**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


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





**AMENDMENT
      NO. 1**


**FORM
      10-K/A**


**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, 2005**





**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**
            **(IRS
                Employer Identification No.)****Incorporation
                or Organization)**








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


**Fuhua
      Three Road, Shenzhen, China**


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





**(86
      755) 8831-2115**


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





**Securities
      registered pursuant Section 12(b) of the Exchange Act:** **Class
      A Common Stock, $ 0.0001 par value**





**Securities
      registered pursuant 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





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second fiscal
      quarter. As of June 25, 2005 the aggregate market value of the voting and
      non-voting equity held by non-affiliates was approximately $8.27
      million.





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date. As of March 9, 2006, there were 50,501,988
      shares of Class A Common Stock outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s definitive proxy statement (the “Proxy Statement”) related
      to the 2006 annual meeting of shareholders are incorporated by reference into
      Part III of this Form 10-K.








TABLE
      OF
      CONTENTS





PAGEPART
              IITEM 1A.
            Risk
                Factors
            1PART
              IIITEM 6.
            Selected
                Financial Data
            8ITEM 7.
            Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operation
            8ITEM 8.
            Financial
                Statements and Supplementary Data
            16ITEM 9A.
            Controls
                and Procedures
            16ITEM 9B
            Other
                Information
            16SIGNATURES
            17FINANCIAL
              STATEMENTS
            F-1









**EXPLANATORY
      NOTE**





We
      are
      filing this Amendment No. 1 to Annual Report on Form 10-K/A to (a) amend the
      financial statements and the notes to the financial statements, (b) amend Item
      1A of Part I to amend our Risk Factors, (c) amend Item 7 of Part II to amend
      our
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations and (d) amend Item 9A of Part II to amend our disclosure of internal
      controls and procedures relating to our financial reporting. Except as
      specifically referenced herein, this Amendment No. 1 to Annual Report on Form
      10-K/A does not reflect any event occurring subsequent to March 23, 2006, the
      filing date of the original report












**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****A.
      RISK FACTORS.**





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





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





We
      have
      never declared or paid any dividends on our Class A Common Stock. 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. Ms. Ling Wang, our Vice President and a director, is the holder
      of
      record of 100% of the equity interests of Long Feng Food Overseas Ltd. (“Long
      Feng Food”), which in turn owns 100% of the equity interests of New Dragon
      Pacific Holding Ltd., which in turn holds 100% of the equity interests of New
      Dragon Asia Food Ltd. By virtue of an understanding with Ms. Wang, Mr. Lu has
      sole voting and dispositive control over the shares of Long Feng Food and,
      accordingly, has sole voting and dispositive control of 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, 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.





1


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





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





***Dividend
      Policy***





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





**RISKS
      RELATED TO OUR BUSINESS**





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





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





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





2


***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.





***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.





3


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.





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.





4


***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.





***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.





5


***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.





***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





6


***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.










7





**PART
      II**





**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, 2005, 2004, 2003 and 2002. 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 25,2005
                  restated
              
              2004
              
              2003
              
              2002(in
                  thousand, except per share data)CONSOLIDATED
                  STATEMENTS OF OPERATIONS DATA:
              
              RestatedNet
                  revenues
              
              $
              44,180
              
              $
              39,221
              
              $
              30,773
              
              $
              33,704Operating
                  expenses:Selling
                  and distribution
              
              
              (721
              )
              
              (1,178
              )
              
              (1,330
              )
              
              (1,161
              )General
                  and administrative
              
              
              (2,358
              )
              
              (1,611
              )
              
              (2,398
              )
              
              (601
              )Income
                  from operations
              
              
              4,950
              
              
              4,545
              
              
              2,193
              
              
              4,346(Loss)
                  on fair value adjustments to embedded derivatives
              
              
              (4,064
              )
              
              **--**
              
              
              **--**
              
              
              **--**Income
                  before tax and minority interests
              
              
              3,240
              
              
              5,900
              
              
              3,174
              
              
              4,762Net
                  income
              
              
              1,747
              
              
              4,645
              
              
              2,727
              
              
              4,153Earnings
                  per common shareBasic
              
              
              0.02
              
              
              0.10
              
              
              0.06
              
              
              0.10Diluted
              
              
              0.02
              
              
              0.10
              
              
              0.06
              
              
              0.10Weighted
                  average common shares outstanding:Basic
              
              
              46,051
              
              
              45,061
              
              
              42,108
              
              
              40,911Diluted
              
              
              46,949
              
              
              45,061
              
              
              42,108
              
              
              40,911CONSOLIDATED
                  BALANCE SHEET DATA:Cash
                  and cash equivalents
              
              $
              14,332
              
              $
              219
              
              $
              1,783
              
              $
              628Total
                  assets
              
              
              59,134
              
              
              34,246
              
              
              34,357
              
              
              40,354Total
                  stockholders’ equity
              
              
              46,461
              
              
              26,835
              
              
              22,190
              
              
              17,686





**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 6.
      Selected Financial Data” and our consolidated financial statements and the
      related notes thereto and other financial information contained elsewhere in
      this Form 10-K.





8


**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 2005**





***New
      Dragon Asia (Long Kou) Food Co. Ltd (“Soy Bean
      Plant”)***





In
      July
      2005, we acquired the plant and machinery utilized for the production for
      soybean-derived products from a state-owned enterprise in Shandong. The facility
      had originally been operated by the Company under a 10-year lease agreement
      signed on April 27, 2005, which was cancelled upon our acquisition of the
      facility later that year. We commenced our soybean product business on September
      1, 2005. We supply soybean powder in China to customers including Coca-Cola
      Shanghai.





***Shandong
      Xinlongya Industry and Trade Co. Ltd (“Xinlongya
      Distributor”)***





In
      October 2005, we acquired a state-owned distributor, Xinlongya Distribution
      Co.
      Ltd., which has been serving us as one of our distributors.





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





Selected
      Information from the Consolidated Statements of Operations





**For
                  the years ended December 25,****2005**
              
              **2004**
              
              **2003**RestatedNet
                  revenue
              
              $
              44,180
              
              $
              39,221
              
              $
              30,773Cost
                  of goods sold
              
              
              (36,151
              )
              
              (31,887
              )
              
              (24,852
              )Selling
                  and distribution expenses
              
              
              (721
              )
              
              (1,178
              )
              
              (1,330
              )General
                  and administrative expenses
              
              
              (2,358
              )
              
              (1,611
              )
              
              (2,398
              )(Loss)
                  on fair value adjustments to embedded derivatives
              
              
              (4,064
              )
              
              --
              
              
              --VAT
                  refund
              
              
              2,158
              
              
              1,478
              
              
              1,226Net
                  income
              
              
              1,747
              
              
              4,645
              
              
              2,727EBITDA
                  *
              
              
              8,659
              
              
              7,197
              
              
              4,844EBITDA
                  margin on revenue
              
              
              20
              %
              
              18
              %
              
              16
              %







9





*
              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 ourcase(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 and the provision (benefit)
                  for
                  income taxes,(Loss)
                  gain on fair value adjustments to embedded derivativesand 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.




The
          following table presents a reconciliation from net earnings, which is the
          most
          directly comparable GAAP operating performance measure,
          to EBITDA for the years ended 2005, 2004 and 2003:
 
 **For
                    the year ended December 25,****2005**
                
                **2004**
                
                **2003**Net
                    income
                
                $
                1,747
                
                $
                4,645
                
                $
                2,727Income
                    tax
                
                
                1,487
                
                
                1,296
                
                
                447Interest
                    expenses
                
                
                (10
                )
                
                69
                
                
                245Depreciation
                    and amortization
                
                
                1,266
                
                
                1,187
                
                
                1,425Loss
                    on fair value adjustments to embedded derivatives
                
                
                4,064
                
                
                --
                
                
                --Non-cash
                    stock-based compensation
                
                
                105
                
                
                --
                
                
                --EBITDA
                
                $
                8,659
                
                $
                7,197
                
                $
                4,844


***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.





10


***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. 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, 2005, the loss in this regard was
      $4,064,000.





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.








**YEAR
      ENDED DECEMBER 25, 2004 COMPARED TO YEAR ENDED DECEMBER 25, 2003**





The
      Company generated revenues of $39.2 million for the fiscal year ended December
      25, 2004, which was an $8.4 million or 27.3% increase from $30.8 million for
      the
      fiscal year ended December 25, 2003. This increase was primarily due
      to  organic  revenue
      growth, recovery from the negative effects of Severe Respiratory Syndrome,
      or
      SARS in 2003 and the revenue contribution of $1.00 million and $0.30 million
      from the  Longyuan  Plant
      and
      the Penglai Plant.





Selling
      and distribution expenses decreased from $1.33 million for the fiscal year
      ended
      December 25, 2003 to $1.18 million for the fiscal year ended December 25, 2004
      due to cost savings from the closure of six sales offices. General and
      administrative expenses decreased by $0.79 million primarily due to cost control
      and provision written-back on allowances for doubtful accounts and inventory.





Net
      income for 2004 was $4.65 million, or $0.10 per share, compared with $2.73
      million in 2003. The 70.33% increase in net income was mainly due to the
      improvement in expense controls and the recovery from the prior negative effects
      of SARS in 2003.





**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.





11


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.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, 2005, the Company had long-term debt obligations that resulted
      from
      the mandatorily redeemable convertible preferred stock and had operating leases
      for manufacturing and warehouse facilities expiring at various dates through
      February 2009 and other commitments and long-term liabilities through August
      2049 as follows:








Payment
                Obligations By Period2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            Thereafter
            
            Total(In
                thousands)Redeemable
                convertible preferred stock
            $
            --
            $
            775
            $
            4,253
            $
            4,253
            $
            4,319
            $
            --
            $
            13,600Operating
                lease obligations
            
            62
            
            62
            
            62
            
            10
            
            --
            
            --
            
            196Acquisition
                of property, plant and equipment
            
            128
            
            --
            
            --
            
            --
            
            --
            
            --
            
            128Pre-determined
                annual fee charged by joint venture partners
            
            111
            
            111
            
            111
            
            111
            
            111
            
            3,877
            
            4,432Total
            $
            301
            $
            948
            $
            4,426
            $
            4,374
            $
            4,430
            $
            3,877
            $
            18,356





12


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$
            13,600




**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 $7.14 million to $14.55 million at December
      25, 2005 as compared to $7.41 million at December 25, 2004. The increase was
      primarily due to the growth and profitability of the business, the proceeds
      from
      the issuance of $15.5 million of redeemable convertible preferred stock (before
      related costs and expenses) and improved collections of accounts receivable
      during the year ended December 25, 2005. The Company believes that it has
      adequate sources of liquidity to finance its business operations for the
      foreseeable future.





Cash
      and
      cash equivalents were $14.33 million as of December 25, 2005, an increase of
      $14.11 million as compared to the balance at December 25, 2004 of $0.22 million.
      The increase was mainly due to the increase in revenue, the proceeds from the
      issuance of mandatorily redeemable convertible preferred stock and proceeds
      received from the exercise of warrants.





Net
      cash
      provided by operating activities for the year ended December 25, 2005 was $0.95
      million, as compared to $2.6 million for the year ended December 25, 2004.
      The
      decrease was primarily due to the purchase of inventory and prepayments. Net
      cash provided by financing activities of $16.01 million for the year ended
      December 25, 2005 was primarily due to the proceeds from the issuance of
      redeemable convertible preferred stock and the exercise of warrants. In July
      2005, we completed a private placement of our securities pursuant to which
      we
      received net proceeds of approximately $5.46 million after payment of a
      placement agent fee and other offering expenses. In December 2005, we completed
      another private placement of our securities pursuant to which we received net
      proceeds of approximately $8.82 million after payment of a placement agent
      fee
      and other offering expenses.





Net
      cash
      used in investing activities for the year ended December 25, 2005 was $3.65
      million, which was mainly due to the purchase of property, machinery and
      equipment.





***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.





13


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.





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 had not classified these
      derivative liabilities as such in our historical financial statements. In order
      to reflect these changes, we restated our financial statements for the year
      ended December 25, 2005 to record 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.”




The
      EITF
      recently deliberated on the impact of liquidated damages clauses in registration
      rights agreements and the effect on accounting and classification of instruments
      subject to the scope of EITF 00-19 in EITF 05-04 The Effect of a Liquidated
      Damages Clause on a Freestanding Financial Instrument Subject to Issue No.
      00-19. The EITF has not reached a consensus on this issue and has deferred
      deliberation until the FASB addresses certain questions, which could affect
      a
      conclusion on this issue. Specifically, EITF 05-04 presents alternative views
      on
      whether the liquidated damages provisions in registration rights agreements
      should be combined with or treated separately from the associated financial
      instrument. We view the registration rights agreement and the financial
      instrument a liability to be recorded as incurred. If the EITF were to adopt
      the
      view that the registration rights agreement should be viewed as a separate
      instrument from the financial instrument, we may have to account for
      additional derivatives.





14


***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, 2004, and recorded the compensation expense for all unvested stock
      options existing prior to the adoption in the first quarter of
      2005.





***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 significant provisions and
      write-offs during 2005 and 2004 reflect the estimates made by management
      approximate to the actual results. The net profit and loss impact of the
      provision and write-off on 2005 and 2004 are $118 and $218, respectively, which
      have an insignificant impact on the net income of both years.





***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***





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections.” SFAS No. 154 changes the requirements for the accounting for
      and reporting of a change in accounting principle. In addition, it carries
      forward without change the guidance contained in APB Opinion No. 20 for
      reporting the correction of an error in previously issued financial statements
      and a change in accounting estimate. SFAS No. 154 requires retrospective
      application to prior period financial statements of changes in accounting
      principle in most circumstances. The provisions of SFAS 154 are effective in
      fiscal years beginning after December 15, 2005. The Company plans to
      prospectively adopt SFAS No. 154 at the beginning of fiscal 2006.





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





15


**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, 2005 and 2004.


3.
      Consolidated Statements of Operations for each of the three years in the period
      ended December 25, 2005, 2004 and 2003.


4.
      Consolidated Statements of Stockholders’ Equity and Comprehensive Income for
      each of the three years in the period ended December 25, 2005, 2004 and
      2003.


5.
      Consolidated Statements of Cash Flows for each of the three years in the period
      ended December 25, 2005, 2004 and 2003.


6.
      Notes
      to Consolidated Financial Statements.





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





(a)
      Under
      the supervision and with the participation of our management, including our
      chief executive officer and the chief financial officer, we conducted an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934, as of December 25, 2005, the end of the period
      covered by this report (the “Evaluation Date”). Based on this evaluation, our
      chief executive officer and chief financial officer concluded as of the
      Evaluation Date that our disclosure controls and procedures were effective
      such
      that the material information required to be included in our Securities and
      Exchange Commission (“SEC”) reports is recorded, processed, summarized and
      reported within the time periods specified in SEC rules and forms relating
      to us
      and our consolidated subsidiaries, and was made known to others within those
      entities, particularly during the period when this report was being prepared.





(b)
      Changes in internal controls over financial reporting





There
      have not been any changes to the Company’s internal controls over financial
      reporting (as such term is defined in rules 13a-15(f) and 15d-15(f) under the
      Exchange Act) during the most recent fiscal quarter that have materially
      affected, or are reasonably likely to materially affect, the Company’s 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. This project is
      scheduled to be completed in late 2006.







16





**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: September 28, 2006
            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: September 28,
              2006
            By:
            /s/
                Heng Jing
                Lu
              Name:Heng
                Jing Lu
              Title:ChairmanDated: September 28,
              2006
            By:
            /s/
                Peter
                Mak
              Name:Peter
                Mak
              Title:Chief
                Financial OfficerDated: September 28,
              2006
            By:
            /s/
                Ling
                Wang
              Name:Ling
                Wang
              Title:DirectorDated: September 28,
              2006
            By:
            /s/
                De Lin
                Yang
              Name:De
                Lin Yang
              Title:DirectorDated: September 28,
              2006
            By:
            /s/
                Zhi Yong
                Jiang
              Name:Zhi
                Yong Jiang
              Title:DirectorDated: September 28,
              2006
            By:
            /s/
                Qi
                Xue
              Name:Qi
                Xue
              Title:DirectorDated: September 28,
              2006
            By:
            /s/
              Feng Ju
              Chen
              Name:Feng
                Ju Chen
              Title:Director






17


**NEW
      DRAGON ASIA CORP.**





**FINANCIAL
      STATEMENTS**





**TABLE
      OF CONTENTS**





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













**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, 2005 and 2004 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, 2005. 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, 2005 and 2004, the consolidated
      results of their operations and their cash flows for each of the three years
      in
      the period ended December 25, 2005 in conformity with U.S. generally accepted
      accounting principles.





As
      described in Note 2 to the consolidated financial statements, the financial
      statements have been restated to reflect additional non-operating gains and
      losses related to the classification of and accounting for the conversion
      features of preferred stock and associated warrants, and the amortization
      associated with the discount recorded with respect to the preferred
      stock.





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





Sherman
      Oaks, California


March
      15,
      2006, except for Note 2


as
        to
        which date is September 25, 2006






F-1


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**


(Amounts
      in thousands, except share data)




**December
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****Restated****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              14,332
              
              $
              219Accounts
                  receivable, net
              
              
              6,515
              
              
              6,414Deposits
                  and prepayments, net
              
              
              4,970
              
              
              2,520Inventories,
                  net
              
              
              7,630
              
              
              3,990Due
                  from related companies
              
              
              679
              
              
              1,183Total
                  current assets
              
              
              34,126
              
              
              14,326Deposit
                  for property, machinery and equipment
              
              
              1,000
              
              
              --Property,
                  machinery and equipment, net
              
              
              18,315
              
              
              16,098Land
                  use rights, net
              
              
              3,980
              
              
              3,822Total
                  assets
              
              
              57,421
              
              $
              34,246**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,696
              
              $
              2,696Other
                  payables and accruals
              
              
              2,298
              
              
              1,898Taxes
                  payable
              
              
              1,854
              
              
              1,491Due
                  to related companies
              
              
              598
              
              
              831Embedded
                  derivatives at fair value
              
              
              12,135
              
              
              --Total
                  current liabilities
              
              
              19,581
              
              
              6,916Due
                  to New Dragon Asia Food Limited
              
              
              137
              
              
              303Due
                  to joint venture partners
              
              
              54
              
              
              110--Total
                  liabilities
              
              
              19,772
              
              
              7,329Minority
                  interests
              
              
              91
              
              
              82Series
                  A & B Redeemable Convertible Preferred Stock, $0.0001 par
                  value:Authorized
                  shares - 5,000,000
                Issued
                  and outstanding - 13,600 shares and nil shares at December 25,
                  2005 and
                  2004, respectively
              
              
              3,559
              
              
              --CommitmentsStockholders’
                  equity:Class
                  A Common Stock, $0.0001 par value:Authorized
                  shares - 102,000,000
                Issued
                  and outstanding - 49,322,291 in 2005 and 45,061,242 in
                  2004
              
              
              5
              
              
              4Class
                  B Common Stock, $0.0001 par value:Authorized
                  shares - 2,000,000 - none issued and outstanding
              
              
              --
              
              
              --Additional
                  paid-in capital
              
              
              15,216
              
              
              9,909Receivable
                  from stockholder
              
              
              (49
              )
              
              --Retained
                  earnings
              
              
              18,029
              
              
              16,922Accumulated
                  other comprehensive income
              
              
              798
              
              
              --Total
                  stockholders’ equity
              
              
              33,999
              
              
              26,835Total
                  liabilities and stockholders’ equity
              
              $
              57,421
              
              $
              34,246




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,****2005**
              
              **2004**
              
              **2003****Restated**Net
                  revenue
              
              $
              44,180
              
              $
              39,221
              
              $
              30,773Cost
                  of goods sold
              
              
              (36,151
              )
              
              (31,887
              )
              
              (24,852
              )Gross
                  profit
              
              
              8,029
              
              
              7,334
              
              
              5,921Operating
                  expenses:Selling
                  and distribution expenses
              
              
              (721
              )
              
              (1,178
              )
              
              (1,330
              )General
                  and administrative expenses
              
              
              (2,358
              )
              
              (1,611
              )
              
              (2,398
              )Income
                  from operations
              
              
              4,950
              
              
              4,545
              
              
              2,193Other
                  income (expense):Interest
                  expense
              
              
              --
              
              
              (72
              )
              
              (249
              )Other
                  income
              
              
              186
              
              
              (54
              )
              
              -Interest
                  income
              
              
              10
              
              
              3
              
              
              4(Loss)
                  on fair value adjustments toembedded
                  derivatives
              
              
              (4,064
              )
              
              --
              
              
              --VAT
                  refund
              
              
              2,158
              
              
              1,478
              
              
              1,226Income
                  before income taxes and minority interests
              
              
              3,240
              
              
              5,900
              
              
              3,174Provision
                  for income taxes
              
              
              (1,487
              )
              
              (1,296
              )
              
              (447
              )Income
                  before minority interests
              
              
              1,753
              
              
              4,604
              
              
              2,727Minority
                  interests
              
              
              (6
              )
              
              41
              
              
              --Net
                  income
              
              $
              1,747
              
              $
              4,645
              
              $
              2,727Accretion
                  of Redeemable preferred stock
              
              
              (454
              )
              
              --
              
              
              --Preferred
                  Stock Dividends
              
              
              (187
              )
              
              --
              
              
              --Income
                  (loss) available to common stockholders
              
              $
              1,106
              
              $
              4,645
              
              $
              2,727Earnings
                  per common shareBasic
              
              $
              0.02
              
              $
              0.10
              
              $
              0.06Diluted
              
              $
              0.02
              
              $
              0.10
              
              $
              0.06Weighted
                  average number of common shares outstandingBasic
              
              
              46,051
              
              
              45,061
              
              
              42,108Diluted
              
              
              46,949
              
              
              45,061
              
              
              42,108





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, restated)**





Class
                A
              Common
                Stock
              Shares
                Amount
            
            Additional
              Paid-in
              Capital
            
            Receivable
                from Stockholder
            
            Retained
              Earnings
            
            Accumulated
              Other
              Comprehensive
              Income
            
            Total
              Stockholders’
              Equity
            
            Comprehensive
              IncomeBalance
                at December 25, 2002
            
            
            40,911
            
            $
            4
            
            $
            8,132
            
            $
            -
            
            $
            9,550
            
            $
            -
            
            $
            17,686
            
            $
            -Issuance
                of common stock in connection with:Private
                placement in September
            
            
            3,300
            
            
            -
            
            
            1,405
            
            
            -
            
            
            -
            
            
            -
            
            
            1,405
            
            
            -Private
                placement in October
            
            
            850
            
            
            -
            
            
            372
            
            
            -
            
            
            -
            
            
            -
            
            
            372
            
            
            -Net
                income for the year ended December 25, 2003
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,727
            
            
            -
            
            
            2,727
            
            
            2,727Balance
                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
                atDecember
                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-basedcompensation
                expense
            
            
            -
            
            
            -
            
            
            105
            
            
            -
            
            
            -
            
            
            -
            
            
            105
            
            
            -Foreign
                currencytranslation
                adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            798
            
            
            798
            
            
            798Preferred
                Stock issuance cost
            
            
            -
            
            
            -
            
            
            565
            
            
            -
            
            
            -
            
            
            -
            
            
            565
            
            
            -Conversion
                of Preferred Stocks and related interest 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 ( as restated)
            
            
            49,322
            
            $
            5
            
            $
            15,215
            
            $
            (49
            )
            $
            18,029
            
            $
            798
            
            $
            33,998
            
            $
            2,545





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** **,
      restated)**




**For
                the years ended December 25,****2005**
            
            **2004**
            
            **2003****Cash
                flows from operating activities:**
            
            **Restated**Net
                income
            
            $
            1,747
            
            $
            4,645
            
            $
            2,727Adjustments
                to reconcile net income to net cash provided by operating activities:Allowance
                for doubtful accounts
            
            
            118
            
            
            (218
            )
            
            578Provision
                for inventory reserve
            
            
            (413
            )
            
            (35
            )
            
            -Depreciation
                and amortization of land use rights
            
            
            1,266
            
            
            1,187
            
            
            1,425Gain
                on disposal of PRC subsidiary
            
            
            --
            
            
            (162
            )
            
            --Loss
                (Gain) on sale of machinery and equipment
            
            
            5
            
            
            199
            
            
            (346
            )(Loss)
                on fair value adjustments to Embedded derivatives
            
            
            4,064Minority
                interests
            
            
            6
            
            
            (41
            )
            
            --Stock-based
                compensation expense
            
            
            105
            
            
            --
            
            
            --Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (219
            )
            
            735
            
            
            (186
            )Deposits
                and prepayments
            
            
            (3,450
            )
            
            (1,242
            )
            
            (216
            )Inventories
            
            
            (3,227
            )
            
            (1,278
            )
            
            2,439Due
                from related companies
            
            
            504
            
            
            (706
            )
            
            2,375Accounts
                payable
            
            
            --
            
            
            (1,583
            )
            
            (163
            )Other
                payables and accruals
            
            
            316
            
            
            920
            
            
            (48
            )Taxes
                payable
            
            
            363
            
            
            573
            
            
            32Due
                to related companies
            
            
            (233
            )
            
            (371
            )
            
            400Net
                cash provided by operating activities
            
            
            952
            
            
            2,623
            
            
            9,017**Cash
                flows from investing activities:**Proceeds
                from sale of property, machinery and equipment
            
            
            22
            
            
            126
            
            
            994Purchases
                of property, machinery and equipment
            
            
            (3,395
            )
            
            (2,207
            )
            
            (92
            )Purchases
                of land use rights
            
            
            (273
            )
            
            --
            
            
            --Net
                cash provided by (used in) investing activities
            
            
            (3,646
            )
            
            (2,081
            )
            
            902**Cash
                flows from financing activities:**Proceeds
                from issuance of preferred stock
            
            
            15,500
            
            
            --
            
            
            --Payments
                of issuance costs related to preferred stock
            
            
            (1,218
            )
            
            --
            
            
            --Preferred
                Stock Dividends
            
            
            (30
            )Proceeds
                from short-term borrowings
            
            
            --
            
            
            --
            
            
            4,325Repayments
                of short-term borrowings
            
            
            --
            
            
            (2,676
            )
            
            (5,094
            )Restricted
                cash
            
            
            --
            
            
            --
            
            
            181Proceeds
                from parent company
            
            
            --
            
            
            1,127
            
            
            --Repayment
                to parent company
            
            
            (166
            )
            
            --
            
            
            (5,586
            )Repayment
                to joint venture partners
            
            
            (56
            )
            
            (681
            )
            
            (4,367
            )Proceeds
                from exercise of warrants
            
            
            1,977
            
            
            --
            
            
            1,777Capital
                contribution from minority interests
            
            
            --
            
            
            124
            
            
            --Net
                cash provided by (used in) financing activities
            
            
            16,007
            
            
            (2,106
            )
            
            (8,764
            )Foreign
                currency translation adjustment
            
            
            800
            
            
            --
            
            
            --Net
                increase (decrease) in cash and cash equivalents
            
            
            14,113
            
            
            (1,564
            )
            
            1,155Cash
                and cash equivalents at the beginning of the period
            
            
            219
            
            
            1,783
            
            
            628Cash
                and cash equivalents at the end of the period
            
            $
            14,332
            
            $
            219
            
            $
            1,783






F-5







**Non-cash
                Investing and Financing Activities**Receivable
                from Stockholder upon exercise of warrants
            
            $
            49
            
            $
            --
            
            $
            --Conversion
                of preferred stock to common stock
            
            $
            2,611
            
            $
            --
            
            $
            --Dividend
                payments on preferred stock in form of common stock
            
            $
            72
            
            $
            --
            
            $
            --**Supplemental
                disclosure of cash flows information:**Interest
                paid
            
            $
            68
            
            $
            72
            
            $
            249Income
                taxes paid
            
            $
            1,865
            
            $
            10
            
            $
            380





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 six manufacturing plants in Yantai, Beijing and Penglai.





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
                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 flourLongkou
                City Longyuan Packing Materials Company Limited (“LCLPM”)
            
            The
                PRC
              March
                2004
            
            RMB2,280,000
            
            55%
                (c)
            
            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
                products





(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, 2005, 2004 and 2003.





F-7


(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, 2005,
      2004
      and 2003.





(c)
      LCLPM
      is a 55% owned subsidiary of NDAFY established in the PRC in March 2004. The
      remaining 45% equity is owned by Longkou City Longyuan Factory, our Chinese
      joint venture partner.





**NOTE
      2. BASIS OF PRESENTATION**





The
      consolidated financial statements include the 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 investee, 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
      investee. The adjustment is limited to the extent of the Company’s investment in
      and advances to the investee and financial guarantees made on behalf of the
      investee. 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.





**Restatement
      of Financial Statements to Reflect Derivative Accounting**





The
      consolidated financial statements for the year ended December 25, 2005 included
      in this report have 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





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 $0.96 to a
      high
      $2.64 during last six months of 2005. 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 $12,135 on
      December 25, 2005 including both Series A & B Preferred stock. We were
      required to report a change of $4,064 as a (loss) on the embedded
      derivative liability in other income on our statement of operations for the
      year
      ended December 25, 2005.




F-8


**Summary
      of Restatement Items**





In
        late
        August 2006, we concluded that it was necessary to restate its financial
        results
        for the fiscal year ended December 25, 2005 and for the interim periods ended
        September 25, 2005, March 25, 2006 and June 25, 2006 to reflect additional
        non-operating gains and losses related to the classification of and accounting
        for: (1) the conversion feature of the Company's Series A Preferred Stock
        issued
        in July, 2006 and the Company's Series B Preferred Stock issued in December
        2005, the warrants to purchase common stock associated with these offerings,
        the
        amortization dividend associated with the discount recorded with respect
        to the
        Series A & B Preferred Stock, and (3) warrants to purchase common stock
        issued with Series A & B Preferred Stock. We had previously classified the
        value of these conversion features and warrants to purchase common stock,
        when
        applicable, as equity. After further review, we have determined that these
        instruments should have been classified as derivative liabilities and therefore,
        the fair value of each instrument must be recorded as a derivative liability
        on
        our balance sheet. Changes in the fair values of these instruments will result
        in adjustments to the amount of the recorded derivative liabilities and the
        corresponding gain or loss will be recorded in ours statement of operations.
        At
        the date of the conversion of each respective instrument or portion thereof
        (or
        exercise of the options or warrants or portion thereof, as the case may
        be), the corresponding derivative liability will be reclassified as
        equity. The
        Company restated weighted average outstanding shares and fully diluted weighted
        average outstanding shares for the effects of changes caused by the above
        restatement and other calculation errors.







We
      originally reported the Series A Preferred Stock and Series B Preferred Stock
      as
      mandatorily redeemable convertible preferred stock. The accompanying financial
      statements have been restated to show the Series A & B Preferred Stock
      as temporary equity between long-term liabilities and stockholder's
      equity (deficit) at December 25, 2005. We have also amended the period prior
      to
      and subsequent to the year ended December 25, 2005.




The
      accompanying financial statements for the year ended December 25, 2005 have
      been
      restated to effect the changes described above. The impact of the adjustments
      related to the classification of and accounting for the conversion features
      and
      warrants for the ended December 25, 2005 are summarized
      below:






F-9





**Consolidated
                  Statement of Operations (in thousands except per share
                  data)****As
                  previously reported**
              
              **Adjustments**
              
              
              
              **As
                  Restated**Net
                  revenue
              
              $
              44,180
              
              
              
              
              
              
              
              $
              44,180Cost
                  of goods sold
              
              
              (36,151
              )
              
              
              
              
              
              
              
              (36,151
              )Gross
                  profit
              
              
              8,029
              
              
              
              
              
              
              
              
              8,029Operating
                  expenses:Selling
                  and distribution expenses
              
              
              (721
              )
              
              
              
              
              
              
              
              (721
              )General
                  and administrative expenses
              
              
              (2,358
              )
              
              
              
              
              
              
              
              (2,358
              )Income
                  from operations
              
              
              4,950
              
              
              
              
              
              
              
              
              4,950Other
                  income (expense):Interest
                  expense
              
              
              (1,814
              )
              
              (1,816
              )
              
              ***a***
              
              
              2Other
                  income
              
              
              186
              
              
              
              
              
              
              
              
              186(Loss)
                  on fair value adjustments to embedded derivatives
              
              
              
              
              
              4,064
              
              
              ***b***
              
              
              (4,064
              )Interest
                  income
              
              
              8
              
              
              
              
              
              
              
              
              8VAT
                  refund
              
              
              2,158
              
              
              
              
              
              
              
              
              2,158Income
                  before income taxes and minority interests
              
              
              5,488
              
              
              2,248
              
              
              ***c***
              
              
              3,240Provision
                  for income taxes
              
              
              (1,487
              )
              
              
              
              
              
              
              
              (1,487
              )Income
                  before minority interests
              
              
              4,001
              
              
              
              
              
              
              
              
              1,753Minority
                  interests
              
              
              (6
              )
              
              
              
              
              
              
              
              (6
              )Net
                  income
              
              $
              3,995
              
              
              
              
              
              
              
              $
              1,747Accretion
                  of Redeemable preferred stock
              
              
              --
              
              
              (454
              )
              
              ***d***
              
              
              (454
              )Preferred
                  Stock Dividends
              
              
              --
              
              
              (187
              )
              
              ***e***
              
              
              (187
              )Income
                  (loss) available to common stockholders
              
              
              3,995
              
              
              
              
              
              
              
              
              1,107Earnings
                  per common shareBasic
              
              $
              0.09
              
              
              (0.07
              )
              
              ***f***
              
              $
              0.02Diluted
              
              $
              0.08
              
              
              (0.06
              )
              
              ***f***
              
              $
              0.02Weighted
                  average number of common shares outstandingBasic
              
              
              46,125
              
              
              (74
              )
              
              ***g***
              
              
              46,051Diluted
              
              
              49,860
              
              
              (2,911
              )
              
              ***g***
              
              
              46,949




***Adjustments******a-
                  reverse interest expense recoded for Mandatory Redeemable Preferred
                  stock
                  now accounted for and mezzanine equity******b-
                  change in derivative value during the
                  period******c-
                  accretion of Redeemable preferred stock******d
                  - accretion of Redeemable Convertible Preferred
                  Stock.******e-
                  Preferred Stock Dividend previously recorded as interest
                  expense******f
                  -to reflect basic and fully diluted earnings per share based upon
                  corrected Income available to common
                  stockholders******g-Adjust
                  weighted average shares outstanding for corrected
                  calculations***






F-10


***Balance
      Sheet Impact***





In
      addition to the effects on the Company’s consolidated statement of income
      discussed above, the restatement impacted the consolidated balance sheet as
      of
      December 25, 2005. The following table sets forth the effects of the restatement
      adjustments on consolidated balance sheet as o fDecember25, 2005





**As
                previously reported**
            
            **Adjustments**
            
            
            
            **As
                Restated**Total
                current assets
            
            $
            34,126
            
            
            
            
            
            
            
            $
            34,126Deposit
                for property, machinery and equipment
            
            
            1,000
            
            
            
            
            
            
            
            
            1,000Property,
                machinery and equipment, net
            
            
            18,315
            
            
            
            
            
            
            
            
            18,315Land
                use rights, net
            
            
            3,980
            
            
            
            
            
            
            
            
            3,980Deferred
                financing cost, net
            
            
            1,713
            
            
            (1,713
            )
            
            ***a***
            
            
            --Total
                assets
            
            
            59,134
            
            
            
            
            
            
            
            
            57,421LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            
            2,696
            
            
            
            
            
            
            
            
            2,696Other
                payables and accruals
            
            
            2,298
            
            
            
            
            
            
            
            
            2,298Taxes
                payable
            
            
            1,854
            
            
            
            
            
            
            
            
            1,854Due
                to related companies
            
            
            598
            
            
            
            
            
            
            
            
            598Embedded
                derivatives at fair value
            
            
            --
            
            
            12,135
            
            
            ***b***
            
            
            12,135Total
                current liabilities
            
            
            7,446
            
            
            
            
            
            
            
            
            19,581Due
                to New Dragon Asia Food Limited
            
            
            137
            
            
            
            
            
            
            
            
            137Due
                to joint venture partners
            
            
            54
            
            
            
            
            
            
            
            
            54Mandatorily
                redeemable convertible preferred stock
            
            
            4,945
            
            
            (4,945
            )
            
            ***c***
            
            
            --Total
                liabilities
            
            
            12,582
            
            
            
            
            
            
            
            
            19,772Minority
                interests
            
            
            91
            
            
            
            
            
            
            
            
            91Convertible
                Redeemable Preferred Stock, $0.0001 par value:
            
            
            
            
            
            3,559
            
            
            ***c***
            
            
            3,559CommitmentsStockholders’
                equity:Class
                A Common Stock, $0.0001 par value:Authorized
                shares - 102,000,000Issued
                and outstanding - 49,322,291 in 2005 and 45,061,242 in
                2004
            
            
            5.00
            
            
            
            
            
            
            
            
            5Class
                B Common Stock, $0.0001 par value:Authorized
                shares - 2,000,000 - none issued and outstanding
            
            
            --
            
            
            
            
            
            
            
            
            --Additional
                paid-in capital
            
            
            24,790
            
            
            (9,574
            )
            
            ***d***
            
            
            15,216Receivable
                from stockholder
            
            
            (49
            )
            
            
            
            
            
            
            
            (49
            )Retained
                earnings
            
            
            20,917
            
            
            (2,888
            )
            
            ***e***
            
            
            18,029Accumulated
                other comprehensive income
            
            
            798
            
            
            
            
            
            
            
            
            798Total
                stockholders’ equity
            
            
            46,461
            
            
            
            
            
            
            
            
            33,999Total
                liabilities and stockholders’ equity
            
            $
            59,134
            
            
            
            
            
            
            
            $
            57,421




***Adjustments******a-reclassify
                costs of offering to Redeemable Conversable preferred
                Stock******b-
                fair value of embedded derivatives at December
                25,2005******c-
                reverse Redeemable convertible preferred stock at September 25,2006
                and
                recorded as mezzanine equity******d-reverse
                values recorded for warrants and conversion features at date of the
                sale
                of Redeemable convertible preferred stock******e-
                to reflect aggregate effect of income statement
                adjustments.***






**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 reasonable
      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 considering the type of products
      sold, the type of customer, and the type of transaction specific 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.


F-11


***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. We had not
      classified these derivative liabilities as such in our historical financial
      statements. In order to reflect these changes, we restated our financial
      statements for the year ended December 25, 2005 to record 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.”




The
      EITF
      recently deliberated on the impact of a liquidated damages clause in
      registration rights agreements and the effect on accounting and classification
      of instruments subject to the scope of EITF 00-19 in EITF 05-04 The Effect
      of a
      Liquidated Damages Clause on a Freestanding Financial Instrument Subject to
      Issue No. 00-19. The EITF has not reached a consensus on this issue and has
      deferred deliberation until the FASB addresses certain questions, which could
      affect a conclusion on this issue. Specifically, EITF 05-04 presents alternative
      views on whether the liquidated damages provisions in registration rights
      agreements should be combined with or treated separately from the associated
      financial instrument. We view the registration rights agreement and the
      financial instrument a liability to be recorded as incurred. If the EITF were
      to
      adopt the view that the registration rights agreement should be viewed as a
      separate instrument from the financial instrument, we may have to account
      for additional derivatives.





***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 in a 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.




F-12


***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 fifty 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.





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, 2005.





***Land
      use right***





Land
      use
      rights are stated at cost, less accumulated amortization. Amortization is
      computed using the straight-line method over the estimated useful lives ranging
      from 27 to 50 years. In accordance with SFAS No.142, “Goodwill and Other
      Intangible Assets,” intangible assets with finite lives are subject to
      amortization, and impairment reviews are performed in accordance with SFAS
      No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” No
      event has occurred that would trigger an impairment assessment of the Company’s
      intangible assets with finite lives as of December 25, 2005.





***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.





F-13


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, 2005,
      the revenues and expenses of the Company were translated to U.S. dollars at
      US$1.00 = RMB 8.2167 and the assets and liabilities of the Company maintained
      in
      Renminbi translated to U.S. dollars at US$1.00 = RMB 8.10. The foreign currency
      translation adjustment of $798,000 has been reported as comprehensive income
      in
      the consolidated statement of stockholders’ equity and comprehensive
      income.





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 expenditure. 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 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 and 2003 the potentially dilutive securities
        warrants and options shrike 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 ant dilutive.





The
        calculation of diluted weighted average common shares outstanding for the
        twelve
        months ended December 25, 2005, 2004 and 2003 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. 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,****2005**
              
              **2004**
              
              **2003**Income
              
              Weighted
              
              
              
              Income
              
              Weighted
              
              
              
              
              
              Weighted(Loss)
              
              Average
              
              
              
              (Loss)
              
              Average
              
              
              
              Income
              
              AverageRestated
              
              Shares
              
              Per-Share
              
              Restated
              
              Shares
              
              Per-Share
              
              (Loss)
              
              Shares
              
              Per-ShareEarnings
                  per share - basicIncome
                  available to common stockholders
              
              $
              1,106
              
              46,051
              
              $
              0.02
              
              $
              4,645
              
              45,061
              
              $
              0.10
              
              $
              2,727
              
              42,108
              
              $
              0.06Effect
                  of dilutive securitiesRedeemable
                  Convertible Preferred
                  Stock
              
              --
              
              --
              
              
              
              --
              
              --
              
              
              
              --
              
              --Options
                  and Warrants
              
              --
              
              898
              
              
              
              --
              
              --
              
              
              
              --
              
              --Earnings
                  per share - dilutedIncome
                  available to common stockholders
              
              $
              1,106
              
              46,949
              
              $
              0.02
              
              $
              4,645
              
              45,061
              
              $
              0.10
              
              $
              2,727
              
              42,108
              
              $
              0.06






F-14


***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, 2004, and recorded the compensation expense for all
      unvested stock options existing prior to the adoption in the first quarter
      of
      2005.





***Recent
      accounting pronouncements***





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections.” SFAS No. 154 changes the requirements for the accounting for
      and reporting of a change in accounting principle. In addition, it carries
      forward without change the guidance contained in APB Opinion No. 20 for
      reporting the correction of an error in previously issued financial statements
      and a change in accounting estimate. SFAS No. 154 requires retrospective
      application to prior periods’ financial statements of changes in accounting
      principle in most circumstances. The provisions of SFAS 154 are effective in
      fiscal years beginning after December 15, 2005. The Company plans to
      prospectively adopt SFAS No. 154 at the beginning of fiscal 2006.





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








***Reclassifications***





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





**NOTE
      4. CONDENSED BALANCE SHEET INFORMATION**





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





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





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





F-15


Condensed
      statement of operation information for the year ended December 25, 2005
      consisted of the following (in thousands, restated):





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





The
      Company does not believe that providing additional information regarding cash
      flows is meaningful to the reader, in light of the nature of the assets and
      operations located inside China and outside China, respectively.





**NOTE
      4. ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Accounts
                receivable
            
            $
            7,408
            
            $
            7,189Less:
                Allowance for doubtful accounts
            
            
            (893
            )
            
            (775
            )$
            6,515
            
            $
            6,414





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





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            775
            
            $
            993Add:
                provision during the year
            
            
            250
            
            
            662Less:
                write-offs during the year
            
            
            (132
            )
            
            (880
            )Balance
                at the end of the year
            
            $
            893
            
            $
            775





**NOTE
      5. DEPOSITS AND PREPAYMENTS**





Deposits
      and prepayments consist of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Deposits
                for raw materials
            
            $
            4,350
            
            $
            1,523Prepayments
                and advances
            
            
            620
            
            
            997$
            4,970
            
            $
            2,520






F-16


**NOTE
      6. INVENTORIES**





Inventories
      consisted of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Raw
                materials (including packing materials)
            
            $
            6,133
            
            $
            2,812Finished
                goods
            
            
            1,631
            
            
            1,7257,764
            
            
            4,537Less:
                Inventory reserve
            
            
            (134
            )
            
            (547
            )$
            7,630
            
            $
            3,990







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





**December
                25, 2005**
            
            **December
                25, 2004**(In
                thousands)
            
            (In
                thousands)Balance
                at the beginning of the year
            
            $
            547
            
            $
            582Add:
                provision during the year
            
            
            -
            
            
            --Less:
                write-offs during the year
            
            
            (413
            )
            
            (35
            )Balance
                at the end of the year
            
            $
            134
            
            $
            134





**NOTE
      7. DUE FROM RELATED COMPANIES**





Due
      from
      related companies consisted of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Due
                from affiliated companies for sales
            
            $
            679
            
            $
            1,183




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





Property,
      machinery and equipment consisted of the following:





Useful
                Life
            
            **December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                years)
            
            (
                In thousands)
            
            (In
                thousands)Buildings
            
            
            40
            
            $
            9,967
            
            $
            9,415Machinery
                and equipment
            
            
            5-
                12
            
            
            14,663
            
            
            11,94024,630
            
            
            21,355Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (6,315
            )
            
            (5,257
            )$
            18,315
            
            $
            16,098





Depreciation
      and amortization expense was approximately $1,151,000, $1,187,000, and
      $1,314,000 for the years ended December 25, 2005, 2004 and 2003, respectively.




**NOTE
      9. LAND USE RIGHTS**





Land
      use
      rights consisted of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Land
                use rights
            
            $
            4,705
            
            $
            4,432Less:
                Accumulated amortization
            
            
            (725
            )
            
            (610
            )$
            3,980
            
            $
            3,822





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, 2005 and 2004,
      the
      land use rights consisted of three 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 $115,000, $103,000 and $112,000 for the years ended
      December 25, 2005, 2004 and 2003, respectively.




F-17


**NOTE
      10. OTHER PAYABLES AND ACCRUALS**





Other
      payables and accruals consisted of the following:





**December
                25,**
              **2005**
            
            **December
                25,**
              **2004**(In
                thousands)
            
            (In
                thousands)Deposits
                from customers
            
            $
            502
            
            $
            554Accruals
                for payroll, bonus and benefits
            
            
            218
            
            
            515Utilities
                and accrued expenses
            
            
            1,578
            
            
            829$
            2,298
            
            $
            1,898





**NOTE
      11. TAXATION**





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





For
      the
      years ended December 25, 2005, 2004 and 2003, 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, 2005, 2004 and 2003, there were no material deferred tax assets
      or
      deferred tax liabilities.





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





**2005**
            
            **2004**
            
            **2003**Statutory
                income tax
            33%
            
            33%
            
            33%Reduction
                for preferential tax rate
            (9)
            
            (9)
            
            --Impact
                of effective tax holiday
            --
            
            --
            
            (21)Various
                differences
            2
            
            (2)
            
            2Effective
                rate
            26%
            
            22%
            
            14%





For
      the
      years ended December 25, 2005, 2004 and 2003, the impact from effective tax
      rate
      varied from the statutory tax rate is summarized as follows:





(In
      thousands, except for per share amounts)





**2005**
            
            **2004**
            
            **2003**Effective
                rate
            
            
            26
            %
            
            22
            %
            
            14
            %Statutory
                income tax
            
            
            33
            %
            
            33
            %
            
            33
            %Income
                available to common stockholders as reported
            
            $
            1,106
            
            $
            4,645
            
            $
            2,727Earnings
                per common share:Basic
            
            
            0.02
            
            
            0.10
            
            
            0.06Diluted
            
            
            0.02
            
            
            0.10
            
            
            0.06Income
                available to common stockholders - pro forma
            
            
            777
            
            
            3,991
            
            
            2,124Earnings
                per common share - pro forma:Basic
            
            
            0.01
            
            
            0.09
            
            
            0.05Diluted
            
            
            0.01
            
            
            0.09
            
            
            0.05Impact
                of effective rate
            
            $
            329
            
            $
            654
            
            $
            603Per
                share effect:Basic
            
            $
            0.01
            
            $
            0.01
            
            $
            0.01Diluted
            
            $
            0.01
            
            $
            0.01
            
            $
            0.01





F-18


Pro
      forma
      information is presented by assuming the preferential tax treatment was not
      entitled and the PRC income was levied income tax at 33%. The
      current “two-year exemption, three-year 50% reduction” tax holiday will have
      expired by the year 2011. However, the regional preferential tax rate and income
      tax refund policies have no specific expiry date.





**NOTE
      12. 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, 2005, of the warrants issued to the
      placement agent, 277,368 were exercised cashlessly and 101,579 shares have
      not
      yet been exercised.





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.








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, 767,000. 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
            )
            
            (1,082
            )
            
            (1,767
            )Allocation
                to Derivative Liabilities
            
            
            
            
            
            (4,557
            )
            
            (5,702
            )
            
            (10,259
            )Conversion
                of Series A Preferred Stock to common stocks
            
            
            (1,900
            )
            
            (368
            )
            
            
            
            
            (368
            )Accretion
                of discount
            
            
            
            
            
            454
            
            
            
            
            
            45413,600
            
            $
            844
            
            $
            2,716
            
            $
            3,560





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 ranging from a low of $.79 to a high $2.78 during last six
      months of 2005. 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 $12,135 on December 25, 2005
      including both Series A & B Preferred Stock. We were required to
      report a change of $4,064 as (loss) on the embedded derivative liability in
      other income on our statement of operations for the year ended December 25,
      2005.





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 conversion or redemption date
              at
                each valuation dateExpected
                volatility
            50%
            50%Risk-free
                interest rate
            4.04%
                to 4.44%
            3.87%
                to 4.44%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 the period
            
            
            4,064Conversion
                of 1900 shares of Series A Preferred Stock to common stock
            
            
            (2,188
            )$
            12,135





**NOTE
      13. 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, 2005, 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 850,000 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, 2005, warrant holders have
      exercised the warrants and purchased 400,000 shares of Class A Common
      Shares.





**NOTE
      14. 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
            
            
            1.4020Warrants
                exercisable at December 25, 2004
            
            
            2,075,000
            
            
            0.9883Warrants
                exercisable at December 25, 2005
            
            
            6,609,474
            
            
            1.4020





F-20


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




Shares
                of Class A Common StockIssuable
              Under
                Warrants
            
            
            Exercise
              PriceOctober
                2003 private placement
            
            
            25,000
            
            $
            0.979July
                2005 private placement6-year
                warrants
            
            
            3,157,895
            
            
            1.045-year
                warrants
            
            
            101,579
            
            
            1.04December
                2005 private placement6-year
                warrants
            
            
            2,968,750
            
            
            1.765-year
                warrants
            
            
            356,250
            
            
            1.76





**NOTE
      15. DILUTED COMMON SHARES**





The
      diluted weighted average number of common share was a summation of the weighted
      average number of common stock outstanding plus the number of dilutive common
      share equivalents during the period. Dilutive common equivalent shares consist
      of stock options and warrants. Incremental shares of 3,735,000 in fiscal 2005
      were used in the calculation of diluted earnings per share.


Pursuant
      to SFAS No. 150, the mandatorily redeemable convertible preferred shares were
      excluded from the diluted earnings per share computation.





**NOTE
      16. 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 2005. As all the stock options as of December 25, 2004 were fully
      vested, no compensation charges were recorded in fiscal 2005 for these
      outstanding 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, 2005**
            
            **DECEMBER
                25, 2004**Life
                (years)
            
            10
            
            10Dividend
                yield
            
            None
            
            NoneRisk
                - free interest rate
            
            3.6%
            
            3.6%Volatility
            
            40%
            
            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, 2005, none 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, 2005, none of these options
      were exercised.




F-21





**Options****Outstanding**
            
            **Price
                Range**
              **Per
                Share**
            
            **Weighted
                Average Exercise Price**
              **Per
                Share**Options
                outstanding at December 25, 2003
            
            
            --
            
            $
            --
            
            $
            --Granted
                on November 2, 2004
            
            
            400,000
            
            
            1.00
            
            
            1.00Options
                outstanding at December 25, 2004
            
            
            400,000
            
            
            1.00
            
            
            1.00Granted
                on June 22, 2005
            
            
            600,000
            
            
            1.20
            
            
            1.20Options
                outstanding at December 25, 2005
            
            
            1,000,000
            
            $
            1.00-1.20
            
            $
            1.12





The
      Company recorded compensation expense of $105,000 based on the fair value of
      the
      options granted through June 22, 2005.





The
      following table summarizes outstanding options as of December 25, 2005 and
      related weighted average fair value and life information:





Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise Price Per Share
            
            Number
                Outstanding at December 25, 2005
            
            Weighted
                Average Fair Value
            
            Weighted
                Average Remaining Life (Years)
            
            Number
                Exercisable at December 25, 2005
            
            Weighted
                Average Exercise Price$1.00
                to $1.20
            
            
            1,000,000
            
            $
            0.105
            
            
            9.18
            
            
            1,000,000
            
            $
            1.120





**NOTE
      17. COMMITMENTS**





***Lease
      commitments***





The
      Company leases manufacturing and warehouse facilities under operating leases,
      which expire at various dates through March 2009. At December 25, the Company’s
      future minimum lease payments under operating leases were as follows:





Operating
                lease
              obligations(In
                thousands)2006
            
            $
            622007
            
            
            622008
            
            
            622009
            
            
            10Total
            
            $
            196





Total
      lease expenses were $62,000, $187,000 and $46,000 for the years ended December
      25, 2005, 2004 and 2003, respectively.





***Annual
      fees***





Under
      the
      supplementary joint venture agreements, the Company has committed to pay
      predetermined annual fees of $111,000 to the Chinese joint venture partners
      for
      each of the years in the period from December 26, 1998 to 2049. As of December
      25, total commitments under these arrangements were as follows (in thousands):





2006
            
            $
            1112007
            
            
            1112008
            
            
            1112009
            
            
            1112010
            
            
            111Thereafter
            
            
            3,877Total
            
            $
            4,432




F-22


***Acquisition
      of property, plant and equipment***





The
      Company has committed to purchase certain property, plant and equipment for
      approximately $128,000 during 2006.





**NOTE
      18. 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):





**2005**
            
            **2004**
            
            **2003**Sales
                of finished goods to:A
                joint venture partner, Shandong Longfeng Group Company (a)
            
            $
            --
            
            $
            2
            
            $
            --Related
                parties (b)
            
            
            8
            
            
            33
            
            
            113$
            8
            
            $
            35
            
            $
            113Sales
                of machinery to Shandong Longfeng Group Company
            
            $
            --
            
            $
            --
            
            $
            993Purchases
                of raw materials from related parties (b)
            
            $
            --
            
            $
            914
            
            $
            1,344Pre-determined
                annual fees charged by joint venture partners:Shandong
                Longfeng Group Company
            
            $
            75
            
            $
            72
            
            $
            78Shandong
                Longfeng Flour Company Limited (b)
            
            
            36
            
            
            36
            
            
            36$
            111
            
            $
            108
            
            $
            114Management
                fees charged by a related party (b)
            
            $
            12
            
            $
            -
            
            $
            -Interest
                expenses paid to a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            --
            
            $
            3
            
            $
            17Rental
                expenses paid to related companies (b)
            
            $
            --
            
            $
            120
            
            $
            --Rental
                income from a joint venture partner:Shandong
                Longfeng Group Company
            
            $
            64
            
            $
            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.





**NOTE
      1** **9.
      DISPOSAL OF SUBSIDIARY**





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




F-23


**NOTE
      20. SEGMENT INFORMATION**





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





**2005**
            
            **2004**
            
            **2003**(In
                thousands)RestatedNet
                revenue:Instant
                noodles
            
            $
            15,353
            
            $
            12,909
            
            $
            11,702Flour
            
            
            28,827
            
            
            26,312
            
            
            19,070$
            44,180
            
            $
            39,221
            
            $
            30,773Income
                from operations:Instant
                noodles
            
            $
            1,336
            
            $
            607
            
            $
            296Flour
            
            
            3,614
            
            
            3,938
            
            
            1,897$
            4,950
            
            $
            4,545
            
            $
            2,193Interest
                expenses:Instant
                noodles
            
            $
            --
            
            $
            6
            
            $
            22Flour
            
            
            --
            
            
            66
            
            
            227$
            --
            
            $
            72
            
            $
            249Depreciation
                and amortization:Instant
                noodles
            
            $
            537
            
            $
            587
            
            $
            868Flour
            
            
            729
            
            
            600
            
            
            557$
            1,266
            
            $
            1,187
            
            $
            1,425Identifiable
                long-term assets:Instant
                noodles
            
            $
            11,836
            
            $
            12,031
            
            $
            14,001Flour
            
            
            10,459
            
            
            7,889
            
            
            7,468$
            22,295
            
            $
            19,920
            
            $
            21,469





**NOTE
      21. MAJOR CUSTOMERS**





No
      single
      customer accounted for more than 5%, 5% and 6% of sales for the years ended
      December 25, 2005, 2004 and 2003, respectively.





**NOTE
      22. 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 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,
      2005,
      2004 and 2003, contributions made by the Company were approximately $161,000,
      $122,000 and $151,000, respectively.





**NOTE
      23. BUSINESS COMBINATIONS**





The
      Company completed two acquisitions during the year ended December 25, 2005.
      These acquisitions were 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 their
      respective acquisition dates. No pro forma information is presented due to
      the
      immaterial effect of these acquisitions on the results of operations.





***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.





F-24


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





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






Net
                  Income (loss) per shareYear
                  Ended December 25, 2005
              
              Net
                  Revenue
              
              Gross
                  Profit
              
              Net
                  Income
                (Restated)
              
              Basic
                (Restated)
              
              Diluted
                (Restated)(In
                  thousands, except per share data)First
                  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
              
              $
              1,747Year
                  Ended December 25, 2004First
                  Quarter
              
              $
              7,398
              
              $
              1,333
              
              $
              338
              
              $
              0.01
              
              $
              0.01Second
                  Quarter
              
              
              8,547
              
              
              1,561
              
              
              539
              
              
              0.01
              
              
              0.01Third
                  Quarter
              
              
              9,886
              
              
              1,928
              
              
              1,192
              
              
              0.03
              
              
              0.03Fourth
                  Quarter
              
              
              13,390
              
              
              2,512
              
              
              2,576
              
              
              0.06
              
              
              0.06$
              39,221
              
              $
              7,334
              
              $
              4,645





**NOTE
      25. SUBSEQUENT EVENTS**





***Acquisition
      of Chengdu Plant***





On
      February 24, 2006, the Company acquired a noodle manufacturing facility in
      Chengdu, Sichuan Province, for a cash consideration of $3,300,000. The Chengdu
      Plant serves the Western China market.





F-25


***Expansion
      of Longyuan Packing Plant***





On
      January 10, 2006, the Company established New Dragon Asia (Long Kou) Packing
      Materials Company Limited (“NDAPM”), a wholly-owned subsidiary in Longkou,
      Shandong Province. NDAPM is principally engaged in the manufacture and sale
      of
      packing materials, with a registered capital of $3,600,000. It is planned to
      be
      the second phase of the development of LCLPM, our 55% owned subsidiary. It
      was
      established as a separate entity in order to (i) acquire the remaining interests
      in LCLPM (45%) from the Chinese joint venture partner at net book value and
      (ii)
      enjoy new income tax holiday. The 55% equity interest in LCLPM will be
      transferred in the second quarter of 2006 to NDAPM at net book value. Upon
      completion of the above-mentioned transactions, LCLPM becomes a 100% owned
      subsidiary of NDAPM, which is indirectly owned 100% by the Company.







F-26