NEW DRAGON ASIA CORP - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - NEW DRAGON ASIA CORP	v238560_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - NEW DRAGON ASIA CORP	v238560_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - NEW DRAGON ASIA CORP	v238560_ex32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - NEW DRAGON ASIA CORP	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 25, 2011

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)

10 Huangcheng Road (N), Longkou, Shandong Province, PRC
(Address of Principal Executive Offices)	(Zip Code)

(86 535) 8951 567

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer (Do not check if a smaller reporting company) o	Smaller Reporting Company 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 October 31, 2011 was 100,000,000.

NEW DRAGON ASIA CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2011

TABLE OF CONTENTS

		Page
PART I:	FINANCIAL INFORMATION	3

ITEM 1.	Financial Statements

	Consolidated Balance Sheets as of September 25, 2011 (unaudited) and December 25, 2010	3

	Consolidated Statements of Operations (unaudited) for the three months and nine months ended September 25, 2011 and 2010	4

	Consolidated Statements of Stockholders’ Equity and Comprehensive Income (unaudited) for the three months and nine months ended September 25, 2011 and the year ended December 25, 2010	5

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 25, 2011 and 2010	6

	Notes to Consolidated Financial Statements (unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	24

ITEM 4.	Controls and Procedures	24

PART II:	OTHER INFORMATION	25

ITEM 1.	Legal Proceedings	25

ITEM 1A.	Risk Factors	25

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

ITEM 3.	Defaults Upon Senior Securities	25

ITEM 4.	(Removed and Reserved)	25

ITEM 5.	Other Information	25

ITEM 6.	Exhibits	25

SIGNATURES		28

EXHIBITS

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements.

NEW DRAGON ASIA CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	September 25, 2011			December 25, 2010
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	7,478		$	2,756
Accounts receivable, net		9,351			13,519
Deposits and prepayments, net		6,701			11,523
Inventories, net		10,557			10,847
Total current assets		34,087			38,645

Property, machinery and equipment, net		26,876			26,619
Land use rights, net		2,677			2,595
Due from related companies		56			54
Total assets	$	63,696		$	67,913

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	4,123		$	5,773
Other payables and accruals		2,440			2,473
Taxes payable		75			169
Embedded derivatives, at fair value		790			678
Total current liabilities		7,428			9,093

Due to shareholder		4,406			4,031
Due to joint venture partners		514			438
Total liabilities		12,348			13,562
Series A and B Redeemable Convertible Preferred Stock, $0.0001 par value: Authorized shares - 5,000,000 Issued and outstanding –1,742 shares and 1,742 shares at September 25, 2011 and December 25, 2010, respectively		1,742			1,742

Commitments

Stockholders’ equity:
Class A Common Stock, $0.0001 par value: Authorized shares - 100,000,000 Issued and outstanding – 100,000,000 at September 25, 2011 and 100,000,000 at December 25, 2010		9			9
Class B Common Stock, $0.0001 par value: Authorized shares - 2,000,000 Issued and outstanding – none		--			--
Additional paid-in capital		37,275			37,275
Retained earnings		(5,940	)		(221	)
Accumulated other comprehensive income		18,132			15,418
Total NWD stockholders’ equity		49,476			52,481

Non-controlling interest		130			128
Total equity		49,606			52,609
Total liabilities and stockholders’ equity	$	63,696		$	67,913

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 September 25,						Nine months ended September 25,
	2011			2010			2011			2010

Net revenue	$	3,687		$	5,450		$	16,130		$	18,043
Cost of goods sold		(3,879	)		(5,373	)		(15,670	)		(18,006	)
Gross profit (loss)		(192	)		77			460			37
Selling and distribution expenses		(166	)		(164	)		(578	)		(588	)
General and administrative expenses		(3,251	)		(2,569	)		(5,919	)		(7,872	)
Loss from operations		(3,609	)		(2,656	)		(6,037	)		(8,423	)
Other income (expense):
Other income (expenses)		(88	)		68			538			(381	)
Interest income		8			1			11			2
Loss on fair value adjustments to embedded derivatives		(178	)		(102	)		(112	)		(51	)
Loss before income taxes and non-controlling interests		(3,867	)		(2,689	)		(5,600	)		(8,853	)
Provision for income taxes		(1	)		--			(28	)		(1	)
Net loss		(3,868	)		(2,689	)		(5,628	)		(8,854	)
Net loss attributable to non-controlling interest		--			--			2			--
Net loss attributable to controlling interest	$	(3,868	)	$	(2,689	)	$	(5,626	)	$	(8,854	)
Accretion of Redeemable Preferred Stock		--			(68	)		--			(260	)
Preferred Stock Dividends		(30	)		(21	)		(91	)		(104	)
Loss attributable to common stockholders	$	(3,898	)	$	(2,778	)	$	(5,717	)	$	(9,218	)

Loss per common share
Basic	$	(0.04	)	$	( 0.03	)	$	(0.06	)	$	( 0.10	)
Diluted	$	(0.04	)	$	( 0.03	)	$	(0.06	)	$	( 0.10	)
Weighted average number of common shares outstanding
Basic		100,000			99,751			100,000			95,358
Diluted		100,000			99,751			100,000			95,358

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

NEW DRAGON ASIA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Amounts in thousands)

	Class A Common Stock Shares Amount				Additional Paid-in Capital		Deferred Stock Compensation			Retained Earnings			Accumulated Other Comprehensive Income		Total NWD Stockholders’ Equity			Non Controlling Interests		Total Equity			Comprehensive Income
Balance at December 25, 2009		83,364	$	8	$	35,569	$	(75	)	$	9,187		$	13,405	$	58,094		$	125	$	58,219		$	(11,011	)
Net loss		-		-		-		-			(9,011	)		-		(9,011	)		3		(9,008	)		(9,011	)
Accretion of Redeemable Preferred Stock		-		-		-		-			(282	)		-		(282	)		-		(282	)		-
Preferred Stock Dividends		-		-		-		-			(115	)		-		(115	)		-		(115	)		-
Foreign currency translation adjustment		-		-		-		-			-			2,013		2,013			-		2,013			2,013
Conversion of preferred stock and related dividend payments made in Class A Common Stock		16,636		1		1,706		-			-			-		1,707			-		1,707			-
Share-based compensation to CFO		-		-		-		75			-			-		75			-		75			-
Balance at December 25, 2010		100,000	$	9	$	37,275	$	-		$	(221	)	$	15,418	$	52,481		$	128	$	52,609		$	(6,998	)
Net loss		-		-		-		-			(5,628	)		-		(5,628	)		2		(5,626	)		(5,628	)
Preferred Stock Dividends		-		-		-		-			(91	)		-		(91	)		-		(91	)		-
Foreign currency translation adjustment		-		-		-		-			-			2,714		2,714			-		2,714			2,714
Balance at September 25, 2011（Unaudited）		100,000	$	9	$	37,275	$	-		$	(5,940	)	$	18,132	$	49,476		$	130	$	49,606		$	(2,914	)

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

NEW DRAGON ASIA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)

	Nine months ended September 25,
	2011			2010
Cash flows from operating activities:
Net loss	$	(5,626	)	$	(8,854	)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts		3,983			6,137
Provision for inventory reserve		4			9
Depreciation and amortization of land use rights		1,447			1,512
Loss on sale of machinery and equipment		--			263
Loss on fair value adjustments to embedded derivatives		112			51
Stock-based compensation expense		--			75
Non-controlling interests		(2	)		--
Changes in operating assets and liabilities:
Accounts receivable		542			(5,868	)
Deposits and prepayments		5,078			(1,195	)
Inventories		689			3,950
Due from related companies		--			24
Accounts payable		(1,807	)		1,315
Other payables and accruals		(217	)		393
Taxes payable		(97	)		(56	)
Net cash provided by (used in) operating activities		4,106			(2,244	)

Cash flows from investing activities:
Proceeds from sale of property, machinery and equipment		--			1,286
Purchases of property, machinery and equipment		(121	)		(75	)
Net cash provided by (used in) investing activities		(121	)		1,211

Cash flows from financing activities:
Proceeds from shareholder loan		207			28
Proceeds from joint venture partners		56			61
Net cash provided by financing activities		263			89
Impact of foreign currency translation on cash		474			689
Net increase (decrease) in cash and cash equivalents		4,722			(255	)
Cash and cash equivalents at the beginning of period		2,756			3,440
Cash and cash equivalents at the end of period	$	7,478		$	3,185

Non-Cash Investing and Financing Activities

Conversion of preferred stock into common stock	$	--		$	1,752

Dividend payments on preferred stock in the form of common stock	$	--		$	144


Supplemental disclosure of cash flows information:

Income taxes paid		35			1

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

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,” “we,” “us,” or “our”), 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 eight manufacturing plants in Yantai, Beijing, Chengdu, and Penglai.

NOTE 2. BASIS OF PRESENTATION

The consolidated financial statements include the financial statements of New Dragon Asia Corp. and all of its wholly and majority owned subsidiaries (Note 1). Intercompany balances and transactions have been eliminated in consolidation.

These Consolidated Financial Statements for interim periods are unaudited. In the opinion of management, the consolidated financial statements include all adjustments, consisting only of normal, recurring adjustments, necessary for their fair presentation. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be reported for the entire year. The preparation of financial statements in conformity with ASC Topic 810 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.

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.

Accounting for Derivative Instruments

Derivatives are recorded on the Company’s balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s Series B Redeemable Convertible Preferred Stock are separately valued and accounted for on the Company’s balance sheet.

The Company has determined that the conversion features of its redeemable convertible preferred stock and warrants to purchase common stock are derivatives that the Company is required to account for as if they were free-standing instruments. The Company also has a derivative due to having shares outstanding exceeding its authorized limit. The Company has also determined that it is required to designate these derivatives as liabilities in its financial statements. As a result, the Company reports the value of these embedded derivatives as current liabilities on its balance sheet and reports changes in the value of these derivatives as non-operating gains or losses on its statement of operations. The value of the derivatives is required to be recalculated (and resulting non-operating gains or losses reflected in the statement of operations and resulting adjustments to the associated liability amounts reflected on the balance sheet) on a quarterly basis, and is based on the market value of the Company’s common stock. Due to the nature of the required calculations and the large number of shares of the Company’s common stock involved in such calculations, changes in the Company’s common stock price may result in significant changes in the value of the derivatives and resulting gains and losses on the Company’s statement of operations. The Company has also recorded a derivative for the effect of having issued shares in excess of the authorized shares.

The pricing model the Company uses for determining fair values of its derivatives is a weighted average Black-Scholes-Merton Model. 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 earnings.

The consolidated financial statements also reflect additional non-operating gains and losses related to the classification of and accounting for: (1) the conversion features of the Series B Preferred Stock and associated warrants, and (2) the amortization associated with the discount recorded with respect to the Series B Preferred Stock as a preferred stock dividend.

Fair Value of Financial Instruments

The Company adopted ASC Topic 820, “Fair Value Measurements and Disclosure” (formerly SFAS 157, “Fair Value Measurements”) on January 1, 2008 to account for and record fair values of financial instruments. This ASC establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 -	quoted prices (unadjusted) in active markets for identical asset or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.

Level 2 -	inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3 -	unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

The Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the embedded derivative, the Company only financial assets measured and recorded at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the period ended September 25, 2011 and 2010:

(In thousands)	Fair Value
	Level 1			Level 2			Level 3			Total

Embedded derivative liabilities as of September 25, 2011		$	--		$	--		$	790		$	790
Embedded derivative liabilities as of September 25, 2010		$	--		$	--		$	110		$	110

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2011, the Financial Accounting Standards Board (“FASB”) amended its goodwill guidance by providing entities an option to use a qualitative approach to test goodwill for impairment. An entity will be able to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The amendment will be effective for the Company on January 1, 2012. The Company does not anticipate that this amendment will have a material impact on its financial statements.

In September 2011, the FASB amended the disclosure requirements related to multiemployer pension plans. The amendment is applicable to all entities that participate in multiemployer pension plans and will expand the information currently disclosed about an employer’s financial obligations to the multiemployer plans as well as the financial health of all significant plans in which the employer participates. The amendment is effective for fiscal years ending after December 15, 2011, with early adoption permitted and retrospective application required. The Company does not anticipate that this amendment will have a material impact on its financial statements.

In June 2011, the FASB issued an amendment regarding the presentation of other comprehensive income. Under this amendment, entities will be required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The current option to report other comprehensive income and its components in the statement of changes in equity has been eliminated. This amendment will be effective for the Company on January 1, 2012 and full retrospective application is required. The Company does not anticipate that this amendment will have a material impact on its financial statements.

In May 2011, the FASB issued an amendment to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (“IFRS”). This amendment changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This amendment will be effective for the Company on January 1, 2012. The Company is currently evaluating the impact this amendment will have, if any, on its financial statements.

In December 2010, the FASB issued amended guidance to clarify the acquisition date that should be used for reporting pro forma financial information for business combinations. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date had been completed as of the beginning of the comparable prior annual reporting period. The Company has adopted this amendment effective January 1, 2011 and will apply the guidance prospectively for business combinations, if any, occurring on or after January 1, 2011.

In December 2010, the FASB issued an amendment to the guidance on goodwill impairment testing. The amendment modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In making that determination, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The Company has adopted this amendment effective January 1, 2011. This amendment had no impact on the Company’s financial position, results of operations or cash flows.

NOTE 4. CONDENSED BALANCE SHEET INFORMATION

Condensed balance sheet information as of September 25, 2011 consisted of the following (in thousands, unaudited):

	Inside China		Outside China		Total
Assets
- Cash and cash equivalents	$	7,469	$	9	$	7,478
- Others		56,198		20		56,218
Total assets		63,667		29		63,696
Liabilities, excluding Series B Redeemable Convertible Preferred Stock		6,755		5,593		12,348
Equity		37,552		12,054		49,606

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

Condensed statement of operation information for the nine months ended September 25, 2011 consisted of the following (in thousands, unaudited):

	Inside China			Outside China			Total

Net revenue	$	16,130		$	--		$	16,130
Cost of goods sold		(15,670	)		--			(15,670	)
General and administrative expenses		(5,355	)		(564	)		(5,919	)
Loss from operations		(5,473	)		(564	)		(6,037	)
Provision for income taxes		(28	)		--			(28	)
Other income (expense)		549			(112	)		437
Net loss attributable to controlling interest		(4,950	)		(676	)		(5,626	)

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

NOTE 5. EARNINGS PER SHARE

The Company computes earnings per share (“EPS’) in accordance generally accepted accounting principles. Companies with complex capital structures are required 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 30,945 dilutive shares on an “as converted” basis for the Redeemable Convertible Preferred stock for the three and nine months ended September 25, 2011 were excluded from the calculation of diluted earnings per share since their effect would have been anti-dilutive. Approximately 28,953 dilutive shares on an “as converted” basis for the Redeemable Convertible Preferred stock for the three and nine months ended September 25, 2010 were excluded from the calculation of diluted earnings per share since their effect would have been anti-dilutive.

The calculation of diluted weighted average common shares outstanding for the three and nine months ended September 25, 2011 and 2010 are based on the average of the closing price of the Company’s common stock during such periods applied to warrants and options using the treasury stock method to determine if they are dilutive. The Redeemable Convertible Preferred stock is included on an “as converted “basis when these shares are dilutive.

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

	Three Months Ended September 25,
	2011										2010
					Weighted										Weighted
					Average										Average
	Loss				Shares		Per-Share				Loss				Shares		Per-Share
Loss per share – basic
Loss available to common stockholders		$	(3,898	)		100,000		$	(0.04	)		$	(2,778	)		99,751		$	(0.03	)
Effect of dilutive securities
Redeemable convertible preferred stock			--			--							--			--
Options and warrants			--			--							--			--

Loss per share – diluted		$	(3,898	)		100,000		$	(0.04	)		$	(2,778	)		99,751		$	( 0.03	)

	Nine Months Ended September 25,
	2011										2010
					Weighted										Weighted
					Average										Average
	Loss				Shares		Per-Share				Loss				Shares		Per-Share
Loss per share – basic
Loss available to common stockholders		$	(5,717	)		100,000		$	(0.06	)		$	(9,218	)		95,358		$	(0.10	)
Effect of dilutive securities
Redeemable convertible preferred stock			--			--							--			--
Options and warrants			--			--							--			--

Loss per share – diluted		$	(5,717	)		100,000		$	(0.06	)		$	(9,218	)		95,358		$	(0.10	)

NOTE 6. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):

	September 25, 2011			December 25, 2010
	(Unaudited)

Accounts receivable	$	20,363		$	20,689
Less: Allowance for doubtful accounts		(11,012	)		(7,170	)
	$	9,351		$	13,519

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

	September 25, 2011			December 25, 2010
	(Unaudited)

Balance at the beginning of the period	$	7,170		$	2,725
Add: provision during the period		4,403			4,609
Less: write-offs during the period		(561	)		(164	)
Balance at the end of the period	$	11,012		$	7,170

NOTE 7. DEPOSITS AND PREPAYMENTS

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

	September 25, 2011		December 25, 2010
	(Unaudited)

Deposits for raw materials	$	322	$	8,417
Prepayments and advances		6,222		2,849
Land lease prepayment		157		257
	$	6,701	$	11,523

NOTE 8. INVENTORIES

Inventories consisted of the following (in thousands):

	September 25, 2011			December 25, 2010
	(Unaudited)

Raw materials (including packing materials)	$	9,850		$	9,360
Finished goods		718			1,494
		10,568			10,854
Less: Inventory reserve		(11	)		(7	)
	$	10,557		$	10,847

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

	September 25, 2011		December 25, 2010
	(Unaudited)

Balance at the beginning of the period	$	7	$	512
Add: provision during the period		4		17
Less: write-offs during the period		--		(522	)
Balance at the end of the period	$	11	$	7

NOTE 9. DUE FROM RELATED COMPANIES

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

	September 25, 2011		December 25, 2010
	(Unaudited)

Xinlong Asia Food (Luoyang) Co., Ltd.*	$	56	$	54
Due from related companies for sales	$	56	$	54

* Subsidiaries of Shandong Longfeng Group Company.

NOTE 10. PROPERTY, MACHINERY AND EQUIPMENT

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

	Useful Life		September 25, 2011			December 25, 2010
	(In years)		(Unaudited)

Buildings		40	$	14,259		$	13,701
Machinery and equipment		5 - 12		23,674			22,687
Construction in process				501			400
				38,434			36,788
Less: Accumulated depreciation and amortization				(11,558	)		(10,169	)
			$	26,876		$	26,619

Depreciation and amortization expense was approximately $379,000 and $490,000 for the three months ended September 25, 2011 and 2010, respectively, and $1,389,000 and $1,382,000 for the nine months ended September 25, 2011 and 2010, respectively.

NOTE 11. LAND USE RIGHTS

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

	September 25, 2011			December 25, 2010
	(Unaudited)

Land use rights	$	3,346		$	3,206
Less: Accumulated amortization		(669	)		(611	)
	$	2,677		$	2,595

Amortization expense was approximately $39,000 and $44,000 for the three months ended September 25, 2011 and 2010, respectively, and $58,000 and $130,000 for the nine months ended September 25, 2011 and 2010, respectively.

NOTE 12. OTHER PAYABLES AND ACCRUALS

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

	September 25, 2011		December 25, 2010
	(Unaudited)

Deposits from customers	$	734	$	613
Accruals for payroll, bonus and benefits		303		519
Utilities and accrued expenses		1,403		1,341
	$	2,440	$	2,473

NOTE 13. REDEEMABLE CONVERTIBLE PREFERRED STOCK

On December 22, 2005, the Company issued 9,500 shares of Series B 7% Redeemable Convertible Preferred Stock (“Series B Preferred Stock”), initially convertible into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion price of $1.60 per share, raising $9.5 million in gross proceeds. Six-year warrants to purchase an aggregate of 2,968,750 shares of Class A Common Stock at an exercise price of $1.76 per share were also issued to the investors. As part of the compensation to the placement agent, five-year warrants to purchase an aggregate of 356,250 shares of Class A Common Stock at an exercise price of $1.76 per share were also issued. As of September 25, 2011, 8,881 shares of Series B Preferred Stock have been converted into 31,306,750 shares of Class A Common Stock, and no warrants have been exercised.

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

	Series B Preferred Stock

Preferred 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.
Redemption	December 22, 2010 Beginning at the end of the 24th month following closing and on each third monthly anniversary of that date (quarterly) thereafter, the Company shall redeem 1/13th of the face value of the Preferred Stock in either cash or Class A Common Stock valued at 90% of the volume-weighted current market price.
Mandatory Conversion	The Company may at any time force the conversion of the Preferred Stock if the volume-weighted current market price of the Class A Common Stock exceeds 200% of its price at issuance of the Preferred Stock.

Registration

The Company shall file to register the underlying Class A common shares with 30 days of the closing date and make its best efforts 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 connection with the issuance of the Redeemable Convertible Series A Preferred Stock and Series B Preferred Stock, the Company paid professional fees, placement agent fees and associated expenses amounting to $1.83 million since the issuance of the Redeemable Convertible Preferred Stocks. The Company also identified freestanding financial instruments included in the issuances that were required to be recorded as liabilities. These included the embedded conversion feature and warrants included in the Series B Preferred Stock issuance. The Company has evaluated the fair value of these liabilities using combination of the Black Scholes and Binomial Pricing Models. The summary of activity in the Series B Preferred Stock is as follows:

Redeemable Convertible Preferred Stock	Preferred shares		Balance
			(in thousands)

		--	$	--
Series B		1,742		1,742
Less: unamortized discount		--		(1,065	)
Add: adjustment for quarterly redemption reversion		--		1,065
Balance December 25, 2010		1,742	$	1,742
Balance September 25, 2011(Unaudited)		1,742	$	1,742

The $1,742 includes a liability for shares issued on conversion that exceeded the authorized shares of approximately $1,023, an amount equal to their face value if they hadn’t been converted. Derivatives related to the excess shares are included in the derivative liability.

Embedded derivatives relate to redeemable convertible preferred stock. We determined that the conversion features of our redeemable convertible preferred stock and warrants to purchase our common stock are derivatives that we are required to account for as freestanding instruments under U.S. 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 statements of operations. We were required to report a change of $178 and $102 as loss on the embedded derivative liability in other income for the three months ended September 25, 2011 and 2010, respectively, a change of $112 and $51 for the nine months ended September 25, 2011 and 2010, respectively, as loss on the embedded derivative liability in other income on our statement of operations.

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


Expected life (in years)	Embedded Conversion Feature Remaining Term to conversion or redemption date at each valuation date
Expected volatility		202.40	%
Risk-free interest rate		0.12	%
Dividend yield		0

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

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

Fair Value at December 25, 2009	$	76
Loss on change in value of derivatives during the period		619
Conversion of 1,752 shares of Series B Preferred Stock to common stock during 2010		(17	)
Fair Value at December 25, 2010	$	678
Loss on change in value of derivatives during the period		112
Fair Value at September 25, 2011(Unaudited)	$	790

Note 14. Void Share Issuances in 2010

During 2010, 19,509,894 shares of the Company’s Class A common stock were issued in excess of the Company's Articles of Incorporation. Such shares are void under Florida law and are not entitled to vote at meetings of our stockholders or to any other rights of a stockholder of the Company. In addition, any shareholder holding such void shares is entitled to recover their value from the Company unless the Company is able to replace the void share with a valid share. As of September 25, 2011, this obligation results in a potential commitment to buy back shares amounting to approximately $390,000, plus the expenses associated with administering such claims. The Company has recorded the liability in the Redeemable Convertible Preferred Stock account where the shares were converted from, and that contractual obligation could not be satisfied except with redemption or conversion to valid shares.

The Company had proposed in the shareholders’ meeting held on May 20, 2011 to increase the authorized shares to 119,509,894 in order to cure the over-issuance. However, the increase was not approved at the special meeting of shareholders. As a result, the Company may have to buy from the market 19,509,894 shares amounting to approximately $390,000. The Company has provided a derivative for the variability of the stock price for the voided shares. In addition, the Company will have to settle the over-due redemption of the Series B Redeemable Convertible Preferred Stock amounting to approximately $800,000.

NOTE 15. COMMON STOCK

During the nine months ended September 25, 2011 and 2010, 0 shares and 1,353 shares of Series B Preferred Stock have been converted into 0 shares and 11,136,072 shares of Class A Common Stock, respectively.

NOTE 16. WARRANTS

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

	Shares			Weighted Average Exercise Price
Outstanding at December 25, 2010		6,126,645			1.3889
Issued		--			--
Exercised		--			--
Expired		(3,157,895	)		1.0400
Outstanding at September 25, 2011(Unaudited)		2,968,750			1.7600

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


	Shares of Class A Common Stock Issuable Under Warrants		Exercise Price
December 2005 private placement
6-year warrants		2,968,750		1.76

As of September 25, 2011, these warrants had no intrinsic value.

NOTE 17. STOCK-BASED COMPENSATION

The Company measures 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 used the Black-Scholes option-pricing model to estimate the fair value of the options at the date of grant.

The Company issued 2,000,000 Class A Common Shares to the CFO as annual compensation for the service term from April 1, 2009 to March 31, 2010. The fair value of such common shares was $300,000. The Company recognized $75,000 as compensation expense for the nine months ended September 25, 2010. No stock-based compensation occurred for the nine months ended September 25, 2011.

NOTE 18. RELATED PARTY TRANSACTIONS

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

Transactions between New Dragon Asia Corp. and related companies are summarized below (in thousands, unaudited):

	Three months ended September 25,						Nine months ended September 25,
	2011			2010			2011			2010
Pre-determined annual fee charged by joint venture partners:
Shandong Longfeng Group Company (a)		$	7		$	6		$	21		$	20
Shandong Longfeng Flour Company Limited (b)			13			13			38			36
		$	20		$	19		$	59		$	56

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

(b) Subsidiaries of Shandong Longfeng Group Company.

Loans from the Company’s major shareholder New Dragon Asia Food Limited are for working capital, are unsecured and bear no interest, and are payable if requested, and funds are available. The Company and the major shareholder have agreed that no repayments will take place in 2011. The joint venture partner’s amounts are similar to the condition of New Dragon Asia Food Limited loans and no repayment is expected in 2011.

NOTE 19. 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 25%. Two of the PRC subsidiaries of the Company are eligible to be exempt from income taxes for a two-year period commencing with the year in which their operations are profitable 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.

New Dragon Asia Corp. is a Florida corporation with wholly-owned operating subsidiaries. As a result, the Company is not subject to PRC tax for the activities at the Florida company level. Costs or expenses incurred at the Florida company level, such as the stock-based compensation and the amortization of financing costs and derivative accounting related to Series A Preferred Stock and Series B Preferred Stock, cannot be used to offset any income derived in the PRC when measuring the PRC income tax liabilities. As of September 25, 2011 and December 25, 2010, there were no material deferred tax assets or deferred tax liabilities. The expenses of the United States company are not recoverable against future taxable income in the United States or the PRC and meet the definition of permanent differences for tax accounting purposes. The Company has never been audited by the taxing authority in the United States or the PRC. The Company believes that it has filed properly in all required jurisdictions.

NOTE 20. COMPREHENSIVE INCOME

The following table summarizes the comprehensive income for the nine months ended September 25, 2011 and 2010 (in thousands, unaudited):

	September 25, 2011			September 25, 2010
Net loss	$	(5,628	)	$	(8,854	)
Foreign currency translation adjustment		2,714			1,233
Comprehensive loss	$	(2,914	)	$	(7,621	)

NOTE 21. SEGMENT INFORMATION

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

	For the three months ended September 25, unaudited						For the nine months ended September 25, unaudited
	2011			2010			2011			2010
	(US$'000)			(US$'000)			(US$'000)			(US$'000)
Net revenue
Instant noodles		1,636			1,497			5,621			3,569
Flour		1,449			3,321			6,887			11,038
Soybean		602			632			3,622			3,436
		3,687			5,450			16,130			18,043
Loss from operation
Instant noodles		(488	)		(360	)		(973	)		(1,387	)
Flour		(2,784	)		(2,297	)		(4,291	)		(5,984	)
Soybean		(337	)		1			(773	)		(1,052	)
		(3,609	)		(2,656	)		(6,037	)		(8,423	)
Depreciation and amortization
Instant noodles		179			245			621			696
Flour		83			106			300			308
Soybean		142			183			526			508
		404			534			1,447			1,512

	September 25,		December 25,
	2011, unaudited		2010
	(US$'000)		(US$'000)
Identifiable long-term assets
Instant noodles		12,214	$	12,096
Flour		7,180		7,225
Soybean		10,215		9,947
		29,609	$	29,268

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, 2010, the Quarterly Reports on Form 10-Q filed by the Company and Current Reports on Form 8-K (including any amendments to such reports). References in this filing to the “Company”, “Group”, “we”, “us”, and “our” refer to New Dragon Asia Corp. and its subsidiaries.

Critical Accounting Policies

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 reasonably 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.

Contractual Joint Ventures

Revenue Recognition

Our revenues are generated from sales of flour, soybean products and instant noodles. 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

The consolidated financial statements also reflect additional non-operating gains and losses related to the classification of and accounting for: (1) the conversion features of the Series Preferred Stock and associated warrants, and (2) the amortization associated with the discount recorded with respect to the Series A and B Preferred Stock as a preferred stock dividend.

Share-Based Payment

On December 16, 2004, the FASB issued SFAS 123R, “Share-Based Payment,” (now Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”) which replaces SFAS 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” ASC 718 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. Under ASC 718, 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 ASC 718, 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 ASC 718 for the fiscal year beginning on December 26, 2005, and recorded the compensation expense for all unvested stock options.

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.

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.

Recent Accounting Pronouncements

Overview

Headquartered in Shandong Province, PRC, we are engaged in the milling, sale, and distribution of flour and related products, including instant noodles and soybean-derived products, to retail and wholesale customers throughout China. We market our products with our brand name called “LONG FENG” through a countrywide network of distributors. We have eight manufacturing plants in the PRC with an aggregate annual production capacity of approximately 110,000 tons of flour and approximately 1.1 billion packets of instant noodles and 4,500 tons of soybean powder.

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.

We produce two types of soybean products - soybean protein powder and soybean powder. They are principally supplied to food and beverage producers.

We believe that we have a reputation in China for producing some of the highest quality food products. We believe our production plants operate at a high level of hygiene and efficiency and all of our plants are certified under the ISO9002 standards. We also use strict quality control systems, resulting in what we believe to be a favorable customer perception of the “Long Feng” brand.

Our products are marketed and distributed throughout China by our distributors. 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 famous domestic brands in China. Most of our distributors have long-term relationships with us.

Our primary domestic 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 also export noodles to other countries such as South Korea, Australia, Malaysia and Indonesia. We also obtained HACCP (Hazard Analysis Critical Control Point) certification from CCIC Conformity Assessment Services Co. Ltd., a Chinese quality assurance examination authority, enabling the Company to begin exports of instant noodles and soybean powder to Europe. In early 2008, we began exporting noodles to Nigeria, Africa.

Strategy

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

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

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

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. We do not face substantial competition in the “high-quality” soybean powder market.

Employees

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

Currency Conversion and Exchange

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

Substantially all our revenue and expenses are denominated in RMB. Our RMB cash inflows are sufficient to service our RMB expenditures. For financial reporting purposes, we use U.S. dollars. The value of RMB against U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of RMB may materially affect our financial condition in terms of U.S. dollar reporting. To date, we have not engaged in any currency hedging transactions in connection with our operations.

Results of Operations

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

	Three months ended September 25,						Nine months ended September 25,
	2011			2010			2011			2010

Net revenue	$	3,687		$	5,450		$	16,130		$	18,043
Cost of goods sold		(3,879	)		(5,373	)		(15,670	)		(18,006	)
Gross profit (loss)		(192	)		77			460			37
Selling and distribution expenses		(166	)		(164	)		(578	)		(588	)
General and administrative expenses		(3,251	)		(2,569	)		(5,919	)		(7,872	)
(Loss) gain on fair value adjustments to embedded derivatives		(178	)		(102	)		(112	)		(51	)
Loss before income taxes		(3,867	)		(2,689	)		(5,600	)		(8,853	)
Income taxes benefit (expense)		(1	)		--			(28	)		(1	)
Net loss attributable to controlling interest		(3,868	)		(2,689	)		(5,626	)		(8,854	)

Nine Months Ended September 25, 2011 Compared to Nine Months Ended September 25, 2010

Net Revenue

Net revenue for the nine months ended September 25, 2011 was $16,130,000, representing a decrease of $1,913,000, or 11%, from $18,043,000 for the nine months ended September 25, 2010. The decrease was primarily due to the temporary production halt at one of our plants, New Dragon Asia Flour (Yantai) Co., Ltd. in April 2011 to prepare for an upgrade of its production lines. New Dragon Asia Flour (Yantai) Co., Ltd. is planning to restart operations early next year.

Cost of goods sold

For the nine months ended September 25, 2011, cost of goods sold was $15,670,000, a decrease of $2,336,000, or 13%, as compared to $18,006,000 for the nine months ended September 25, 2010. The decrease was due to the decrease in sales of our products resulting from the production halt.

For the nine months ended September 25, 2011, as a percentage of revenue, cost of goods sold decreased to 97% as compared to 100% for that of the same period of prior year. For the nine months ended September 25, 2011, gross margin was 3% as compared to 0% for the same period of prior year. The improvement in gross margin was mainly attributable to the increased demand in the export instant noodle and soybean segments, of which the gross margin was relatively high.

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 $578,000 for the nine months ended September 25, 2011, representing a decrease of $10,000 or 2% from $588,000 for the corresponding period of 2010. The decrease was primarily due to the cost controls implemented by us.

As a percentage of net revenue, selling and distribution expenses slightly increased to 4% for the nine months ended September 25, 2011 as compared to 3% for the corresponding period in 2010. The increase was primarily due to the decrease of sales.

General and Administrative Expenses

General and administrative expenses decreased by $1,953,000, or 25%, to $5,919,000 for the nine months ended September 25, 2011 as compared to $7,872,000 for the corresponding period in 2010. The decrease was primarily due to a large amount of provision for bad debt due from customers made in the nine months ended September 25, 2010, which were lower in the corresponding period in 2011.

Gain on Fair Value Adjustments to Embedded Derivatives

The Company issued Series B Redeemable Convertible Preferred Stock in December 2005, together with 2,968,750 warrants to purchase Class A Common Stock resulting in aggregate proceeds of $9.5 million. The fair value of each embedded instrument (warrants and conversion features) is recorded as a derivative liability on our balance sheet. The Company also has a derivative due to having shares outstanding exceeding its authorized limit at September 25, 2011. The corresponding gain or loss, which was non-cash in nature, from changes in the fair values of these instruments was recorded in our statement of income. For the nine months ended September 25, 2011, the loss in this regard was $112,000. For the corresponding period of 2010, the loss in this regard was $51,000. The determination of the change in the value of the derivatives requires the use of a complex valuation model and can fluctuate significantly between periods based on changes in the price of our shares and the time remaining in the life of the underlying financial instruments. An increase in our stock’s market value increases the value of the derivative creating losses in our income statements and a decrease in the stock’s market value reduces the value of the derivatives creating gains in our income statements.

Net Loss Attributable to Controlling Interests

Net loss attributable to controlling interest was $5,626,000 for the nine months ended September 25, 2011 as compared to net loss attributable to controlling interest of $8,854,000 for the nine months ended September 25, 2010. Such improvement was primarily due to the absence of significant provisions for doubtful accounts, which occurred in 2010.

Three Months Ended September 25, 2011 Compared to Three Months Ended September 25, 2010

Net Revenue

Net revenue for the quarter ended September 25, 2011 was $3,687,000, representing a decrease of $1,763,000, or 32%, from $5,450,000 for the quarter ended September 25, 2010. The decrease was primarily due to the temporary production halt at one of our plants, New Dragon Asia Flour (Yantai) Co., Ltd. in April 2011 to prepare for an upgrade of its production lines. New Dragon Asia Flour (Yantai) Co., Ltd. is planning to restart operations early next year

Cost of goods sold

For the three months ended September 25, 2011, cost of goods sold was $3,879,000, a decrease of $1,494,000, or 28%, as compared to $5,373,000 for the three months ended September 25, 2010. The decrease was primarily due to the decrease in sales of our products resulting from the production halt.

For the three months ended September 25, 2011, as a percentage of revenue, cost of goods sold increased to 105% as compared to 99% for that of the same period of prior year. For the three months ended September 25, 2011, gross margin was negative 5% as compared to a gross margin of 1% for the same period of prior year. The decrease in gross margin was mainly due to the reduced export noodle sales, of which the gross margin was relative high, as a result of the unstable global economic environment. For the three months ended September 25, 2011, the sales of instant noodle segment mainly came from domestic sales, and the gross margin was much lower than export sales to a negative level.

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 $166,000 for the quarter ended September 25, 2011, representing an increase of $2,000 or 1% from $164,000 for the corresponding quarter of 2010. The increase was primarily due to the continuous price-increase of RMB which led to our PRC occurred costs increase accordingly.

As a percentage of net revenue, selling and distribution expenses increased to 5% for the quarter ended September 25, 2011 as compared to 3% for the corresponding period in 2010. The increase was primarily due to the decrease of sales and the increasing price of RMB.

General and Administrative Expenses

General and administrative expenses increased by $682,000, or 27%, to $3,251,000 for the quarter ended September 25, 2011 as compared to $2,569,000 for the corresponding quarter in 2010. The increase was primarily due to the provision for bad debt due from customers made in the quarter ended September 25, 2011, which were higher than the provision made in the corresponding period in 2010.

Gain on Fair Value Adjustments to Embedded Derivatives

The Company issued Series B Redeemable Convertible Preferred Stock in December 2005, together with 2,968,750 warrants to purchase Class A Common Stock resulting in aggregate proceeds of $9.5 million. The fair value of each embedded instrument (warrants and conversion features) is recorded as a derivative liability on our balance sheet. The Company also has a derivative due to having shares outstanding exceeding its authorized limit at September 25, 2011. The corresponding gain or loss, which was non-cash in nature, from changes in the fair values of these instruments was recorded in our statement of income. For the quarter ended September 25, 2011, the loss in this regard was $178,000. For the corresponding period of 2010, the loss in this regard was $102,000. The determination of the change in the value of the derivatives requires the use of a complex valuation model and can fluctuate significantly between periods based on changes in the price of our shares and the time remaining in the life of the underlying financial instruments. Increase in our stock’s market value increases the value of the derivative creating losses in our income statements and decrease in the stock’s market value reduces the value of the derivatives creating gains in our income statements.

Net Loss Attributable to Controlling Interests

Net loss attributable to controlling interest was $3,868,000 for the quarter ended September 25, 2011 as compared to net loss attributable to controlling interest of $2,689,000 for the quarter ended September 25, 2010. Such decrease was primarily due to the decrease of sales and an increased provision for bad debt.

Financial Condition, Liquidity and Capital Resources

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

Our working capital decreased by $2,893,000 to $26,659,000 at September 25, 2011 as compared to $29,552,000 at December 25, 2010, which was primarily due to the production halt and reduces sales, which led to a lower level of accounts receivables.

Cash and cash equivalents were $7,478,000 as of September 25, 2011, an increase of $4,722,000 from December 25, 2010. The Company believes that it has enough cash available and expects to have enough income and cash flow from operations to operate for the next 12 months.

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

On December 22, 2005, we issued 9,500 shares of Series B Preferred Stock, convertible into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion price of $1.60 per share (subject to anti-dilution adjustments and interest payments), raising $9.5 million in gross proceeds.

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

	Series B Preferred Stock

Preferred 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.
Redemption	December 22, 2010 Beginning at the end of the 24th month following closing and on each third monthly anniversary of that date (quarterly) thereafter, the Company shall redeem 1/13th of the face value of the Preferred Stock in either cash or Class A Common Stock valued at 90% of the volume-weighted current market price.
Mandatory Conversion	The Company may at any time force the conversion of the Preferred Stock if the volume-weighted current market price of the Class A Common Stock exceeds 200% of its price at issuance of the Preferred Stock.
Registration	The Company shall file to register the underlying Class A common shares with 30 days of the closing date and make its best efforts 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.

As of September 25, 2011, the Company had long-term debt obligations that resulted from the pre-determined annual fee charged by joint venture partners through August 2049 as follows:

	Payment Obligations By Period
	2011		2012		2013		2014		2015		Thereafter		Total
	(In thousands $)
Pre-determined annual fee charged by joint venture partners		32		129		129		129		129		4,270		4,818

Void Share Issuances in 2010

During 2010, 19,509,894 shares of the Company’s Class A common stock were issued in excess of the Company's Articles of Incorporation. Such shares are void under Florida law and are not entitled to vote at meetings of our stockholders or to any other rights of a stockholder of the Company. In addition, any shareholder holding such void shares is entitled to recover their value from the Company unless the Company is able to replace the void share with a valid share. As of September 25, 2011, this obligation results in a potential commitment to buy back shares amounting to approximately $726,000, plus the expenses associated with administering such claims. The Company has recorded the liability in the Redeemable Convertible Preferred Stock account where the shares were converted from and that contractual obligation could not be satisfied except with redemption or conversion to valid shares.

The Company had proposed in the shareholders’ meeting scheduled held on May 20, 2011 to increase the authorized shares to 119,509,894 in order to cover the excess shares issued. However, the increase was not approved at the special meeting of shareholders. As a result, the Company may have to buy from the market 19,509,894 shares amounting to approximately $726,000. The Company has provided a derivative for the variability of the stock price for the voided shares. Besides that, the Company will have to settle the over-due redemption of the Series B Redeemable Convertible Preferred Stock amounting to approximately $800,000.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

This information has been omitted based on our status as a smaller reporting company.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of September 25, 2011, the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to us and our consolidated subsidiaries, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 25, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

This information has been omitted based on our status as a smaller reporting company.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

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

Item 6. Exhibits.

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

4.6		Form of Warrant issued to Alliance Financial, LLC, Renaissance Advisors BVI, John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell (incorporated herewith by reference to Exhibit 4.2 to our Registration Statement on Form S-3 filed on August 11, 2005).
4.7		Securities Purchase Agreement, dated July 11, 2005, relating to the sale of the Series A 7% Convertible Preferred Stock (incorporated herewith by reference to Exhibit 10.1 to our Form 8-K filed on July 12, 2005).
4.8		Registration Rights Agreement, dated July 11, 2005, by and among New Dragon Asia Corp. and the investors named therein (incorporated herewith by reference to Exhibit 10.2 to our Form 8-K filed on July 12, 2005).
4.9		Form of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P. (incorporated herewith by reference to Exhibit 4.1 to our Form 8-K filed on December 23, 2005).
4.10		Form of Warrant issued to Alliance Financial, LLC, Renaissance Advisors, Inc., John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell (incorporated herewith by reference to Exhibit 4.2 to our Registration Statement on Form S-3 filed on January 20, 2006).
4.11		Securities Purchase Agreement, dated December 22, 2005, relating to the sale of the Series B 7% Convertible Preferred Stock (incorporated herewith by reference to Exhibit 10.1 to our Form 8-K filed on December 23, 2005).
4.12		Registration Rights Agreement, dated December 22, 2005, by and among New Dragon Asia Corp. and the investors named therein (incorporated herewith by reference to Exhibit 10.2 to our Form 8-K filed on December 23, 2005).
4.13		Registration Rights Agreement, dated December 22, 2005, by and among New Dragon Asia Corp. and New Dragon Food Ltd. (incorporated herewith by reference to Exhibit 4.5 to our Registration Statement on Form S-3 filed on January 20, 2006).
10.1		Sino-Foreign Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company Limited, dated June 1, 1999 (incorporated herewith by reference to Exhibit 10.1 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.2		Subcontracting Agreement, for the New Dragon Asia Flour (Yantai) Company Limited, dated June 26, 1999 (incorporated herewith by reference to Exhibit 10.2 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.3		Sino-Foreign Joint Venture Contract for the New Dragon Asia Food (Yantai) Company Limited, dated November 28, 1998 (incorporated herewith by reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.4		Subcontracting Agreement, for the New Dragon Asia Food (Yantai) Company Limited, dated December 26, 1998 (incorporated herewith by reference to Exhibit 10.4 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.5		Sino-Foreign Joint Venture Contract for the New Dragon Asia Food (Dalian) Company Limited, dated November 28, 1998 (incorporated herewith by reference to Exhibit 10.5 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.6		Subcontracting Agreement, for the New Dragon Asia Food (Dalian) Company Limited, dated December 26, 1998 (incorporated herewith by reference to Exhibit 10.6 to our Registration Statement on Form S-3 filed on October 3, 2003).

10.7		Sino-Foreign Joint Venture Contract for the Sanhe New Dragon Asia Food Company Limited, dated November 28, 1998 (incorporated herewith by reference to Exhibit 10.7 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.8		Subcontracting Agreement, for the Sanhe New Dragon Asia Food Company Limited, dated December 26, 1998 (incorporated herewith by reference to Exhibit 10.8 to our Registration Statement on Form S-3 filed on October 3, 2003).
10.9		Employment Agreement between New Dragon Asia Corp. and Peter Mak, dated November 2, 2004 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K filed on June 29, 2005).
10.10		Employment Supplement between New Dragon Asia Corp. and Peter Mak, dated June 22, 2005 (incorporated herewith by reference to Exhibit 10.9 to our Form 8-K filed on June 29, 2005).
10.11		Supplementary Agreement to Employment Agreement between New Dragon Asia Corp. and Peter Mak, dated January 20, 2006 (incorporated herewith by reference to Exhibit 10.10 to our Form 8-K filed on January 24, 2006).
10.12		Amended and Restated Equity Incentive Plan (incorporated herewith by reference to Exhibit C to our Definitive Information Statement on Schedule 14C filed on May 4, 2009).
10.13		Stock Option Agreement between New Dragon Asia Corp. and Peter Mak, dated December 13, 2006 (incorporated herewith by reference to Exhibit 10.1 to our Form 8-K filed on December 15, 2006).
10.14		Settlement Agreement and General Release between New Dragon Asia Corp and Berry-Shino Securities Inc., dated August 15, 2007 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on August 15, 2007).
10.15		Employment Agreement dated April 1, 2009 between New Dragon Asia Corp. and Ling Wang (incorporated herewith by reference to Exhibit 10.1 to our Registration Statement on Form S-8 filed on May 8, 2009).
21.1		Subsidiaries of New Dragon Asia Corp., (incorporated by reference to Exhibit 21.1 to our Form 10-K filed on April 6, 2010).
31.1		Certification of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2		Certification of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed herewith.

	101.INS	XBRL Instance Document*
	101.SCH	XBRL Taxonomy Extension Schema Document*
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Furnished electronically with this filing

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.

Dated: November 8, 2011	By:	/s/ Li Xia Wang
		Name: Li Xia Wang (Principal Executive Officer)
		Title: Chief Executive Officer



Dated: November 8, 2011	By:	/s/ Qi Xue
		Name: Qi Xue
		Title: Chief Financial Officer

NEW DRAGON ASIA CORP - FORM 10-Q - November 8, 2011

Attached files

NEW DRAGON ASIA CORP Reports