**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**AMENDMENT
      NO. 1**


**FORM
      10-Q/A**





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





For
      the
      quarterly period ended: March 25, 2006





or




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





For
      the
      transition period from  to





Commission
      File Number: 001-15046





**NEW
      DRAGON ASIA CORP.**





(Exact
      name of Registrant as specified in its charter)




FLORIDA
            88-0404114(State
                or other jurisdiction of incorporation or
                organization)
            (IRS
                Employer Identification Number)Suite
                2808, International Chamber of Commerce Tower






Fuhua
                  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 such filing requirements
      for
      the past 90 days. Yes x No o








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








The
      number of shares of Class A Common Stock outstanding as of May 1, 2006 was
      51,239,876.










**NEW
      DRAGON ASIA CORP.**





**FORM
      10-Q/A**





**FOR
      THE QUARTERLY PERIOD ENDED MARCH 25, 2006**





**TABLE
      OF CONTENTS**




Page**PART
                I:**
            **FINANCIAL
                INFORMATION**ITEM
                1.
            Consolidated
                Financial Statements:Consolidated
                Balance Sheets as of March 25, 2006 (unaudited) and December 25,
                2005
            
            1Consolidated
                Statements of Operations (unaudited) for the three months ended March
                25,
                2006 and 2005
            
            2Consolidated
                Statements of Stockholders’ Equity and Comprehensive Income as of March
                25, 2006 (unaudited) and December 25, 2005
            
            3Consolidated
                Statements of Cash Flows (unaudited) for the three months ended March
                25,
                2006 and 2005
            
            4Notes
                to Consolidated Financial Statements (unaudited)
            
            5ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            
            17ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            30ITEM
                4.
            Controls
                and Procedures
            
            30**PART
                II:**
            **OTHER
                INFORMATION**ITEM
                1.
            Legal
                Proceedings
            
            31ITEM
                1A.
            Risk
                Factors
            
            31ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            31ITEM
                3.
            Defaults
                Upon Senior Securities
            
            31ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            31ITEM
                5.
            Other
                Information
            
            31ITEM
                6.
            Exhibits
            
            31**SIGNATURES**
            
            32**EXHIBITS**
            
            33




2


**EXPLANATORY
      NOTE**





We
      are
      filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A to (a) amend
      the
      financial statements and the notes to the financial statements and (b) amend
      Item 2 of Part I to amend our Management's Discussion and Analysis of Financial
      Condition and Results of Operations. Except as specifically referenced herein,
      this Amendment No. 1 to Quarterly Report on Form 10-Q/A does not reflect any
      event occurring subsequent to May 4, 2006, the filing date of the original
      report.




3


**PART
      I: FINANCIAL INFORMATION**





**Item
      1. Consolidated Financial Statements.**




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**





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




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005**Restated
            
            
            Restated**ASSETS**
            
            
            (Unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            14,889
            
            $
            14,332Accounts
                receivable, net
            
            
            7,306
            
            
            6,515Deposits
                and prepayments, net
            
            
            4,877
            
            
            4,970Inventories,
                net
            
            
            7,270
            
            
            7,630Due
                from related companies
            
            
            834
            
            
            679Total
                current assets
            
            
            35,176
            
            
            34,126Deposit
                for property, machinery and equipment
            
            
            --
            
            
            1,000Property,
                machinery and equipment, net
            
            
            20,253
            
            
            18,315Land
                use rights, net
            
            
            5,082
            
            
            3,980Goodwill
            
            
            125
            
            
            --Total
                assets
            
            $
            60,636
            
            $
            57,421**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            2,990
            
            $
            2,696Other
                payables and accruals
            
            
            2,124
            
            
            2,298Taxes
                payable
            
            
            2,545
            
            
            1,854Due
                to related companies
            
            
            717
            
            
            598Embedded
                derivatives at fair value
            
            
            18,276
            
            
            12,135Total
                current liabilities
            
            
            26,652
            
            
            19,581Due
                to New Dragon Asia Food Limited
            
            
            65
            
            
            137Due
                to joint venture partners
            
            
            125
            
            
            54Total
                liabilities
            
            
            26,842
            
            
            19,772Minority
                interests
            
            
            436
            
            
            91Series
              A & B
              Redeemable Convertible Preferred Stock, $0.0001 par value:Authorized
                shares - 5,000,000Issued
                and outstanding - 13,500 in 2006 and 13,600 in 2005
            
            
            3,873
            
            
            3,559CommitmentsStockholders'
                equity:Class A
              Common
              Stock, $0.0001 par value:Authorized
                shares - 102,000,000Issued
                and outstanding - 50,501,988 in 2006 and 49,322,291 in
                2005
            
            
            5
            
            
            5Class B
              Common
              Stock, $0.0001 par value:Authorized
                shares - 2,000,000 - none issued and outstanding
            
            
            --
            
            
            --Additional
                paid-in capital
            
            
            19,216
            
            
            15,216Receivable
                from stockholder
            
            
            (49
            )
            
            (49
            )Retained
                earnings
            
            
            9,422
            
            
            18,029Accumulated
                other comprehensive income
            
            
            891
            
            
            798Total
                stockholders’ equity
            
            
            29,485
            
            
            33,999Total
                liabilities and stockholders' equity
            
            $
            60,636
            
            $
            57,421




1




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


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





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





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




**Three
                months
                ended****March
                25,****2006**
            
            
            **2005**RestatedNet
                revenue
            
            $
            11,096
            
            $
            8,282Cost
                of goods sold
            
            
            (9,242
            )
            
            (6,790
            )Gross
                profit
            
            
            1,854
            
            
            1,492Selling
                and distribution expenses
            
            
            (230
            )
            
            (121
            )General
                and administrative expenses(Including
                stock-based compensation of $2,320)
            
            
            (2,757
            )
            
            (573
            )Income
                (loss) from operations
            
            
            (1,133
            )
            
            798Other
                income (expense):Interest
                income
            
            
            16
            
            
            --(Loss)
                on fair value adjustments to embedded derivatives
            
            
            (6,507
            )
            
            --Other
                income
            
            
            5
            
            
            2VAT
                refund
            
            
            101
            
            
            --Income
                (loss) before income taxes and minority interests
            
            
            (7,518
            )
            
            800Provision
                for income taxes
            
            
            (258
            )
            
            (253
            )Income
                (loss) before minority interests
            
            
            (7,776
            )
            
            547Minority
                interests
            
            
            (76
            )
            
            41Net
                income (loss)
            
            $
            (7,852
            )
            $
            588Accretion
                of Redeemable preferred stock
            
            
            (508
            )
            
            --Preferred
                Stock Dividends
            
            
            (247
            )
            
            --Income
                (loss) available to common stockholders
            
            $
            (8,607
            )
            $
            588Earnings
                (loss) per common shareBasic
            
            $
            (0.17
            )
            $
            0.01Diluted
            
            $
            (0.17
            )
            $
            0.01Weighted
                average number of common shares outstandingBasic
            
            
            49,846
            
            
            45,061Diluted
            
            
            49,846
            
            
            45,061








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




2


**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





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





**(Amounts
      in thousands, unaudited, 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
              atDecember
                25, 2005,as previously reported
            
            
            49,322
            
            $
            5
            
            $
            24,790
            
            $
            (49
            )
            $
            20,917
            
            $
            798
            
            $
            46,461
            
            $
            4,793Restatement
                Adjustments
            
            
            -
            
            
            -
            
            
            (9,574
            )
            
            -
            
            
            (2,888
            )
            
            -
            
            
            (12,462
            )
            
            -Balance
              atDecember
                25, 2005,as restated
            
            
            49,322
            
            
            5
            
            
            15,216
            
            
            (49
            )
            
            18,029
            
            
            798
            
            
            33,999
            
            
            4,793Net
                income (loss)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,852
            )
            
            -
            
            
            (7,852
            )
            
            (7,852
            )Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            2,320
            
            
            -
            
            
            -
            
            
            -
            
            
            2,320
            
            
            -Accretion
                of Redeemable preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (508
            )
            
            -
            
            
            (508
            )
            
            -Preferred
                Stock Dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (247
            )
            
            -
            
            
            (247
            )
            
            -Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            93
            
            
            93
            
            
            93Conversion
                of Preferred Stock, related interest payments made, and cashless
                exercise
                of warrants in Class A Common Stock
            
            
            180
            
            
            -
            
            
            560
            
            
            -
            
            
            -
            
            
            -
            
            
            560
            
            
            -Exercise
                of stock options
            
            
            1,000
            
            
            -
            
            
            1,120
            
            
            -
            
            
            -
            
            
            -
            
            
            1,120
            
            
            -Balance
                at
              March
                25, 2006
            
            
            50,502
            
            $
            5
            
            $
            19,216
            
            $
            (49
            )
            $
            9,422
            
            $
            891
            
            $
            29,485
            
            $
            (7,759
            )





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




3





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS** ****





**(Amounts
      in thousands, unaudited)**




**Three
                months ended****March
                25,****2006**
            
            **2005****Restated****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            (7,852
            )
            $
            588Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Allowance
                for doubtful accounts
            
            
            (251
            )
            
            86Provision
                for inventory reserve
            
            
            (13
            )
            
            (28
            )Depreciation
                and amortization of property, machinery, equipment and land use
                rights
            
            
            671
            
            
            297(Loss)
                on fair value adjustments to embedded derivatives
            
            
            6,507
            
            
            --Minority
                interests
            
            
            76
            
            
            (41
            )Stock-based
                compensation expense
            
            
            2,320
            
            
            --Changes
                in operating assets and liabilities:
              (Increase)
                decrease in:Accounts
                receivable
            
            
            (477
            )
            
            131Deposits
                and prepayments
            
            
            93
            
            
            (2,071
            )Inventories
            
            
            373
            
            
            (617
            )Due
                from related companiesIncrease
                (decrease) in:
            
            
            (155
            )
            
            226Accounts
                payable
            
            
            281
            
            
            710Other
                payables and accruals
            
            
            (445
            )
            
            280Taxes
                payable
            
            
            691
            
            
            537Due
                to related companies
            
            
            119
            
            
            --Net
                cash provided by operating activities
            
            
            1,938
            
            
            98**Cash
                flows from investing activities:**Acquisition
            
            
            (2,300
            )
            
            --Purchases
                of property, machinery and equipment
            
            
            (380
            )
            
            (8
            )Purchases
                of land use rights
            
            
            (108
            )
            
            --Minority
                interest
            
            
            266
            
            
            --Net
                cash used in investing activities
            
            
            (2,522
            )
            
            (8
            )**Cash
                flows from financing activities:**Payments
                of issuance costs related to preferred stock
            
            
            (43
            )
            
            --Proceeds
                from/repayment to parent company
            
            
            (72
            )
            
            3Proceeds
                from/repayment to joint venture partners
            
            
            71
            
            
            (45
            )Preferred
                stock dividends
            
            
            (31
            )
            
            --Proceeds
                from exercise of stock options
            
            
            1,120
            
            
            --Net
                cash provided by (used in) financing activities
            
            
            1,045
            
            
            (42
            )Foreign
                currency translation adjustment
            
            
            96
            
            
            --Net
                increase in cash and cash equivalents
            
            
            557
            
            
            48Cash
                and cash equivalents at the beginning of the period
            
            
            14,332
            
            
            219Cash
                and cash equivalents at the end of the period
            
            $
            14,889
            
            $
            267**Non-cash
                Investing and Financing Activities**Conversion
                of preferred stock to common stock
            
            $
            517
            
            $
            --Interest
                payments on preferred stock in form of common stock
            
            $
            43
            
            $
            --





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




4





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS** ****





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








New
      Dragon Asia Corp., a corporation incorporated in the State of Florida
      (collectively with its subsidiaries, the “Company”), 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. The Company is
      headquartered in Shandong Province in the People’s Republic of China (“PRC” or
“China”) and has its corporate office in Shenzhen and six manufacturing plants
      in Yantai, Beijing and Penglai.








**NOTE
      2. BASIS OF PRESENTATION**





The
      consolidated financial statements include the financial statements of New Dragon
      Asia Corp. and all of its subsidiaries 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.





Certain
      information and footnote disclosures normally included in financial statements
      that have been prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and regulations
      of the Securities and Exchange Commission, although management of the Company
      believes that the disclosures contained in these financial statements are
      adequate to make the information presented therein not misleading. For further
      information, refer to the financial statements and the notes thereto included
      in
      the Company’s Annual Report on Form 10-K/A for the fiscal year ended December
      25, 2005, as filed with the Securities and Exchange Commission.





***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 Redeemable
      convertible Preferred
      Stock, are separately valued and accounted for on our balance sheet.


The
      pricing models we use for determining fair values of our derivatives are 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 it estimates.




5





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 period
      ended March 25, 2006 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 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.




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





The
      consolidated financial statements for the interim period ended March 25, 2006
      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 Preferred Stock and associated warrants, (2)
      the
      amortization associated with the discount recorded with respect to our Series
      A
      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 certain of our financial instruments,
      including our 2005 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 operations.




***Summary
      of Restatement Items***





In
      late
      August 2006, we concluded that it was necessary to restate our 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 Redeemable convertible
      Preferred Stock issued in July 2005 (the "Series A Preferred Stock") and the
      Company's Series B Redeemable convertible Preferred Stock issued in December
      2005 (the "Series B Preferred Stock”), the warrants to purchase common stock
      associated with these offerings, the amortization dividend associated with
      the
      discount recorded with respect to the Series A and B Preferred Stock, and (3)
      warrants to purchase common stock issued with Series A and 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 our 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
      mandatory redeemable 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 at March 25, 2006.




The
      accompanying financial statements for the quarter ended March 25, 2006 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 interim period ended March 25, 2006 are summarized
      below:




6


**Consolidated
        Statement of Operations (in thousands except per share
        data)**




**As**
              **previously****reported**
            
            
            **Adjustments**
            
            
            
            
            **As
                Restated**Net
                revenue
            
            $
            11,096
            
            
            
            
            
            
            $
            11,096Cost
                of goods sold
            
            
            (9,242
            )
            
            
            
            
            
            
            (9,242
            )Gross
                profit
            
            
            1,854
            
            
            
            
            
            
            
            1,854Selling
                and distribution expenses
            
            
            (230
            )
            
            
            
            
            
            
            (230
            )General
                and administrative expenses(Including
                stock-based compensation of $2,320)
            
            
            (2,757
            )
            
            
            
            
            
            
            (2,757
            )Income
                (loss) from operations
            
            
            (1,133
            )
            
            
            
            
            
            
            (1,133
            )Other
                income (expense):Interest
                expense
            
            
            (1,171
            )
            
            (1,171
            )
            ***a***
            
            
            --(Loss)
                gain on fair value adjustments to Derivatives
            
            
            --
            
            
            (6,507
            )
            ***b***
            
            
            (6,507
            )Interest
                income
            
            
            16
            
            
            
            
            
            
            
            16Other
                income
            
            
            5
            
            
            
            
            
            
            
            5VAT
                refund
            
            
            101
            
            
            
            
            
            
            
            101Income
                (loss) before income taxes and minority interests
            
            
            (2,182
            )
            
            
            
            
            
            
            (7,518
            )Provision
                for income taxes
            
            
            (258
            )
            
            
            
            
            
            
            (258
            )Income
                (loss) before minority interests
            
            
            (2,440
            )
            
            
            
            
            
            
            (7,776
            )Minority
                interests
            
            
            (76
            )
            
            
            
            
            
            
            (76
            )Net
                income (loss)
            
            $
            (2,516
            )
            
            
            
            
            
            $
            (7,852
            )Accretion
                of Redeemable preferred stock
            
            
            --
            
            
            (508
            )
            ***c***
            
            
            (508
            )Preferred
                Stock Dividends
            
            
            --
            
            
            (247
            )
            ***d***
            
            
            (247
            )Income
                (loss) available to common stockholders
            
            $
            (2,516
            )
            
            
            
            
            
            $
            (8,607
            )Earnings
                (loss) per common shareBasic
            
            
            (0.05
            )
            
            (0.12
            )
            ***e***
            
            
            (0.17
            )Diluted
            
            
            (0.05
            )
            
            (0.12
            )
            ***e***
            
            
            (0.17
            )Weighted
                average number of common shares outstandingBasic
            
            
            49,750
            
            
            96
            
            ***f***
            
            
            49,846Diluted
            
            
            49,750
            
            
            96
            
            ***f***
            
            
            49,846




***Adjustments******a-
                reverse interest expense recorded for redeemable preferred stock
                now
                accounted for and mezzanine equity******b-
                change in derivative value during the
                period******c-
                accretion of redeemable preferred
                stock******d-
                Preferred stock dividend previously recorded as interest
                expense******e
                - to reflect basic and fully diluted earnings per share based upon
                corrected net loss******f-Adjust
                weighted average shares outstanding for corrected
                calculations***




7





***Balance
      Sheet Impact***





In
      addition to the effects on the Company’s consolidated statement of operations
      discussed above, the restatement impacted the consolidated balance sheet as
      of
      March 25, 2006. The following table sets forth the effects of the restatement
      adjustments on consolidated balance sheet as of March 25, 2006




**As**
              **previously****reported**
            
            
            **Adjustments**
            
            
            
            
            **As
                Restated****(Unaudited)**Total
                current assets
            
            $
            35,176
            
            
            
            
            
            
            $
            35,176Deposit
                for property, machinery and equipment
            
            
            --
            
            
            
            
            
            
            
            --Property,
                machinery and equipment, net
            
            
            20,253
            
            
            
            
            
            
            
            20,253Land
                use rights, net
            
            
            5,082
            
            
            
            
            
            
            
            5,082Deferred
                financing cost, net
            
            
            1,665
            
            
            1,665
            
            ***a***
            
            
            --Goodwill
            
            
            125
            
            
            
            
            
            
            
            125Total
                assets
            
            $
            62,301
            
            
            
            
            
            
            $
            60,636LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            2,990
            
            
            
            
            
            
            $
            2,990Other
                payables and accruals
            
            
            2,124
            
            
            
            
            
            
            
            2,124Taxes
                payable
            
            
            2,545
            
            
            
            
            
            
            
            2,545Embedded
                Derivatives
            
            
            --
            
            
            18,276
            
            ***b***
            
            
            18,276Due
                to related companies
            
            
            717
            
            
            
            
            
            
            
            717Total
                current liabilities
            
            
            8,376
            
            
            
            
            
            
            
            26,652Due
                to New Dragon Asia Food Limited
            
            
            65
            
            
            
            
            
            
            
            65Due
                to joint venture partners
            
            
            125
            
            
            
            
            
            
            
            125Mandatorily
                redeemable convertible preferred stock
            
            
            5,435
            
            
            (5,435
            )
            ***c***
            
            
            --Total
                liabilities
            
            
            14,001
            
            
            
            
            
            
            
            26,842Minority
                interests
            
            
            436
            
            
            
            
            
            
            
            436Redeemable
                Convertible Preferred
            
            
            --
            
            
            3,873
            
            ***c***
            
            
            3,873CommitmentsStockholders'
                equity:Class
                A Common Stock, $0.0001 par value:Issued
                and outstanding - 50,501,988 in 2006 and 49,322,291 in
                2005
            
            
            5
            
            
            
            
            
            
            
            5Class
                B Common Stock, $0.0001 par value:Authorized
                shares - 2,000,000 - none issued and outstanding
            
            
            --
            
            
            
            
            
            
            
            --Additional
                paid-in capital
            
            
            28,616
            
            
            (9,400
            )
            ***d***
            
            
            19,216Receivable
                from stockholder
            
            
            (49
            )
            
            
            
            
            
            
            (49
            )Retained
                earnings
            
            
            18,401
            
            
            (8,979
            )
            ***e***
            
            
            9,422Accumulated
                other comprehensive income
            
            
            891
            
            
            
            
            
            
            
            891Total
                stockholders’ equity
            
            
            47,864
            
            
            
            
            
            
            
            29,485Total
                liabilities and stockholders' equity
            
            $
            62,301
            
            
            
            
            
            
            $
            60,636




***Adjustments******a-reclassify
                costs of offering to Redeemable Convertible preferred
                Stock******b-
                fair value of embedded derivatives at March
                25,2006******c-
                reverse redeemable convertible preferred stock at March 25,2006 and
                record
                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.***





8




**NOTE
      3. 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 2,162 dilutive shares for
      warrants and option and 10,148 shares
      on an “as converted” basis for the Redeemable Convertible Preferred stock for
      the six months ended March 25, 2006 were excluded from the calculation of
      diluted loss per share since their effect would have been
      anti-dilutive.





The
      calculation of diluted weighted average common shares outstanding for the three
      months ended March 25, 2006 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
      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):




**Three Months Ended March
                25,****2006**
            
            **2005****Income**
            
            **Weighted**
            
            
            
            
            
            **Weighted****(Loss)**
            
            **Average**
            
            
            
            **Income**
            
            **Average****Restated**
            
            **Shares**
            
            **Per-Share**
            
            **(Loss)**
            
            **Shares**
            
            **Per-Share**Earnings
                per share - basicIncome
                (Loss) available to common stockholders
            
            $
            (8,607
            )
            
            49,846
            
            $
            (0.17
            )
            $
            588
            
            
            45,061
            
            $
            0.01Effect
                of dilutive securitiesRedeemable
                Convertible Preferred
                Stock
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            --Options
                and Warrants
            
            
            --
            
            
            --
            
            
            
            
            
            --
            
            
            --Earnings
                per share - dilutedIncome
                (loss) available to common stockholders
            
            $
            (8,607
            )
            
            49,846
            
            $
            (0.17
            )
            $
            588
            
            
            45,061
            
            $
            0.01








**NOTE
      4. ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Accounts
                receivable
            
            $
            7,948
            
            $
            7,408Less:
                Allowance for doubtful accounts
            
            
            (642
            )
            
            (893
            )$
            7,306
            
            $
            6,515





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




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Balance
                at the beginning of the period
            
            $
            893
            
            $
            775Add:
                provision during the period
            
            
            17
            
            
            250Less:
                write-offs during the period
            
            
            (268
            )
            
            (132
            )Balance
                at the end of the period
            
            $
            642
            
            $
            893




9





**NOTE5.
      DEPOSITS AND PREPAYMENTS**





Deposits
      and prepayments consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Deposits
                for raw materials
            
            $
            4,555
            
            $
            4,350Prepayments
                and advances
            
            
            322
            
            
            620$
            4,877
            
            $
            4,970








**NOTE
      6. INVENTORIES**





Inventories
      consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Raw
                materials (including packing materials)
            
            $
            5,893
            
            $
            6,133Finished
                goods
            
            
            1,498
            
            
            1,6317,391
            
            
            7,764Less:
                Inventory reserve
            
            
            (121
            )
            
            (134
            )$
            7,270
            
            $
            7,630





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




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Balance
                at the beginning of the period
            
            $
            134
            
            $
            547Add:
                provision during the period
            
            
            --
            
            
            --Less:
                write-offs during the period
            
            
            (13
            )
            
            (413
            )Balance
                at the end of the period
            
            $
            121
            
            $
            134








**NOTE
      7. DUE FROM RELATED COMPANIES**





Due
      from
      related companies consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Due
                from affiliated companies for sales
            
            $
            834
            
            $
            679








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





Property,
      machinery, and equipment consisted of following (in thousands):




**March
                25,**
            
            
            **December
                25,**Useful
                Life
            
            
            **2006**
            
            
            **2005**(In
                years)
            
            
            **(Unaudited)**Buildings
            
            
            40
            
            $
            12,445
            
            $
            9,967Machinery
                and equipment
            
            
            5
                - 12
            
            
            14,732
            
            
            14,66327,177
            
            
            24,630Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (6,924
            )
            
            (6,315
            )$
            20,253
            
            $
            18,315








10




**NOTE
      9. LAND USE RIGHTS**





Land
      use
      rights consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Land
                use rights
            
            $
            5,869
            
            $
            4,705Less:
                Accumulated amortization
            
            
            (787
            )
            
            (725
            )$
            5,082
            
            $
            3,980








**NOTE
      10. OTHER PAYABLES AND ACCRUALS**





Other
      payables and accruals consisted of the following (in thousands):




**March
                25,**
            
            
            **December
                25,****2006**
            
            
            **2005****(Unaudited)**Deposits
                from customers
            
            $
            589
            
            $
            1,093Accruals
                for payroll, bonus and benefits
            
            
            242
            
            
            334Utilities
                and accrued expenses
            
            
            1,293
            
            
            871$
            2,124
            
            $
            2,298








**NOTE
      11. CONVERTIBLE PREFERRED STOCK**





On
      July
      11, 2005, the Company issued 6,000 shares of 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 March 25, 2006, all of the
      five-year warrants had been exercised.





On
      December 22, 2005, the Company issued 9,500 shares of 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.




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
            
            December 22,
              2010Beginning
                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.
            
            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.





The
      accounting for the long warrants issued with the Preferred Stock was determined
      under the guidance of SFAS 133, FASB FSP No. 150-1, FASB FPS No 150-5 and
      Emerging Issues Task Force (“EITF”) No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to and Potentially Settled in
      a
      Company’s Own Stock* .
      Accordingly, the warrants are treated as derivatives and classified as a
      liability. The long term warrants are recorded at fair value, based on the
      Black-Scholes and Binomial pricing models, and revalued each reporting period
      with the change in fair value recorded as other income (expense).Since the
      long
      term warrants and the conversion feature were deemed to be embedded derivatives,
      the Company recorded the fair value of all the embedded derivatives at the
      transaction date as a liability. The total fair value of these liabilities
      reduced the book value of the preferred at the date of the sale. The redemption
      value of the preferred stock is accreted as preferred stock dividends over
      the
      redemption period, which resulted in an accretion of $508 during the
      period.





In
      connection with the issuance of the Series A Preferred Stock and Series B
      Preferred Stock, the Company paid professional fees, placement agent fees and
      associated expenses amounting to $1,843. These professional fees, placement
      agent fees and associated expenses were recorded by the Company as a reduction
      of the Preferred Stock.




12





**NOTE
      12. COMMON STOCK**





On
      September 4, 2003, the Company issued 3,300,000 shares of Class A Common Stock
      for an aggregate purchase amount of $1,650,000 or $0.5 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 March 25, 2006, all such warrants had been
      exercised.





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








**NOTE
      13. WARRANTS**





During
      the year ended December 25, 2005, warrant holders relating to the September
      2003
      and October 2003 private placement transactions exercised their warrants to
      purchase 1,650,000 and 400,000 shares of Class A Common Stock at exercise prices
      of $0.99 to $0.979, respectively. Accordingly, the excess of the exercise price
      over the par value of the Common Stock (amounting to $2,025,000) was recorded
      as
      additional paid-in capital. As of March 25, 2006, the Company had not received
      the proceeds from warrants exercised to purchase 49,647 shares of Class A Common
      Stock and has recorded a stockholder receivable. Legal action to recover such
      receivable has been commenced by the Company.





In
      connection with the issuance of Series A Preferred Stock, , as part of the
      compensation to the placement agent, five-year warrants to purchase 378,947
      shares of Class A Common Stock at an exercise price of $1.04 per share were
      also
      issued. The warrants issued to the placement agent contained a cashless exercise
      provision. The Company estimated the per share value of the warrants using
      the
      Black-Scholes pricing model with the following assumptions:





Warrants
                Issued to Private Placement AgentExpected
                life (in years)
            
            
            5Expected
                volatility
            
            
            40
            %Risk-free
                interest rate
            
            
            4
            %Dividend
                yield
            
            
            0
            %Estimated
                fair value per share
            
            $
            0.43Aggregate
                value of the warrants
            
            $
            163,000





In
      connection with the issuance of Series B Preferred Stock, , as part of the
      compensation to the placement agent, five-year warrants to purchase 356,250
      shares of Class A Common Stock at an exercise price of $1.76 per share were
      also
      issued. The warrants issued to the private placement agent contained a cashless
      exercise provision. The Company estimated the per share value of the warrant
      using the Black-Scholes pricing model with the following
      assumptions:





Warrants
                Issued to Private Placement AgentExpected
                life (in years)
            
            
            5Expected
                volatility
            
            
            98.8
            %Risk-free
                interest rate
            
            
            3.6
            %Dividend
                yield
            
            
            0
            %Estimated
                fair value per share
            
            $
            1.13Aggregate
                value of the warrants
            
            $
            403,000





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




Shares
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                at December 25, 2003
            
            
            2,075,000
            
            $
            0.9883Issued
            
            
            --
            
            
            --Exercised
            
            
            --
            
            
            --Forfeited/Cancelled
            
            
            --
            
            
            --Outstanding
                at December 25, 2004
            
            
            2,075,000
            
            
            0.9883Issued
            
            
            6,861,842
            
            
            1.3889Exercised
            
            
            2,327,368
            
            
            0.9945Forfeited/Cancelled
            
            
            --
            
            
            --Outstanding
                at December 25, 2005
            
            
            6,609,474
            
            
            1.4020Issued
            
            
            --
            
            
            --Exercised
            
            
            101,579
            
            
            1.0400Forfeited/Cancelled
            
            
            --
            
            
            --Outstanding
                at March 25, 2006
            
            
            6,507,895
            
            
            1.4076Warrants
                exercisable at December 25, 2005
            
            
            6,609,474
            
            
            1.4020Warrants
                exercisable at March 25, 2006
            
            
            6,507,895
            
            
            1.4076






13




Number
      of
      shares of Class A Common Stock issuable under warrants related to the private
      placements and the 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
            
            
            1.04December
                2005 private placement6-year
                warrants
            
            
            2,968,750
            
            
            1.765-year
                warrants
            
            
            356,250
            
            
            1.76














**NOTE
      14. 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 during the
      fiscal year ended 2005.





In
      November 2004, options to purchase 400,000 shares of Class A Common Stock were
      issued to Peter
      Mak, the Company’s Chief Financial 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 March
      25, 2006, all of these options were exercised.





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





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





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





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




Options
                Outstanding
            
            Options
                ExercisableWeighted
            
            Weighted
                Average
            
            Number
            
            WeightedRange
                of Exercise
            
            Number
              Outstanding
            
            Average
                Fair
            
            Remaining
                Life
            
            Exercisable
                at
            
            Average
                ExercisePrice
                Per Share
            
            at
                March 25, 2006
            
            Value
            
            (Years)
            
            March
                25, 2006
            
            Price$
                1.60
            
            
            2,000,000
            
            $
            1.60
            
            
            5.5
            
            
            2,000,000
            
            $
            1.60





14





**NOTE
      15. RELATED PARTY TRANSACTIONS**





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





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




**Three
                months ended****March
                25,****2006**
            
            
            **2005****(Unaudited)**
            
            
            **(Unaudited)**Pre-determined
              annual fee charged by joint venture partners:Shandong
                Longfeng Group Company (a)
            
            $
            19
            
            $
            --Shandong
                Longfeng Flour Company Limited (b)
            
            
            9
            
            
            --28
            
            
            --





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





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








**NOTE
      16. 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%. Four of
      the
      PRC subsidiaries of the Company are 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 operated
      and are also entitled to partial tax refunds from those tax bureaus.





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








**NOTE
      17. BUSINESS COMBINATION AND SIGNIFICANT ESTABLISHMENT**





*Delta
      Link Limited & Chengdu Plant*





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





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





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





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




15





Allocation
      of initial purchase consideration (in thousands):





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





*Longyuan
      Packaging Plant*





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




16





**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 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. Readers should carefully review
      the
      risks described in other documents we file 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, 2005, 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.





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.








***Critical
      Accounting Policies***





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





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





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





**Revenue
      Recognition**





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





**Accounting
      for Derivative Instruments**





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


The
      pricing models we use for determining fair values of our derivatives are 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 it estimates.




17





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 period
      ended March 25, 2006 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 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.





**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.




18





**Inventories
      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.





In
      November 2004, the Financial Accounting Standards Board (“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. The Company adopted SFAS No.
      151
      in the first quarter of 2006. The adoption of SFAS No. 151 did not have a
      material impact on our consolidated financial statements.





**Shipping
      and Handling Costs**





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








***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 over 200 key distributors and
      16
      regional offices in 27 Chinese provinces. We have six manufacturing plants
      in
      the PRC with an aggregate annual production capacity of approximately 110,000
      tons of flour and approximately 1.1 billion packets of instant noodles and
      4,500
      tons of Soybean powder.








***Operations***





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 China at both wholesale and retail
      levels.





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





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





We
      believe that we have a reputation in China for producing some of the highest
      quality food products. Our production plants operate to the highest level of
      hygiene and efficiency and all of our plants are certified under the ISO9002
      standards. Most of our manufacturing equipment is purchased and imported from
      Switzerland, Japan and South 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 throughout China. Our
      sales
      and marketing strategy focuses on maintaining strong distribution relationships
      by holding annual sales order meetings, regular distributor conferences and
      an
      excellent quality/price dynamic.





We
      believe our distribution system is the key to our continued success in
      developing the “Long Feng” brand as one of the leading domestic brands in China.
      We have more than 200 points of distribution in China, which 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 small retail stores in the rural areas throughout China, where, we believe
      that 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 by our customers is very strong
      in this sector. In addition to the small retail sector, we sell to larger
      supermarkets located in urban areas.





In
      addition to domestic sales, we export noodles to other countries such as South
      Korea, Australia, Malaysia and Indonesia. Export sales accounted for
      approximately  11%,
      of
      our instant noodle sales for the first three months of fiscal 2006, compared
      with 9% for the same period in fiscal 2005.





We
      also
      receive orders for flour from certain KFC Corporation locations in China and
      KFC’s intermediary suppliers for flour. KFC requires rigorous quality control
      standards for its flour of at least the ISO9002 level. We believe that KFC’s
      orders reflect the brand reputation and quality of the Long Feng brand, as
      well
      as our commitment to international quality standards.




19





***Significant
      establishments and acquisitions during the three months ended March 25, 2006***





*Acquisition
      of* *Delta
      Link Limited and Chengdu Manufacturing Plant*





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





*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 manufacturing and sale
      of
      packing materials, with a registered capital of $3,600,000. The expansion is
      planned to be the second phase of the development of Longkou
      City Longyuan Packing Materials Company Limited (“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 a new income tax holiday. Management
      believes that the transfer of the remaining 55%
      equity interest in LCLPM to NDAPM will be completed in the second quarter of
      2006 at net book value. Upon completion of the above-mentioned transactions,
      LCLPM will become a 100% owned subsidiary of NDAPM, which is indirectly owned
      100% by the Company.








***Strategy***





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




-
            Acquire
                additional locations to increase our production
                capacity-
            Build
                strategic alliance with multinational food groups to enhance product
                range
                and capitalize on our China distribution
                network




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








***Competition***





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





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








***Employees***





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








***Currency
      Conversion and Exchange***





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





20




***Results
      of Operations***





The
      following table sets forth, for the periods indicated, certain operating
      information expressed in U.S. dollars (in thousands):




**Three
                months ended****March
                25,****2006**
            
            
            **2005**RestatedNet
                revenue
            
            $
            11,096
            
            $
            8,282Cost
                of goods sold
            
            
            (9,242
            )
            
            (6,790
            )Gross
                profit
            
            
            1,854
            
            
            1,492Selling
                and distribution expenses
            
            
            (230
            )
            
            (121
            )General
                and administrative expenses(Including
                Stock-based compensation of $2,320)
            
            
            (2,757
            )
            
            (573
            )(Loss)
                on fair value adjustments to embedded derivatives
            
            
            (6,507
            )
            
            --Income
                (loss) before income taxes an minority interest
            
            
            (7,518
            )
            
            800Provision
                for income taxes
            
            
            (258
            )
            
            (253
            )Net
                income (loss)
            
            
            (7,852
            )
            
            588EBITDA*
            
            
            1,888
            
            
            1,138EBITDA
                margin on revenue
            
            
            17
            %
            
            14
            %





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


The
        following table presents a reconciliation from net earnings, which is the
        most
        directly comparable GAAP operating performance measure, to EBITDA for the
        first
        quarters of 2006 and 2005:
 
 **Three
                  months ended March 25,****2006**
              
              **2005**Net
                  income/(loss)
              
              $
              (7,852
              )
              $
              588Income
                  tax
              
              
              258
              
              
              253Interest
                  expenses
              
              
              (16
              )
              
              --Depreciation
                  and amortization
              
              
              671
              
              
              297Loss
                  on fair value adjustments to embedded derivatives
              
              
              6,507
              
              
              --Non-cash
                  stock-based compensation
              
              
              2,320
              
              
              --EBITDA
              
              $
              1,888
              
              $
              1,138


***Three
      Months Ended March 25, 2006 Compared to Three Months Ended March 25, 2005***








***Net
      Revenue***





Net
      revenue for the quarter ended March 25, 2006 was $11,096,000, representing
      an
      increase of $2,814,000, or 34%, from $8,282,000 for the quarter ended March
      25,
      2005. The increase was primarily due to the increase in
      market demand for the
      Company’s flour,
      instant noodles ,
      together with the inclusion of results
      for the
      soybean products business ,
      which
      was not acquired until after the first quarter of 2005.








***Gross
      Profit***





As
      a
      percentage of net revenue, gross profit decreased to 17% for the quarter ended
      March 25, 2006 from 18% for the quarter ended March 25, 2005. The slight
      decrease was primarily due to an increase in the price of raw materials used
      in
      the manufacture of our products.








***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 $230,000 for the quarter ended March 25, 2006,
      representing an increase of $109,000 from $121,000 for the corresponding quarter
      of 2005. The increase was primarily due the expansion of marketing
      activities.




21





As
      a
      percentage of net revenue, selling and distribution expenses increased to 2%
      in
      the first quarter of 2006 from 1.5% in the corresponding period in 2005 as
      a
      result of expansion of marketing activities at the beginning of the year.








***General
      and Administrative Expenses***





General
      and administrative expenses increased $2,184,000, or 381%, to $2,757,000 for
      the
      quarter ended March 25, 2006 as compared to $573,000 for the quarter ended
      March
      25, 2005. The significant increase was primarily due to the stock-based
      compensation cost which was amounted to $2,320,000 and is non-cash in nature
      and
      non-recurring. The charge for stock-based
      compensation related to the granting of the stock options to purchase up to
      2,000,000 shares of Class A Common Stock on January 20, 2006. For the three
      months ended March 25, 2005, there were no such charges incurred. Should
      the stock-based compensation cost be excluded, we would have achieved a decrease
      of 24% in General and Administrative Expenses. The decrease for the first
      quarter of 2006 primarily resulted from the implementation in previous quarters
      of cost controls that were not in place in the comparable quarter of 2005.
      To
      control costs, the Company has focused on more effectively staffing our
      facilities and more effective use of office equipment and
      resources.








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





The
      Company issued Series A 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 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
      operations. For the three months ended March 25, 2006, the loss in this regard
      was $6,507,000.





For
      the
      corresponding period of 2005, we did not issue any redeemable convertible
      preferred stock and there were no similar charges to the statement of
      operations.








***VAT
      Refunds***





VAT
      refund increased to $101,000 for the quarter ended March 25, 2006 as compared
      to
      $0 for the quarter ended March 25, 2005. This increase was primarily due to
      the
      tax refund from the municipal government to encourage foreign investment.








***Net
      Income (Loss)***





We
      incurred a net loss of $7,852,000 for the quarter ended March 25, 2006 as
      compared to a net income of $588,000 for the quarter ended March 25, 2005.
      Such
      change was primarily due to (i) loss on the fair value adjustments to embedded
      derivatives during the period, which were non-cash and (ii) the stock-based
      compensation charged in 2006, which was non-cash.








***EBITDA***





EBITDA
      increased $750,000, or 66%, to $1,888,000 for the three months ended March
      25,
      2006 as compared to $1,138,000 for the three months ended March 25, 2005. Such
      increase was in consistent with our business growth.








***Financial
      Condition, 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 collections from customers and advances from related companies.





Our
      working capital decreased $18,156,000 to $8,524,000 at March 25, 2006 as
      compared to $26,680,000 at December 25, 2005, which was primarily due to the
      fair value of embedded derivatives on the Series A & B Preferred Stock being
      classified as a current liability.





Cash
      and
      cash equivalents were $14,889,000 as of March 25, 2006, an increase of $557,000
      from December 25, 2005, which is in line with our growth in business.





Net
      cash
      provided by operating activities for the three months ended March 25, 2006
      was
      $1,938,000, which was primarily due to the increase of sales in the first three
      months. Net cash provided by financing activities of $1,045,000 for the three
      months ended March 25, 2006 was mainly due to the additional capital derived
      from the exercise of stock options.





Net
      cash
      used in investing activities for the three months ended March 25, 2006 was
      $2,522,000, which primarily resulted from the acquisition of the Chengdu Plant.




22





***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.








***Contractual
      Obligations and Commercial Commitments***





As
      of
      March 25, 2006, we 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
                (a)
            
            
            2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            Thereafter
            
            
            Total(In
                thousands)Mandatorily
                redeemable convertible preferred stock
            
            $
            --
            
            $
            730
            
            $
            4,143
            
            $
            4,143
            
            $
            4,241
            
            $
            --
            
            $
            13,257Operating
                lease obligations
            
            
            46
            
            
            62
            
            
            62
            
            
            10
            
            
            --
            
            
            --
            
            
            180Acquisition
                of property, plant and equipment
            
            
            128
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            128Pre-determined
                annual fee charged by joint venture partners
            
            
            83
            
            
            111
            
            
            111
            
            
            111
            
            
            111
            
            
            3,877
            
            
            4,404Total
            
            
            257
            
            
            903
            
            
            4,316
            
            
            4,264
            
            
            4,352
            
            
            3,877
            
            
            17,969





(a)
      Remaining 9 months in 2006.








***Recent
      Accounting Pronouncements***





In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 156,
“Accounting for Servicing of Financial Assets - an amendment of FASB Statement
      No. 140”, that provides guidance on accounting for separately recognized
      servicing assets and servicing liabilities. In accordance with the provision
      of
      SFAS No. 156, separately recognized servicing assets and servicing liabilities
      must be initially measured at fair value, if applicable. Subsequent to initial
      recognition, the company may use either the amortization method or the fair
      value measurement method to account for servicing assets and servicing
      liabilities within the scope of this Statement. SFAS No. 156 is effective as
      of
      the beginning of an entity’s fiscal year that begins after September 15, 2006.
      The Company will adopt SFAS No. 156 in fiscal year 2007. The adoption of this
      Statement is not expected to have a material effect on the Company’s
      consolidated financial statements.





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140,” to
      permit fair value remeasurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation in
      accordance with the provisions of SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities.” SFAS No. 155 is effective for all financial
      instruments acquired, issued, or subject to a remeasurement occurring after
      the
      beginning of an entity’s fiscal year that begins after September 5, 2006. The
      Company will adopt SFAS No. 155 in fiscal year 2007. The adoption of this
      Statement is not expected to have a material effect on the Company’s
      consolidated financial statements.





In
      April
      2006, the FASB issued FASB Staff Position (“FSP”) FIN 46(R)-6, “Determining the
      Variability to Be Considered in Applying FASB Interpretation No. 46(R)”, that
      will become effective beginning in the third quarter of 2006. FSP FIN No.
      46(R)-6 clarifies that the variability to be considered in applying
      Interpretation 46(R) shall be based on an analysis of the design of the variable
      interest entity. The adoption of the FSP is not expected to have a material
      effect on the Company’s consolidated financial statement.





In
      the
      first quarter of 2006, the Company adopted SFAS No. 154, “Accounting Changes and
      Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement
      No.
      3.” SFAS No. 154 changed the requirements for the accounting for and reporting
      of a voluntary change in accounting principle. The adoption of this Statement
      did not affect the Company’s consolidated financial statements in the period of
      adoption. Its effects on future periods will depend on the nature and
      significance of any future accounting changes subject to this
      statement.




23





**RISK
      FACTORS**





The
      risks
      and uncertainties described below are not the only ones the Company faces.
      Additional risks and uncertainties not presently known to the Company or that
      the Company currently deemed immaterial also may impair the Company’s business
      operations. If any of the following risks occur, the Company’s business
      prospects, financial condition, operating results and cash flows could be
      adversely affected in amounts that could be material.








**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
      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.
      Lu. As of
      April 13, 2006, Mr. Lu 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. As
      a
      result, ,
      Mr. Lu
      has sole voting and dispositive control over the
      shares of us held by New Dragon Asia Food Ltd., which is our majority
      shareholder. As a result, Mr. Lu through his
      equity ownership ,
      effectively exercises control over all matters requiring shareholder approval,
      including the election of directors and approval of significant corporate
      transactions. This concentration of ownership might 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
      (collectively, the “Subsidiaries”). As a result, our profits available for
      distribution to our shareholders are dependent on the profits available for
      distribution from the Subsidiaries. If the Subsidiaries incur debt on their
      own
      behalf, the debt instruments may restrict their ability to pay dividends or
      make
      other distributions, which in turn would limit our ability to pay dividends
      on
      our shares. Under the current PRC laws, because we are incorporated in the
      State
      of Florida, our PRC subsidiaries are each regarded as a wholly foreign-owned
      enterprise in China. Although dividends paid by foreign invested enterprises,
      such as wholly foreign-owned enterprises and Sino-foreign joint ventures, are
      not subject to any PRC corporate withholding tax, the PRC laws permit payment
      of
      dividends only out of net income as determined in accordance with PRC accounting
      standards and regulations. Determination of net income under PRC accounting
      standards and regulations may differ from determination under U.S. GAAP in
      significant aspects, such as the use of different principles for recognition
      of
      revenues and expenses. In addition, distribution of additional equity interests
      by any of our PRC subsidiaries to us (which is credited as fully paid through
      capitalization of the PRC subsidiaries’ undistributed profits) requires
      additional approval of the PRC government due to an increase in our registered
      capital and total investment in the subsidiary. Under the current PRC laws,
      each
      of our subsidiaries is required to set aside a portion of its net income each
      year to fund designated statutory reserve funds. These reserves are not
      distributable as cash dividends. As a result, our primary internal source of
      funds for dividend payments from the subsidiaries are subject to these and
      other
      legal and contractual restrictions and uncertainties, which in turn may limit
      or
      impair our ability to pay dividends to our shareholders. Moreover, any transfer
      of funds from us to the subsidiaries, either as a shareholder loan or as an
      increase in registered capital, is subject to registration with or approval
      by
      PRC governmental authorities. These limitations on the flow of funds between
      us
      and the subsidiaries could restrict our ability to act in response to changing
      market conditions.





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





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




24





**RISKS
      RELATED TO OUR BUSINESS**





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





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




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




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





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





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





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





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





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





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





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




25





***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 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 and, if our recent acquisition of a
      soybean business proves successful, our acquisition strategy may expand to
      include future acquisitions of soybean business. 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.





26




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





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





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





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





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





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





The
      Chinese legal system is a system based on written statutes and their
      interpretation by the Supreme People's Court. Prior court decisions may be
      cited
      for reference but have limited 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 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 has introduced new laws and regulations to modernize
      its
      securities and tax systems on January 1, 1994, China does not yet possess a
      comprehensive body of business law. As a result, the enforcement, interpretation
      and implementation of regulations may prove to be inconsistent and it may be
      difficult to enforce contracts.





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





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




27





***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
      effect our business and financial results.





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





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





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





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


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





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





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








***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.




28





***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 resource




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 are still owned by the Chinese
      government. In addition, the Chinese government continues to play a significant
      role in regulating industry by imposing industrial policies. It also exercises
      significant control over China’s economic growth through the allocation of
      resources, controlling payment of foreign currency-denominated obligations,
      setting monetary policy and providing preferential treatment to particular
      industries or companies.





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




-
            Changes
              in the rate or method of taxation-
            Imposition
              of additional restrictions on currency conversion and remittances
              abroad-
            Reduction
              in tariff or quota protection and other import restrictions;
              and-
            Changes
              in the usage and costs of state-controlled transportation
              services





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





Substantially
      all our revenues and expenses are denominated in the Chinese Renminbi. However,
      we use the United States dollar for financial reporting purposes. The value
      of
      Chinese Renminbi against the United States dollar and other currencies may
      fluctuate and is affected by, among other things, changes in China’s political
      and economic conditions. The Chinese government recently announced that it
      is
      valuing 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.





29





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk.******





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





***Currency
      Fluctuations and Foreign Currency Risk***





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




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





***Interest
      Rate Risk***





The
      Company does not have significant interest rate risk, as our debt obligations
      are primarily short-term in nature, with fixed interest rates.





***Credit
      Risk***





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








**Item
      4. Controls and Procedures.******





***Disclosure
      Controls and Procedures***





Under
      the
      supervision and with the participation of the Company’s management, including
      our chief executive officer and the chief financial officer, the Company
      conducted an evaluation of the effectiveness of the design and operation of
      its
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as of the end of the period covered
      by this report (the “Evaluation Date”). Based on this evaluation, the Company’s
      chief executive officer and chief financial officer concluded as of the
      Evaluation Date that the Company’s 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 the Company, including our consolidated subsidiaries, and was made
      known to them by others within those entities, particularly during the period
      when this report was being prepared.





***Changes
      in Internal Controls over Financial Reporting***





There
      were no significant changes in our internal controls over financial reporting
      (as defined in Rule 13a-15(f) under the Securities Exchange Art of 1934) that
      could significantly affect our internal controls over financial reporting during
      the quarter ended March 25, 2006.





***Other
      Information***





In
      August
      2004, we appointed a consulting firm to assist the management team to strengthen
      and to document our 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.





30





**PART
      II: OTHER INFORMATION**





**Item
      1. Legal Proceedings.** ****





None.





**Item
      1A. Risk Factors.**





On
      April
      13, 2006, as a result of a transfer of shares in one of our intermediate holding
      companies, our Chairman, Mr. Heng Jing Lu obtained direct control over the
      shares of our Class A Common Stock that he previously beneficially owned as
      a
      result of an oral understanding between Mr. Lu and Ms. Ling Wang, one of our
      Vice Presidents and a director. Accordingly, the risk factor in our
      Annual Report on Form 10-K for the year
      ended December 25, 2005
      relating to risks associated with the fact that Mr. Lu controls a significant
      number of our outstanding Class A Common Stock has been modified. Refer to
“Risk Factors” in Part I, Item 2 of this Quarterly Report on Form 10-Q for complete discussion
      of the Company’s risk factors.








**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.******





None.








**Item
      3. Defaults Upon Senior Securities.******





None.








**Item
      4. Submission of Matters to a Vote of Security Holders.******





On
      January 20, 2006, we sought and obtained the written consent, in lieu of a
      meeting of stockholders, of the holder of 70.6% of our outstanding voting stock,
      approving (i) the terms of a supplement to the employment agreement between
      the
      Company and Peter Mak, its Chief Financial Officer whereby the Company granted
      options to purchase up to 2,000,000 shares of our Class A Common Stock and
      (ii)
      the terms of an Equity Incentive Plan providing for the issuance of options
      to
      purchase up to 3,000,000 shares of Class A Common Stock from the Company.
      Further information relating to the matter is stated in the Company’s Definitive
      Information Statement on Schedule 14C, filed with the SEC on March 16,
      2006.








**Item
      5. Other Information.******





None.








**Item
      6. Exhibits.******








Exhibit
                Number
            
            Description31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-15(E) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002, filed herewith.31.2
            
            Certification
                of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-15(E)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002, filed herewith.32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
                herewith.





31





**SIGNATURES**








Pursuant
      to the requirements 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.


**NEW
                DRAGON ASIA CORP.**Date: September
              28,
              2006
            By:
            /s/ *Li
              Xia Wang*Name:
                Li
                Xia WangTitle: 
Chief
              Executive Officer




Date: September
              28,
              2006
            By:
            /s/ *Peter
              Mak*Name:
Peter
              MakTitle: 
Chief
              Financial Officer




32