
      believes that the following reflect the more critical accounting policies that
      currently affect our financial condition and results of operations.





***Revenue
      recognition***





Our
      revenues are generated from sales of flour and instant noodle. All of our
      revenue transactions contain standard business terms and conditions. We
      determine the appropriate accounting for these transactions after considering
      (1) whether a contract exists; (2) when to recognize revenue on the
      deliverables; and (3) whether all elements of the contract have been fulfilled
      and delivered. In addition, our revenue recognition policy requires an
      assessment as to whether collection is reasonably assured, which inherently
      requires us to evaluate the creditworthiness of our customers. Changes in
      judgments on these assumptions and estimates could materially impact the timing
      or amount of revenue recognition.





***Accounting
      for Derivative Instruments***





Statement
      of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in our Series A & B Preferred Stock, are separately
      valued and accounted for on our balance sheet. Where market prices are not
      readily available, fair values are determined using market based pricing models
      incorporating readily observable market data and requiring judgment and
      estimates.





19




The
      pricing model we use for determining fair values of our derivatives is a
      combination of the Black Scholes and Binomial Pricing Models. Valuations derived
      from this model are subject to ongoing internal and external review. The model
      uses market-sourced inputs such as interest rates, exchange rates, and option
      volatilities. Selection of these inputs involves management's judgment and
      may
      impact net income. The Company has obtained a valuation report from a valuation
      firm to support its estimates.





In
      September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
      "Accounting for Derivative Financial Instruments Indexed to and Potentially
      Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
      contracts that are settled in a company's own stock, including common stock
      warrants, to be designated as an equity instrument, asset or a liability. Under
      the provisions of EITF 00-19, a contract designated as an asset or a liability
      must be carried at fair value on a company's balance sheet, with any changes
      in
      fair value recorded in the company's results of operations. A contract
      designated as an equity instrument must be included within equity, and no fair
      value adjustments are required. In accordance with EITF 00-19, in August 2006,
      we determined that several of the outstanding warrants to purchase our common
      stock and the embedded conversion feature of our financial instruments, should
      be separately accounted for as liabilities. We have recorded the fair value
      of
      these warrants and conversion features on our balance sheet and record
      unrealized changes in the values of these derivatives in our consolidated
      statement of operations as “(Loss) on fair value adjustments to embedded
      derivatives” for the year ended December 25, 2006.





***Stock-Based
      Compensation***





On
      December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
      Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based
      Compensation” and supercedes APB Opinion No. 25, “Accounting for Stock
      Issued to Employees.” SFAS No. 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on the grant date fair value of the award. SFAS
      No.
      123R was to be effective for interim or annual reporting periods beginning
      on or
      after June 15, 2005, but in April 2005 the SEC issued a rule that will permit
      most registrants to implement SFAS No. 123R at the beginning of their next
      fiscal year, instead of the next reporting period as required by SFAS No. 123R.
      The pro forma disclosures previously permitted under SFAS No. 123 no longer
      will
      be an alternative to financial statement recognition. Under SFAS No. 123R,
      we
      must determine the appropriate fair value model to be used for valuing
      share-based payments, the amortization method for compensation cost and the
      transition method to be used at date of adoption. The transition methods include
      prospective and retroactive adoption options. Under the retroactive options,
      prior periods may be restated either as of the beginning of the year of adoption
      or for all periods presented. The prospective method requires that compensation
      expense be recorded for all unvested stock options and restricted stock at
      the
      beginning of the first quarter of adoption of SFAS No. 123R, while the
      retroactive methods would record compensation expense for all unvested stock
      options and restricted stock beginning with the first period restated. We have
      adopted the requirements of SFAS No. 123R for the fiscal year beginning on
      December 26, 2005, and recorded the compensation expense for all unvested stock
      options.





***Contractual
      joint ventures*** **





A
      contractual joint venture is an entity established between the Company and
      another joint venture partner, with the rights and obligations of each party
      governed by a contract. Currently, the Company has established three contractual
      joint ventures with three Chinese partners in China, with percentage of
      ownership ranging from 79.64% to 90%. Pursuant to each Chinese joint venture
      agreement, each Chinese joint venture partner is entitled to receive a
      pre-determined annual fee and is not responsible for any profit or loss,
      regardless of the ownership in the contractual joint venture. In view of such
      contracted profit sharing arrangement, the three contractual joint ventures
      are
      regarded as 100% owned by the Company. Hence, the Company’s consolidated
      financial statements include the financial statements of the contractual joint
      ventures.





***Allowance
      for doubtful accounts***





Management
      provides for an allowance for doubtful accounts for those third party trade
      accounts that are not collected within one year. We base our estimate (one
      year)
      on historical experience and on continuous monitoring of customers’ credit and
      settlement. We believe we have reasonable basis for making judgments on the
      allowance for doubtful accounts.





We
      normally grant up to 90 days credit to our customers. We monitor our allowance
      for doubtful accounts on a monthly basis. The provisions and write-offs during
      2006 and 2005 reflect the estimates made by management approximate to the actual
      results. The net profit and loss impact of the provision and write-off on 2006
      and 2005 are $174 and $118, respectively, which have an insignificant impact
      on
      the net income of both years.





20





***Inventory
      Valuation*** **





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





***Recent
      accounting pronouncements***





On
      January 1, 2006, we adopted Statement of Financial Accounting Standards
      (SFAS) No. 123(R), “Share-Based Payment- Revised 2004,” using the modified
      prospective transition method as described in Note 16.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109” (FIN 48). This
      interpretation prescribes a minimum recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. This interpretation
      also
      provides guidance on recognition, measurement, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. The
      interpretation is effective for fiscal years beginning after December 15,
      2006 (i.e., the beginning of our fiscal year 2007). We do not expect that the
      adoption of FIN 48 will have a material impact on our consolidated
      financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines
      fair value, establishes a framework for measuring fair value, and expands
      disclosures about fair value instruments. SFAS 157 does not require any new
      fair value measurements, but applies under other accounting pronouncements
      that
      require or permit fair value measurements. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007 (our fiscal 2008). We believe that implementation of SFAS 157 will
      have little or no impact on our Consolidated Financial Statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans — an amendment of FASB Statements No. 87, 88,
      106, and 132(R)” (SFAS 158). SFAS 158 requires plan sponsors of
      defined benefit pension and other postretirement benefit plans (collectively,
      “postretirement benefit plans”) to fully recognize the funded status of their
      postretirement benefit plans in the statement of financial position, measure
      the
      fair value of plan assets and benefit obligations as of the date of the fiscal
      year-end statement of financial position and provide additional disclosures.
      We
      believe that implementation of SFAS 157 will have little or no impact on
      our Consolidated Financial Statements since we have no applicable plans,.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements (SAB 108), to address
      diversity in practice in quantifying financial statement misstatements.
      SAB 108 requires that we quantify misstatements based on their impact on
      each of our financial statements and related disclosures. On December 30,
      2006, we adopted SAB 108. Our adoption of SAB 108 did not impact our
      financial statements.





**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURE ABOUT MARKET
                RISK.**




We
      may be
      exposed to changes in financial market conditions in the normal course of
      business. Market risk generally represents the risk that losses may occur as
      a
      result of movements in interest rates and equity prices. W e
      currently do not use financial instruments in the normal course of business
      that
      are subject to changes in financial market conditions.





**Currency
      Fluctuations and Foreign Currency Risk**





The
      majority of our
      operations are conducted in the PRC except for some minor export business and
      limited overseas purchases of raw materials. Most of our sales and purchases
      are
      conducted within the PRC in Chinese Renminbi. Hence, the effect of the
      fluctuations of exchange rate is considered minimal to our business
      operations.




Substantially
      all of our revenues and expenses are denominated in Renminbi, which is the
      official currency of China. However, we use the United States dollar for
      financial reporting purposes. Conversion of Renminbi into foreign currencies
      is
      regulated by The People’s Bank of China through a unified floating exchange rate
      system. Although the PRC government has stated its intention to support the
      value of Renminbi, there can be no assurance that such exchange rate will not
      again become volatile or that Renminbi will not devalue significantly against
      the US dollar. Exchange rate fluctuations may adversely affect the value, in
      US
      dollar terms, of the our net assets and income derived from its operations
      in
      the PRC.





21




**Interest
      Rate Risk**





The
      Company does not have significant interest rate risk, as our debt obligations
      are primarily short-term in nature, with fixed interest rates. Our embedded
      derivatives liabilities
      are revalued each accounting period and their fair value can be affected by
      interest rate fluctuations based on changes in the risk free interest rate
      (generally the interest rate on intermediate term obligations of the United
      States Government).





**Credit
      Risk**





We
      have
      not experienced significant credit risk as most of our customers are long-term
      customers with outstanding payment records. Our receivables regularly by
      monitored by our credit manager.





**ITEM
              8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA.**





The
      following financial statements and the footnotes thereto are included in the
      section beginning on page F-1.





1.
            Report
                of Independent Registered Public Accounting
                Firm.


2.
            Consolidated
                Balance Sheets as of December 25, 2006 and
                2005.


3.
            Consolidated
                Statements of Operations for each of the three years in the period
                ended
                December 25, 2006, 2005 and 2004.


4.
            Consolidated
                Statements of Stockholders’ Equity and Comprehensive Income for each of
                the three years in the period endedDecember
                25, 2006, 2005 and 2004.


5.
            Consolidated
                Statements of Cash Flows for each of the three years in the period
                ended
                December 25, 2006, 2005 and 2004.


6.
            Notes
                to Consolidated Financial
                Statements.





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





There
      were no changes in or disagreements with accountants on accounting and financial
      disclosure.





**ITEM
              9A.**
            **CONTROLS
                AND PROCEDURES.******





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting and for the assessment of the effectiveness
      of
      internal controls over financial reporting. The Company's internal control
      system over financial reporting is a process designed under the supervision
      of
      the Company's chief executive officer and chief financial officer to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of the consolidated financial statements in accordance with United
      States generally accepted accounting principles (“US GAAP”).





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





As
      of the
      end of the period covered by this report, we carried out an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Rule 13a-15(e) of the Exchange Act. This evaluation
      was
      done under the supervision and with the participation of our principal executive
      officer and principal financial officer. To make this assessment, we used the
      criteria for effective internal control over financial reporting described
      in
      Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treasury Commission. Based on their evaluation of our
      disclosure controls and procedures, our principal executive officer and
      principal financial officer have concluded that during the period covered by
      this report, such disclosure controls and procedures were not effective to
      detect the inappropriate application of US GAAP as more fully described below.
      This was due to deficiencies that existed in the design or operation of our
      internal control over financial reporting that adversely affected our disclosure
      controls and that may be considered ”material weaknesses". The Public Company
      Accounting Oversight Board has defined a material
      weakness as a "significant deficiency or combination of significant deficiencies
      that results in more than a remote likelihood that a material misstatement
      of
      the annual or interim financial statements will not be prevented or
      detected."





22




We
      identified significant deficiencies in our internal controls and disclosure
      controls related to the application of US GAAP in the Company’s accounting for
      revenue, amortization of land use rights, and timely recording of recurring
      accruals and reserves. These deficiencies, when taken together, resulted in
      a
      conclusion that the Company’s controls suffered from a material
      weakness.





Because
      of the identification of the misapplication of US GAAP, our management has
      concluded that, as of December 25, 2006, our internal controls over financial
      reporting were not effective.





*Remediation
      of Material Weaknesses*





We
      have
      started to formulate a program which we believe will remedy the material
      weaknesses described above.





We
      are
      reviewing and revising our internal accounting policies and procedures,
      increasing the training of our accounting personnel in the application of U.S.
      GAAP, and, as appropriate, expanding the resources allocated to our accounting
      department, including hiring new personnel experienced in the financial
      reporting and the financial control function.





We
      also
      expect to review and, as appropriate, revise our accounting and management
      information systems software. We also expect to increase the areas to be
      reviewed and discussed with the audit committee.





We
      will
      continue these efforts until we are satisfied that all “material weaknesses”
have been eliminated. We expect that resolution of all of these issues will
      take
      several months.





*Changes
      in Internal Control over Financial Reporting*





Except
      as
      set forth above, there have been no changes in our internal control over
      financial reporting that occurred during the  three
      months ended December 25, 2006 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.





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





(a)
      In
      August 2004, the Company appointed a consulting firm to assist the management
      team to strengthen and to document the internal controls and processes with
      the
      objective of full compliance with the Sarbanes-Oxley Act. The project is
      temporarily on hold due to fee re-negotiation and frequent turnover of
      consultants.





23





**PART
      III**





**ITEM
              10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.******




The
      following table sets forth certain information concerning each of our directors
      continuing in office and each of our current executive officers:




**NAME**
            
            **AGE**
            
            **POSITION**
            
            **DIRECTOR
                SINCE**Heng
                Jing Lu
            
            55
            
            Chairman
            
            2003Li
                Xia Wang
            
            48
            
            Director
                and Chief Executive Officer
            
            2003Ling
                Wang
            
            42
            
            Director
                and Vice President
            
            2003Zhi
                Yong Jiang
            
            40
            
            Independent
                Non-Executive Director
            
            2003De
                Lin Yang
            
            52
            
            Independent
                Non-Executive Director
            
            2003Qi
                Xue
            
            54
            
            Independent
                Non-Executive Director
            
            2003Feng
                Ju Chen
            
            51
            
            Independent
                Non-Executive Director
            
            2004Peter
                Mak
            
            45
            
            Chief
                Financial Officer
            
            N/A




The
      business experience during at least the last five years of each of these
      individuals is as follows:




**Mr.
      Heng Jing Lu** ,
      Chairman of the Company, graduated from The Shandong Institute of Economics
      in
      accounting and is a PRC qualified accountant. Before joining the Company on
      December 15, 2003, he had been working in the oil and grain industry for over
      30
      years. Prior to joining the Company, he was the director of the Oil and Grain
      Bureau of Longkou, Shandong PRC where he had worked since 1975. He has extensive
      experience in the management of agricultural and food related enterprises and
      strategic planning. He is primarily responsible for business development and
      overall company management.




**Ms.
      Li Xia Wang** ,
      director and Chief Executive Officer of the Company, graduated from The Shandong
      Institute of Economics in accounting and is a PRC qualified accountant. She
      joined the Longkou Oil & Grain Group Company in 1980 where she has remained,
      her last position being Deputy General Manager. She has over 20 years of
      extensive experience in the field of finance and accounting. She joined as
      a
      director of the Company on December 15, 2003.




**Ms.
      Ling Wang** ,
      director and Vice President of the Company, graduated from Shandong Television
      Broadcast University in economics management. She has been working with the
      subsidiary of the Company since 1981 and her main responsibilities are in
      operation control and internal audit.




**Mr.
      Zhi Yong Jiang** ,
      independent non-executive director of the Company since December 15, 2003,
      currently serves on the audit committee, acting as Chairman. He graduated from
      Yantai Oil & Grain College with a degree in finance & accounting. He had
      been working with Longkou Jinsheng Electronics Co. Ltd since 2000 and prior
      to
      joining the Company, his last position was Vice President of Longkou Soybean
      Food Co., Ltd. He has been working in the accounting and financing field for
      more than 19 years in different industries. He has extensive experience in
      the
      field of finance and accounting.




**Mr.
      De Lin Yang** ,
      independent non-executive director of the Company since December 15, 2003,
      is
      currently the chairman of the Yantai Hong Yuan CPA, a public accounting firm.
      Mr. Yang graduated from Shandong Gan Bu Distance Learning University with a
      bachelor degree in Accounting. He joined the Longkou City Ceramics Factory
      as an
      accountant in 1975 and was promoted to Chief Accountant in 1982. From 1989
      to
      1999, Mr. Yang served as the deputy chairman of the Longkou City CPA. In 2000,
      Mr. Yang joined the Yantai Hong Yuan CPA as the deputy chairman and was promoted
      to the chairman of the firm in 2002.




24




**Mr.
      Qi Xue** ,
      independent non-executive director of the Company since March 15, 2003,
      graduated in 1987 from The Official Institute of Beijing Chemical Industry
      Management with a diploma of higher education specializing in industrial
      accounting. He is an associate member of The Chinese Institute of Certified
      Public Accountants. Since 1999, he has been the Principal of the Longkou Huayu
      Certified Public Accountants Co. Ltd.




**Ms.
      Feng Ju Chen** ,
      independent non-executive director of the Company, graduated from Yantai
      University in business management and is a member of The Chinese Institute
      of
      Certified Public Accountants. She has been the accounting manager of the Audit
      Bureau of Longkou City for more than 20 years. She has extensive experience
      in
      the field of accounting and joined the Company as a director on April 15, 2004.




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





There
      are
      no family relationships between the directors and executive officers.




**Code
      of Ethics** ****




Our
      Board
      of Directors has adopted a Code of Conduct and Ethics (the “Code”) that applies
      to all of our employees, officers and directors. The Code covers compliance
      with
      law; fair and honest dealings with the company, with competitors and with
      others; fair and honest disclosure to the public; and procedures for compliance
      with the Code. You can obtain a copy of the Code by sending a written request
      to
      the attention of Mr. Peter Mak, Suite 2808, International Chamber of Commerce
      Tower, Fuhua Three Road, Shenzhen, PRC.





**Board
      Committees and Designated Directors**





The
      Board
      of Directors has a Compensation Committee, a Nominating Committee and an Audit
      Committee.





*Compensation
      Committee.* The Compensation Committee makes recommendations to the Board of Directors
      concerning salaries and incentive compensation for our officers, including
      our
      Chief Executive Officer, and employees and administers our stock option plans.
      Our Compensation Committee consists of Qi Xue, Feng Ju Chen and Zhi Yong Jiang.
      Compensation decisions during the fiscal year ended December 25, 2006 were
      made
      by all of the directors of the Committee. Each of the members of the Committee
      is independent and none have served as an officer or employee of the
      Company.





*Nominating
      Committee* .  
      Under the rules of the American Stock Exchange (on which our Class A Common
      Stock is listed for trading), nominees for our Board must be selected either
      by
      a nominating committee consisting entirely of independent directors or by a
      majority of the independent directors, acting pursuant to a standing resolution
      governing the nominating process. Given the size of our company and the
      significant committee responsibilities that many directors already have, we
      have
      chosen to assign this function to the independent directors rather than to
      a
      nominating committee. Consequently, our three independent directors, Qi Xue,
      Feng Ju Chen and Zhi Yong Jiang, are responsible for nominations. They act
      pursuant to a standing resolution. To date, the independent directors have
      not
      engaged any third parties to assist them in identifying candidates for the
      Board.





Among
      the
      tasks that our independent directors may undertake in this capacity are these:





-
            Identifying
                and selecting those persons who will be nominees for director.


-
            Considering
                factors relevant to the selection of nominees, including requirements
                of
                law, stock exchange listing standards, matters of character, judgment,
                business experience and areas of expertise, the diversity of the
                Board,
                and other factors.


-
            Recruiting
                appropriate candidates when necessary, and reviewing the qualifications
                of
                any candidates nominated by shareholders.


-
            Evaluating
                from time to time the size and composition of the Board and its
                committees.


-
            Evaluating
                the function and performance of the Board and its
                directors.





There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the Company’s board of directors.




25




*Audit
      Committee* .  
      The Audit Committee operates under a written charter. The Audit Committee
      consists of three directors, Qi Xue, Zhi Yong Jiang and Feng Ju Chen, each
      of
      whom meets the independence requirements and standards currently established
      by
      the American Stock Exchange and the SEC. In addition, the Board of Directors
      has
      determined that Mr. Qi Xue is an “audit committee financial expert” and
“independent” as defined under the relevant rules of the SEC and the
      American Stock Exchange. The Audit Committee assists the Board of Directors
      in
      fulfilling its oversight of the quality and integrity of the Company’s financial
      statements and the Company’s compliance with legal and regulatory requirements.
      The Audit Committee is responsible for retaining (subject to stockholder
      ratification) and, as necessary, terminating, the independent auditors, annually
      reviews the qualifications, performance and independence of the independent
      auditors and the audit plan, fees and audit results, and pre-approves audit
      and
      non-audit services to be performed by the auditors and related fees. The Audit
      Committee also oversees the performance of the Company’s internal audit and
      compliance functions.





**Section 16(a) Beneficial
      Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
      requires our executive officers and directors and persons who own more than
      10%
      of a registered class of our equity securities to file with the Securities
      and
      Exchange Commission initial statements of beneficial ownership, reports of
      changes in ownership and annual reports concerning their ownership of common
      stock and other of our equity securities, on Forms 3, 4 and 5 respectively.
      Based on Company records and other information, we believe that all SEC filing
      requirements applicable to our directors and executive officers were complied
      with for 2006.





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





**COMPENSATION
      DISCUSSION AND ANALYSIS**





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





**Compensation
      Objectives**





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





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





**Elements
      of Compensation**





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




26




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





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





**Determination
      of Compensation**





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





The
      following table sets forth the cash and other compensation paid by us in 2006
      to
      all individuals who served as our chief executive officer and chief financial
      officer, who we collectively refer to as the named executive officers (“NEOs”).
      No other executives received total compensation greater than $100,000 in
      2006.





**Summary
      Compensation Table**





**Name
                and Principal Position**
            **Year**
            **Salary**
                **($)**
            **Option********Awards**
                **($)**
            **Total**
                **($)****Li
                Xia Wang**(i)
              Chief
                Executive Officer
              and
                Director
            2006
            20,000
            --
            20,000**Peter
                Mak**(ii)
              Chief
                Financial Officer
            2006
            180,000
            2,320,000(iii)
              5,820,000(iv)
            8,320,000





(i)
      Li
      Xia Wang was promoted to CEO of the Company in 2004. She is a Chinese national
      and is entitled to an annual base salary of $20,000 per annum. Ms. Wang was
      granted no stock options in 2006.





(ii)
      Peter Mak joined the company as CFO in 2004. He is a Hong Kong expatriate.
      His
      annual base salary is $180,000. Pursuant to his employment agreement, Mr. Mak
      was granted options to purchase up to 400,000 shares of the Company’s Class A
      common stock, par value $0.0001 per share (the “Common Stock”) at an exercise
      price of $1.00 per share. On June 22, 2005, the Company and Mr. Mak amended
      the
      Employment Agreement by entering into a Supplementary Agreement (the “Employment
      Supplement”) in order to extend the contractual term of his employment. Pursuant
      to the terms of the Employment Supplement, Mr. Mak was granted additional
      options to purchase up to 600,000 shares of Common Stock at an exercise price
      of
      $1.20 per share. All such options have fully vested and been exercised, and
      the
      underlying shares were resold into the public market.





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





27




(iv)
      On
      December 13, 2006, the Company and Mr. Mak entered into an Option Agreement
      whereby the Company granted options to purchase up to 6,000,000 shares of Common
      Stock, which options are fully vested on
      the
      same day, at an exercise price of $1.82 per share. Mr. Mak may exercise the
      options without tendering cash consideration by surrendering shares then
      issuable upon exercise of the options having a fair market value on the date
      of
      exercise equal to the aggregate exercise price of the exercised
      options.





**Grants
      of Plan-Based Awards**




**Name**
            **Grant
                Date**
            **Approval
                Date**
            **All
                Other Option Awards: Number of Securities Underlying**
              **Options
                (#)**
            **Exercise
                or Base Price of Option Awards**
              **($/Sh)**
            **Grant
                Date Fair Value of Stock and Option Awards**
              **($)**
            **Grant
                Date****Fair Market****Value of****a Share**
              **($/Sh)**Li
                Xia Wang
            --
            --
            --
            --
            --
            --Peter
                Mak
            January
                20, 2006
              December
                13, 2006
            January
                20, 2006
              December
                19, 2006 (2)
            2,000,000
                (1)
              6,000,000
                (3)
            $1.60
              $1.82
            $2,320,000
              $5,820,000
            $1.16
                (4)
              $0.97
                (4)





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





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





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





(3)
      Options to purchase up to 6 million shares of common stock





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





(4)
      Determination of Grant Date Fair Value





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





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





28





**Outstanding
      Equity Awards At Fiscal Year-end**





**Name**
            **Number
                of**
              **Securities
                Underlying**
              **Unexercised
                Options (#)**
              **Exercisable**
            **Number
                of**
              **Securities
                Underlying**
              **Unexercised
                Options (#)**
              **Unexercisable**
            **Option
                Exercise**
              **Price
                ($)**
            **Option
                Expiration**
              **Date**Li
                Xia Wang
            --
            --Peter
                Mak
            2,000,000
                --
            --
                6,000,000
                  (1)
            $1.60
                $1.82
            January
                20, 2012
                December
                  13, 2016





(1)
      Any
      exercise of such options is contingent upon the effectiveness of shareholder
      consent, which shall occur no sooner than 20 days following the distribution
      of
      a Definitive Information Statement disclosing the approval of the option
      agreement between the Company and Peter Mak dated December 13,
      2006.





**Option
      Exercises and Stock Vested Table**





During
      the 2006 fiscal year, Peter Mak, our CFO, exercised
      certain of his options which were granted to him during 2004 and
      2005 and purchased 1,000,000 shares of
      Class
      A Common Stock .





The
      following table summarizes stock option exercises by our named executive
      officers in 2006.




**Option
        Awards**


**Name**
            **Number
                of Shares**
              **Acquired
                on**
              **Exercise
                (#)**
            **Value
                Realized on**
              **Exercise**
              **($)**Li
                Xia Wang
            --Peter
                Mak
            1,000,000
            $1,120,000





**Pension
      Benefits**





We
      do not
      sponsor any qualified or non-qualified defined benefit plans.





**Nonqualified
      Deferred Compensation**





We
      do not
      maintain any non-qualified defined contribution or deferred compensation plans.
      Our Compensation Committee, which is comprised solely of “outside directors” as
      defined for purposes of Section 162(m) of the Code, may elect to provide our
      officers and other employees with non-qualified defined contribution or deferred
      compensation benefits if the Compensation Committee determines that doing so
      is
      in our best interests.





**Compensation
      of Directors**





We
      do not
      provide cash or other compensation to our directors for their services as
      members of the Board or for attendance at Board or committee meetings. However,
      our directors will be reimbursed for reasonable travel and other expenses
      incurred in connection with attending meetings of the Board and its committees.





**COMPENSATION
      COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**





None
      of
      the members of the Compensation Committee have any relationship with the Company
      or any of its officers or employees other than in connection with their role
      as
      a director. None of the members of the Compensation Committee have participated
      in any related party transactions with the Company since the beginning of the
      Company’s last fiscal year.





**EMPLOYMENT
      CONTRACTS**





We
      have
      an Employment Contract with Mr. Peter Mak, our Chief Financial Officer. Mr.
      Mak
      is entitled to an annual compensation of US$180,000 per year until December
      31,
      2008 and stock options to acquire 400,000 shares of Class A Common Stock at
      an
      exercise price of $1.00 per share, 600,000 shares of Class A Common Stock at
      an
      exercise price of $1.20 per share, 2,000,000 shares of Class A Common Stock
      at
      an exercise price of $1.60 per share and 6,000,000 shares of Class A Common
      Stock at an exercise price of $1.82 per share. For the year ended December
      25,
      2006, Mr. Mak had exercised options to purchase 1,000,000 shares of Class A
      Common Stock and sold such shares of Class A Common Stock.




29




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





The
      following table sets forth, as of March 9, 2007, certain information concerning
      the beneficial ownership of Common Stock by (i) each stockholder known to us
      to
      beneficially own five percent or more of our outstanding Common Stock; (ii)
      each
      director; (iii) each executive officer; and (iv) all of our executive officers
      and directors as a group, and their percentage ownership and voting power.
      As of
      March 9, 2007, there were 53,614,723 shares of Common Stock
      outstanding.




**Name
                  and Address of Beneficial Owner**
              
              **Amount
                  and Nature of Beneficial Ownership**
              
              **Percent
                  of Class**New
                  Dragon Asia Food Ltd.
                Suite
                  2808, International Chamber of Commerce Tower,
                Fuhua
                  Three Road, Shenzhen, PRC 518048
              
              
              32,323,954
              
              
              60.29
              %Heng
                  Jing Lu†
                Chairman
              
              
              32,323,954(1
              )
              
              60.29%
                  (1
              )Ling
                  Wang†
                Director
                  and Vice President
              
              
              -0-
              
              
              *Zhi
                  Yong Jiang†
                Director
              
              
              -0-
              
              
              *De
                  Lin Yang†
                Director
              
              
              -0-
              
              
              *Qi
                  Xue†
                Director
              
              
              -0-
              
              
              *Feng
                  Ju Chen†
                Director
              
              
              -0-
              
              
              *Peter
                  Mak†
                Chief
                  Financial Officer
              
              
              8,000,000(2)(3
              )
              
              12.95
              %All
                  Directors and Executive Officers (8 people)
              
              
              40,323,954(3
              )
              
              65.45
              %





*
      Less
      than one percent.




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





(1)
      Represents shares owned by New Dragon Asia Food Ltd. Mr. Heng Jing Lu, our
      Chairman, is the holder of record and beneficial holder of 100% of the equity
      interests of New Dragon Asia Food Ltd.




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




(3)
      Includes shares underlying options exercisable for up to 6,000,000 shares at
      an
      exercise price of $1.82 per share pursuant to an option granted on December
      13,
      2006. The options were fully vested upon grant but became exercisable 20 days
      after March 12, 2007, the date of the delivery of a Definitive Information
      Statement to the Company’s stockholders.





**ITEM
              13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS.******





Parties
      are considered to be related if one party has the ability, directly or
      indirectly, to control the other party or exercise significant influence over
      the other party in making financial and operational decisions. Parties are
      also
      considered to be related if they are subject to common control or common
      significant influence. For a summary of certain related party transactions,
      please refer to Note 18 of the Consolidated Financial Statements under the
      heading “Related Party Transactions” for significant details. The comprehensive
      summary of information required by Item 13 is set forth in our Proxy Statement
      under the caption “certain relationships and related transactions” and is
      incorporated herein by this reference.





30




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





The
      Audit
      Committee has selected Grobstein, Horwath & Company LLP as our independent
      accountants for the fiscal year ending December 25, 2006. Grobstein, Horwath
      & Company LLP was our independent accounting firm for the fiscal year ended
      December 25, 2005.





***Public
      Accountants’ fees***





For
      fiscal years ended December 25, 2006 and 2005, fees for services provided by
      Grobstein, Horwath & Company LLP were as follows:





2006
            
            2005Audit
                Fees
            
            $
            138,000
            
            $
            142,000Audit
                Related Fees
            
            $
            100,500
            
            $
            28,500Tax
                Fees
            
            $
            5,000
            
            $
            5,000All
                Other Fees
            
            $
            Nil
            
            $
            Nil





Audit
      Fees were for professional services rendered for the audit of the Company’s
      annual financial statements, the review of quarterly financial statements,
      and
      the preparation of statutory and regulatory filings. Audit-Related Fees relate
      to professional services rendered in connection with employee benefit plan
      audits, accounting consultations, due diligence and audits in connection with
      acquisitions. Tax fees consist of fees billed for professional services for
      tax
      compliance, tax planning and tax advice. These services include assistance
      regarding federal, state and international tax compliance and planning, tax
      audit defense, and mergers and acquisitions. All other fees consist of
      shareholder meeting attendance and printing services. The Audit Committee
      considered and determined that the provision of non-audit services provided
      by
      Grobstein, Horwath & Company LLP is compatible with maintaining the firm’s
      independence.





***Pre-Approval
      Policies and Procedures***





In
      accordance with the SEC’s auditor independence rules, the Audit Committee has
      established the following policies and procedures by which it approves in
      advance any audit or permissible non-audit services to be provided to the
      Company by its independent auditor.





Prior
      to
      the engagement of the independent auditor for any fiscal year’s audit,
      management submits to the Audit Committee for approval lists of recurring audit,
      audit-related, tax and other services expected to be provided by the auditor
      during that fiscal year. The Audit Committee adopts pre-approval schedules
      describing the recurring services that it has pre-approved, and is informed
      on a
      timely basis, and in any event by the next scheduled meeting, of any such
      services rendered by the independent auditor and the related fees.





The
      fees
      for any services listed in a pre-approval schedule are budgeted, and the Audit
      Committee requires the independent auditor and management to report actual
      fees
      versus the budget periodically throughout the year. The Audit Committee will
      require additional pre-approval if circumstances arise where it becomes
      necessary to engage the independent auditor for additional services above the
      amount of fees originally pre-approved. Any audit or non-audit service not
      listed in a pre-approval schedule must be separately pre-approved by the Audit
      Committee on a case-by-case basis.  Every
      request to adopt or amend a pre-approval schedule or to provide services that
      are not listed in a pre-approval schedule must include a statement by the
      independent auditors as to whether, in their view, the request is consistent
      with the SEC’s rules on auditor independence.





The
      Audit
      Committee will not grant approval for:





-
            any
                services prohibited by applicable law or by any rule or regulation of
                the SEC or other regulatory body applicable to the
                Company;


-
            provision
                by the independent auditor to the Company of strategic consulting
                services
                of the type typically provided by management consulting firms;
                or


-
            the
                retention of the independent auditor in connection with a transaction
                initially recommended by the independent auditor, the tax treatment
                of
                which may not be clear under the Internal Revenue Code and related
                regulations and which it is reasonable to conclude will be subject
                to
                audit procedures during an audit of the Company’s financial
                statements.





31




Tax
      services proposed to be provided by the auditor to any director, officer or
      employee of the Company who is in an accounting role or financial reporting
      oversight role must be approved by the Audit Committee on a case-by-case basis
      where such services are to be paid for by the Company, and the Audit Committee
      will be informed of any services to be provided to such individuals that are
      not
      to be paid for by the Company.





In
      determining whether to grant pre-approval of any non-audit services in the
“all
      other” category, the Audit Committee will consider all relevant facts and
      circumstances, including the following four basic guidelines **:**





-
            whether
                the service creates a mutual or conflicting interest between the
                auditor
                and the Company;


-
            whether
                the service places the auditor in the position of auditing his or
                her own
                work;


-
            whether
                the service results in the auditor acting as management or an employee
                of
                the Company; and


-
            whether
                the service places the auditor in a position of being an advocate
                for the
                Company.





32





**PART
      IV**





**ITEM
              15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES******





**(a) 1.** **** **Financial
      Statements**




An
      index
      to Consolidated Financial Statements appears on page F-1.




**2.   
      Schedules**




All
      financial statement schedules are omitted because they are not applicable,
      not
      required under the instructions or all the information required is set forth
      in
      the financial statements or notes thereto.




**(b)** **Exhibits**


**ExhibitNumber**
              **Description**2.1
              Share
                  Exchange Agreement dated as of December 18, 2001 (incorporated
                  herewith by
                  reference from our filing on the Definitive Proxy 14/A filed on
                  October
                  11, 2001).3.1
              Amended
                  Articles of Incorporation (incorporated herewith by reference to
                  Exhibit
                  3.1 to our Definitive Proxy 14/A filed on October 11,
                  2001).3.2
              By-laws
                  (incorporated herewith by reference to Exhibit 3.2 to our Definitive
                  Proxy
                  14/A filed on October 11, 2001).3.3
              Certificate
                  of Designations of Preferences, Rights and Limitations of the Series
                  A 7%
                  Convertible Preferred Stock (incorporated herewith by reference
                  to Exhibit
                  3.1 of our Form 8-K filed on July 12, 2005).3.4
              Certificate
                  of Designations of Preferences, Rights and Limitations of the Series
                  B 7%
                  Convertible Preferred Stock (incorporated herewith by reference
                  to Exhibit
                  3.1 of our Form 8-K filed on December 23, 2005).4.1
              Subscription
                  Agreement, dated September 4, 2003 (incorporated herewith by reference
                  to
                  Exhibit 4.1 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).4.2
              Subscription
                  Agreement, dated October 3, 2003 (incorporated herewith by reference
                  to
                  Exhibit 4.2 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).4.3
              Common
                  Stock Purchase Warrants for the September 4, 2003 Private Placement
                  (incorporated herewith by reference to Exhibit 4.3 to our Registration
                  Statement on Form S-3 filed on October 3, 2003).4.4
              Common
                  Stock Purchase Warrants for the October 3, 2003 Private Placement
                  (incorporated herewith by reference to Exhibit 4.4 to our Registration
                  Statement on Form S-3 filed on October 3, 2003).4.5
              Form
                  of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
                  (incorporated herewith by reference to Exhibit 4.1 to our Form
                  8-K filed
                  on July 12, 2005).
  33


4.6
              Form
                  of Warrant issued to Alliance Financial, LLC, Renaissance Advisors
                  BVI,
                  John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                  (incorporated herewith by reference to Exhibit 4.2 to our Registration
                  Statement on Form S-3 filed on August 11, 2005).4.7
              Securities
                  Purchase Agreement, dated July 11, 2005, relating to the sale of
                  the
                  Series A 7% Convertible Preferred Stock (incorporated herewith
                  by
                  reference to Exhibit 10.1 to our Form 8-K filed on July 12,
                  2005).4.8
              Registration
                  Rights Agreement, dated July 11, 2005, by and among New Dragon
                  Asia Corp.
                  and the investors named therein (incorporated herewith by reference
                  to
                  Exhibit 10.2 to our Form 8-K filed on July 12,
                  2005).4.9
              Form
                  of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
                  (incorporated herewith by reference to Exhibit 4.1 to our Form
                  8-K filed
                  on December 23, 2005).4.10
              Form
                  of Warrant issued to Alliance Financial, LLC, Renaissance Advisors,
                  Inc.,
                  John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                  (incorporated herewith by reference to Exhibit 4.2 to our Registration
                  Statement on Form S-3 filed on January 20, 2006).4.11
              Securities
                  Purchase Agreement, dated December 22, 2005, relating to the sale
                  of the
                  Series B 7% Convertible Preferred Stock (incorporated herewith
                  by
                  reference to Exhibit 10.1 to our Form 8-K filed on December 23,
                  2005).4.12
              Registration
                  Rights Agreement, dated December 22, 2005, by and among New Dragon
                  Asia
                  Corp. and the investors named therein (incorporated herewith by
                  reference
                  to Exhibit 10.2 to our Form 8-K filed on December 23,
                  2005).4.13
              Registration
                  Rights Agreement, dated December 22, 2005, by and among New Dragon
                  Asia
                  Corp. and New Dragon Food Ltd. (incorporated herewith by reference
                  to
                  Exhibit 4.5 to our Registration Statement on Form S-3 filed on
                  January 20,
                  2006).10.1
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
                  Limited, dated June 1, 1999 (incorporated herewith by reference
                  to Exhibit
                  10.1 to our Registration Statement on Form S-3 filed on October
                  3,
                  2003).10.2
              Subcontracting
                  Agreement, for the New Dragon Asia Flour (Yantai) Company Limited,
                  dated
                  June 26, 1999 (incorporated herewith by reference to Exhibit 10.2
                  to our
                  Registration Statement on Form S-3 filed on October 3,
                  2003).10.3
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
                  Limited, dated November 28, 1998 (incorporated herewith by reference
                  to
                  Exhibit 10.3 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).10.4
              Subcontracting
                  Agreement, for the New Dragon Asia Food (Yantai) Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.4 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).10.5
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
                  Limited, dated November 28, 1998 (incorporated herewith by reference
                  to
                  Exhibit 10.5 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).10.6
              Subcontracting
                  Agreement, for the New Dragon Asia Food (Dalian) Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.6 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).10.7
              Sino-Foreign
                  Joint Venture Contract for the Sanhe New Dragon Asia Food Company
                  Limited,
                  dated November 28, 1998 (incorporated herewith by reference to
                  Exhibit
                  10.7 to our Registration Statement on Form S-3 filed on October
                  3,
                  2003).
  34
  10.8
              Subcontracting
                  Agreement, for the Sanhe New Dragon Asia Food Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.8 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).10.9
              Employment
                  Agreement between New Dragon Asia Corp. and Peter Mak, dated November
                  2,
                  2004 (incorporated herewith by reference to Exhibit 10.9 to our
                  Form 8-K
                  filed on June 29, 2005).10.10
              Employment
                  Supplement between New Dragon Asia Corp. and Peter Mak, dated June
                  22,
                  2005 (incorporated herewith by reference to Exhibit 10.9 to our
                  Form 8-K
                  filed on June 29, 2005).10.11
              Supplementary
                  Agreement to Employment Agreement between New Dragon Asia Corp.
                  and Peter
                  Mak, dated January 20, 2006 (incorporated herewith by reference
                  to Exhibit
                  10.10 to our Form 8-K filed on January 24, 2006).10.12
              Equity
                  Incentive Plan (incorporated herewith by reference to Exhibit B
                  to our
                  Definitive Information Statement on Schedule 14C filed on March
                  14,
                  2006).10.13
              Stock
                  Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
                  December 13, 2006 (incorporated herewith by reference to Exhibit
                  10.1 to
                  our Form 8-K filed on December 15, 2006).21.1
              Subsidiaries
                  of New Dragon Asia Corp., filed herewith.23.1
              Consent
                  of Grobstein, Horwath & Company LLP, Independent Registered Public
                  Accounting Firm, filed herewith.31.1
              Certification
                  of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002, filed herewith.31.2
              Certification
                  of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                  of
                  the Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002, filed herewith.32.1
              Certification
                  of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section
                  906 of the
                  Sarbanes-Oxley Act of 2002), filed herewith.32.2
              Certification
                  of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section
                  906 of
                  the Sarbanes-Oxley Act of 2002), filed
                  herewith.




35





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




Dated:
              March 26, 2007
            By:
            /s/ Li
              Xia
              WangName:Li
              Xia WangTitle:
              Chief Executive Officer





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





Dated:
              March 26, 2007
            By:
            /s/ Heng
              Jing
              LuName:Heng
              Jing LuTitle:Chairman


Dated:
                March 26, 2007
              By:
              /s/ Peter
                MakName:Peter
                MakTitle:Chief
                Financial Officer
 Dated:
                    March 26, 2007
                  By:
                  /s/ Ling
                    WangName:Ling
                    WangTitle:Director
 Dated:
                        March 26, 2007
                      By:
                      /s/ De
                        Lin
                        YangName:De
                        Lin YangTitle:Director
 Dated:
                            March 26, 2007
                          By:
                          /s/ Zhi
                            Yong
                            JiangName:Zhi
                            Yong JiangTitle:Director
 Dated:
                                March 26, 2007
                              By:
                              /s/ Qi
                                XueName:Qi
                                XueTitle:Director
 Dated:
                                    March 26, 2007
                                  By:
                                  /s/ Feng
                                    Ju
                                    ChenName:Feng
                                    Ju ChenTitle:Director
  36





**NEW
      DRAGON ASIA CORP.**





**FINANCIAL
      STATEMENTS**





**TABLE
      OF CONTENTS**





Report of Independent Registered Public
              Accounting Firm
            
            F-1Consolidated Balance Sheets as of December
              25, 2006 and 2005
            
            F-2Consolidated
                Statements of Operations for each of the three years in the period
                endedDecember
                25, 2006, 2005 and 2004
            
            F-3Consolidated
                Statements of Stockholders’ Equity and Comprehensive Income for eachof
                the three years in the period ended December 25, 2006, 2005 and
                2004
            
            F-4Consolidated
                Statements of Cash Flows for each of the three years in the periodended
                December 25, 2006, 2005 and 2004
            
            F-5Notes to Consolidated Financial
              Statements
            
            F-7




37




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





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





We
      have
      audited the accompanying consolidated balance sheets of New Dragon Asia Corp.
      and Subsidiaries (the “Company”) as of December 25, 2006 and 2005 and the
      related consolidated statements of operations, stockholders’ equity and
      comprehensive income and cash flows for each of the three years in the period
      ended December 25, 2006. These consolidated financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An
      audit
      also includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of New Dragon
      Asia
      Corp. and Subsidiaries as of December 25, 2006 and 2005, the consolidated
      results of their operations and their cash flows for each of the three years
      in
      the period ended December 25, 2006 in conformity with U.S. generally accepted
      accounting principles.








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





Sherman
      Oaks, California


March
      21,
      2007





F-1





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS** ****


(Amounts
      in thousands, except share data)




**December
                  25,**
                **2006**
              
              **December
                  25,**
                **2005****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              10,276
              
              $
              14,332Accounts
                  receivable, net
              
              
              8,835
              
              
              6,515Deposits
                  and prepayments, net
              
              
              6,586
              
              
              4,970Inventories,
                  net
              
              
              11,598
              
              
              7,630Due
                  from related companies
              
              
              857
              
              
              679Total
                  current assets
              
              
              38,152
              
              
              34,126Deposit
                  for property, machinery and equipment
              
              
              --
              
              
              1,000Property,
                  machinery and equipment, net
              
              
              24,248
              
              
              18,315Land
                  use rights, net
              
              
              6,983
              
              
              3,980Goodwill
              
              
              125
              
              
              --Total
                  assets
              
              $
              69,508
              
              $
              57,421**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,723
              
              $
              2,696Other
                  payables and accruals
              
              
              3,255
              
              
              2,298Taxes
                  payable
              
              
              3,453
              
              
              1,854Due
                  to related companies
              
              
              28
              
              
              598Embedded
                  derivatives at fair value
              
              
              11,138
              
              
              12,135Total
                  current liabilities
              
              
              20,597
              
              
              19,581Due
                  to New Dragon Asia Food Limited
              
              
              317
              
              
              137Due
                  to joint venture partners
              
              
              102
              
              
              54Total
                  liabilities
              
              
              21,016
              
              
              19,772Minority
                  interests
              
              
              276
              
              
              91Series
                A & B Redeemable Convertible Preferred
                Stock, $0.0001 par value:Authorized
                  shares - 5,000,000Issued
                  and outstanding - 10,162 shares and 13,600 shares at December 25,
                  2006 and
                  2005, respectively
              
              
              4,204
              
              
              3,559CommitmentsStockholders’
                  equity:Class
                A Common Stock, $0.0001 par
                value:Authorized
                  shares - 102,000,000Issued
                  and outstanding - 53,614,723 in 2006 and 49,322,291 in
                  2005
              
              
              5
              
              
              5Class
                B Common Stock, $0.0001 par
                value:Authorized
                  shares - 2,000,000 - none issued and outstanding
              
              
              --
              
              
              --Additional
                  paid-in capital
              
              
              28,411
              
              
              15,216Receivable
                  from stockholder
              
              
              --
              
              
              (49
              )Retained
                  earnings
              
              
              12,668
              
              
              18,029Accumulated
                  other comprehensive income
              
              
              2,928
              
              
              798Total
                  stockholders’ equity
              
              
              44,012
              
              
              33,999Total
                  liabilities and stockholders’ equity
              
              $
              69,508
              
              $
              57,421




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




F-2


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




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


(Amounts
      in thousands, except per share data)




**For
                the years ended December 25,****2006**
            
            **2005**
            
            **2004**Net
                revenue
            
            $
            53,439
            
            $
            44,180
            
            $
            39,221Cost
                of goods sold
            
            
            (43,404
            )
            
            (36,151
            )
            
            (31,887
            )Gross
                profit
            
            
            10,035
            
            
            8,029
            
            
            7,334Operating
                expenses:Selling
                and distribution expenses
            
            
            (1,045
            )
            
            (721
            )
            
            (1,178
            )General
                and administrative expenses
            
            
            (10,908
            )
            
            (2,358
            )
            
            (1,611
            )Income/(loss)
                from operations
            
            
            (1,918
            )
            
            4,950
            
            
            4,545Other
                income (expense):Interest
                expense
            
            
            --
            
            
            --
            
            
            (72
            )Other
                income
            
            
            144
            
            
            186
            
            
            (54
            )Interest
                income
            
            
            67
            
            
            10
            
            
            3(Loss)
                on fair value adjustments toembedded
                derivatives
            
            
            (1,434
            )
            
            (4,064
            )
            
            --VAT
                refund
            
            
            2,328
            
            
            2,158
            
            
            1,478Income/(loss)
                before income taxes and minority interests
            
            
            (813
            )
            
            3,240
            
            
            5,900Provision
                for income taxes
            
            
            (1,657
            )
            
            (1,487
            )
            
            (1,296
            )Income/(loss)
                before minority interests
            
            
            (2,470
            )
            
            1,753
            
            
            4,604Minority
                interests
            
            
            (134
            )
            
            (6
            )
            
            41Net
                income/(loss)
            
            $
            (2,604
            )
            $
            1,747
            
            $
            4,645Accretion
                of Redeemable preferred stock
            
            
            (1,882
            )
            
            (454
            )
            
            --Preferred
                Stock Dividends
            
            
            (875
            )
            
            (187
            )
            
            --Income
                (loss) available to common stockholders
            
            $
            (5,361
            )
            $
            1,106
            
            $
            4,645Earnings
                per common shareBasic
            
            $
            (0.10
            )
            $
            0.02
            
            $
            0.10Diluted
            
            $
            (0.10
            )
            $
            0.02
            
            $
            0.10Weighted
                average number of common shares outstandingBasic
            
            
            51,485
            
            
            46,051
            
            
            45,061Diluted
            
            
            51,485
            
            
            46,949
            
            
            45,061





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





F-3


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





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


(Amounts
      in the thousands)




Class
                A
              Common
                StockShares
            
            Amount
            
            Additional
                Paid-in
                Capital
            
            Receivable
                  from Stockholder
            
            Retained
              Earnings
            
            Accumulated
              Other
              Comprehensive
              Income
            
            Total
              Stockholders’
              Equity
            
            Comprehensive
              IncomeBalance
                at December 25, 2003
            
            
            45,061
            
            
            4
            
            
            9,909
            
            
            -
            
            
            12,277
            
            
            -
            
            
            22,190
            
            
            -Net
                income for the year ended December 25, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,645
            
            
            -
            
            
            4,645
            
            
            4,645Balance
                at
              December
                25, 2004
            
            
            45,061
            
            
            4
            
            
            9,909
            
            
            -
            
            
            16,922
            
            
            -
            
            
            26,835
            
            
            -Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,747
            
            
            -
            
            
            1,747
            
            
            1,747Accretion
                of Redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (454
            )
            
            
            
            
            (454
            )Preferred
                Stock Dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (187
            )
            
            
            
            
            (187
            )Stock-based
              compensation
                expense
            
            
            -
            
            
            -
            
            
            105
            
            
            -
            
            
            -
            
            
            -
            
            
            105
            
            
            -Foreign
                currency
              translation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            798
            
            
            798
            
            
            798Preferred
                Stock issuance cost
            
            
            -
            
            
            -
            
            
            565
            
            
            -
            
            
            -
            
            
            -
            
            
            565
            
            
            -Conversion
                of Preferred Stocks and related dividend payments made in Class A
                Common
                Stock
            
            
            2,039
            
            
            0.5
            
            
            2,611
            
            
            -
            
            
            -
            
            
            -
            
            
            2,611.5
            
            
            -Exercise
                of warrants
            
            
            2,222
            
            
            0.5
            
            
            2,025
            
            
            -
            
            
            -
            
            
            -
            
            
            2,025.5
            
            
            -Receivable
                from stockholder
            
            
            -
            
            
            -
            
            
            -
            
            
            (49
            )
            
            -
            
            
            -
            
            
            (49
            )
            
            -Balance
                at
              December
                25, 2005
            
            
            49,322
            
            $
            5
            
            $
            15,216
            
            $
            (49
            )
            $
            18,029
            
            $
            798
            
            $
            33,999
            
            $
            2,545Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,604
            )
            
            -
            
            
            (2,604
            )
            
            (2,604
            )Write
                off receivable from stockholder
            
            
            -
            
            
            -
            
            
            -
            
            
            49
            
            
            -
            
            
            -
            
            
            49Accretion
                of Redeemable preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,882
            )
            
            -
            
            
            (1,882
            )Preferred
                Stock Dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (875
            )
            
            
            
            
            (875
            )Stock-based
              compensation
                expense
            
            
            -
            
            
            -
            
            
            8,140
            
            
            -
            
            
            -
            
            
            -
            
            
            8,140
            
            
            -Foreign
                currency
              translation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,130
            
            
            2,130
            
            
            2,130Conversion
                of Preferred Stocks and related dividend payments made in Class A
                Common
                Stock
            
            
            3,292
            
            
            -
            
            
            3,935
            
            
            -
            
            
            -
            
            
            -
            
            
            3,935
            
            
            -Exercise
                of stock option
            
            
            1,000
            
            
            -
            
            
            1,120
            
            
            -
            
            
            -
            
            
            -
            
            
            1,120
            
            
            -Balance
                at
              December
                25, 2006
            
            
            53,614
            
            $
            5
            
            $
            28,411
            
            $
            -
            
            $
            12,668
            
            $
            2,928
            
            $
            44,012
            
            $
            (474
            )




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




F-4


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Amounts
      in thousands)




**For
                the years ended December 25,****2006**
            
            **2005**
            
            **2004****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            (2,604
            )
            $
            1,747
            
            $
            4,645Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Allowance
                for doubtful accounts
            
            
            83
            
            
            250
            
            
            (218
            )Provision
                for inventory reserve
            
            
            --
            
            
            --
            
            
            (35
            )Depreciation
                and amortization of land use rights
            
            
            1,613
            
            
            1,266
            
            
            1,187Gain
                on disposal of PRC subsidiary
            
            
            --
            
            
            --
            
            
            (162
            )Loss
                (gain) on sale of machinery and equipment
            
            
            --
            
            
            5
            
            
            199(Loss)
                on fair value adjustments to embedded derivatives
            
            
            1,434
            
            
            4,064
            
            
            --Minority
                interests
            
            
            134
            
            
            6
            
            
            (41
            )Stock-based
                compensation expense
            
            
            8,140
            
            
            105
            
            
            --Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (2,340
            )
            
            (351
            )
            
            735Deposits
                and prepayments
            
            
            (1,616
            )
            
            (3,450
            )
            
            (1,242
            )Inventories
            
            
            (3,
                968
            )
            
            (3,
                640
            )
            
            (1,278
            )Due
                from related companies
            
            
            (178
            )
            
            504
            
            
            (706
            )Accounts
                payable
            
            
            14
            
            
            --
            
            
            (1,583
            )Other
                payables and accruals
            
            
            774
            
            
            316
            
            
            920Taxes
                payable
            
            
            1,599
            
            
            363
            
            
            573Due
                to related companies
            
            
            (598
            )
            
            (233
            )
            
            (371
            )Net
                cash provided by operating activities
            
            
            2,487
            
            
            952
            
            
            2,623**Cash
                flows from investing activities:**Acquisition
                of Chengdu Plant
            
            
            (2,414
            )
            
            --
            
            
            --Proceeds
                from sale of property, machinery and equipment
            
            
            --
            
            
            22
            
            
            126Purchases
                of property, machinery and equipment
            
            
            (5,129
            )
            
            (3,395
            )
            
            (2,207
            )Purchases
                of land use rights
            
            
            (2,084
            )
            
            (273
            )
            
            --Minority
                interest
            
            
            266
            
            
            --
            
            
            --Net
                cash provided by (used in) investing activities
            
            
            (9,361
            )
            
            (3,646
            )
            
            (2,081
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of preferred stock
            
            
            --
            
            
            15,500
            
            
            --Payments
                of issuance costs related to preferred stock
            
            
            (58
            )
            
            (1,218
            )
            
            --Preferred
                Stock Dividends
            
            
            (387
            )
            
            (30
            )Repayments
                of short-term borrowings
            
            
            --
            
            
            --
            
            
            (2,676
            )Proceeds
                from parent company
            
            
            --
            
            
            --
            
            
            1,127Repayment
                to parent company
            
            
            180
            
            
            (166
            )
            
            --Repayment
                to joint venture partners
            
            
            48
            
            
            (56
            )
            
            (681
            )Proceeds
                from exercise of warrants
            
            
            --
            
            
            1,977
            
            
            --Proceeds
                from exercise of stock options
            
            
            1,120
            
            
            --
            
            
            --Capital
                contribution from minority interests
            
            
            --
            
            
            --
            
            
            124Net
                cash provided by (used in) financing activities
            
            
            903
            
            
            16,007
            
            
            (2,106
            )Foreign
                currency translation adjustment
            
            
            1,915
            
            
            800
            
            
            --Net
                increase (decrease) in cash and cash equivalents
            
            
            (4,056
            )
            
            14,113
            
            
            (1,564
            )Cash
                and cash equivalents at the beginning of the period
            
            
            14,332
            
            
            219
            
            
            1,783Cash
                and cash equivalents at the end of the period
            
            $
            10,276
            
            $
            14,332
            
            $
            219




F-5




**Non-cash
                Investing and Financing Activities**Conversion
                of preferred stock to common stock
            
            $
            3,438
            
            $
            2,611
            
            $
            --Dividend
                payments on preferred stock in form of common stock
            
            $
            277
            
            $
            72
            
            $
            --**Supplemental
                disclosure of cash flows information:**Interest
                paid
            
            $
            -
            
            $
            -
            
            $
            72Income
                taxes paid
            
            $
            3
            
            $
            1,865
            
            $
            10





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





F-6





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





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





Details
      of the subsidiaries are as follows:





Name
            
            Domicile
                and date of incorporation
            
            Paid-in
                capital
            
            Percentage
                of ownership
            
            Principal
                activitiesMix
                Creation Limited (“MC”)
            
            The
                British Virgin Islands
              November
                7, 1997
            
            US$1,500,000
            
            100%
            
            Investment
                holdingRich
                Delta Limited (“RD”)
            
            The
                British Virgin Islands
              October
                28, 1998
            
            US$1,000,000
            
            100%
            
            Investment
                holdingHero
                Treasure Limited (“HT”)
            
            The
                British Virgin Islands
              April
                19, 2004
            
            US$1
            
            100%
            
            Investment
                holdingKeen
                General Limited
              (“KG”)
            
            The
                British Virgin Islands
              July
                20, 1998
            
            US$1,500,000
            
            100%
            
            Investment
                holdingDelta
                Link Limited
              (“DL”)
            
            The
                British Virgin Islands
              October
                29, 1998
            
            US$1
            
            100%
            
            Investment
                holdingNew
                Dragon Asia Flour (Yantai) Company Limited (“NDAFLY”)
            
            The
                PRC
              August
                13, 1999
            
            RMB28,500,000
            
            90%
                (a)
            
            Manufacture,
                marketing and distribution of flourNew
                Dragon Asia Food (Yantai) Company Limited (“NDAFY”)
            
            The
                PRC
              December
                24, 1998
            
            RMB17,462,000
            
            90%
                (b)
            
            Manufacture,
                marketing and distribution of instant noodlesNew
                Dragon Asia Food (Sanhe) Company Limited (“NDAFS”)
            
            The
                PRC
              December
                25, 1998
            
            RMB51,191,432
            
            79.64%
                (b)
            
            Manufacture,
                marketing and distribution of instant noodlesPenglai
                New Dragon Jin Qiao Food Company Limited (“PNDJQ”)
            
            The
                PRC
              December
                5, 2003
            
            US$850,000
            
            100%
            
            Manufacture,
                marketing and distribution of flourNew
                Dragon Asia (Longkou) Packing Materials Company Limited
                (“NDALPM”)
            
            The
                PRC
              January
                10, 2006
            
            US$3,600,000
            
            100%
            
            Manufacture
                and sale of packing materialsNew
                Dragon Asia (LongKou) Food Company Limited (“NDALS”)
            
            The
                PRC
              March
                17, 2005
            
            RMB16,996,980
            
            100%
            
            Manufacture,
                marketing and distribution of soybean productsShandong
                Xinlongya Industry and Trade Company Limited (“SXDC”)
            
            The
                PRC
              September
                27, 2005
            
            US$404,400
            
            100%
            
            Marketing
                and distribution of instant noodles, flour and soybean
                productsNew
                Dragon Asia Food (Chengdu) Company Limited (“NDAFC)
            
            The
                PRC
              February
                24, 2006
            
            RMB17,430,000
            
            90%
            
            Manufacture,
                marketing and distribution of instant
                noodles




F-7




(a)
      NDAFLY is a contractual joint venture established in the PRC to be operated
      for
      50 years until August 13, 2049. In September 2000, MC contributed 90% of the
      registered capital to NDAFLY. Under the joint venture agreement dated June
      1,
      1999 and the supplemental agreement dated June 26, 1999, the Chinese joint
      venture partner is entitled to receive a pre-determined annual fee and is not
      responsible for any profit or loss of NDAFLY effective from June 26, 1999.
      In
      view of the profit sharing arrangement, NDAFLY is regarded as 100% owned by
      the
      Company. The annual fee has been charged to General and Administrative Expenses
      for the years ended December 25, 2006, 2005 and 2004.





(b)
      NDAFY
      and NDAFS are contractual joint ventures established in the PRC to be operated
      for 50 years until December 24, 2048. In March 1999, RD contributed 90% of
      the
      registered capital to NDAFY, while KG contributed 79.64% of the registered
      capital to NDAFS. Under the joint venture agreements dated November 28, 1998
      and
      the supplemental agreement dated December 26, 1998, the PRC joint venture
      partner is entitled to receive a pre-determined annual fee and is not
      responsible for any profit or loss of NDAFY and NDAFS effective from December
      26, 1998. In view of the profit sharing arrangements, NDAFY and NDAFS are
      regarded as 100% owned by the Company. The annual fees have been charged to
      General and Administrative Expenses for the years ended December 25, 2006,
      2005
      and 2004.





**NOTE
      2. BASIS OF PRESENTATION**





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





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





FIN
      46,
“Consolidation of Variable Interest Entities” requires an investor with a
      majority of the variable interests (primary beneficiary) in a variable interest
      entity (“VIE”) to consolidate the entity. A VIE is an entity in which the voting
      equity investors do not have a controlling financial interest or the equity
      investment at risk is insufficient to finance the entity’s activities without
      receiving additional subordinated financial support from the other parties.
      VIEs
      are required to be consolidated by their primary beneficiaries if they do not
      effectively disperse risks among the parties involved. The primary beneficiary
      of a VIE is the party that absorbs a majority of the entity’s expected losses or
      receives a majority of its expected residual returns. The Company has completed
      a review of its investments in both non-marketable and marketable equity
      interests as well as other arrangements to determine whether it is the primarily
      beneficiary of any VIEs. The review did not identify any VIEs.





The
      consolidated financial statements were prepared in accordance with U.S. GAAP.
      The preparation of financial statements in conformity with U.S. GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, the disclosure of contingent assets and liabilities
      as
      of the date of the financial statements and the reported amounts of revenues
      and
      expenses during the reporting period. The Company regularly evaluates estimates
      and assumptions related to allowances for doubtful accounts, sales returns
      and
      allowance, and inventory reserves. Although management believes these estimates
      and assumptions are adequate and reasonable under the circumstances, actual
      results could differ from those estimates. U.S. GAAP differs from that used
      in
      the statutory financial statements of the major operating subsidiaries of the
      Company, which were prepared in accordance with the relevant accounting
      principles and financial reporting regulations in the PRC. Certain accounting
      principles stipulated under U.S. GAAP are not applicable in the
      PRC.





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





F-8





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





***Revenue
      recognition***





The
      Company recognizes sales in accordance with the United States Securities and
      Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue
      Recognition in Financial Statements” and SAB No. 104, “Revenue Recognition.” The
      Company recognizes revenue when the following fundamental criteria are met:
      (i)
      persuasive evidence of an arrangement exists, (ii) delivery has occurred or
      services have been rendered, (iii) the price to the customer is fixed or
      determinable and (iv) collection of the resulting receivable is reasonably
      assured. Revenue is not recognized until title and risk of loss is transferred
      to the customer, which occurs upon delivery of goods, and objective evidence
      exists that customer acceptance provisions have been met. Provisions for
      discounts and returns are provided for at the time the related sales are
      recorded, and are reflected as a reduction of sales. The Company bases its
      estimates on historical experience taking into consideration the type of
      products sold, the type of customer, and the type of specific transaction in
      each arrangement. Revenues represent the invoiced value of goods, net of value
      added tax (“VAT”).





The
      Company does not offer promotional payments, customer coupons, rebates and
      other
      cash redemption offers to its customers.





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





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





***Shipping
      and Handling Costs***





Shipping
      and handling costs are included in selling expenses for all periods presented.





***Cash
      and cash equivalents***





The
      Company considers cash on hand, deposits in banks, and short-term investments
      purchased with an original maturity date of three months or less to be cash
      and
      cash equivalents.





***Accounting
      for Derivative Instruments***





Statement
      of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in our Series A & B Preferred Stock, are separately
      valued and accounted for on our balance sheet.





The
      pricing model we use for determining fair values of our derivatives is a
      combination of the Black Scholes and Binomial Pricing Models. Valuations derived
      from this model are subject to ongoing internal and external review. The model
      uses market-sourced inputs such as interest rates, and option volatilities.
      Selection of these inputs involves management's judgment and may impact net
      income. The Company has obtained a valuation report from a valuation firm to
      support its estimates.





In
      September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
      "Accounting for Derivative Financial Instruments Indexed to and Potentially
      Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
      contracts that are settled in a company's own stock, including common stock
      warrants, to be designated as an equity instrument,  asset
      or
      a liability. Under the provisions of EITF 00-19, a contract designated as an
      asset or a liability must be carried at fair value on a company's balance sheet,
      with any changes in fair value recorded in the company's results of operations.
      A contract designated as an equity instrument must be included within equity,
      and no fair value adjustments are required. In accordance with EITF 00-19,
      in
      August 2006, we determined that several of the outstanding warrants to purchase
      our common stock and the embedded conversion feature of our financial
      instruments, should be separately accounted for as liabilities. On our financial
      statements for the year ended December 25, 2006 and 2005, we have recorded
      the
      fair value of these warrants and conversion features on our balance sheet and
      record unrealized changes in the values of these derivatives in our consolidated
      statement of operations as “(Loss) gain on fair value adjustments to embedded
      derivatives.”




F-9




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





We
      have
      determined that the conversion features of our redeemable convertible preferred
      stock and warrants to purchase our common stock are derivatives that we are
      required to account for as if they were free-standing instruments under GAAP.
      We
      have also determined that we are required to designate these derivatives as
      liabilities in our financial statements. As a result, we report the value of
      these embedded derivatives as current liabilities on our balance sheet and
      we
      report changes in the value of these derivatives as non-operating gains or
      losses on our statement of operations. The value of the derivatives is required
      to be recalculated (and resulting non-operating gains or losses reflected in
      our
      statement of operations and resulting adjustments to the associated liability
      amounts reflected on our balance sheet) on a quarterly basis, and is based
      on
      the market value of our common stock. Due to the nature of the required
      calculations and the large number of shares of our common stock involved in
      such
      calculations, changes in our common stock price may result in significant
      changes in the value of the derivatives and resulting gains and losses on our
      statement of income. Our common stock price ranged from a low of $1.20 to a
      high
      $2.02 during last six months of 2006. The aggregate balance sheet amount shown
      for these derivatives liabilities accordingly increased from $4,557 at July
      11,
      2005 the date of issuance of the Series A Preferred stock to $11,138 on December
      25, 2006 including both Series A & B Preferred stock. We were required to
      report a change of $1,434 as a (loss) on the embedded derivative liability
      in other income on our statement of operations for the year ended December
      25,
      2006.and a loss of $4,024 in 2005.





***Financial
      instruments***





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





***Accounts
      receivable***





Accounts
      receivable is stated at cost, net of allowance for doubtful accounts. The
      Company provides for an allowance for doubtful accounts for those third party
      trade accounts that are not collected within one year.





Financial
      instruments, which potentially subject the Company to concentration of credit
      risk, consist primarily of trade receivables. However, concentrations of credit
      risk are limited due to the large number of customers comprising the Company’s
      customer base and their dispersion across different business and geographic
      areas. The Company monitors its exposure to credit losses and maintains an
      allowance for anticipated losses. Such losses historically have not been
      significant and have been within management’s expectations. To reduce credit
      risk, the Company performs periodic credit valuations of its customers.





***Inventories***





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





***Property,
      machinery and equipment***





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





The
      Company accounts for long-lived assets, such as property, machinery and
      equipment and purchased intangible assets with finite lives, in accordance
      with
      SFAS No. 144, “Accounting for the impairment or Disposal of Long-Lived Assets”
(“SFAS 144”), which requires impairment losses to be recorded on long-lived
      assets used in operations when indications of impairment are present.
      Determination of recoverability is based on an estimate of undiscounted future
      cash follows resulting from the use of the asset and its eventual disposition.
      Measurement of any impairment loss for long-lived assets that management expects
      to hold and use is based on the amount the carrying value exceeds the fair
      value
      of the assets.





F-10




Assessments
      of whether there has been a permanent impairment in the value of property,
      machinery and equipment are periodically performed by considering factors such
      as expected future operating income, trends and prospects, as well as the
      effects of demand, competition and other economic factors. The Company believes
      no permanent impairment has occurred as of December 25, 2006.





***Land
      use rights***





Land
      use
      rights are stated at cost, less accumulated amortization. Amortization is
      computed using the straight-line method over the estimated useful lives ranging
      from 27 to 50 years.





***Goodwill*** ***and other intangible assets impairment*** **




In
      accordance with SFAS No.142, “Goodwill and Other Intangible Assets,” intangible
      assets with finite lives are subject to amortization, and impairment reviews
      are
      performed in accordance with SFAS No.144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets.” No event has occurred that would trigger an
      impairment assessment of the Company’s intangible assets with finite lives as of
      December 25, 2006.





In
      addition, under these standards, goodwill
      is not amortized, but rather is subject to an annual impairment test. The
      carrying value of the Company’s goodwill
      is evaluated annually. The valuation is based on the comparison of an entity’s
      discounted cash flow (equity valuation) or fair market value to its carrying
      value. If the carrying value exceeds the equity valuation, the goodwill
      is deemed impaired. The equity valuation is based on historical data and
      management estimates of future cash flow. Since the estimates are forward
      looking, actual results could differ materially from those used in the valuation
      process. At December 25, 2006 the Company has $125,000 of goodwill related
      to
      the acquisition of Delta Link Ltd in 2006 and will be subject to annual
      evaluation in 2007.





***Income
      taxes***





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





***Operating
      lease***





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





***Comprehensive
      Income***





SFAS
      No.130, “Reporting Comprehensive Income,” establishes standards for reporting
      and displaying comprehensive income and its components in the consolidated
      financial statements. Accumulated other comprehensive income (loss) includes
      foreign currency translation adjustments.





***Foreign
      currency translation***





On
      July
      21, 2005, the People’s Bank of China announced an upward adjustment in the
      Renminbi (“RMB”) exchange
      rate against the U.S. dollar of 2%. The exchange rate of the Renminbi will
      be
      valued against a number of currencies, rather than just exclusively to the
      United States dollar.





The
      functional currency of the Company is the Chinese Renminbi. However, the Company
      reports in U.S. dollars. The financial statements of the Company’s foreign
      subsidiaries have been translated into U.S. dollars in accordance with SFAS
      No.
      52, “Foreign Currency Translation”. All asset and liability accounts have been
      translated using the exchange rate in effect at the balance sheet date. Equity
      accounts have been translated at their historical exchange rates when the
      capital transaction occurred. Statements of Operations amounts have been
      translated using the average exchange rate for the year. At December 25, 2006,
      the revenues and expenses of the Company were translated to U.S. dollars at
      US$1.00 = RMB 7.9778 and the assets and liabilities of the Company maintained
      in
      Renminbi translated to U.S. dollars at US$1.00 = RMB 7.8221. The foreign
      currency translation adjustment of $2,928,000 has been reported as comprehensive
      income in the consolidated statement of stockholders’ equity and comprehensive
      income.





F-11




Although
      the Chinese government regulations now allow convertibility of RMB for current
      account transactions, significant restrictions still remain. Hence, such
      translations should not be construed as representations that RMB could be
      converted into U.S. dollars at that rate or any other rate.





Substantially
      all our revenue and expenses are denominated in RMB. Our RMB cash inflows are
      sufficient to service our RMB expenditures. For financial reporting purposes,
      we
      use U.S. dollars. The value of RMB against U.S. dollars and other currencies
      may
      fluctuate and is affected by, among other things, changes in China’s political
      and economic conditions. Any significant revaluation of RMB may materially
      affect our financial condition in terms of U.S. dollar reporting.





***Earnings
      per share***





The
      Company computes earnings per share (“EPS’) in accordance with Statement of
      Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
      and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS
      No. 128 requires companies with complex capital structures to present basic
      and diluted EPS.  Basic EPS is measured as the income or loss available to
      common shareholders divided by the weighted average common shares outstanding
      for the period.  Diluted EPS is similar to basic EPS but presents the
      dilutive effect on a per share basis of potential common shares (e.g.,
      convertible securities, options and warrants) as if they had been converted
      at
      the beginning of the periods presented, or issuance date, if later. 
Potential common shares that have an anti-dilutive effect (i.e., those that
      increase income per share or decrease loss per share) are excluded from the
      calculation of diluted EPS. Approximately 7,254 dilutive shares on an “as
      converted” basis for the Redeemable Convertible Preferred stock for the twelve
      months ended December 25, 2006 were excluded from the calculation of diluted
      loss per share since their effect would have been anti-dilutive. Approximately
      10,353 dilutive shares on an “as converted” basis for the Redeemable Convertible
      Preferred stock for the twelve months ended December 25, 2005 were excluded
      from
      the calculation of diluted loss per share since their effect would have been
      anti-dilutive. For the years ended December 25, 2004 the potentially dilutive
      securities warrants and options strike prices exceeded the average market price
      of the Company’s shares and would have resulted in a reduction of shares
      outstanding using the treasury stock method and were anti-dilutive.





The
      calculation of diluted weighted average common shares outstanding for the twelve
      months ended December 25, 2006, 2005 and 2004 a is based on the average of
      the
      closing price of the Company’s common stock during such periods applied to
      warrants and options using the treasury stock method to determine if they are
      dilutive. For the year ended December 25,2006 the options and warrants were
      anti
      dilutive. The Redeemable Convertible Preferred stock is included on an “as
      converted “basis when these shares are dilutive.





The
      following table is a reconciliation of the weighted average shares used in
      the
      computation of basic and diluted earnings per share for the periods presented
      (amounts in thousands, except per share data):




**Year Ended December
                  25,****2006**
              
              **2005**
              
              **2004**Income(Loss)
              
              Weighted
                  Average
                    Shares
              
              Per-Share
              
              Income(Loss)
              
              Weighted
                  Average
                    Shares
              
              Per-Share
              
              Income(Loss)
              
              Weighted
                  Average
                    Shares
              
              Per-ShareEarnings
                  per share - basicIncome
                  available to common stockholders
              
              $
              (5,361
              )
              
              51,485
              
              $
              (0.10
              )
              $
              1,106
              
              
              46,051
              
              $
              0.02
              
              $
              4,645
              
              
              45,061
              
              $
              0.10Effect
                  of dilutive securitiesRedeemable
                  Convertible Preferred
                  Stock
              
              
              --
              
              
              --
              
              
              
              
              
              --
              
              
              --
              
              
              
              
              
              --Options
                  and Warrants
              
              
              --
              
              
              --
              
              
              
              
              
              --
              
              
              898
              
              
              
              
              
              --Earnings
                  per share - dilutedIncome
                  available to common stockholders
              
              $
              (5,361
              )
              
              51,485
              
              $
              (0.10
              )
              $
              1,106
              
              
              46,949
              
              $
              0.02
              
              $
              4,645
              
              
              45,061
              
              $
              0.10




F-12




***Stock-Based
      Compensation***





On
      December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
      Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock
      Issued to Employees.” SFAS No. 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on the grant date fair value of the award. SFAS
      No.
      123R was to be effective for interim or annual reporting periods beginning
      on or
      after June 15, 2005, but in April 2005 the SEC issued a rule that will permit
      most registrants to implement SFAS No. 123R at the beginning of their next
      fiscal year, instead of the next reporting period as required by SFAS No. 123R.
      The pro forma disclosures previously permitted under SFAS No. 123 no longer
      will
      be an alternative to financial statement recognition. Under SFAS No. 123R,
      the
      Company must determine the appropriate fair value model to be used for valuing
      share-based payments, the amortization method for compensation cost and the
      transition method to be used at date of adoption. The transition methods include
      prospective and retroactive adoption options. Under the retroactive option,
      prior periods may be restated either as of the beginning of the year of adoption
      or for all periods presented. The prospective method requires that compensation
      expense be recorded for all unvested stock options and restricted stock at
      the
      beginning of the first quarter of adoption of SFAS No. 123R, while the
      retroactive methods would record compensation expense for all unvested stock
      options and restricted stock beginning with the first period restated. The
      Company has adopted the requirements of SFAS No. 123R for the fiscal year
      beginning on December 26, 2006, and recorded the compensation expense for all
      unvested stock options existing prior to the adoption during the
      period.





***Recent
      accounting pronouncements***





On
      January 1, 2006, we adopted Statement of Financial Accounting Standards
      (SFAS) No. 123(R), “Share-Based Payment-Revised 2004,” using the modified
      prospective transition method as described in Note 16.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109” (FIN 48). This
      interpretation prescribes a minimum recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. This interpretation
      also
      provides guidance on recognition, measurement, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. The
      interpretation is effective for fiscal years beginning after December 15,
      2006 (i.e., the beginning of our fiscal year 2007). We do not expect that the
      adoption of FIN 48 will have a material impact on our consolidated
      financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines
      fair value, establishes a framework for measuring fair value, and expands
      disclosures about fair value instruments. SFAS 157 does not require any new
      fair value measurements, but applies under other accounting pronouncements
      that
      require or permit fair value measurements. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007 (our fiscal 2008). We believe that implementation of SFAS 157 will
      have little or no impact on our Consolidated Financial Statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans — an amendment of FASB Statements No. 87, 88,
      106, and 132(R)” (SFAS 158). SFAS 158 requires plan sponsors of
      defined benefit pension and other postretirement benefit plans (collectively,
      “postretirement benefit plans”) to fully recognize the funded status of their
      postretirement benefit plans in the statement of financial position, measure
      the
      fair value of plan assets and benefit obligations as of the date of the fiscal
      year-end statement of financial position and provide additional disclosures.
      We
      believe that implementation of SFAS 157 will have little or no impact on
      our Consolidated Financial Statements since we have no applicable plans,.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements ( SAB 108), to address
      diversity in practice in quantifying financial statement misstatements.
      SAB 108 requires that we quantify misstatements based on their impact on
      each of our financial statements and related disclosures. On December 30,
      2006, we adopted SAB 108. Our adoption of SAB 108 did not impact our
      financial statements.





***Reclassifications***





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





F-13




***Business
      Acquisition and Combination***





**Soy
      Bean Plant**





On
      July
      28, 2005, the Company acquired assets consisting of the plant and machinery
      utilized for the production for soybean-derived products from a state-owned
      enterprise in Shandong for a cash consideration of $2,100,000. The facility
      had
      originally been operated by the Company under a 10-year lease agreement signed
      on April 27, 2005, which was cancelled upon the acquisition of the facility
      in
      July 2005.





The
      soybean business is now operated under New Dragon Asia (LongKou) Food Company
      Limited, the Company’s 100% owned subsidiary.





**Xinlongya
      Distributor**





On
      October 2005, the Company acquired the 100% equity in a state-owned distributor,
      Shandong Xinlongya Industry and Trade Co. Ltd, for a cash consideration of
      $404,000. The distributor has been serving as one of the Company’s distributors.




Allocation
        of Initial Purchase Consideration (in thousands):


Cash
                and cash equivalent
            
            $
            414Accounts
                Receivable
            
            
            25Other
                receivable
            
            
            154Inventory
            
            
            122Fixed
                assets, net
            
            
            70785Accounts
                payable
            
            
            (355
            )Other
                payable
            
            
            (26
            )(381
            )Net
                asset value
            
            $
            404Acquisition
                consideration
            
            $
            404





**Delta
      Link Limited & Chengdu Plant**





On
      February 24, 2006, the Company acquired 100% of the equity interest shares
      of
      Delta Link Ltd. (“Delta Link”) for a cash consideration of $3,300,000. Delta
      Link is a holding company, which owns a 90% equity interest in a noodle
      manufacturing facility in Chengdu, Sichuan Province. The Chengdu Plant serves
      the western China market.





This
      acquisition has been accounted for using the purchase method pursuant to SFAS
      No. 141, “Business Combinations.” The consolidated financial statements include
      the results of operations of these acquired companies commencing as of the
      acquisition date.





In
      connection with the acquisition, the assets acquired and the liabilities assumed
      from Delta Link and the Chengdu Plant were recorded at their fair values on
      the
      consolidated balance sheet. Based on the initial purchase price allocation,
      the
      Company recorded goodwill in the amount of approximately $125,000.





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





Allocation
      of initial purchase consideration (in thousands):




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




F-14




Pro
      forma
      information of this plant as if combined at the beginning of the period is
      not
      presented as the operation of these assets to December 25, 2006 is not
      significant to the consolidated statement of operations.





**NOTE
      4. CONDENSED FINANCIAL STATEMENT INFORMATION**





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





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





Assets
      located outside of China consist primarily of cash and cash equivalents and
      deposits. Liabilities located outside of China consist primarily of preferred
      stock, net of the related beneficial conversion feature and fair value of the
      warrants.





Condensed
      statement of operation information for the year ended December 25, 2006
      consisted of the following (in thousands, restated):





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





See
      Note
      23 for condensed parent company financial information.





**NOTE
      5. ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Accounts
                receivable
            
            $
            9,554
            
            $
            7,408Less:
                Allowance for doubtful accounts
            
            
            (719
            )
            
            (893
            )$
            8,835
            
            $
            6,515




F-15




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





**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            893
            
            $
            775Add:
                provision during the year
            
            
            83
            
            
            250Less:
                write-offs during the year
            
            
            (257
            )
            
            (132
            )Balance
                at the end of the year
            
            $
            719
            
            $
            893





**NOTE
      6. DEPOSITS AND PREPAYMENTS**





Deposits
      and prepayments consist of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Deposits
                for raw materials
            
            $
            6,394
            
            $
            4,350Prepayments
                and advances
            
            
            192
            
            
            620$
            6,586
            
            $
            4,970





**NOTE
      7. INVENTORIES**





Inventories
      consisted of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Raw
                materials (including packing materials)
            
            $
            9,807
            
            $
            6,133Finished
                goods
            
            
            1,895
            
            
            1,63111,702
            
            
            7,764Less:
                Inventory reserve
            
            
            (104
            )
            
            (134
            )$
            11,598
            
            $
            7,630





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





**December
                25,**
              **2006**
            
            **December
                25,2005**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            134
            
            $
            547Add:
                provision during the year
            
            
            -
            
            
            -Less:
                write-offs during the year
            
            
            (30
            )
            
            (413
            )Balance
                at the end of the year
            
            $
            104
            
            $
            134





**NOTE
      8. DUE FROM RELATED COMPANIES**





Due
      from
      related companies consisted of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Due
                from affiliated companies for sales
            
            $
            857
            
            $
            679




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





Property,
      machinery and equipment consisted of the following:




Useful
                Life
            
            **December
                25,**
              **2006**
            
            **December
                25,**
              **2006**(In
                years)
            
            (In
                thousands)
            
            (In
                thousands)Buildings
            
            
            40
            
            $
            12,935
            
            $
            9,967Machinery
                and equipment
            
            
            5-
                12
            
            
            19,067
            
            
            14,66332,002
            
            
            24,630Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (7,754
            )
            
            (6,315
            )$
            24,248
            
            $
            18,315




F-16


Depreciation
      and amortization expense was approximately $1,439,000, $1,151,000 and $1,011,000
      for the years ended December 25, 2006, 2005 and 2004, respectively.




**NOTE
      10. LAND USE RIGHTS**





Land
      use
      rights consisted of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Land
                use rights
            
            $
            7,882
            
            $
            4,705Less:
                Accumulated amortization
            
            
            (899
            )
            
            (725
            )$
            6,983
            
            $
            3,980





Private
      ownership of land is not allowed in Mainland China. Rather, entities acquire
      the
      right to use land for a designated term. As of December 25, 2006 and 2005,
      the
      land use rights consisted of six parcels of land located in Mainland China
      held
      under land use rights of 27 to 50 years through 2025 to 2047.





Amortization
      expense was approximately $174,000, $115,000 and $103,000 for the years ended
      December 25, 2006, 2005 and 2004, respectively.




**NOTE
      11. OTHER PAYABLES AND ACCRUALS**





Other
      payables and accruals consisted of the following:




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005**(In
                thousands)
            
            (In
                thousands)Deposits
                from customers
            
            $
            1,094
            
            $
            502Accruals
                for payroll, bonus and benefits
            
            
            290
            
            
            218Utilities
                and accrued expenses
            
            
            1,871
            
            
            1,578$
            3,255
            
            $
            2,298





**NOTE
      12. TAXATION**





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





For
      the
      years ended December 25, 2006, 2005 and 2004, substantially all of the Company’s
      income was generated in the PRC, which is subject to PRC income taxes at rates
      ranging from 24% to a statutory rate of 33%. Four of the PRC subsidiaries of
      the
      Company will be eligible to be exempt from income taxes for a two-year period
      and then subject to a 50% reduction in income taxes for the next three years,
      starting from their first profitable year. Several PRC subsidiaries receive
      preferential tax rates in regions in which they operate and are also entitled
      to
      partial tax refunds from those tax bureaus.





As
      of
      December 25, 2006, 2005 and 2004, there were no material deferred tax assets
      or
      deferred tax liabilities.





F-17




A
      reconciliation of the provision for income taxes determined at the statutory
      average state and local income tax rate to the Company’s effective income tax
      rate is as follows:





**2006**
            
            **2005**
            
            **2004**Expected
                tax provision
            
            
            33
            %
            
            33
            %
            
            33
            %Non
                deductible expenses:Stock
                compensation
            
            
            (330
            )%
            
            1
            %
            
            0
            %Change
                in fair value of derivatives
            
            
            (58
            )%
            
            41
            %
            
            0
            %Expenses
                outside of China
            
            
            (51
            )%
            
            9
            %
            
            3
            %Governmental
                tax rate effects:Reduction
                for preferential tax rate
            
            
            68
            %
            
            (15
            )%
            
            (6
            )%Impact
                of effective tax holiday and lower factory rates
            
            
            134
            %
            
            (23
            )%
            
            (8
            )%Effective
                tax rate
            
            
            (204
            )%
            
            46
            %
            
            22
            %




**NOTE
      13. REDEEMABLE CONVERTIBLE PREFERRED STOCK**





On
      July
      11, 2005, the Company issued 6,000 shares of Series A 7% Redeemable Convertible
      Preferred Stock (“Series A Preferred Stock”); initially convertible into an
      aggregate of 6,315,789 shares of Class A Common Stock at a conversion price
      of
      $0.95 per share, raising $6 million in gross proceeds. Six-year warrants to
      purchase an aggregate of 3,157,895 shares of Class A Common Stock at an exercise
      price of $1.04 per share were also issued to the investors. As part of the
      compensation to the placement agent, five-year warrants to purchase an aggregate
      of 378,947 shares of Class A Common Stock at an exercise price of $1.04 share
      were also issued. As of December 25, 2006, all of the warrants issued to the
      placement agent were exercised cashlessly and 3,888 shares of Series A Preferred
      Stock were converted into 4,092,633 shares of Class A Common Stock.





On
      December 22, 2005, the Company issued 9,500 shares of Series B 7% Redeemable
      Convertible Preferred Stock (“Series B Preferred Stock”), initially convertible
      into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion
      price of $1.60 per share, raising $9.5 million in gross proceeds. Six-year
      warrants to purchase an aggregate of 2,968,750 shares of Class A Common Stock
      at
      an exercise price of $1.76 per share were also issued to the investors. As
      part
      of the compensation to the placement agent, five-year warrants to purchase
      an
      aggregate of 356,250 shares of Class A Common Stock at an exercise price of
      $1.76 per share were also issued. As of December 25, 2006, 1,450 shares of
      Series B Preferred Stock were converted into 906,250 shares of Class A Common
      Stock, and no warrants were exercised.





The
      key
      terms of the Series A Preferred Stock and Series B Preferred Stock are as
      follows:





Preferred
                Stock A
            
            Preferred
                Stock BPreferred
                Dividend
            7%
                per annum, payable quarterly in arrears in cash or, at the Company’s
                option subject to satisfaction of certain conditions, shares of Class
                A
                Common Stock valued at 95% of the volume-weighted current market
                price.
            
            7%
                per annum, payable quarterly in arrears in cash or, at the Company’s
                option subject to satisfaction of certain conditions, shares of Class
                A
                Common Stock valued at 95% of the volume-weighted current market
                price.Redemption
            July
                11, 2010
            
            December
                22, 2010Mandatory
                Conversion
            Beginning
                on the 24th month following closing and each month thereafter, the
                Company
                shall redeem 1/37th of the face value of the Preferred Stock in either
                cash or Class A Common Stock valued at 90% of the volume-weighted
                current
                market price.
              
              The
                Company may at any time force the conversion of the Preferred Stock
                if the
                volume-weighted current market price of the Class A Common Stock
                exceeds
                300% of the then applicable conversion price.
            
            Beginning
                at the end of the 24th month following closing and on each third
                monthly
                anniversary of that date (quarterly) thereafter, the Company shall
                redeem
                1/13th of the face value of the Preferred Stock in either cash orClass
                A Common Stock valued at 90% of the volume-weighted current market
                price.
              
              The
                Company may at any time force the conversion of the Preferred Stock
                if the
                volume-weighted current market price of the Class A Common Stock
                exceeds
                200% of its price at issuance of the Preferred
                Stock.




F-18




Registration
            The
                Company shall file to register the underlying Class A common shares
                within
                30 days of the closing date and make its best effects to have the
                Registration declared effective at the earliest date. In the event
                such
                Registration is not continuously effective during the period such
                shares
                are subject to transfer restrictions under the U.S. federal securities
                laws, then (subject to certain exceptions) the holders are entitled
                to
                receive liquidated damages equal to 2.0% of the purchase price of
                the
                Preferred Stock per month.
            
            The
                Company shall file to register the underlying Class A common shares
                with
                30 days of the closing date and make its best effects to have the
                Registration declared effective at the earliest date. In the event
                such
                Registration is not continuously effective during the period such
                shares
                are subject to transfer restrictions under the U.S. federal securities
                laws, then (subject to certain exceptions) the holders are entitled
                to
                receive liquidated damages equal to 2.0% of the purchase price of
                the
                Preferred Stock per month.Anti-dilution
            In
                the event the Company issues at any time while Preferred Stock are
                still
                outstanding Common Stock or any type of securities giving right to
                Common
                Stock at a price below the Issue Price, the Company agrees to extend
                full-ratchet anti-dilution protection to the investors.
            
            In
                the event the Company issues at any time while Preferred Stock are
                still
                outstanding Common Stock or any type of securities giving right to
                Common
                Stock at a price below the Issue Price, the Company agrees to extend
                full-ratchet anti-dilution protection to the
                investors.





In
      connection with the issuance of the Redeemable Convertible Series A Preferred
      Stock and Series B Preferred Stock, the Company paid professional fees,
      placement agent fees and associated expenses amounting to $1, 827,000 since
      the
      issuance of the Redeemable Convertible Preferred Stocks. The Company also
      identified freestanding financials instruments included in the issuances that
      were required to be recorded as liabilities. These included the embedded
      conversion feature and warrants included in the Series A & B Preferred Stock
      issuances. The Company has evaluated the fair value of these liabilities using combination
      of the Black Scholes and Binomial Pricing Models. The summary of activity in
      the Series
      A
& B Preferred Stock is as follows:




**Redeemable
        Convertible Preferred Stock**


**Number
                of shares**
            
            **Series
                A**
            
            **Series
                B**
            
            **Combined**Sale
                of Series A Preferred Stock
            
            
            6000
            
            $
            6,000
            
            
            -
            
            $
            6,000Sale
                of Series B Preferred Stock
            
            
            9500
            
            
            -
            
            $
            9,500
            
            
            9,500Expenses
                of Offering
            
            
            -
            
            
            (685
            )
            
            (1,142
            )
            
            (1,827
            )Allocation
                to Derivative Liabilities
            
            
            -
            
            
            (2,500
            )
            
            (3,513
            )
            
            (6,013
            )Conversion
                of Series A Preferred Stock to common stocks
            
            
            (5,338
            )
            
            (3,888
            )
            
            (1,450
            )
            
            (5,338
            )Accretion
                of discount
            
            
            -
            
            
            1,882
            
            
            -
            
            
            1,88210,162
            
            $
            809
            
            $
            3,395
            
            $
            4,204





Embedded
      Derivative s
      relate
      to redeemable convertible preferred stock. We determined that the conversion
      features of our redeemable convertible preferred stock and warrants to purchase
      our common stock are derivatives that we are required to account for as
      freestanding instruments under GAAP. We have also determined that we are
      required to designate these derivatives as liabilities in our financial
      statements. As a result, we report the value of these embedded derivatives
      as
      current liabilities on our balance sheet and we report changes in the value
      of
      these derivatives as non-operating gains or losses on our statement of
      operations. The value of the derivatives is required to be recalculated (and
      resulting non-operating gains or losses reflected in our statement of operations
      and resulting adjustments to the associated liability amounts reflected on
      our
      balance sheet) on a quarterly basis, and is based on the market value of our
      common stock. Due to the nature of the required calculations and the large
      number of shares of our common stock involved in such calculations, changes
      in
      our common stock price may result in significant changes in the value of the
      derivatives and resulting gains and losses on our statement of income. Our
      common stock price ranged from a low of $1.20 to a high $2.02 during last six
      months of 2006. The aggregate balance sheet amount shown for these derivative
      liabilities accordingly increased from $4,557 at July 11, 2005 the date of
      issuance of the Series A Preferred Stock to $11,138 on December 25, 2006
      including both Series A & B Preferred Stock. We were required to
      report a change of $1,434 as (loss) on the embedded derivative liability in
      other income on our statement of operations for the year ended December 25,
      2006.





F-19




The
      pricing model we use for determining fair values of our derivatives is a
      combination of the Black Scholes and Binomial Pricing Models. Valuations derived
      from this model are subject to ongoing internal and external review. The model
      uses market-sourced inputs such as interest rates, and option volatilities.
      Selection of these inputs involves management's judgment and may impact net
      income. The Company has obtained a valuation report from a valuation firm to
      support its estimates. The principal assumption used to value these complex
      freestanding financial instruments was as follows:





Warrants
            
            Embedded
                Conversion FeatureExpected
                life (in years)
            
            Remaining
                  term at valuation date
            
            Remaining
                    Term to conversionor
                  redemption date at each valuation dateExpected
                volatility
            
            
            50
            %
            
            50
            %Risk-free
                interest rate
            
            
            4.59
            %
            
            4.58%
                to 4.96
            %Dividend
                yield
            
            
            0
            
            
            0





The
      Company considered all of the other minor features of the conversion option
      associated with the Company’s Preferred shares, including adjustments for: (i)
      stock dividends and splits, (ii) the sale of the Company’s securities, (iii) the
      subsequent issuance of rights, options, or warrants to Common shareholders,
      and
      (iv) forced conversion and redemption features. We ultimately determined that
      these features were insignificant and did not have a material impact on the
      concluded values of the Series A and Series B Preferred Stock.





The
      changes in the derivative liabilities during the period are as
      follows:





Fair
                Value at issuances
            
            $
            10,259Change
                in value of derivatives during 2005
            
            
            4,064Conversion
                of 1900 shares of Series A Preferred Stock to common stock during
                2005
            
            
            (2,188
            )Fair
                Value at December 25, 2005
            
            $
            12,135Change
                in value of derivatives during the period
            
            
            1,434Conversion
                of 3,438 shares of Series A & B Preferred Stock to common stock during
                2006
            
            
            (2,431
            )Fair
                Value at December 25, 2006
            
            $
            11,138





**NOTE
      14. COMMON STOCK**





On
      September 4, 2003, the Company issued 3,300,000 shares of Class A Common Stock
      for an aggregate purchase amount of $1,650,000 or $0.5 per share. The shares
      were issued pursuant to an exemption provided by Section 4(2) of the Securities
      Act. The purchasers were also issued warrants to purchase 1,650,000 shares
      of
      the Company’s Class A Common Stock, which have a term of 5 years at an exercise
      price of $0.99 per share. As of December 25, 2006, all such warrants have been
      exercised.





On
      October 7, 2003, the Company issued 850,000 shares of Class A Common Stock
      for
      an aggregate purchase amount of $425,000 or $0.50 per share. The shares were
      issued pursuant to an exemption provided by Section 4(2) of the Securities
      Act.
      The purchasers were also issued warrants to purchase 425,000 shares of the
      Company’s Class A Common Stock, which have a term of 5 years and an exercise
      price of $0.979 per share. As of December 25, 2006, warrants to purchase 25,000
      shares of Class A Common Shares were outstanding.





F-20




**NOTE
      15. WARRANTS**





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





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





The
      number of shares of Class A Common Stock issuable under warrants related to
      the
      private placements and respective exercise prices are summarized as
      follows:




Shares
                ofClass ACommon Stock
              IssuableUnder
                Warrants
            
            Exercise
              PriceOctober
                2003 private placement
            
            
            25,000
            
            $
            0.979July
                2005 private placement6-year
                warrants
            
            
            3,157,895
            
            
            1.04December
                2005 private placement6-year
                warrants
            
            
            2,968,750
            
            
            1.765-year
                warrants
            
            
            356,250
            
            
            1.76





**NOTE
      1** **6.
      STOCK-BASED COMPENSATION**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123R, “Share-Based Payment,” which established standards for transactions in
      which an entity exchanges its equity instruments for goods or services. This
      standard requires a public entity to measure the cost of services received
      in
      exchange for an award of equity instruments based on the grant-date fair value
      of the award. The Company adopted the requirements of SFAS No.123R for the
      fiscal year 2006. Because all stock options granted before December 25, 2004
      were fully vested and exercised or expired, no compensation charges were
      recorded in fiscal 2006 for these options. For stock options granted during
      the
      year, the Company used the Black-Scholes option-pricing model to estimate the
      fair value of the options at the date of grant using the following assumptions:





**DECEMBER 25,
                2006**
            
            **DECEMBER 25,
                2005**Life
                (years)
            
            
            6
            
            
            10Dividend
                yield
            
            
            None
            
            
            NoneRisk-free
                interest rate
            
            
            4.55
            %
            
            3.6
            %Volatility
            
            
            50
            %
            
            40
            %





In
      November 2004, options to purchase 400,000 shares of Class A Common Stock were
      issued to an officer at an exercise price of $1.00 per share with a term of
      10
      years. The market price of the Class A Common Stock as of the grant date was
      $0.64 per share. As of December 25, 2006, all of these options were
      exercised.





On
      June
      22, 2005, options to purchase an additional 600,000 shares of Class A Common
      Stock were issued to the same officer at an exercise price of $1.20 per share
      with a term of 10 years. The market price of the Class A Common Stock as of
      the
      grant date was $1.00 per share. As of December 25, 2006, all of these options
      were exercised.





F-21




On
      January 20, 2006, options to purchase an additional 2,000,000 shares of Class
      A
      Common Stock were issued to the same officer at an exercise price of $1.60
      per
      share with a term of 6 years. The market price of the Class A Common Stock
      as of
      the grant date was $1.54 per share. As of December 25, 2006, none of these
      options were exercised. The Company recorded compensation expense of $2,320,000
      based on an estimated fair value of the options of $1.16 per share on January
      20, 2006. The per share fair value of the stock options granted has been
      estimated using the Black-Scholes option-pricing model with the following
      assumptions:




**January
                20,****2006**Life
                (years)
            
            
            6Dividend
                yield
            
            
            NoneRisk
                - free interest rate
            
            
            4.36
            %Volatility
            
            
            89
            %





On
      December 13, 2006, options to purchase an additional 6,000,000 shares of Class
      A
      Common Stock were granted to the same officer at an exercise price of $1.82
      per
      share with a term of 10 years. The options were fully vested upon grant but
      became exercisable 20 days after March 12, 2007, the date of the delivery of
      a
      Definitive Information Statement to the Company’s stockholders.





The
      market price of the Class A Common Stock as of the grant date was $1.82 per
      share. As of December 25, 2006, these options were fully vested but not
      exercisable. The Company recorded compensation expense of $5,820,000 based
      on an
      estimated fair value of the options of $0.97 per share on December 13, 2006,
      the
      grant date. The per share fair value of the stock options granted has been
      estimated using the Black-Scholes option-pricing model with the following
      assumptions:




**December
                13,****2006**Life
                (years)
            
            
            6Dividend
                yield
            
            
            NoneRisk
                - free interest rate
            
            
            4.55
            %Volatility
            
            
            50
            %





The
      following table summarizes outstanding options as at December 25, 2006 and
      related weighted average fair value and life information:





Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise
              Price
                Per Share
            
            Number
                Outstanding
              at
                December 25, 2006
            
            Weighted
                Average
              Fair
                Value
            
            Weighted
                Average
              Remaining
                Life (Years)
            
            Number
                Exercisable
              at
                December 25, 2006
            
            Weighted
                Average
              Exercise
                Price$
                1.60-1.82
            
            
            8,000,000
            
            $
            1.02
            
            
            8.75
            
            
            8,000,000
                *
            
            $
            1.7650





The
      Company recorded compensation expense of $5,740,000 based on the fair value
      of
      the options granted during the year. Any exercise of such options granted on
      December 13, 2006 is contingent upon the effectiveness of shareholder consent,
      which shall occur no sooner than April 1, 2007, 20 days following the
      distribution of a Definitive Information Statement disclosing the approval
      of
      the option agreement between the Company and Peter Mak dated December 13, 2006.
      The Company has no future compensation expenses to record from the option
      outstanding at December 25, 2006 because they were fully vested upon grant
      and
      the compensation has been recorded as of that date. The exercisable options
      have
      an intrinsic value of approximately$300,000 at December 25, 2006.





*
      See the
      fifth paragraph of this footnote regarding the 6,000,000 options issued on
      December 13, 2006.





F-22




**NOTE** **17.
      COMMITMENTS**





***Annual
      fees***





Under
      the
      supplementary joint venture agreements, the Company has committed to pay
      predetermined annual fees of $113,000 to the Chinese joint venture partners
      for
      each of the years in the period from December 26, 1998 to 2049. As of December
      25, 2006, total commitments under these arrangements were as follows (in
      thousands):





2007
            
            
            1132008
            
            
            1132009
            
            
            1132010
            
            
            1132011
            
            
            113Thereafter
            
            
            3,823Total
            
            $
            4,388





**NOTE
      1** **8.
      RELATED PARTY TRANSACTIONS**





Parties
      are considered to be related if one party has the ability, directly or
      indirectly, to control the other party or exercise significant influence over
      the other party in making financial and operational decisions. Parties are
      also
      considered to be related if they are subject to common control or common
      significant influence.





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





**2006**
            
            **2005**
            
            **2004**Sales
                of finished goods to:A
                joint venture partner, Shandong Longfeng Group Company (a)
            
            $
            --
            
            $
            --
            
            $
            2Related
                parties (b)
            
            
            7
            
            
            8
            
            
            33$
            7
            
            $
            8
            
            $
            35Purchases
                of raw materials from related parties (b)
            
            $
            --
            
            $
            --
            
            $
            914Pre-determined
                annual fees charged by joint venture partners:Shandong
                Longfeng Group Company
            
            $
            75
            
            $
            75
            
            $
            72Shandong
                Longfeng Flour Company Limited (b)
            
            
            38
            
            
            36
            
            
            36$
            113
            
            $
            111
            
            $
            108Management
                fees charged by a related party (b)
            
            $
            --
            
            $
            12
            
            $
            --Interest
                expenses paid to a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            --
            
            $
            --
            
            $
            3Rental
                expenses paid to related companies (b)
            
            $
            --
            
            $
            --
            
            $
            120Rental
                income from a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            66
            
            $
            64
            
            $
            64Purchase
                of machinery from a related party (b)
            
            $
            --
            
            $
            70
            
            $
            -





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





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





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




F-23




**NOTE
      1** **9.
      SEGMENT INFORMATION**





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




**2006**
            
            **2005**
            
            **2004**(In
                thousands)Net
                revenue:Instant
                noodles
            
            $
            15,799
            
            $
            15,353
            
            $
            12,909Flour
            
            
            30,263
            
            
            28,827
            
            
            26,312Soybean
            
            
            7,377
            
            
            --
            
            
            --$
            53,439
            
            $
            44,180
            
            $
            39,221Income
                (loss) from operations:Instant
                noodles
            
            $
            1,268
            
            $
            1,336
            
            $
            607Flour
            
            
            5,356
            
            
            3,614
            
            
            3,938Soybean
            
            
            (8,542
            )
            
            --
            
            
            --$
            (1,918
            )
            $
            4,950
            
            $
            4,545Interest
                expenses:Instant
                noodles
            
            $
            --
            
            $
            --
            
            $
            6Flour
            
            
            --
            
            
            --
            
            
            66Soybean
            
            
            --
            
            
            --
            
            
            --$
            --
            
            $
            --
            
            $
            72Depreciation
                and amortization:Instant
                noodles
            
            $
            808
            
            $
            537
            
            $
            587Flour
            
            
            550
            
            
            729
            
            
            600Soybean
            
            
            255
            
            
            --
            
            
            --$
            1,613
            
            $
            1,266
            
            $
            1,187Identifiable
                long-term assets:Instant
                noodles
            
            $
            20,864
            
            $
            11,836
            
            $
            12,031Flour
            
            
            7,377
            
            
            10,459
            
            
            7,889Soybean
            
            
            2,990
            
            
            --
            
            
            --$
            31,231
            
            $
            22,295
            
            $
            19,920





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





No
      single
      customer accounted for more than 5%, 5% and 5% of sales for the years ended
      December 25, 2006, 2005 and 2004, respectively.





**NOTE** **21.
      RETIREMENT PLAN**





As
      stipulated by the regulations of the PRC government, companies operating in
      the
      PRC have defined contribution retirement plans for their employees. The PRC
      government is responsible for the pension liability to these retired employees.
      Commencing from January 1, 2002, the Company was required to make specified
      contributions to the state-sponsored retirement plan at 20% of the basic salary
      cost of their staff. Each of the employees of the PRC subsidiaries is required
      to contribute 6% of his/her basic salary. For the years ended December 25,
      2006,
      2005 and 2004, contributions made by the Company were approximately $315,000,
      $161,000, $122,000, respectively.




F-24





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




Net
                Income (loss)per shareYear
                Ended December 25, 2006
            
            Net
                Revenue
            
            Gross
                Profit
            
            Net
                Income (loss)
            
            Basic
            
            Diluted(In
                thousands, except per share data)First
                Quarter
            
            $
            11,096
            
            $
            1,854
            
            $
            (7,852
            )
            $
            (0.17
            )
            $
            (0.17
            )Second
                Quarter
            
            
            11,544
            
            
            2,172
            
            
            9,087
            
            
            0.16
            
            
            0.15Third
                Quarter
            
            
            12,964
            
            
            2,522
            
            
            4,790
            
            
            0.08
            
            
            0.08Fourth
                Quarter
            
            
            17,835
            
            
            3,487
            
            
            (8,629
            )
            
            (0.17
            )
            
            (0.17
            )$
            53,439
            
            $
            10,035
            
            $
            (2,604
            )Year
                Ended December 25, 2005First
                Quarter
            
            $
            8,282
            
            $
            1,492
            
            $
            588
            
            $
            0.01
            
            $
            0.01Second
                Quarter
            
            
            8,993
            
            
            1,409
            
            
            1,372
            
            
            0.03
            
            
            0.03Third
                Quarter
            
            
            11,645
            
            
            2,157
            
            
            (6,440
            )
            
            (0.14
            )
            
            (0.14
            )Fourth
                Quarter
            
            
            15,260
            
            
            2,971
            
            
            6,227
            
            
            0.14
            
            
            0.13$
            44,180
            
            $
            8,029
            
            $
            1,747





**Fourth
      Quarter Adjustments**





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





**NOTE** **23.
      CONDENSED PARENT COMPANY FINANCIAL INFORMATION**





**BASIS
      OF PRESENTATION**





These
      condensed parent company financial statements have been prepared in accordance
      with Rule
      12-04 of Regulation S-X. New Dragon Asia Corp. is a holding company that
      conducts its operations through its subsidiaries, which are more fully described
      in Note 1.





The
      parent company financial statements have been prepared using the same accounting
      principles and policies described in the notes to the consolidated financial
      statements, with the only exception being that the parent company accounts
      for
      its subsidiaries using the equity method. Refer to the footnotes to the
      consolidated financial statements presented above for additional information
      and
      disclosures with respect to these financial statements.




F-25





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY BALANCE SHEETS**


(Amounts
      in thousands, except share data)




**December
                25,**
              **2006**
            
            **December
                25,**
              **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            355
            
            $
            10,150Other
                receivable
            
            
            20
            
            
            1,069Deferred
                expenses, net
            
            
            33
            
            
            33Total
                current assets
            
            
            408
            
            
            11,252Investment
                in and advances to subsidiaries
            
            
            60,163
            
            
            39,522Total
                assets
            
            $
            60,571
            
            $
            50,774**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Other
                payables and accruals
            
            $
            684
            
            $
            661Dividend
                payable on preferred shares
            
            
            193
            
            
            80Embedded
                derivatives at fair value
            
            
            11,138
            
            
            12,135Total
                current liabilities
            
            
            12,015
            
            
            12,876Due
                to New Dragon Asia Food Limited
            
            
            340
            
            
            340Total
                liabilities
            
            
            12,355
            
            
            13,216Series
              A & B
              Redeemable Convertible Preferred Stock, $0.0001 par value:Authorized
                shares - 5,000,000Issued
                and outstanding - 10,162 shares and 13,600 shares at December 25,
                2006 and
                2005, respectively
            
            
            4,204
            
            
            3,559CommitmentsStockholders’
                equity:Class A
              Common
              Stock, $0.0001 par value:Authorized
              shares -
              102,000,000Issued
              and
              outstanding - 53,614,723 in 2006 and 49,322,291 in 2005
            
            
            5
            
            
            5Class B
              Common
              Stock, $0.0001 par value:Authorized
                shares - 2,000,000 - none issued and outstanding
            
            
            --
            
            
            --Additional
                paid-in capital
            
            
            28,411
            
            
            15,216Receivable
                from stockholder
            
            
            --
            
            
            (49
            )Retained
                earnings
            
            
            12,668
            
            
            18,029Accumulated
                other comprehensive income
            
            
            2,928
            
            
            798Total
                stockholders’ equity
            
            
            44,012
            
            
            33,999Total
                liabilities and stockholders’ equity
            
            $
            60,571
            
            $
            50,774




F-26


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY STATEMENTS OF OPERATIONS**


(Amounts
      in thousands)




**For
                the years ended December 25,****2006**
            
            **2005**
            
            **2004**General
                and administrative expenses
            
            
            (9,558
            )
            
            (1,020
            )
            
            (413
            )Loss
                from operations
            
            
            (9,558
            )
            
            (1,020
            )
            
            (413
            )Other
                income (expense):Interest
                income
            
            
            25
            
            
            9
            
            
            --Loss
                on fair value adjustments toembedded
                derivatives
            
            
            (1,434
            )
            
            (4,064
            )
            
            --Total
                parent only loss
            
            
            (10,967
            )
            
            (5,075
            )
            
            (413
            )Equity
                in subsidiary earnings, net of taxes
            
            
            8,363
            
            
            6,822
            
            
            5,058Net
                income (loss)
            
            $
            (2,604
            )
            $
            1,747
            
            $
            4,645Accretion
                of redeemable preferred stock
            
            
            (1,882
            )
            
            (454
            )
            
            --Preferred
                stock dividends
            
            
            (875
            )
            
            (187
            )
            
            --Income
                (loss) available to common stockholders
            
            $
            (5,361
            )
            $
            1,106
            
            $
            4,645




F-27




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONDENSED
      PARENT COMPANY STATEMENTS OF CASH FLOWS**


(Amounts
      in thousands)




**For
                the years ended December 25,****2006**
            
            **2005**
            
            **2004****Cash
                flows from operating activities:**Total
                parent only loss
            
            $
            (10,967
            )
            $
            (5,075
            )
            $
            (413
            )Adjustments
                to reconcile total parent only loss to net cash provided by operating
                activities:Losson
                fair value adjustments toembedded
                derivatives
            
            
            1,434
            
            
            4,064
            
            
            --Stock-based
                compensation expense
            
            
            8,140
            
            
            105
            
            
            --Changes
                in operating assets and liabilities:Other
                receivable
            
            
            --
            
            
            (1,032
            )
            
            --Other
                payables and accruals
            
            
            24
            
            
            459
            
            
            14Net
                cash provided by (used in) operating activities
            
            
            (1,369
            )
            
            (1,479
            )
            
            (399
            )**Cash
                flows from investing activities:**Investment
                and advances to subsidiaries
            
            
            (11,016
            )
            
            (4,848
            )
            
            --Disposal
                of subsidiaries
            
            
            --
            
            
            --
            
            
            --Net
                cash provided by (used in) investing activities
            
            
            (11,016
            )
            
            (4,848
            )
            
            --**Cash
                flows from financing activities:**Proceeds
                from issuance of preferred stock
            
            
            --
            
            
            15,500
            
            
            --Payments
                of issuance costs related to preferred stock
            
            
            (58
            )
            
            (1,218
            )
            
            --Preferred
                Stock Dividends
            
            
            (387
            )
            
            (30
            )
            
            --Repayment
                to parent company
            
            
            --
            
            
            (550
            )
            
            --Proceeds
                from exercise of warrants
            
            
            --
            
            
            1,977
            
            
            --Proceeds
                from exercise of stock options
            
            
            1,120
            
            
            --
            
            
            --Net
                cash provided by financing activities
            
            
            675
            
            
            15,679
            
            
            --Foreign
                currency translation adjustment
            
            
            1,915
            
            
            798
            
            
            --Net
                increase (decrease) in cash and cash equivalents
            
            
            (9,795
            )
            
            10,150
            
            
            (399
            )Cash
                and cash equivalents at the beginning of the period
            
            
            10,150
            
            
            --
            
            
            399Cash
                and cash equivalents at the end of the period
            
            $
            355
            
            $
            10,150
            
            $
            --




F-28


**EXHIBIT
      INDEX**




**ExhibitNumber**
              **Description**2.1
              Share
                  Exchange Agreement dated as of December 18, 2001 (incorporated
                  herewith by
                  reference from our filing on the Definitive Proxy 14/A filed on
                  October
                  11, 2001).3.1
              Amended
                  Articles of Incorporation (incorporated herewith by reference to
                  Exhibit
                  3.1 to our Definitive Proxy 14/A filed on October 11,
                  2001).3.2
              By-laws
                  (incorporated herewith by reference to Exhibit 3.2 to our Definitive
                  Proxy
                  14/A filed on October 11, 2001).3.3
              Certificate
                  of Designations of Preferences, Rights and Limitations of the Series
                  A 7%
                  Convertible Preferred Stock (incorporated herewith by reference
                  to Exhibit
                  3.1 of our Form 8-K filed on July 12, 2005).3.4
              Certificate
                  of Designations of Preferences, Rights and Limitations of the Series
                  B 7%
                  Convertible Preferred Stock (incorporated herewith by reference
                  to Exhibit
                  3.1 of our Form 8-K filed on December 23, 2005).4.1
              Subscription
                  Agreement, dated September 4, 2003 (incorporated herewith by reference
                  to
                  Exhibit 4.1 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).4.2
              Subscription
                  Agreement, dated October 3, 2003 (incorporated herewith by reference
                  to
                  Exhibit 4.2 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).4.3
              Common
                  Stock Purchase Warrants for the September 4, 2003 Private Placement
                  (incorporated herewith by reference to Exhibit 4.3 to our Registration
                  Statement on Form S-3 filed on October 3, 2003).4.4
              Common
                  Stock Purchase Warrants for the October 3, 2003 Private Placement
                  (incorporated herewith by reference to Exhibit 4.4 to our Registration
                  Statement on Form S-3 filed on October 3, 2003).4.5
              Form
                  of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
                  (incorporated herewith by reference to Exhibit 4.1 to our Form
                  8-K filed
                  on July 12, 2005).
  
  4.6
                Form
                    of Warrant issued to Alliance Financial, LLC, Renaissance Advisors
                    BVI,
                    John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                    (incorporated herewith by reference to Exhibit 4.2 to our Registration
                    Statement on Form S-3 filed on August 11, 2005).4.7
                Securities
                    Purchase Agreement, dated July 11, 2005, relating to the sale
                    of the
                    Series A 7% Convertible Preferred Stock (incorporated herewith
                    by
                    reference to Exhibit 10.1 to our Form 8-K filed on July 12,
                    2005).4.8
                Registration
                    Rights Agreement, dated July 11, 2005, by and among New Dragon
                    Asia Corp.
                    and the investors named therein (incorporated herewith by reference
                    to
                    Exhibit 10.2 to our Form 8-K filed on July 12,
                    2005).4.9
                Form
                    of Warrant issued to Midsummer Investment Ltd. and Islandia,
                    L.P.
                    (incorporated herewith by reference to Exhibit 4.1 to our Form
                    8-K filed
                    on December 23, 2005).4.10
                Form
                    of Warrant issued to Alliance Financial, LLC, Renaissance Advisors,
                    Inc.,
                    John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                    (incorporated herewith by reference to Exhibit 4.2 to our Registration
                    Statement on Form S-3 filed on January 20, 2006).4.11
                Securities
                    Purchase Agreement, dated December 22, 2005, relating to the
                    sale of the
                    Series B 7% Convertible Preferred Stock (incorporated herewith
                    by
                    reference to Exhibit 10.1 to our Form 8-K filed on December 23,
                    2005).4.12
                Registration
                    Rights Agreement, dated December 22, 2005, by and among New Dragon
                    Asia
                    Corp. and the investors named therein (incorporated herewith
                    by reference
                    to Exhibit 10.2 to our Form 8-K filed on December 23,
                    2005).4.13
                Registration
                    Rights Agreement, dated December 22, 2005, by and among New Dragon
                    Asia
                    Corp. and New Dragon Food Ltd. (incorporated herewith by reference
                    to
                    Exhibit 4.5 to our Registration Statement on Form S-3 filed on
                    January 20,
                    2006).10.1
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Flour (Yantai)
                    Company
                    Limited, dated June 1, 1999 (incorporated herewith by reference
                    to Exhibit
                    10.1 to our Registration Statement on Form S-3 filed on October
                    3,
                    2003).10.2
                Subcontracting
                    Agreement, for the New Dragon Asia Flour (Yantai) Company Limited,
                    dated
                    June 26, 1999 (incorporated herewith by reference to Exhibit
                    10.2 to our
                    Registration Statement on Form S-3 filed on October 3,
                    2003).10.3
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
                    Limited, dated November 28, 1998 (incorporated herewith by reference
                    to
                    Exhibit 10.3 to our Registration Statement on Form S-3 filed
                    on October 3,
                    2003).10.4
                Subcontracting
                    Agreement, for the New Dragon Asia Food (Yantai) Company Limited,
                    dated
                    December 26, 1998 (incorporated herewith by reference to Exhibit
                    10.4 to
                    our Registration Statement on Form S-3 filed on October 3,
                    2003).10.5
                Sino-Foreign
                    Joint Venture Contract for the New Dragon Asia Food (Dalian)
                    Company
                    Limited, dated November 28, 1998 (incorporated herewith by reference
                    to
                    Exhibit 10.5 to our Registration Statement on Form S-3 filed
                    on October 3,
                    2003).10.6
                Subcontracting
                    Agreement, for the New Dragon Asia Food (Dalian) Company Limited,
                    dated
                    December 26, 1998 (incorporated herewith by reference to Exhibit
                    10.6 to
                    our Registration Statement on Form S-3 filed on October 3,
                    2003).10.7
                Sino-Foreign
                    Joint Venture Contract for the Sanhe New Dragon Asia Food Company
                    Limited,
                    dated November 28, 1998 (incorporated herewith by reference to
                    Exhibit
                    10.7 to our Registration Statement on Form S-3 filed on October
                    3,
                    2003).
  
  10.8
                Subcontracting
                    Agreement, for the Sanhe New Dragon Asia Food Company Limited,
                    dated
                    December 26, 1998 (incorporated herewith by reference to Exhibit
                    10.8 to
                    our Registration Statement on Form S-3 filed on October 3,
                    2003).10.9
                Employment
                    Agreement between New Dragon Asia Corp. and Peter Mak, dated
                    November 2,
                    2004 (incorporated herewith by reference to Exhibit 10.9 to our
                    Form 8-K
                    filed on June 29, 2005).10.10
                Employment
                    Supplement between New Dragon Asia Corp. and Peter Mak, dated
                    June 22,
                    2005 (incorporated herewith by reference to Exhibit 10.9 to our
                    Form 8-K
                    filed on June 29, 2005).10.11
                Supplementary
                    Agreement to Employment Agreement between New Dragon Asia Corp.
                    and Peter
                    Mak, dated January 20, 2006 (incorporated herewith by reference
                    to Exhibit
                    10.10 to our Form 8-K filed on January 24, 2006).10.12
                Equity
                    Incentive Plan (incorporated herewith by reference to Exhibit
                    B to our
                    Definitive Information Statement on Schedule 14C filed on March
                    14,
                    2006).10.13
                Stock
                    Option Agreement between New Dragon Asia Corp. and Peter Mak,
                    dated
                    December 13, 2006 (incorporated herewith by reference to Exhibit
                    10.1 to
                    our Form 8-K filed on December 15, 2006).21.1
                Subsidiaries
                    of New Dragon Asia Corp., filed herewith.23.1
                Consent
                    of Grobstein, Horwath & Company LLP, Independent Registered Public
                    Accounting Firm, filed herewith.31.1
                Certification
                    of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A)
                    of the
                    Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of the
                    Sarbanes-Oxley Act of 2002, filed herewith.31.2
                Certification
                    of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                    of
                    the Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of
                    the Sarbanes-Oxley Act of 2002, filed herewith.32.1
                Certification
                    of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section
                    906 of the
                    Sarbanes-Oxley Act of 2002), filed herewith.32.2
                Certification
                    of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section
                    906 of
                    the Sarbanes-Oxley Act of 2002), filed
                    herewith.