**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-Q/A**
 **Amendment
        No. 1**
   x
                QUARTERLY
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934
  For
        the
        quarterly period ended: June 25, 2005
 or
 o
                  TRANSITION
                      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                      ACT OF
                      1934
 For
                  the transition period fromto
 
 Commission
        File Number: 001-15046
 
 **NEW
        DRAGON ASIA CORP.**
 (Exact
        name of Registrant as specified in its charter)
 
 
 FLORIDA
              88-0404114(State
                  or other jurisdiction of incorporation or organization)
              (IRS
                  Employer Identification Number)
 
 Suite
                  2808, International Chamber of Commerce TowerFuhua
                  Three Road, Shenzhen, PRC
              518048(Address
                  of Principal Executive Offices)
              (Zip
                  Code)
 
 (86
        755)
        8831 2115
 (Registrant's
        telephone number, including area code)
 
 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 filing requirements for
        the
        past 90 days. Yes x No
o
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-12 of the Exchange Act): Yes o No x
 
 Check
        whether the registrant is a shell company (as defined in Rule 12b-2 of the
        Exchange Act). Yes
o
        No x
 
 The
        number of shares of Class A Common Stock outstanding as of November 4, 2005
        was
        47,282,953.
  
  **EXPLANATORY
        NOTE**
 
 This
        Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to the Company’s
        Quarterly Report on Form 10-Q for the period ended June 25, 2005,
        initially
        filed with the Securities and Exchange Commission on August 8, 2005 (the
        “Original Filing”), reflects a restatement (the “Restatement”) of the
        consolidated financial statements of the Company. The
        determination to restate these financial statements of results from the
        misclassification of certain costs related to the issuance of the Mandatorily
        Redeemable Series A 7% Convertible Preferred Stock that took place on July
        11,
        2005. The Company accrued estimated offering costs of $400,000 with a
        corresponding charge to selling and distribution expenses. However, in
        accordance with accounting principles generally accepted in the United States,
        commissions and issuance expenses related to redeemable preferred stock
        classified as a liability under Statement of Financial Accounting Standards
        No.
        150, “Accounting for Certain Financial Instruments with Characteristics of Both
        Liabilities and Equity”, should be accounted for in the same manner as issuance
        costs associated with debt by deferring and amortizing the costs to interest
        expense over the contractual term of the debt.  The
        restatement has resulted in a $400,000 reduction in current liabilities and
        a
        $400,000 increase in retained earnings and net income. This restatement has
        had
        no effect on the provision for income taxes.
 
 This
        Form 10-Q/A amends and restates (i) Item 1. Consolidated Statements;
        (ii)
        Item 2. Management Discussion and Analysis of Financial Condition and Results
        of
        Operations; and (iii) Item 6. Exhibits. Except to the extent modified or
        updated, the foregoing items have not been amended to reflect other events
        occurring after the Original Filing or to modify or update those disclosures
        affected by subsequent events. Other events occurring after the filing of
        the
        Original Filing or other disclosures necessary to reflect subsequent events
        have
        been addressed in the Company’s reports filed with the Securities and Exchange
        Commission subsequent to the filing of the Original Filing. In addition,
        the
        Original Filing has been amended to contain currently dated certifications
        from
        the Company’s Chief Executive Officer and Chief Financial Officer, as required
        by Sections 302 and 906 of the Sarbanes-Oxley Act (See Exhibits 31.1,
        31.2 and 32.1.).
  -2-
  **PART
        I: FINANCIAL INFORMATION**
 
 **Item
        1. Consolidated Financial Statements.**
 
 **NEW
        DRAGON ASIA CORP. AND SUBSIDIARIES**
  **CONSOLIDATED
        BALANCE SHEETS**
 **(Amounts
        in thousands, except share data)**
 **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004**(Unaudited)**ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              1,053
              
              $
              219Accounts
                  receivable, net
              
              
              6,232
              
              
              6,414Deposits
                  and prepayments, net
              
              
              3,527
              
              
              2,520Inventories,
                  net
              
              
              5,478
              
              
              3,990Due
                  from related companies
              
              
              822
              
              
              1,183Total
                  current assets
              
              
              17,112
              
              
              14,326Property,
                  machinery and equipment, net
              
              
              15,575
              
              
              16,098Land
                  use rights, net
              
              
              3,766
              
              
              3,822Total
                  assets
              
              $
              36,453
              
              $
              34,246**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,557
              
              $
              2,696Other
                  payables and accruals
              
              
              1,968
              
              
              1,898Taxes
                  payable
              
              
              1,656
              
              
              1,491Due
                  to related companies
              
              
              152
              
              
              831Total
                  current liabilities
              
              
              6,333
              
              
              6,916Due
                  to parent company
              
              
              1,187
              
              
              303Due
                  to joint venture partners
              
              
              88
              
              
              110Total
                  liabilities
              
              
              7,608
              
              
              7,329Minority
                  interests
              
              
              50
              
              
              82Stockholders'
                  equity:Preferred
                  stock, par value $0.0001; 5,000,000 shares authorized; no shares
                  issued
                  and outstandingCommon
                  stock, par value $0.0001; 102,000,000 shares authorized; 45,061,242
                  shares
                  of Class A CommonStock
                  issued and outstanding at June 25, 2005 and December 25, 2004;
                  no shares
                  of Class B Common Stock issued and outstanding
              
              
              4
              
              
              4Additional
                  paid-in-capital
              
              
              9,909
              
              
              9,909Retained
                  earnings
              
              
              18,882
              
              
              16,922Total
                  stockholders’ equity
              
              
              28,795
              
              
              26,835Total
                  liabilities and stockholders' equity
              
              $
              36,453
              
              $
              34,246
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
   -3-
  **NEW
        DRAGON ASIA CORP. AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF INCOME**
 **(Amounts
        in thousands, except per share data; unaudited)**
 **Three
                  months ended**
                **June
                  25,**
              
              **Six
                  months ended**
                **June
                  25,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  sales
              
              $
              8,993
              
              $
              8,547
              
              $
              17,275
              
              $
              15,945Cost
                  of goods sold
              
              
              (7,584
              )
              
              (6,986
              )
              
              (14,374
              )
              
              13,051Gross
                  profit
              
              
              1,409
              
              
              1,561
              
              
              2,901
              
              
              2,894Selling
                  and distribution expenses
              
              
              (161
              )
              
              (235
              )
              
              (282
              )
              
              (624
              )General
                  and administrative expenses
              
              
              (405
              )
              
              (464
              )
              
              (978
              )
              
              (1,125
              )Income
                  from operations
              
              
              843
              
              
              862
              
              
              1,641
              
              
              1,145Other
                  income (expenses):Interest
                  expense
              
              
              (1
              )
              
              (33
              )
              
              (1
              )
              
              (72
              )Interest
                  income
              
              
              –
              
              
              1
              
              
              –
              
              
              13Other
                  income
              
              
              796
              
              
              113
              
              
              798
              
              
              441Income
                  before taxes
              
              
              1,638
              
              
              943
              
              
              2,438
              
              
              1,527Provision
                  for income taxes
              
              
              (258
              )
              
              (412
              )
              
              (511
              )
              
              (658
              )Income
                  before minority interests
              
              
              1,380
              
              
              531
              
              
              1,927
              
              
              869Minority
                  interests
              
              
              (8
              )
              
              8
              
              
              33
              
              
              8Net
                  income
              
              $
              1,372
              
              $
              539
              
              $
              1,960
              
              $
              877Basic
                  and diluted earnings percommon
                  share
              
              $
              0.03
              
              $
              0.01
              
              $
              0.04
              
              $
              0.02Weighted
                  average commonshares
                  outstanding
              
              
              45,061
              
              
              45,061
              
              
              45,061
              
              
              45,061
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
 -4-
  **NEW
        DRAGON ASIA CORP. AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Amounts
        in thousands, unaudited)**
 **Six
                  months ended June 25,****2005**
              
              **2004****Cash
                  flows from operating activities:**Net
                  income
              
              $
              1,960
              
              $
              877Adjustments
                  to reconcile net income to net cash provided byoperating
                  activities:Allowance
                  for doubtful accounts
              
              
              49
              
              
              (57
              )Depreciation
                  and amortization
              
              
              582
              
              
              614(Gain)
                  loss on sale of property, machinery and equipment
              
              
              3
              
              
              (15
              )Minority
                  interest
              
              
              (32
              )
              
              (8
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              133
              
              
              767Deposits
                  and prepayments
              
              
              (1,007
              )
              
              (330
              )Inventories
              
              
              (1,488
              )
              
              (106
              )Amounts
                  due from related companies
              
              
              361
              
              
              (973
              )Accounts
                  payable
              
              
              (139
              )
              
              (370
              )Other
                  payables and accruals
              
              
              70
              
              
              1,150Taxes
                  payable
              
              
              165
              
              
              382Amounts
                  due to related companies
              
              
              (679
              )
              
              –Net
                  cash provided by (used in)operating activities
              
              
              (22
              )
              
              1,931**Cash
                  flows from investing activities:**Proceeds
                  from disposal of property, machineryand equipment
              
              
              2
              
              
              2,266Purchases
                  of property, machinery and equipment
              
              
              (8
              )
              
              (2,151
              )Net
                  cash provided by (used in) investing activities
              
              
              (6
              )
              
              115**Cash
                  flows from financing activities:**Proceeds
                  from short-term borrowings
              
              
              –
              
              
              602Repayments
                  of short-term borrowings
              
              
              –
              
              
              (2,036
              )Due
                  to parent company
              
              
              884
              
              
              (876
              )Due
                  to joint venture partners
              
              
              (22
              )
              
              (1,201
              )Capital
                  contribution fromminority
                  interest
              
              
              –
              
              
              124Net
                  cashprovided
                  by (used in) financing activities
              
              
              862
              
              
              (3,387
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              834
              
              
              (1,341
              )Cash
                  and cash equivalents at the beginning of the period
              
              
              219
              
              
              1,783Cash
                  and cash equivalents at the end of the period
              
              $
              1,053
              
              $
              442
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
  -5-
  **NEW
        DRAGON ASIA CORP. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounted
        in thousands, except share data; unaudited)**
  
 **NOTE
                1.**
              **ORGANIZATION
                  AND NATURE OF OPERATIONS**
 
 New
        Dragon Asia Corp., a United States corporation incorporated in the State
        of
        Florida, is principally engaged in the milling, sale and distribution of
        flour
        and related products, including instant noodles 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 five manufacturing plants in Yantai, Beijing and
        Penglai.
 
 **NOTE
                2.**
              **BASIS
                  OF PRESENTATION**
 
 The
        accompanying consolidated financial statements include the accounts of New
        Dragon Asia Corp. and its subsidiaries. All significant intra-group balances
        and
        transactions have been eliminated on consolidation. These financial statements
        are unaudited. However, in the opinion of management, the consolidated financial
        statements include all adjustments, consisting of only normal, recurring
        adjustments, necessary for their fair presentation. Interim results are not
        necessarily indicative of results expected for a full year. The accompanying
        unaudited consolidated financial statements have been prepared in accordance
        with the instructions for Form 10-Q and, therefore, do not include all
        information and footnotes necessary for a complete presentation of the
        operations, financial position and cash flows of the Company in conformity
        with
        generally accepted accounting principles. These statements should be read
        in
        conjunction with the Company’s Annual Report on Form 10-K for the year ended
        December 25, 2004.
 
 The
        consolidated financial statements were prepared in accordance with accounting
        principles generally accepted in the United States of America (“U.S. GAAP”). The
        preparation of financial statements in conformity with U.S. GAAP requires
        management to make estimates and assumptions that affect the reported amount
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the dates of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting periods. Although management believes these
        estimates and assumptions are adequate, actual results could differ from
        the
        estimates and assumptions used. U.S. GAAP differs from that used in the
        statutory financial statements of the major operating subsidiaries of the
        Company, which were prepared in accordance with the relevant accounting
        principles and financial reporting regulations in the PRC. Certain accounting
        principles stipulated under U.S. GAAP are not applicable in the
        PRC.
 
 The
        consolidated financial statements are presented in U.S. dollars. Transactions
        and monetary assets denominated in currencies other than the U.S. dollars
        are
        translated into U.S. dollars at the respective applicable exchange rates.
        Monetary assets and liabilities denominated in other currencies are translated
        into U.S. dollars at the applicable rate of exchange at the balance sheet
        date.
        There are no material exchange differences as a result of the stability of
        the
        Renminbi ("RMB") during the periods covered by the consolidated financial
        statements.
 
 On
        July
        21, 2005, the People’s Bank of China announced an upward adjustment on Renminbi
        exchange rate against U.S. dollars of 2%. The
        exchange rate of the Renminbi will be valued against a number of currencies,
        rather than just **** exclusively to
        the United States dollar. The
        Company considers such adjustment as having minimal impact on its operations
        and
        financial results.
   -6-
 
 **NOTE
                3.**
              **ACCOUNTS
                  RECEIVABLE**
 
 Accounts
        receivable consisted of the following:
  **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****(Unaudited)**Accounts
                  receivable
              
              $
              7,056
              
              $
              7,189Less:
                  Allowance for doubtful accounts
              
              
              (824
              )
              
              (775
              )$
              6,232
              
              $
              6,414
 
 **NOTE
                4.**
              **INVENTORIES**
 
 Inventories
        consisted of the following:
  **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****(Unaudited)**Raw
                  materials (including packing materials)
              
              $
              4,798
              
              $
              2,812Finished
                  goods
              
              
              1,216
              
              
              1,7256,014
              
              
              4,537Less:
                  Provision for inventory obsolescence
              
              
              (536
              )
              
              (547
              )$
              5,478
              
              $
              3,990
 
 **NOTE
                5.**
              **PROPERTY,
                  MACHINERY AND EQUIPMENT**
 
 Property,
        machinery and equipment consisted of following:
 
 **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****(Unaudited)**Buildings
              
              $
              9,259
              
              $
              9,415Machinery
                  and equipment
              
              
              12,088
              
              
              11,94021,347
              
              
              21,355Less:
                  Accumulated depreciation and amortization
              
              
              (5,772
              )
              
              (5,257
              )$
              15,575
              
              $
              16,098
 
  -7-
  **NOTE
                6.**
              **LAND
                  USE RIGHTS**
 
 Land
        use
        rights consisted of the following:
 
 **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****(Unaudited)**Land
                  use rights
              
              $
              4,432
              
              $
              4,432Less:
                  Accumulated amortization
              
              
              (666
              )
              
              (610
              )$
              3,766
              
              $
              3,822
  **NOTE
                7.**
              **OTHER
                  PAYABLES AND ACCRUALS**
 
 Other
        payables and accruals consisted of the following:
 
 **June
                  25,**
                **2005**
              
              **December
                  25,**
                **2004****(Unaudited)**Deposits
                  from customers
              
              $
              301
              
              $
              554Accruals
                  for staff salaries, bonus and benefits
              
              
              338
              
              
              515Utilities
                  and accrued expenses
              
              
              1,329
              
              
              829$
              1,968
              
              $
              1,898
 
 **NOTE
                8.**
              **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.
 
 Substantially
        all of the Company’s income was generated in the PRC, which is subject to PRC
        income taxes at rates ranging from 24% to a statutory rate of 33%. Two of
        the
        PRC subsidiaries of the Company will be eligible to be exempt from income
        taxes
        for a two-year period and then subject to a 50% reduction in income taxes,
        starting from their first profitable year. Several PRC subsidiaries receive
        preferential tax rates in regions in which they operated and are also entitled
        to partial tax refunds from those tax bureaus.
 
 As
        of
        June 25, 2005 and December 25, 2004, there were no material deferred tax
        assets
        or deferred tax liabilities.
 
 **NOTE
                9.**
              **COMMON
                  STOCK**
 
 Currently
        the Company is authorized to issue 107,000,000 shares of capital stock, of
        which
        100,000,000 shares are Class A Common Stock, 2,000,000 shares are Class B
        Common
        Stock and 5,000,000 shares are Preferred Stock. As of June 25, 2005, there
        were
        45,061,242 Class A common shares issued and outstanding. No shares of Class
        B
        Common Stock or Preferred Stock were issued and outstanding.
  -8-
 
 **NOTE
                10.**
              **EARNINGS
                  PER SHARE**
 
 The
        Company follows Statement
        of Financial Accounting Standards (“SFAS”)  No.128,
        “Earnings Per Share”, which establishes standards for the computation,
        presentation and disclosure requirements for basic and diluted earnings per
        share for entities with publicly held common shares and potential common
        stocks.
        Basic earnings per share are computed by dividing net income by the weighted
        average number of common shares outstanding. In computing diluted earnings
        per
        share, the weighted average number of shares outstanding is adjusted to reflect
        the effect of potentially dilutive securities, such as stock
        options.
 
 **NOTE
                11.**
              **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 Company and related companies are
        summarized below:
 
 **Three
                  months ended**
                **June
                  25**
              
              **Six
                  months ended**
                **June
                  25****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)****Pre-determined
                  annual fee charged by joint venture partners:**Shandong
                  LongfengGroup
                  Company
              
              $
              27
              
              $
              27
              
              $
              54
              
              $
              54**Rental
                  income from a joint venture partner**Shandong
                  LongfengGroup
                  Company
              
              $
              16
              
              $
              16
              
              $
              32
              
              $
              32
 
 The
        amounts due from and due to related companies are unsecured, non-interest
        bearing and repayable upon demand. Balances are derived from normal commercial
        transactions.
 
 **NOTE
                12.**
              **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 employee services received in exchange for an award of
        equity instruments based on the grant-date fair value of the award.
  In
        November 2004, options to purchase 400,000 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.
        As of
        June 25, 2005, no options were exercised.
  On
        June
        22, 2005, options to purchase 600,000 Class A Common Stock were issued to
        the
        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.
        As of
        June 25, 2005, no options were exercised.
   -9-
  The
        Company used the Black-Scholes option-pricing model to estimate the fair
        value
        of the options with the following assumptions:
 
 **As
                  of the grant date**June
                  22, 2005
              
              November
                  2, 2004Life
                  (years)
              
              
              10
              
              
              10Annual
                  dividend per share
              
              
              None
              
              
              NoneRisk-
                  free interest rate
              
              
              3
              %
              
              3
              %Expected
                  volatility
              
              
              50
              %
              
              50
              %
 
 Accordingly,
        the Company recorded compensation expenses based on the fair value of the
        options granted in November 2, 2004 and June 22, 2005 ,
        respectively.
  **NOTE
                13.**
              **SUBSEQUENT
                  EVENTS**
 
 On
        July
        11, 2005, the Company issued shares of Series A 7% Convertible Preferred
        Stock
        initially convertible into an aggregate of 6,315,789 shares of Class A Common
        Stock at a conversion price of $0.95, raising $6.0 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 were 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 were
        also issued.
 
 Under
        SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics
        of Both Liabilities and Equity”, the Preferred Stock will be recorded by the
        Company as a liability since it is an unconditional obligation that must
        be
        either redeemed for cash or settled by issuing shares of Common
        Stock.
  On
        July
        21, 2005, the People’s Bank of China announced an upward adjustment on Renminbi
        exchange rate against U.S. dollars of 2%. The
        exchange rate of the Renminbi will be valued against a number of currencies,
        rather than just **** exclusively to
        the United States dollar. The
        Company considers such adjustment as having minimal impact on its operations
        and
        financial results.
 
 **NOTE
                14.**
              **RECLASSIFICATIONS**
 
 **** Certain
        prior year comparative figures have been reclassified to conform to the current
        year presentation.
 
  -10-
  **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations.**
 
 In
        addition to historical information, the matters discussed in this Form 10-Q
        contain forward-looking statements that involve risks or uncertainties.
        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 filed 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. Readers should carefully review
        the
        risks described in other documents we filed from time to time with the
        Securities and Exchange Commission, including the Annual Report on Form 10-K
        for
        the fiscal year ended December 25, 2004, the Quarterly Reports on Form 10-Q
        filed by the Company and Current Reports on Form 8-K (including any amendments
        to such reports). References in this filing to the “Company”, “Group”, “we”,
“us”, and “our” refer to New Dragon Asia Corp. and its subsidiaries.
  **Critical
        Accounting Policies**
  The
        methods, estimates and judgments we use in applying our most critical accounting
        policies have a significant impact on the results we report in our financial
        statements. The U.S. Securities and Exchange Commission, or SEC, has defined
        critical accounting policies as those that are most important to the portrayal
        of our financial condition and results of operations and require us to make
        our
        most difficult and subjective judgments, often as a result of the need to
        make
        estimates of matters that are inherently uncertain. Based on this definition,
        our critical policies include revenue recognition, allowance for doubtful
        accounts, sales returns and allowances, asset impairment, and inventory
        valuation including product obsolescence. We believe that we consistently
        apply
        judgments and estimates and such consistent application results in financial
        statements and accompanying notes that fairly represent all periods presented.
        However, any factual errors or errors in these judgments and estimates may
        have
        a material impact on our statement of operations and financial
        conditions.
 
 Management
        believes that the following reflect the more critical accounting policies
        that
        currently affect our financial condition and results of operations.
 
  -11-
  ***Contractual
        Joint Ventures*** -
        A
        contractual joint venture is an entity established between us and another
        joint
        venture partner, with the rights and obligations of each party governed by
        a
        contract. If we own more than 50% of the joint venture and are able to govern
        and control its financial and operating policies and its board of directors,
        such joint venture is considered as a de facto subsidiary and is accounted
        for
        as a subsidiary
 
 ***Revenue
        Recognition*** - We
        recognize sales in accordance with Securities and Exchange Commission (SEC)
        Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial
        Statements”. Sales represent the invoiced value of goods, net of value added tax
        (“VAT”), supplied to customers, and are recognized upon delivery of goods and
        passage of title.
 
 All
        of
        our sales made in Mainland China are subject to Mainland Chinese value-added
        tax
        at rates ranging from 13% to 17% (“output VAT”). Such output VAT is payable
        after offsetting VAT paid by us on purchases (“input VAT”).
 
 ***Inventories*** -
        Inventories are started at the lower of cost, determined on a weighted average
        basis, and net realizable value. Costs of work-in-progress and finished goods
        are composed of direct material, direct labor and an attributable portion
        of
        manufacturing overhead. Net realizable value is the estimated selling price,
        in
        the ordinary course of business, less estimated costs to complete and
        dispose.
 
 In
        November 2004, the FASB issued Statement of Financial Accounting Standard
        (SFAS)
        No. 151, *Inventory
        Costs,* which
        clarifies the accounting for abnormal amounts of idle facility expense, freight,
        handling costs, and wasted material. SFAS No 151 will be effective for inventory
        costs incurred during fiscal years beginning after June 15, 2005. We do not
        believe the adoption of SFAS No. 151 will have a material impact on our
        financial statements.
 
 **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 200+ key distributors and 16
        regional offices in 27 Chinese provinces. We have five manufacturing plants
        in
        the PRC with an aggregate annual production capacity of approximately 110,000
        tons of flour and approximately 1.1 billion packets of instant
        noodles.
 
 **Operation**
 
 We
        produce and market a broad range of wheat flour for use in bread, dumplings,
        noodles and confectionary products. Our flour products are marketed under
        the
“Long Feng” brand name and sold throughout the country at both wholesale and
        retail levels.
 
 We
        provide a wide range of instant noodle products to our customers. Our products
        can be separated into two broad categories for selling and marketing purposes:
        (i) packet noodles for home preparation and (ii) snacks and cup noodles for
        outdoor convenience.
   -12-
  We
        believe that we have a reputation for producing some of the highest quality
        food
        products in China. Our production plants operate to the highest level of
        hygiene
        and efficiency and most of our plants are certified under the ISO9002 standards.
        Most of our manufacturing equipment is imported from Switzerland, Japan and
        Korea. We also use strict quality control systems, resulting in what we believe
        to be a favorable customer perception of the “Long Feng” brand.
 
 Most
        of
        our products are regionally marketed and distributed. Our sales and marketing
        strategy focuses on maintaining strong distribution relationships with annual
        sales order meetings and regular distributor conferences and an excellent
        quality/price dynamic.
 
 We
        believe our distribution system is the key to our continued success in
        developing “Long Feng” as one of the leading domestic brands in China. We have
        more than 200 points of distribution, of which 10 are our direct sales offices,
        spread over 27 provinces in China. The remaining 190 sales points are owned
        and
        managed by distributors. Most of our distributors have long-term relationships
        with us.
 
 Our
        primary customer base for both our flour products and instant noodles consists
        of stores in the rural areas throughout China, where, we believe, our brand
        has
        long been recognized as the highest quality available for the price. The
        rural
        market is rapidly growing, benefiting from increases in rural consumer income.
        We believe that brand loyalty is very strong in this sector. In addition,
        we
        sell to supermarkets located in urban areas.
 
 In
        addition to domestic sales, we export noodles to other countries such as
        Korea,
        Australia, Malaysia, Indonesia, etc. During fiscal 2004 and the first six
        months
        of fiscal 2005, export sales accounted for approximately 5% and 8% respectively,
        of our instant noodle sales.
 
 We
        also
        receive orders for flour from certain KFC Corporation locations in China
        and
        KFC’s intermediary suppliers. KFC requires rigorous quality control standards
        of
        at least the ISO9002 level. We believe that these orders highlight the brand
        reputation and quality of Long Feng as well as our commitment to international
        standards.
 
 The
        flour
        industry is very competitive. Our largest competitors are Shandong Guang
        Rao Ban
        Qiu Flour and Hebei Wu De Li Flour in the Northern market and Shenzhen Nanshun
        Flour in the Southern market.
 
 The
        instant noodle segment is also highly competitive. We compete against
        well-established foreign companies, and many smaller companies. Our largest
        competitors are the “Master Kang” brand manufactured by Tingyi (Cayman Island)
        Holdings Corporation and the “President” brand manufactured by Uni-President
        Group, both based in Taiwan. Both are focused predominately in the more
        developed and competitive urban markets.
 
 **Strategy**
 
 Our
        strategy is to capitalize on our strong brand name and pursue strategic
        partnerships and acquisitions that will enhance our sales. The following
        are
        some of the key elements of our business strategy:
 
 -
              Expand
                  export sales
 -
              Continue
                  to enhance our distributor
                  relationships
 -
              Continue
                  to improve product quality and diversify our product range with
                  higher
                  value-added products
 -
              Build
                  strategic joint venture relationships with multinational food groups
                  to
                  enhance product range and capitalize on our China distribution
                  network
   -13-
  Plans
        for
        expansion of the existing plants are expected to be funded through current
        working capital from ongoing sales. A significant acquisition will require
        additional funds in the form of debt or equity, or a combination of both.
        However, there can be no assurance these funds will be available.
 
 **Significant
        Establishment, Acquisition and Disposal**
 
 ***Soy
        Bean Plant Lease***
 
 On
        April
        27, 2005, we entered into a 10-year lease agreement for plant and machinery
        utilized for the production for soybean-derived products from a state-owned
        enterprise in Shandong. We commenced our soybean business on July 1, 2005.
 
 **Results
        of Operations**
 
 ***Revenue***
 
 Revenue
        for the six months ended June 25, 2005 was $17,275,000, representing an increase
        of $1,330,000, or 8.3%, from $15,945,000 for the six months ended June 25,
        2004.
        Revenue for the quarter ended June 25, 2005 was $8,993,000, representing
        an
        increase of $446,000, or 5.2%, from $8,547,000 for the quarter ended June
        25,
        2004. The increase in both periods was primarily due to the growth in market
        demand for flour.
 
 ***Gross
        Profit***
 
 As
        a
        percentage of revenue, gross profit decreased to 16.8% in the six months
        ended
        June 25, 2005 from 18.1% in the corresponding period in 2004. Gross profit
        decreased to 15.7% in the second quarter of 2005 from 18.3% in the corresponding
        period in 2004 as a result of an increase in the price of packing
        materials.
 
 ***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.
 
 Selling
        and distribution expenses were $282,000 for the six months ended June 25,
        2005,
        representing a decrease of $342,000 or 55% from $624,000 for the corresponding
        period of 2004. Such expenses were $161,000 for the quarter ended June 25,
        2005,
        representing a decrease of $74,000 from $235,000 for the corresponding quarter
        of 2004. The decrease in both periods was primarily the result of cost controls
        implemented in early 2004.
 
 As
        a
        percentage of revenue, selling and distribution expenses decrease to 2% in
        the
        six months ended June 25, 2005 from 4% in the corresponding period in 2004.
        Such
        expenses decrease to 2% in the first quarter of 2005 from 3% in the
        corresponding period in 2004. The decrease in both periods was primarily
        a
        result of cost controls implemented in early 2004.
  -14-
 
 ***Net
        Income***
 
 Net
        income increased $1,083,000, or 123% to $1,960,000 for the six months ended
        July
        25, 2005, as compared to $877,000 for six months ended July 25, 2004. Such
        net
        income increased $833,000, or 155% to $1,372,000 for the quarter ended June
        25,
        2005 as compared to $539,000 for the quarter ended June 25, 2004. Such increase
        in both periods was primarily due to the revenue growth and the earnings
        contribution of the new plants.
 
 As
        a
        percentage of revenue, net income increased to 11% for the six months ended
        June
        25, 2005, as compared to 6% for the six months ended June 25, 2004. Such
        net
        income increased to 15% for the quarter ended June 25, 2005 as compared to
        6%
        for the quarter ended June 25, 2004. The increase was primarily due to the
        increase in revenue.
 
 **Liquidity
        and Capital Resources**
 
 Our
        primary liquidity needs are to purchase inventories and fund accounts receivable
        and capital expenditures. We have financed our working capital requirements
        through a combination of internally generated cash and advances from related
        companies.
 
 Our
        working capital increased $3,369,000 to $10,779,000 at June 25, 2005 as compared
        to $7,410,000 at December 25, 2004. The increase was primarily due to the
        growth
        and profitability of the business and improved collections of receivables
        during
        the six months ended June 25, 2005.
 
 Cash
        and
        cash equivalents were $1,053,000 as of June 25, 2005, an increase of $834,000
        from December 25, 2004, such increase was mainly due to the increase in revenue.
 
 Net
        cash
        used in operating activities for the six months ended June 25, 2005 was $22,000,
        which was due to the changes in operating assets and liabilities. Net cash
        provided by financing activities of $862,000 in the six months ended June
        25,
        2005, which was mainly due to the increase in the payables to our parent
        company.
 
 In
        July
        2005, we completed a private placement of our securities pursuant to which
        we
        received net proceeds of approximately $5,486,500 after payment of a commission
        to the placement agent and other offering expenses.
 
 **Contractual
        Obligations**
 
 As
        of
        June 25, 2005, we had operating leases for manufacturing and warehouse
        facilities expiring at various dates through March 2031. As of June 25, 2005,
        we
        had no significant capital leases. Future minimum rental commitments under
        operating leases are as follows:
 
 **Payment
                  due by period****Less
                  than**
                **1
                  year**
              
              **1-3
                  years**
              
              **3-5
                  years**
              
              **More
                  than 5 years**
              
              **Total**Operating
                  lease obligations
              
              
              123,000
              
              
              369,000
              
              
              123,000
              
              
              47,000
              
              
              662,000
  
 -15-
  **Off-Balance
        Sheet Arrangements**
 
 We
        do not
        have any special purpose entities or off-balance sheet financing
        arrangements.
 
 **Recent
        Accounting Pronouncements**
 
 In
        May
        2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
        Financial Accounting Standards (“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 1542 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
        December 2004, the FASB issued SFAS No. 153 “ Exchanges of Non-monetary Assets -
        an amendment of APB Opinion No. 29”. SFAS No. 153 replaces the exception from
        fair value measurement in APB Opinion No. 29 for non-monetary exchanges of
        similar productive assets with a general exception from fair value measurement
        for exchanges of non-monetary assets that do not have commercial substance.
        A
        non-monetary exchange has commercial substance if the future cash flows of
        the
        entity are expected to change significantly as a result of the exchange.
        SFAS
        No. 153 is effective for all interim periods beginning after June 15, 2005.
        We
        do not believe the adoption of SFAS No. 153 will have a material impact on
        our
        financial statements.
 
 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. 123 for the fiscal year beginning on January
        1,
        2005, and we expect that the adoption of SFAS No. 123R will have no material
        impact on our financial statements.
 
 In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, which clarifies
        the accounting for abnormal amounts of idle facility expense, freight, handling
        costs, and wasted material. SFAS No. 151 will be effective for inventory
        costs
        incurred during fiscal years beginning after June 15, 2005. We do not believe
        the adoption of SFAS No. 151 will have a material impact on our financial
        statements.
 
 In
        September 2004, the Emerging Issues Task Force (“EITF”) Issue
        No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings
        per Share.” EITF Issue No. 04-08 was issued stating that contingently
        convertible debt should be included in diluted earnings per share computations
        regardless of whether the market price trigger has been met. EITF Issue No.
        04-08 is effective for reporting periods ending after December 15, 2004.
        The
        adopted EITF 02-14 will have no material impact on our financial
        statements.
  -16-
 
 **RISKS
        RELATED TO OUR BUSINESS**
 
 In
        addition to the other information in this report, the following factors should
        be considered carefully in evaluating our business and prospects. THE FOLLOWING
        MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
        FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR PROSPECTS, FINANCIAL
        OR
        OTHERWISE. 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:
 
 ***Our
        business may experience adverse effects from competition in the noodle and
        flour
        product markets.***
 
 The
        noodle and flour product markets are highly competitive. Competition in these
        markets takes many forms, including the following:
 
 Ÿ
              establishing
                  favorable brand recognition;
 Ÿ
              developing
                  products sought by consumers;
 Ÿ
              implementing
                  appropriate pricing;
 Ÿ
              providing
                  strong marketing support; and
 Ÿ
              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.
  -17-
 
 ***Increases
        in prices of main ingredients and other materials could adversely affect
        our
        business.***
  The
        main
        ingredients that we use to manufacture our products are flour and eggs. We
        also
        use paper products, such as corrugated cardboard, as well as films and plastics,
        to package our products. The prices of these materials have been, and we
        expect
        them to continue to be, subject to volatility. We may not be able to pass
        price
        increases in these materials onto our customers, which could have an adverse
        effect on our financial results.
  ***We
        are subject to risks associated with joint ventures and third party
        agreements.***
  We
        conduct our milling and sales operations through joint ventures established
        with
        certain Chinese parties. Any deterioration of these strategic relationships
        may
        have an adverse effect on our operation. Changes in laws and regulations,
        or
        their interpretation, or the imposition of confiscatory taxation, restrictions
        on currency conversion, imports and sources of supply, devaluations of currency
        or the nationalization or other expropriation of private enterprises could
        have
        a material adverse effect on our business, results of operations and financial
        condition. Under its current leadership, the Chinese government has been
        pursuing economic reform policies that encourage private economic activity
        and
        greater economic decentralization. There is no assurance, however, that the
        Chinese government will continue to pursue these policies, or that it will
        not
        significantly alter these policies from time to time without
        notice.
 
 We
        may
        have limited legal recourse under Chinese law if disputes arise under our
        agreements with joint ventures or third parties. The Chinese government has
        enacted some laws and regulations dealing with matters such as corporate
        organization and governance, foreign investment, commerce, taxation and trade.
        However, their experience in implementing, interpreting and enforcing these
        laws
        and regulations is limited, and our ability to enforce commercial claims
        or to
        resolve commercial disputes is unpredictable. If our new business ventures
        are
        unsuccessful, or other adverse circumstances arise from these transactions,
        we
        face the risk that the parties to these ventures may seek ways to terminate
        the
        transactions, or, may hinder or prevent us from accessing important information
        regarding the financial and business operations of these acquired companies.
        The
        resolution of these matters may be subject to the exercise of considerable
        discretion by agencies of the Chinese government, and forces unrelated to
        the
        legal merits of a particular matter or dispute may influence their
        determination. Any rights we may have to specific performance, or to seek
        an
        injunction under Chinese law, in either of these cases, are severely limited,
        and without a means of recourse by virtue of the Chinese legal system, we
        may be
        unable to prevent these situations from occurring. The occurrence of any
        such
        events could have a material adverse effect on our business, financial condition
        and results of operations.
 
 ***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.
  -18-
 
 ***We
        have limited business insurance coverage.***
 
 The
        insurance industry in China is still in an its early stage of development.
        Insurance companies in China offer limited business insurance. As a result,
        we
        do not have any business liability insurance coverage for our operations.
        Moreover, while business disruption insurance is available, we have determined
        that the risks of disruption and cost of the insurance are such that we do
        not
        require it at this time. Any business disruption, litigation or natural disaster
        might result in substantial costs and diversion of resources.
 
 ***We
        have a limited concentration of credit risk.***
  Concentration
        of credit risk with respect to customer receivables are limited due to the
        large
        number of customers comprising our customer base, and their dispersion across
        the PRC. In addition, we perform ongoing credit evaluations of each customer’s
        financial condition and 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 may continue to acquire companies
        in the future. Entering into an acquisition entails many risks, any of which
        could harm our business, including: (a) diversion of management’s attention from
        other business concerns; (b) failure to integrate the acquired company with
        our
        existing business; (c) additional operating expenses not offset by additional
        revenue; and (d) dilution of our stock as a result of issuing equity
        securities.
 
 If
        we are
        unable to implement our acquisition strategy, we may be less successful in
        the
        future. A key component of our growth strategy is accomplished by acquiring
        additional flour and noodle factories. While there are many such companies,
        we
        may not always be able to identify and acquire companies meeting our acquisition
        criteria on terms acceptable to us. Additionally, financing to complete
        significant acquisitions may not always be available on satisfactory terms.
        Further, our acquisition strategy presents a number of special risks to us
        that
        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.
  -19-
 
 Although
        the majority of productive assets in China are owned by the Chinese government,
        in the past several years the government has implemented economic reform
        measures that emphasize decentralization and encourage private economic
        activity. Because these economic reform measures may be inconsistent or
        ineffectual, there are no assurances that:
 
  -
              We
                  will be able to capitalize on economic reforms;
  -
              The
                  Chinese government will continue its pursuit of economic reform
                  policies;
  -
              The
                  economic policies, even if pursued, will be successful;
  -
              Economic
                  policies will not be significantly altered from time to time; and
  -
              Business
                  operations in China will not become subject to the risk of
                  nationalization.
 
 Economic
        reform policies or nationalization could result in a total investment loss
        in
        our common stock.
 
 Since
        1979, the Chinese government has reformed its economic systems. Because many
        reforms are unprecedented or experimental, they are expected to be refined
        and
        improved. Other political, economic and social factors, such as political
        changes, changes in the rates of economic growth, unemployment or inflation,
        or
        in the disparities in per capita wealth between regions within China, could
        lead
        to further readjustment of the reform measures. This refining and readjustment
        process may negatively affect our operations.
 
 Over
        the
        last few years, China's economy has registered a high growth rate. Recently,
        there have been indications that rates of inflation have increased. In response,
        the Chinese government has taken measures to curb this excessively expansive
        economy. These measures include restrictions on the availability of domestic
        credit, reducing the purchasing capability of certain of its customers, and
        limited re-centralization of the approval process for purchases of some foreign
        products. The Chinese government may adopt additional measures to further
        combat
        inflation, including the establishment of freezes or restraints on certain
        projects or markets. These measures may adversely affect our manufacturing
        operations.
 
 To
        date,
        reforms to China's economic system have not adversely impacted our operations
        and are not expected to adversely impact operations in the foreseeable future;
        however, there can be no assurance that the reforms to China's economic system
        will continue or that we will not be adversely affected by changes in China's
        political, economic, and social conditions and by changes in policies of
        the
        Chinese government, such as changes in laws and regulations, measures which
        may
        be introduced to control inflation and changes in the rate or method of
        taxation.
  -20-
 
 On
        November 11, 2001, China signed an agreement to become a member of the World
        Trade Organization (“WTO”), the international body that sets most trade rules,
        further integrating China into the global economy and significantly reducing
        the
        barriers to international commerce. China's membership in the WTO was effective
        on December 11, 2001. China has agreed upon its accession to the WTO to reduce
        tariffs and non-tariff barriers, remove investment restrictions and provide
        trading and distribution rights for foreign firms. The tariff rate reductions
        and other enhancements will enable us to develop better investment strategies.
        In addition, the WTO's dispute settlement mechanism provides a credible and
        effective tool to enforce members' commercial rights. Also, with China's
        entry
        to the WTO, it is believed that the relevant laws on foreign investment in
        China
        will be amplified and will follow common practices.
 
 ***The
        PRC legal system is not fully developed and has inherent uncertainties that
        could limit the legal protections available to
        investors.***
  The
        PRC
        legal system is a system based on written statutes and their interpretation
        by
        the Supreme People's Court. Prior court decisions may be cited for reference
        but
        have limited precedential value. Since 1979, the PRC government has been
        developing a comprehensive system of commercial laws, and considerable progress
        has been made in introducing laws and regulations dealing with economic matters
        such as foreign investment, corporate organization and governance, commerce,
        taxation and trade. Two examples are the promulgation of the Contract Law
        of the
        PRC to unify the various economic contract laws into a single code, which
        went
        into effect on October 1, 1999, and the Securities Law of the PRC, which
        went
        into effect on July 1, 1999. However, because these laws and regulations
        are
        relatively new, and because of the limited volume of published cases and
        their
        non-binding nature, interpretation and enforcement of these laws and regulations
        involve uncertainties. In addition, as the PRC legal system develops, changes
        in
        such laws and regulations, their interpretation or their enforcement may
        have a
        material adverse effect on our business operations.
 
 ***Enforcement
        of regulations in China may be inconsistent.***
 
 Although
        the Chinese government has introduced new laws and regulations to modernize
        its
        securities and tax systems, China does not yet possess a comprehensive body
        of
        business law. As a result, the enforcement, interpretation and implementation
        of
        regulations may prove to be inconsistent and it may be difficult to enforce
        contracts.
 
 ***We
        may experience lengthy delays in resolution of legal
        disputes.***
  As
        China
        has not developed a dispute resolution mechanism similar to the Western court
        system, dispute resolution over Chinese projects and joint ventures can be
        difficult and there is no assurance that any dispute involving our business
        in
        China can be resolved expeditiously and satisfactorily.
  ***We
        may experience an impact of the United States Foreign Corrupt Practices Act
        on
        our Business.***
  Compliance
        with the Foreign Corrupt Practices Act could adversely impact our competitive
        position; failure to comply could subject us to penalties and other adverse
        consequences. We are subject to the United States Foreign Corrupt Practices
        Act,
        which generally prohibits United States companies from engaging in bribery
        or
        other prohibited payments to foreign officials for the purpose of obtaining
        or
        retaining business. Foreign companies, including some that may compete with
        us,
        are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
        theft and other fraudulent practices occur from time-to-time in mainland
        China.
        We have attempted to implement safeguards to prevent and discourage such
        practices by our employees and agents. We can make no assurance, however,
        that
        our employees or other agents will not engage in such conduct for which we
        might
        be held responsible. If our employees or other agents are found to have engaged
        in such practices, we could suffer severe penalties and other consequences
        that
        may have a material adverse effect on our business, financial condition and
        results of operations.
 
  -21-
  **PART
        II: OTHER INFORMATION**
 
 **Item
        6. Exhibits.**
 Exhibit
                Number
              
              Description31.1
              
              Certification
                  of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Certification
                  of theChief
                  Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities
                  Exchange Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002, filed herewith32.1
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer Pursuant
                  to 18
                  U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
                  herewith.
 
 
 
 -22-
 
 **SIGNATURES**
 
 
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        the
        registrant caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
  **NEW
                DRAGON ASIA CORP.**Dated: 
                November 14, 2005
              By:
              /s/ *Li
                Xia Wang*Name:    
                  Li Xia Wang
                Title:      
                  Chief Executive Officer
 Dated: 
                November 14, 2005
              By:
              /s/ *Peter
                Mak*Name:    
                  Peter Mak
                Title:      
                  Chief Financial Officer
 
 
 
  -23-