**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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




For
      the
      quarterly period ended: March 25, 2008




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 Filerx   Smaller
      Reporting Company o





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 April 30, 2008 was
      57,230,174.










**NEW
      DRAGON ASIA CORP.**





**FORM
      10-Q**





**FOR
      THE QUARTERLY PERIOD ENDED March 25, 2008**





**TABLE
      OF CONTENTS**


Page**PART
                  I:**
              
              **FINANCIAL
                  INFORMATION**ITEM
                  1.
              
              Consolidated
                  Financial Statements:Consolidated
                  Balance Sheets as ofMarch
                  25, 2008
                  (unaudited) and December 25, 2007
              
              3Consolidated
                  Statements of Operations (unaudited) for the three months ended
                  March 25,
                  2008 and 2007
              
              4Consolidated
                  Statements of Stockholders’ Equity and Comprehensive Income (unaudited)
                  for the three months ended March 25, 2008 and the year ended December
                  25,
                  2007
              
              5Consolidated
                  Statements of Cash Flows (unaudited) for the three months ended
                  March 25,
                  2008 and 2007
              
              6Notes
                  to Consolidated Financial Statements (unaudited)
              
              7ITEM
                  2.
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              18ITEM
                  3.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              31ITEM
                  4T.
              
              Controls
                  and Procedures
              
              31**PART
                  II:**
              
              **OTHER
                  INFORMATION**ITEM
                  1.
              
              Legal
                  Proceedings
              
              32ITEM
                  1A.
              
              Risk
                  Factors
              
              32ITEM
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              32ITEM
                  3.
              
              Defaults
                  Upon Senior Securities
              
              32ITEM
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              32ITEM
                  5.
              
              Other
                  Information
              
              32ITEM
                  6.
              
              Exhibits
              
              32**SIGNATURES**
              
              35**EXHIBITS**
  2




**PART
      I: FINANCIAL INFORMATION**





**** **Item
      1. Consolidated Financial Statements.**





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


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




**March
                25,**
              **2008**
            
            **December
                25,**
              **2007**(Unaudited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            5,691
            
            $
            3,646Accounts
                receivable, net
            
            
            10,172
            
            
            9,223Deposits
                and prepayments, net
            
            
            13,292
            
            
            12,183Inventories,
                net
            
            
            24,390
            
            
            22,050Due
                from related companies
            
            
            967
            
            
            913Total
                current assets
            
            
            54,512
            
            
            48,015Property,
                machinery and equipment, net
            
            
            27,067
            
            
            25,986Land
                use rights, net
            
            
            7,573
            
            
            7,294Goodwill
            
            
            125
            
            
            125Total
                assets
            
            $
            89,277
            
            $
            81,420**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            4,783
            
            $
            2,982Other
                payables and accruals
            
            
            3,194
            
            
            2,765Taxes
                payable
            
            
            4,078
            
            
            3,530Embedded
                derivatives, at fair value
            
            
            1,752
            
            
            2,493Due
                to related companies
            
            
            —
            
            
            36Total
                current liabilities
            
            
            13,807
            
            
            11,806Due
                to New Dragon Asia Food Limited
            
            
            1,837
            
            
            1,405Due
                to joint venture partners
            
            
            573
            
            
            272Total
                liabilities
            
            
            16,217
            
            
            13,483Minority
                interests
            
            
            306
            
            
            294Series
                A and B Redeemable Convertible Preferred Stock, $0.0001 par
                value:
              Authorized
                shares - 5,000,000
              Issued
                and outstanding –8,757 shares and 9,434 shares at March 25, 2008 and
                December 25, 2007
            
            
            5,258
            
            
            5,321CommitmentsStockholders’
                equity:Class
                A Common Stock, $0.0001 par value:
              Authorized
                shares - 102,000,000
              Issued
                and outstanding - 56,071,947 at March 25, 2008 and 55,195,385 at
                December
                25, 2007
            
            
            6
            
            
            5Class
                B Common Stock, $0.0001 par value:
              Authorized
                shares - 2,000,000
              Issued
                and outstanding – none
            
            
            —
            
            
            —Additional
                paid-in capital
            
            
            30,544
            
            
            29,982Retained
                earnings
            
            
            26,038
            
            
            24,568Accumulated
                other comprehensive income
            
            
            10,908
            
            
            7,767Total
                stockholders’ equity
            
            
            67,496
            
            
            62,322Total
                liabilities and stockholders’ equity
            
            $
            89,277
            
            $
            81,420




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




3




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





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




**Three
                months ended**
              **March
                25,****2008**
            
            **2007**Net
                revenue
            
            $
            11,699
            
            $
            11,160Cost
                of goods sold
            
            
            (9,557
            )
            
            (9,238
            )Gross
                profit
            
            
            2,142
            
            
            1,922Selling
                and distribution expenses
            
            
            (221
            )
            
            (239
            )General
                and administrative expenses
            
            
            (505
            )
            
            (537
            )Income
                from operations
            
            
            1,416
            
            
            1,146Other
                income (expense):Interest
                income
            
            
            2
            
            
            6Other
                income
            
            
            188
            
            
            8Gain
                on fair value adjustments to embedded derivatives
            
            
            690
            
            
            2,537VAT
                refund
            
            
            —
            
            
            52Income
                before income taxes
            
            
            2,296
            
            
            3,749Provision
                for income taxes
            
            
            (314
            )
            
            (300
            )Net
                income
            
            $
            1,982
            
            $
            3,449Accretion
                of Redeemable Preferred Stock
            
            
            (359
            )
            
            (378
            )Preferred
                Stock dividends
            
            
            (153
            )
            
            (178
            )Income
                available to common stockholders
            
            $
            1,470
            
            $
            2,893Earnings
                per common shareBasic
            
            $
            0.03
            
            $
            0.05Diluted
            
            $
            0.03
            
            $
            0.05Weighted
                average number of common shares outstandingBasic
            
            
            55,940
            
            
            53,689Diluted
            
            
            56,077
            
            
            53,761





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





4





**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





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





**(Amounts
      in thousands, unaudited)**




**Class A CommonStock**
            
            **Additional
                Paid-in**
            
            **Receivable
                from**
            
            **Retained**
            
            **Accumulated Other
                Comprehensive**
            
            **Total Stockholders'**
            
            **Comprehensive****Shares**
            
            **Amount**
            
            **Capital**
            
            **Stockholder**
            
            **Earnings**
            
            **Income**
            
            **Equity**
            
            **Income**Balance
                at December 25, 2006
            
            
            53,614
            
            $
            5
            
            $
            28,411
            
            $
            —
            
            $
            12,668
            
            $
            2,928
            
            $
            44,012
            
            $
            (474
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,115
            
            
            
            
            
            14,115
            
            
            14,115Accretion
                of redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,512
            )
            
            
            
            
            (1,512
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (703
            )
            
            
            
            
            (703
            )Foreign
                currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,839
            
            
            4,839
            
            
            4,839Class
                A Common Stocks issued to Berry Shino for dispute
                resolution
            
            
            275
            
            
            
            
            
            269
            
            
            
            
            
            
            
            
            
            
            
            269Conversion
                of preferred stocks and related dividend payments in Class A Common
                Stock
            
            
            1,306
            
            
            
            
            
            1,302
            
            
            
            
            
            
            
            
            
            
            
            1,302Balance
                at December 25, 2007
            
            
            55,195
            
            $
            5
            
            $
            29,982
            
            $
            —
            
            $
            24,568
            
            $
            7,767
            
            $
            62,322
            
            $
            18,954Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,982
            
            
            
            
            
            1,982
            
            
            1,982Accretion
                of Redeemable Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (359
            )
            
            
            
            
            (359
            )Preferred
                Stock Dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (153
            )
            
            
            
            
            (153
            )Foreign
                currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,141
            
            
            3,141
            
            
            3,141Conversion
                of Preferred Stock dividend in shares of Class A Common
                Stock
            
            
            877
            
            
            1
            
            
            562
            
            
            
            
            
            
            
            
            
            
            
            563Balance
                at March 25, 2008
            
            
            56,072
            
            $
            6
            
            $
            30,544
            
            $
            —
            
            $
            26,038
            
            $
            10,908
            
            $
            67,496
            
            $
            5,123





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




5




**NEW
      DRAGON ASIA CORP. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Amounts
      in thousands, unaudited)**


**Three
                  months ended**
                **March
                  25,****2008**
              
              **2007****Cash
                  flows from operating activities:**Net
                  income
              
              $
              1,982
              
              $
              3,449Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities:Allowance
                  for doubtful accounts
              
              
              4
              
              
              267Provision
                  for inventory reserve
              
              
              —
              
              
              9Depreciation
                  and amortization of property, machinery, equipment and land use
                  rights
              
              
              507
              
              
              439Gain
                  on fair value adjustments to embedded derivatives
              
              
              (690
              )
              
              (2,537
              )Changes
                  in operating assets and liabilities:(Increase)
                  decrease in:Accounts
                  receivable
              
              
              (953
              )
              
              (171
              )Deposits
                  and prepayments
              
              
              (1,109
              )
              
              2,295Inventories
              
              
              (2,340
              )
              
              (2,993
              )Due
                  from related companies
              
              
              (54
              )
              
              (10
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              1,801
              
              
              809Other
                  payables and accruals
              
              
              449
              
              
              (365
              )Taxes
                  payable
              
              
              548
              
              
              (2,095
              )Due
                  to related companies
              
              
              (36
              )
              
              —Net
                  cash provided by (used in) operating activities
              
              
              109
              
              
              (903
              )**Cash
                  flows from investing activities:**Proceeds
                  from sale of property, machinery and equipment
              
              
              3
              
              
              —Purchases
                  of property, machinery and equipment
              
              
              (120
              )
              
              (50
              )Net
                  cash used in investing activities
              
              
              (117
              )
              
              (50
              )**Cash
                  flows from financing activities:**Payment
                  for preferred stock redemption
              
              
              (84
              )
              
              —Preferred
                  stock dividend
              
              
              —
              
              
              (49
              )Proceeds
                  from parent company
              
              
              432
              
              
              281Proceeds
                  from (repayment to) joint venture partners
              
              
              301
              
              
              (73
              )Net
                  cash provided by financing activities
              
              
              649
              
              
              159Foreign
                  currency translation adjustment
              
              
              1,404
              
              
              279Net
                  increase (decrease) in cash and cash equivalents
              
              
              2,045
              
              
              (515
              )Cash
                  and cash equivalents at beginning of period
              
              
              3,646
              
              
              10,276Cash
                  and cash equivalents at end of period
              
              $
              5,691
              
              $
              9,761**Non-Cash
                  Investing and Financing Activities**Conversion
                  of preferred stock into common stock
              
              $
              338
              
              $
              —Dividend
                  payments on preferred stock in form of common stock
              
              $
              173
              
              $
              144




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




6




**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 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 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.





These
      consolidated financial statements for interim periods are unaudited. In the
      opinion of management, the consolidated financial statements include all
      adjustments, consisting of only normal, recurring accruals, necessary for their
      fair presentation. Interim results are not necessarily indicative of results
      to
      be expected for a full year. The accompanying consolidated financial statements
      have been prepared in accordance with the rules and regulations of the
      Securities and Exchange Commission and do not include all information and
      footnotes necessary for a complete presentation of financial statements in
      conformity with accounting principles generally accepted in the United States.
      These statements should be read in conjunction with the Company’s Annual Report
      on Form 10-K for the fiscal year ended December 25, 2007.





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 primary
      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
      allowances, 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.





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





The
      pricing models the Company uses for determining fair values of its 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 (loss). The Company has obtained a valuation report from a valuation
      firm
      to support its estimates.




7


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.





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 under GAAP. 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
      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 A and B Preferred Stock and associated
      warrants, (2) the amortization associated with the discount recorded with
      respect to the Series A and B Preferred Stock as a preferred stock dividend,
      and
      (3) the conversion features associated with the preferred stock issued by
      the Company and associated warrants.





***Adoption
      of New Accounting Pronouncements***





**Fair
      Value of Financial Instruments**





The
      Company partially adopted SFAS 157 on December
      26, 2007, delaying application for non-financial assets and non-financial
      liabilities as permitted. This statement establishes a framework for measuring
      fair value, and expands disclosures about fair value measurements.





SFAS
      157
      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, mutualfunds,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.





In
      accordance with SFAS 157, 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’s 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 three months ended March 25,
      2008:


**(In
                  thousands)**
              
              **Fair
                  Value****As
                  of March 25, 2008**
              
              **Level
                  1**
              
              **Level
                  2**
              
              **Level
                  3**
              
              **Total**Embedded
                  derivativeliabilities
              
              $
              —
              
              $
              1,752
              
              $
              —
              
              $
              1,7523





The
      following table reconciles, for the period ended March 25, 2008, the
      beginning and ending balances for financial instruments that are recognized
      at
      fair value in the consolidated financial statements:


8





Balance
                ofEmbedded
                derivativeat
                December 25, 2007
            
            $
            2,493Gain
                on fair value adjustments to embedded derivatives
            
            
            (690
            )Conversion
                of shares
                effect onEmbedded
                derivative
            
            
            (51
            )Balance
                at March25,
                2008
            
            $
            1,752





The
      valuation of the derivatives are calculated using a complex binomial pricing
      model that is based on changes in the volatility of our shares and our stock
      price and the time to conversion of the related financial instruments. See
      note
      13 for more information on the valuation methods used.





**Fair
      Value Option**





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities — Including an Amendment of
      SFAS No. 115” (“SFAS 159”). The fair value option established by SFAS 159
      permits all entities to choose to measure eligible items at fair value at
      specified election dates. A business entity will report unrealized gains and
      losses on items for which the fair value option has been elected in earnings
      (or
      another performance indicator if the business entity does not report earnings)
      at each subsequent reporting date. The fair value option: (a) may be applied
      instrument by instrument, with a few exceptions, such as investments otherwise
      accounted for by the equity method; (b) is irrevocable (unless a new election
      date occurs); and (c) is applied only to entire instruments and not to portions
      of instruments. SFAS 159 is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. The Company had not chosen
      to
      adopt this statement early. Management currently does believe its adoption
      of
      SFAS 159 will not be material to its financial statement until such time as
      i t
      decides
      to adopt a fair value option for an eligible item it has no plans at this time
      to do so.





**NOTE
      3. RECENT ACCOUNTING PRONOUNCEMENTS**





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities, an Amendment of FASB
      No. 133,” (“SFAS 161”). SFAS 161 is intended to improve transparency in
      financial reporting by requiring enhanced disclosures of an entity’s derivative
      instruments and hedging activities and their effects on the entity’s financial
      position, financial performance, and cash flows. SFAS 161 applies to all
      derivative instruments within the scope of SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities,” (“SFAS 133”). SFAS 161 also
      applies to non-derivative hedging instruments and all hedged items designated
      and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial
      statements issued for fiscal years and interim periods beginning after
      November 15, 2008, with early application encouraged. SFAS 161 encourages,
      but does not require, comparative disclosures for periods prior to its initial
      adoption. We will adopt SFAS 161 on December 26, 2008 and are currently
      evaluating the potential impact on our financial statements when
      implemented.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS 141(R)”). SFAS 141(R) requires us to continue to follow the guidance in
      SFAS 141 for certain aspects of business combinations, with additional guidance
      provided defining the acquirer, recognizing and measuring the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree, assets and liabilities arising from contingencies, defining a bargain
      purchase and recognizing and measuring goodwill or a gain from a bargain
      purchase. In addition, under SFAS 141(R) adjustments associated with changes
      in
      tax contingencies that occur after the one year measurement period are recorded
      as adjustments to income. This statement is effective for all business
      combinations for which the acquisition date is on or after the beginning of
      an
      entity’s first fiscal year that begins after December 15, 2008; however,
      the guidance in this standard regarding the treatment of income tax
      contingencies is retrospective to business combinations completed prior to December
      26, 2008 .
      We will
      adopt SFAS 141(R) for any business combinations occurring at or subsequent
      to December
      26, 2008 .





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements,” an Amendment of ARB No. 51,
“Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 establishes
      accounting and reporting standards for the noncontrolling interest in a
      subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. This statement is effective as of the beginning of an
      entity’s first fiscal year that begins after December 15, 2008 with
      retrospective application. We will adopt SFAS 160 beginning December
      26, 2008 and are
      currently evaluating the potential impact on our financial statements when
      implemented.




In
      September 2006, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 157, Fair Value Measurements, which defines fair value,
      establishes a framework for measuring fair value in accordance with generally
      accepted accounting principles, and expands disclosures about fair value
      measurements. SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Adoption
      of SFAS No. 157 did not have a material impact on our consolidated
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits companies to choose to measure many financial instruments
      and certain other items at fair value. SFAS No. 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007. Adoption of SFAS No. 159 did not have a material impact on our
      consolidated financial statements.


9


**NOTE
      4. CONDENSED BALANCE SHEET INFORMATION**





Condensed
      balance sheet information as of March 25, 2008 consisted of the following (in
      thousands):





Inside China
            
            Outside China
            
            TotalAssets-
                Cash and cash equivalents
            
            $
            5,600
            
            $
            91
            
            $
            5,691-
                Others
            
            
            83,552
            
            
            34
            
            
            83,586Total
                assets
            
            
            89,152
            
            
            125
            
            
            89,277Liabilities
            
            
            12,679
            
            
            3,538
            
            
            16,217Minority
                interests
            
            
            306
            
            
            —
            
            
            306Intercompany
            
            
            13,921
            
            
            (13,921
            )
            
            —Equity
            
            
            57,286
            
            
            10,210
            
            
            67,496





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





Condensed
      statement of operation information for the three months ended March 25, 2008
      consisted of the following (in thousands):





Inside
                China
            
            Outside
                China
            
            TotalNet
                revenue
            
            $
            11,699
            
            $
            —
            
            $
            11,699Cost
                of goods sold
            
            
            (9,557
            )
            
            —
            
            
            (9,557
            )General
                and administrative expenses
            
            
            (295
            )
            
            (210
            )
            
            (505
            )Income
                (loss) from operations
            
            
            1,626
            
            
            (210
            )
            
            1,416Provision
                for income taxes
            
            
            (314
            )
            
            —
            
            
            (314
            )Other
                income
            
            
            190
            
            
            690
            
            
            880Net
                income
            
            
            1,502
            
            
            480
            
            
            1,982





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





**NOTE
      5. 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 6,432 dilutive shares on an “as
      converted” basis for the Redeemable Convertible Preferred stock for the three
      months ended March 25, 2008 were excluded from the calculation of diluted
      earnings per share since their effect would have been anti-dilutive.
      Approximately 7,254 dilutive shares on an “as converted” basis for the
      Redeemable Convertible Preferred stock were excluded from the calculation of
      diluted earnings per share for the three months ended March 25, 2007 since
      their
      effect would have been anti-dilutive





The
      calculation of diluted weighted average common shares outstanding for the three
      months ended March 25, 2008 and 2007 is based on the average of the closing
      price of the Company’s common stock during such periods applied to warrants and
      options using the treasury stock method to determine if they are dilutive.
      For
      the three months ended March 25, 2008 and 2007 the options and warrants were
      anti-dilutive. The Redeemable Convertible Preferred stock is included on an
“as
      converted “basis when these shares are dilutive.




10


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,****2008**
              
              **2007****Weighted**
              
              
              
              
              
              **Weighted****Average**
              
              
              
              **Income**
              
              **Average****Income**
              
              **Shares**
              
              **Per-Share**
              
              **(Loss)**
              
              **Shares**
              
              **Per-Share**Earnings
                  per share – basicIncome (loss) available to common
                  stockholders
              
              $
              1,470
              
              
              55,940
              
              $
              0.03
              
              $
              2,893
              
              
              53,689
              
              $
              0.05Effect
                  of dilutive securitiesRedeemable convertible preferred stock
              
              
              
              
              
              —
              
              
              
              
              
              —
              
              
              —Options
                  and warrants
              
              
              
              
              
              137
              
              
              
              
              
              —
              
              
              72Earnings
                  per share – dilutedNet
                  income
              
              $
              1,470
              
              
              56,077
              
              $
              0.03
              
              $
              2,893
              
              
              53,761
              
              $
              0.05





**NOTE
      6. ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following (in thousands):




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Accounts
                receivable
            
            $
            11,077
            
            $
            10,167Less:
                Allowance for doubtful accounts
            
            
            (905
            )
            
            (944
            )$
            10,172
            
            $
            9,223





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





**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Balance
                at the beginning of the period
            
            $
            944
            
            $
            719Add:
                provision during the period
            
            
            4
            
            
            272Less:
                write-offs during the period
            
            
            (43
            )
            
            (47
            )Balance
                at the end of the period
            
            $
            905
            
            $
            944





**NOTE
      7. DEPOSITS AND PREPAYMENTS**





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




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Deposits
                for raw materials
            
            $
            13,224
            
            $
            12,053Prepayments
                and advances
            
            
            68
            
            
            130$
            13,292
            
            $
            12,183




**NOTE
      8. INVENTORIES**





Inventories
      consisted of the following (in thousands):




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Raw
                materials (including packing materials)
            
            $
            22,835
            
            $
            20,403Finished
                goods
            
            
            1,646
            
            
            1,74324,481
            
            
            22,146Less:
                Inventory reserve
            
            
            (91
            )
            
            (96
            )$
            24,390
            
            $
            22,050




11


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




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Balance
                at the beginning of the period
            
            $
            96
            
            $
            104Add:
                provision during the period
            
            
            -
            
            
            20Less:
                write-offs during the period
            
            
            (5
            )
            
            (28
            )Balance
                at the end of the period
            
            $
            91
            
            $
            96





**NOTE
      9. DUE FROM RELATED COMPANIES**





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




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Due
                from related companies for sales
            
            $
            967
            
            $
            913




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





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




Useful Life
            
            **March 25, 2008**
            
            **December 25, 2007**(In years)
            
            **(Unaudited)**Buildings
            
            
            40
            
            $
            14,396
            
            $
            13,839Machinery
                and equipment
            
            
            5
                - 12
            
            
            21,036
            
            
            20,229Construction
                in process
            
            
            
            
            
            1,276
            
            
            1,12436,708
            
            
            35,192Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (9,641
            )
            
            (9,206
            )$
            27,067
            
            $
            25,986





**NOTE
      11. LAND USE RIGHTS**





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




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Land
                use rights
            
            $
            8,753
            
            $
            8,415Less:
                Accumulated amortization
            
            
            (1,180
            )
            
            (1,121
            )$
            7,573
            
            $
            7,294




**NOTE
      12. OTHER PAYABLES AND ACCRUALS**





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




**March 25, 2008**
            
            **December 25, 2007****(Unaudited)**Deposits
                from customers
            
            $
            798
            
            $
            566Accruals
                for payroll, bonus and benefits
            
            
            508
            
            
            294Utilities
                and accrued expenses
            
            
            1,888
            
            
            1,905$
            3,194
            
            $
            2,765




12


**NOTE
      13. REDEEMABLE CONVERTIBLE PREFERRED STOCK**





On
      July
      11, 2005, the Company issued 6,000 shares of Series A 7% Redeemable Convertible
      Preferred Stock (“Series A Preferred Stock”); initially convertible into an
      aggregate of 6,315,789 shares of Class A Common Stock at a conversion price
      of
      $0.95 per share, raising $6 million in gross proceeds. Six-year warrants to
      purchase an aggregate of 3,157,895 shares of Class A Common Stock at an exercise
      price of $1.04 per share were also issued to the investors. As part of the
      compensation to the placement agent, five-year warrants to purchase an aggregate
      of 378,947 shares of Class A Common Stock at an exercise price of $1.04 share
      were also issued. As of March 25, 2008, all of the warrants issued to the
      placement agent were exercised cashless and 4,670 shares of Series A Preferred
      Stock were converted into 4,915,526 shares of Class A Common Stock.





On
      December 22, 2005, the Company issued 9,500 shares of Series B 7% Redeemable
      Convertible Preferred Stock (“Series B Preferred Stock”), initially convertible
      into an aggregate of 5,937,500 shares of Class A Common Stock at a conversion
      price of $1.60 per share, raising $9.5 million in gross proceeds. Six-year
      warrants to purchase an aggregate of 2,968,750 shares of Class A Common Stock
      at
      an exercise price of $1.76 per share were also issued to the investors. As
      part
      of the compensation to the placement agent, five-year warrants to purchase
      an
      aggregate of 356,250 shares of Class A Common Stock at an exercise price of
      $1.76 per share were also issued. As of March 25, 2008, 2,073 shares of Series
      B
      Preferred Stock were converted into 1,295,741 shares of Class A Common Stock,
      and no warrants were exercised.





In
      connection with the issuance of the Redeemable Convertible Series A Preferred
      Stock and Series B Preferred Stock, the Company paid professional fees,
      placement agent fees and associated expenses amounting to $1,827,000. 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 A and B
      Preferred Stock issuances. The Company has evaluated the fair value of these
      liabilities using combination of the Black Scholes and Binomial Pricing Models.
      The summary of activity in the Series A and B Preferred Stock is as follows
      (in
      thousands):





**Redeemable
                Convertible Preferred Stock****Number of**
              **shares**
            
            **Series A**
            
            **Series B**
            
            **Combined**Sale
                of Series A Preferred Stock
            
            
            6,000
            
            $
            6,000
            
            
            
            
            $
            6,000Sale
                of Series B Preferred Stock
            
            
            9,500
            
            
            
            
            $
            9,500
            
            
            9,500Expenses
                of Offering
            
            
            
            
            
            (685
            )
            
            (1,142
            )
            
            (1,827
            )Original
                Discounts
            
            
            
            
            
            (4,558
            )
            
            (5,686
            )
            
            (10,244
            )Initial
                Balance of Redeemable Preferred Stock
            
            
            
            
            
            757
            
            
            2,672
            
            
            3,429Net value at conversion of preferred stock to common stocks
            
            
            (6,743
            )
            
            (1,393
            )
            
            (970
            )
            
            (2,363
            )Accumulated
                accretion of original discounts
            
            
            
            
            
            1,420
            
            
            2,772
            
            
            4,192Balance
                March 25, 2008
            
            
            8,757
            
            $
            784
            
            $
            4,474
            
            $
            5,258





The
      pricing model the Company used for determining fair values of the 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 (loss). The Company has obtained a valuation report from
      a
      valuation firm to support its estimates. The principal assumptions used to
      value
      these complex freestanding financial instruments were as follows:





**Warrants**
            
            **Embedded
                Conversion Feature**Expected
                life (in years)
            
            Remaining
                term at valuation date
            
            Remaining
                Term to conversion or redemption date at each valuation
                dateExpected
                volatility
            
            50%
            
            50%Risk-free
                interest rate
            
            1.68%
                to 2.07%
            
            1.08%
                to 1.68%Dividend
                yield
            
            0
            
            0





The
      Company considered all of the other minor features of the conversion option
      associated with the Company’s Preferred Stock, 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. The Company ultimately
      determined that these features were insignificant and did not have a material
      impact on the concluded values of the Series A and Series B Preferred
      Stock.





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





Fair
                Value at issuances
            
            $
            10,259Loss
                on change in value of derivatives during 2005
            
            
            4,064Conversion
                of 1900 shares of Series A Preferred Stock to common stock during
                2005
            
            
            (2,188
            )Fair
                Value at December 25, 2005
            
            $
            12,135Loss
                on change in value of derivatives during the period
            
            
            1,434Conversion
                of 3,438 shares of Series A & B Preferred Stock to common stock during
                2006
            
            
            (2,431
            )Fair
                Value at December 25, 2006
            
            $
            11,138Gain
                on change in value of derivatives during the period
            
            
            (8,412
            )Conversion
                of 728 shares of Series A & B Preferred Stock to common stock during
                2007
            
            
            (233
            )Fair
                Value at December 25, 2007
            
            $
            2,493Gain
                on change in value of derivatives during the period
            
            
            (690
            )Conversion
                of 593 shares of Series A & B Preferred Stock to common stock during
                2008
            
            
            (51
            )Fair
                Value at March 25, 2008
            
            $
            1,752




13


**NOTE
      14. COMMON STOCK**





On
      September 4, 2003, the Company issued 3,300,000 shares of Class A Common Stock
      for an aggregate purchase amount of $1,650,000 or $0.50 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 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, 2008, all such warrants have been
      exercised.





On
      October 7, 2003, the Company issued 850,000 shares of Class A Common Stock
      for
      an aggregate purchase amount of $425,000 or $0.50 per share. The shares were
      issued pursuant to an exemption provided by Section 4(2) of the Securities
      Act.
      The purchasers were also issued warrants to purchase 425,000 shares of the
      Company’s Class A Common Stock, which have a term of 5 years and an exercise
      price of $0.979 per share. As of March 25, 2008, warrants to purchase 25,000
      shares of Class A Common Shares were outstanding.





**NOTE
      15. WARRANTS**





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




**Shares**
            
            **Weighted Average Exercise Price**Outstanding at
                December 25, 2005
            
            
            6,609,474
            
            
            1.4020Issued
            
            
            —
            
            
            —Exercised
            
            
            101,579
            
            
            1.0400Forfeited/Cancelled
            
            
            —
            
            
            —Outstanding
                at December 25, 2006
            
            
            6,507,895
            
            
            1.4093Warrants
                exercisable at December 25, 2005
            
            
            6,609,474
            
            
            1.4020Warrants
                exercisable at December 25, 2006
            
            
            6,507,895
            
            
            1.4093Warrants
                exercisable at December 25, 2007
            
            
            6,507,895
            
            
            1.4093Warrants
                exercisable at March 25, 2008
            
            
            6,507,895
            
            
            1.4093





The
      number of shares of Class A Common Stock issuable under warrants related to
      the
      private placements and the respective exercise prices as of March 25, 2008
      are
      summarized as follows:




**Shares of Class A Common Stock**
              **Issuable Under Warrants**
            
            **Exercise**
              **Price**October
                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
            
            
            1.76Warrants
                exercisable at March 25, 2008
            
            
            6,507,895




**NOTE
      16. STOCK-BASED COMPENSATION**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123R, “Share-Based Payment,” which established standards for transactions in
      which an entity exchanges its equity instruments for goods or services. This
      standard requires a public entity to measure the cost of services received
      in
      exchange for an award of equity instruments based on the grant-date fair value
      of the award. The Company adopted the requirements of SFAS No.123R for the
      fiscal year 2006. Because all stock options granted before December 25, 2004
      were fully vested and exercised or expired, no compensation charges were
      recorded in fiscal 2008 for these options. For stock options granted after
      December 25, 2004, the Company used the Black-Scholes option-pricing model
      to
      estimate the fair value of the options at the date of grant.


14






In
      November 2004, options to purchase 400,000 shares of Class A Common Stock were
      issued to an officer at an exercise price of $1.00 per share with a term of
      10
      years. The market price of the Class A Common Stock as of the grant date was
      $0.64 per share. As of March 25, 2008, 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, 2008, 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, 2008, none of these options
      were exercised. The Company recorded compensation expense of $2,320,000 based
      on
      an estimated fair value of the options of $1.16 per share on January 20, 2006.
      The per share fair value of the stock options granted has been estimated using
      the Black-Scholes option-pricing model with the following
      assumptions:




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





On
      December 13, 2006, options to purchase an additional 6,000,000 shares of Class
      A
      Common Stock were granted to the same officer at an exercise price of $1.82
      per
      share with a term of 10 years. The options were fully vested upon grant but
      became exercisable on April 3, 2007. The market price of the Class A Common
      Stock as of the grant date was $1.82 per share. As of March 25, 2008, these
      options were fully vested but not exercisable. The Company recorded compensation
      expense of $5,820,000 based on an estimated fair value of the options of $0.97
      per share on December 13, 2006, the grant date. The per share fair value of
      the
      stock options granted has been estimated using the Black-Scholes option-pricing
      model with the following assumptions:


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




The
      following table summarizes outstanding options as at March 25, 2008 and related
      weighted average fair value and life information:





Options Outstanding
            
            Options ExercisableRange of
              Exercise
              Price Per Share
            
            Number Outstanding
              at March 25, 2008
            
            Weighted
              Average
              Fair Value
            
            Weighted Average
              Remaining Life
              (Years)
            
            Number Exercisable
              at March 25, 2008
            
            Weighted Average
              Exercise Price$
                1.60-1.82
            
            
            8,000,000
            
            $
            1.02
            
            
            7
            
            
            8,000,000
            
            $
            1.765





The
      Company recorded compensation expense of $8,140,000 based on the fair value
      of
      the options granted during the year of 2006. Any exercise of such options
      granted on December 13, 2006 was contingent upon the effectiveness of a
      shareholder consent, which occurred on April 3, 2007. The Company has no future
      compensation expense to record from this option outstanding at December 25,
      2006
      because they were fully vested upon grant and compensation cost was recorded
      as
      of that date. As of March 25, 2008, our options granted had no intrinsic value.




**NOTE
      17. 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.




15




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





**Three months ended**
              **March 25,****2008**
            
            **2007****(Unaudited)**
            
            **(Unaudited)**Pre-determined
                annual fee charged by joint venture partners:Shandong
                Longfeng Group Company (a)
            
            $
            21
            
            $
            20Shandong
                Longfeng Flour Company Limited (b)
            
            
            10
            
            
            9$
            31
            
            $
            29




(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
      18. 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%. Three 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 March 25, 2008 and
      December 25, 2007, 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.




In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement 109” FIN
      48. This
      statement clarifies the criteria that an individual tax position must satisfy
      for some or all of the benefits of that position to be recognized in a company’s
      financial statements. FIN
      48prescribes
      a recognition threshold of more-likely-than-not, and a measurement attribute
      for
      all tax positions taken or expected to be taken on a tax return, in order for
      those tax positions to be recognized in the financial statements. Effective
      January 1, 2007, the Company has adopted the provisions of FIN
      48and
      there
      was no material effect on the financial statements. As a result, there was
      no
      cumulative effect related to adopting FIN
      48.





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





***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. During the three months
      ended March 25, 2008, the Company has spent approximately $1.24 million on
      the
      construction at the new plant and has committed to further capital expenditures
      of $1.08 million for the completion of the plant, which is scheduled to be
      completed in 2009.





**NOTE
      20. 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.




16




**For the three months ended**
              **March 25,****2008**
            
            **2007****(US$'000)**
            
            **(US$'000)**Net
                revenueInstant
                noodles
            
            
            3,395
            
            
            3,507Flour
            
            
            6,115
            
            
            5,988Soybean
            
            
            2,189
            
            
            1,66511,699
            
            
            11,160Income
                (loss) from operationInstant
                noodles
            
            
            328
            
            
            229Flour
            
            
            1,067
            
            
            1,013Soybean
            
            
            21
            
            
            (96
            )1,416
            
            
            1,146Depreciation
                and amortizationInstant
                noodles
            
            
            274
            
            
            241Flour
            
            
            173
            
            
            146Soybean
            
            
            60
            
            
            52507
            
            
            439





**March 25,**
            
            **December 25,****2008**
            
            **2007****(US$'000)**
            
            **(US$'000)**Identifiable
                long-term assetsInstant
                noodles
            
            
            22,890
            
            
            22,640Flour
            
            
            7,458
            
            
            7,470Soybean
            
            
            4,292
            
            
            3,17034,640
            
            
            33,280




17




**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, 2007, 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 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 are
      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.





**Contractual
      Joint Ventures**





A
      contractual joint venture is an entity established between us and another joint
      venture partner, with the rights and obligations of each party governed by
      a
      contract. Currently, we have established four contractual joint ventures with
      two Chinese partners in China - Shandong Longfeng Flour Co. Ltd. and Shandong
      Longfeng Group Co., with percentage of ownership ranging from 76.94% 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 entitled
      to receive any profits and is not responsible for any losses, regardless of
      the
      ownership in the contractual joint venture. In view of such contracted profit
      sharing arrangement, the contractual joint ventures are accounted for as
      wholly-owned by the Company. Accordingly, the Company’s consolidated financial
      statements include the financial statements of the contractual joint
      ventures.





**Revenue
      Recognition**





Our
      revenues are generated from sales of flour, instant noodle and soybean products.
      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 and B Preferred Stock, are separately
      valued and accounted for on our balance sheet. Where market prices are not
      readily available, fair values are determined using market based pricing models
      incorporating readily observable market data and requiring judgment and
      estimates.





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




18




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





**Share-Based
      Payment**





On
      December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based
      Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock
      Issued to Employees.” SFAS No. 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on the grant date fair value of the award. We adopted
      the requirements of SFAS No. 123R for the fiscal year beginning on December
      26,
      2005, and recorded the compensation expense for all unvested stock
      options.




**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***





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities, an Amendment of FASB
      No. 133,” (“SFAS 161”). SFAS 161 is intended to improve transparency in
      financial reporting by requiring enhanced disclosures of an entity’s derivative
      instruments and hedging activities and their effects on the entity’s financial
      position, financial performance, and cash flows. SFAS 161 applies to all
      derivative instruments within the scope of SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities,” (“SFAS 133”). SFAS 161 also
      applies to non-derivative hedging instruments and all hedged items designated
      and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial
      statements issued for fiscal years and interim periods beginning after
      November 15, 2008, with early application encouraged. SFAS 161 encourages,
      but does not require, comparative disclosures for periods prior to its initial
      adoption. We will adopt SFAS 161 on December 26, 2008 and are currently
      evaluating the potential impact on our financial statements when
      implemented.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS 141(R)”). SFAS 141(R) requires us to continue to follow the guidance in
      SFAS 141 for certain aspects of business combinations, with additional guidance
      provided defining the acquirer, recognizing and measuring the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree, assets and liabilities arising from contingencies, defining a bargain
      purchase and recognizing and measuring goodwill or a gain from a bargain
      purchase. In addition, under SFAS 141(R) adjustments associated with changes
      in
      tax contingencies that occur after the one year measurement period are recorded
      as adjustments to income. This statement is effective for all business
      combinations for which the acquisition date is on or after the beginning of
      an
      entity’s first fiscal year that begins after December 15, 2008; however,
      the guidance in this standard regarding the treatment of income tax
      contingencies is retrospective to business combinations completed prior to
      December 26, 2008. We will adopt SFAS 141(R) for any business combinations
      occurring at or subsequent to December 26, 2008.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements,” an Amendment of ARB No. 51,
“Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 establishes
      accounting and reporting standards for the noncontrolling interest in a
      subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. This statement is effective as of the beginning of an
      entity’s first fiscal year that begins after December 15, 2008 with
      retrospective application. We will adopt SFAS 160 beginning December 26, 2008
      and are currently evaluating the potential impact on our financial statements
      when implemented.




19




***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. With a well-known
      brand name called “LONG FENG”, we market our well-established product line
      through a countrywide network of over 200 key distributors and 16 regional
      offices in 27 Chinese provinces. We have eight manufacturing plants in the
      PRC
      with an aggregate annual production capacity of approximately 110,000 tons
      of
      flour and approximately 1.1 billion packets of instant noodles and 4,500 tons
      of
      soybean powder.





***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
      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 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.





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





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.




***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.




20




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




**Three months ended**
              **March 25,****2008**
            
            **2007**Net
                revenue
            
            $
            11,699
            
            $
            11,160Cost
                of goods sold
            
            
            (9,557
            )
            
            (9,238
            )Gross
                profit
            
            
            2,142
            
            
            1,922Selling
                and distribution expenses
            
            
            (221
            )
            
            (239
            )General
                and administrative expenses
            
            
            (505
            )
            
            (537
            )Gain
                on fair value adjustments to embedded derivatives
            
            
            690
            
            
            2,537Income
                before income taxes and minority interest
            
            
            2,296
            
            
            3,749Provision
                for income taxes
            
            
            (314
            )
            
            (300
            )Net
                income
            
            
            1,982
            
            
            3,449




***Three
      Months Ended March 25, 2008 Compared to Three Months Ended March 25,
      2007***





***Net
      Revenue***





Net
      revenue for the quarter ended March 25, 2008 was $11,699,000, representing
      an
      increase of $539,000, or 4.8%, from $11,160,000 for the quarter ended March
      25,
      2007.





The
      increase was due to the growth in market demand principally for soybean
      products, which increased from $1.66 million for the quarter ended March 25,
      2007 to $2.19 million for the quarter ended March 25, 2008. The selling prices
      for all our products remained stable.





***Gross
      Profit***





As
      a
      percentage of net revenue, gross profit increased to 18% for the three months
      ended March 25, 2008 from 17% for the three months ended March 25, 2007. The
      increase was primarily due to the growth of export sales, which generate higher
      margins.




21




***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 $221,000 for the quarter ended March 25, 2008,
      representing a decrease of $18,000 or 7.5% from $239,000 for the corresponding
      quarter of 2007. The decrease was primarily due to the cost controls implemented
      by us.





As
      a
      percentage of net revenue, selling and distribution expenses decreased to 1.9%
      for the quarter ended March 25, 2008 from 2.1% for the corresponding period
      in
      2007. The decrease was primarily due to the cost controls implemented by us.
      To
      control costs, we have continued to more effectively staff our facilities,
      restrict traveling costs and develop a more efficient sales
      methodology.





***General
      and Administrative Expenses***





General
      and administrative expenses decreased $32,000, or 6.0%, to $505,000 for the
      quarter ended March 25, 2008 as compared to $537,000 for the quarter ended
      March
      25, 2007. The decrease was primarily due to the cost controls implemented by
      us.





***Income
      (Loss) from Operations***





Income
      from operations was $1,416,000 for the three months ended March 25, 2008 as
      compared to $1,146,000 for the three months ended March 25, 2007. The increase
      was primarily due to the growth of export sales, which generate higher
      margins.





***Gain
      (Loss) on Fair Value Adjustments to Embedded
      Derivatives***





The
      Company issued Series A Redeemable Convertible Preferred Stock in July 2005,
      together with 3,157,895 warrants to purchase Class A Common Stock resulting
      in
      aggregate proceeds of $6 million. The Company also issued Series B Redeemable
      Convertible Preferred Stock in December 2005, together with 2,968,750 warrants
      to purchase Class A Common Stock resulting in aggregate proceeds of $9.5
      million. The fair value of each instrument was recorded as a derivative
      liability on our balance sheet. The corresponding gain or loss, which was
      non-cash in nature, from changes in the fair values of these instruments was
      recorded in our statement of income. For the three months ended March 25, 2008,
      the gain in this regard was $690,000. For the corresponding period of 2007,
      it
      was approximately $2.54 million. 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.





***VAT
      Refunds***





VAT
      refund decreased to $0 for the quarter ended March 25, 2008 as compared to
      $52,000 for the quarter ended March 25, 2007. This decrease was solely the result
      of no tax
      refund received from the municipal government of China in 2008.




***Net
      Income***





Net
      income was $1,982,000 for the quarter ended March 25, 2008 as compared to
      $3,449,000 for the quarter ended March 25, 2007. Such decrease was primarily
      due
      to the fluctuation in gain derived from changes in the fair value of derivative
      instruments.





***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 increased $4,496,000 to $40,705,000 at March 25, 2008 as
      compared to $36,209,000 at December 25, 2007, which was primarily due to the
      growth and profitability of the business.





Cash
      and
      cash equivalents were $5,691,000 as of March 25, 2008, an increase of $2,045,000
      from December 25, 2007. The Company believes that it has enough cash available
      and expects to have enough income 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.




22


***Contractual
        Obligations and Commercial Commitments***
 
 On
        July
        11, 2005, we issued 6,000 shares of Series A 7% Convertible Preferred Stock
        (“Series A Preferred Stock”), convertible into an aggregate of 6,315,789 shares
        of Class A Common Stock at a conversion price of $0.95 per share, raising
        $6.0
        million in gross proceeds.
 
 On
        December 22, 2005, we issued 9,500 shares of Series B 7% Convertible Preferred
        Stock (“Series B Preferred Stock”), convertible into an aggregate of 5,937,500
        shares of Class A Common Stock at a conversion price of $1.60 per share,
        raising
        $9.5 million in gross proceeds.
 
 The
        key
        terms of the Series A Preferred Stock and Series B Preferred Stock are as
        follows:
 
 Series
                  A Preferred Stock
              
              Series
                  B Preferred StockPreferred
                  Dividend
              
              7%
                  per annum, payable quarterly in arrears in cash or, at the Company’s
                  option subject to satisfaction of certain conditions, shares of
                  Class A
                  Common Stock valued at 95% of the volume-weighted current market
                  price.
              
              7%
                  per annum, payable quarterly in arrears in cash or, at the Company’s
                  option subject to satisfaction of certain conditions, shares of
                  Class A
                  Common Stock valued at 95% of the volume-weighted current market
                  price.Redemption
              
              July
                  11, 2010
                
                Beginning
                  on the 24th month following closing and each month thereafter,
                  the Company
                  shall redeem 1/37th of the face value of the Preferred Stock in
                  either
                  cash or Class A Common Stock valued at 90% of the volume-weighted
                  current
                  market price.
              
              December
                  22, 2010
                
                Beginning
                  at the end of the 24th month following closing and on each third
                  monthly
                  anniversary of that date (quarterly) thereafter, the Company shall
                  redeem
                  1/13th of the face value of the Preferred Stock in either cash
                  or Class A
                  Common Stock valued at 90% of the volume-weighted current market
                  price.Mandatory
                  Conversion
              
              The
                  Company may at any time force the conversion of the Preferred Stock
                  if the
                  volume-weighted current market price of the Class A Common Stock
                  exceeds
                  300% of the then applicable conversion price.
              
              The
                  Company may at any time force the conversion of the Preferred Stock
                  if the
                  volume-weighted current market price of the Class A Common Stock
                  exceeds
                  200% of its price at issuance of the Preferred Stock.Registration
              
              The
                  Company shall file to register the underlying Class A common shares
                  within
                  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.
              
              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
                  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
        March 25, 2008, the Company had long-term debt obligations that resulted
        from
        the redeemable convertible preferred stock and the pre-determined annual
        fee
        charged by joint venture partners through February 2009 and other commitments
        and long-term liabilities through August 2049 as follows:
  23
  Payment
                  Obligations By Period2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              Thereafter
              
              Total(In
                  thousands)Redeemable
                  convertible preferred stock
              
              $
              3,055
              
              $
              2,976
              
              $
              2,726
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              8,757Pre-determined
                  annual fee charged by joint venture partners
              
              
              89
              
              
              118
              
              
              118
              
              
              118
              
              
              118
              
              
              3,886
              
              
              4,447Total
              
              $
              3,144
              
              $
              3,094
              
              $
              2,844
              
              $
              118
              
              $
              118
              
              $
              3,886
              
              $
              13,204
 
 Reconciliation
        of the outstanding payment obligations of redeemable convertible preferred
        stock:
 (In
                    thousands)Aggregated
                    balance as of the issue date
                
                $
                15,500Partial
                    redemption of Series A Preferred Stock in 2005
                
                
                (1,900
                )Partial
                    redemption of Series A and B Preferred Stock in 2006
                
                
                (3,438
                )Partial
                    redemption of Series A Preferred Stock in 2007
                
                
                (728
                )Partial
                    redemption of Series A and B Preferred Stock in 2008
                
                
                (677
                )$
                8,757
 
 **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***
 
 We
        have
        never declared or paid any dividends on our Class A Common Stock. The
        declaration and payment in the future of any cash or stock dividends on the
        Class A Common Stock will be at the discretion of our Board of Directors
        and
        will depend upon a variety of factors, including our ability to service our
        outstanding indebtedness, if any, and to pay dividends on securities ranking
        senior to the Class A Common Stock, including the shares of our outstanding
        Series A and Series B Preferred Stock, our future earnings, if any, capital
        requirements, financial condition and such other factors as our Board of
        Directors may consider to be relevant from time to time. We do not expect
        to
        declare or pay any dividends on our Class A Common Stock in the foreseeable
        future.
 
 ***We
        are controlled by our major shareholder***
 
 Our
        major
        shareholder ,
        New
        Dragon Asia Food Ltd., which is controlled by our Chairman, Mr. Heng Jing
        Lu ,
        owns
        approximately 49% of our outstanding shares .
        Mr. Lu
        has sole voting and dispositive control over the shares of us held by New
        Dragon
        Asia Food Ltd. As a result, Mr. Lu, through this shareholder, effectively
        exercises control over all matters requiring shareholder approval, including
        the
        election of directors and approval of significant corporate transactions.
        This
        concentration of ownership may also have the effect of delaying or preventing
        a
        change in control of us that may not be viewed as beneficial by other
        shareholders.
 
 ***Our
        primary source of funds for dividends and other distributions from our operating
        subsidiary in China is subject to various legal and contractual restrictions
        and
        uncertainties, and our ability to pay dividends or make other distributions
        to
        our shareholders are negatively affected by those restrictions and uncertainties***
 
 We
        are a
        holding company established in the state of Florida and conduct our core
        business operations through our operating subsidiaries, Hero Treasure Ltd.,
        Delta Link Ltd., Mix Creation Ltd., Rich Delta Ltd. and Keen General Ltd.
        and
        their respective subsidiaries in China. As a result, our profits available
        for
        distribution to our shareholders are dependent on the profits available for
        distribution from the Subsidiaries. If the Subsidiaries incur debt on their
        own
        behalf, the debt instruments may restrict their ability to pay dividends
        or make
        other distributions, which in turn would limit our ability to pay dividends
        on
        our shares. Under the current PRC laws, because we are incorporated in the
        State
        of Florida, our PRC subsidiaries are each regarded as a wholly foreign-owned
        enterprise in China. Although dividends paid by foreign invested enterprises,
        such as wholly foreign-owned enterprises and Sino-foreign joint ventures,
        are
        not subject to any PRC corporate withholding tax, the PRC laws permit payment
        of
        dividends only out of net income as determined in accordance with PRC accounting
        standards and regulations. Determination of net income under PRC accounting
        standards and regulations may differ from determination under U.S. GAAP in
        significant aspects, such as the use of different principles for recognition
        of
        revenues and expenses. In addition, distribution of additional equity interests
        by any of our PRC subsidiaries to us (which is credited as fully paid through
        capitalization of the PRC subsidiaries’ undistributed profits) requires
        additional approval of the PRC government due to an increase in our registered
        capital and total investment in the subsidiary. Under the current PRC laws,
        each
        of our subsidiaries is required to set aside a portion of its net income
        each
        year to fund designated statutory reserve funds. These reserves are not
        distributable as cash dividends. As a result, our primary internal source
        of
        funds for dividend payments from the subsidiaries are subject to these and
        other
        legal and contractual restrictions and uncertainties, which in turn may limit
        or
        impair our ability to pay dividends to our shareholders. Moreover, any transfer
        of funds from us to the subsidiaries, either as a shareholder loan or as
        an
        increase in registered capital, is subject to registration with or approval
        by
        PRC governmental authorities. These limitations on the flow of funds between
        us
        and the subsidiaries could restrict our ability to act in response to changing
        market conditions.
  24
  ***Recent
        regulations relating to offshore investment activities by PRC residents may
        adversely affect our business and prospects***
 
 On
        September 8, 2006, several agencies of the PRC government issued a new
        regulation concerning restrictions on investments in China through special
        purpose companies incorporated overseas and the listing of the shares of
        those
        companies in overseas markets. The regulation contains a number of provisions
        relating to the acquisition of Chinese domestic companies which involve
“important industries” and may affect the national economic safety or result in
        the transfer of actual control rights of any company having “famous brands” or
        any “old established Chinese brands,” and require that the parties to any such
        transaction report to the Ministry of Commerce for approval. Additionally,
        any
        foreign company directly or indirectly controlled by Chinese companies or
        individuals used as a vehicle for public listing in an overseas stock market
        will need China Securities Regulatory Commission approval in connection with
        such listing. As it is uncertain how this new regulation will be interpreted
        or
        implemented, we cannot predict how this regulation will affect our business
        operations or future strategies. For example, we may be subject to a more
        stringent review and approval process with respect to our acquisition
        activities, which may adversely affect our business and prospects.
 
 ***Dividend
        Policy***
 
 We
        have
        never declared or paid any cash dividends on our Class A Common Stock and
        we do
        not anticipate paying any cash dividends in the foreseeable future. Our ability
        to pay such cash dividends is subject to our receipt of dividends from our
        operating subsidiaries, which are subject to legal restrictions in the PRC
        on
        making such payments. We currently intend to retain future earnings, if any,
        to
        finance operations and the expansion of our business. Any future determination
        to pay cash dividends will be at the discretion of the board of directors
        and
        will be based upon our financial condition, operating results, capital
        requirements, plans for expansion, restrictions imposed by PRC law and any
        financing arrangements and any other factors that the board of directors
        deems
        relevant.
 
 **RISKS
        RELATED TO OUR BUSINESS**
 
 ***Our
        business may experience adverse effects from competition in the noodle, flour
        and soybean product markets.***
 
 The
        noodle, flour and soybean product markets in the PRC are highly competitive.
        Competition in these markets takes many forms, including the following:
 
 -
              establishing
                  favorable brand recognition;-
              developing
                  products sought by consumers;-
              implementing
                  appropriate pricing;-
              providing
                  strong marketing support; and-
              obtaining
                  access to retail 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.
  25
  ***We
        are subject to risks associated with joint ventures and third party agreements.***
 
 We
        conduct certain of our milling and sales operations through joint ventures
        established with certain Chinese parties. Any deterioration of these strategic
        relationships may have an adverse effect on our operation. Changes in laws
        and
        regulations, or their interpretation, or the imposition of confiscatory
        taxation, restrictions on currency conversion, imports and sources of supply,
        devaluations of currency or the nationalization or other expropriation of
        private enterprises could have a material adverse effect on our business,
        results of operations and financial condition. Under its current leadership,
        the
        Chinese government has been pursuing economic reform policies that encourage
        private economic activity and greater economic decentralization. There is
        no
        assurance, however, that the Chinese government will continue to pursue these
        policies, or that it will not significantly alter these policies from time
        to
        time without notice.
 
 We
        may
        have limited legal recourse under Chinese law if disputes arise under our
        agreements with joint ventures or third parties. The Chinese government has
        enacted some laws and regulations dealing with matters such as corporate
        organization and governance, foreign investment, commerce, taxation and trade.
        However, the government’s experience in implementing, interpreting and enforcing
        these laws and regulations is limited, and our ability to enforce commercial
        claims or to resolve commercial disputes is unpredictable. If our new business
        ventures are unsuccessful, or other adverse circumstances arise from these
        transactions, we face the risk that the parties to these ventures may seek
        ways
        to terminate the transactions, or, may hinder or prevent us from accessing
        important information regarding the financial and business operations of
        these
        acquired companies. The resolution of these matters may be subject to the
        exercise of considerable discretion by agencies of the Chinese government,
        and
        forces unrelated to the legal merits of a particular matter or dispute may
        influence their determination. Any rights we may have to specific performance,
        or to seek an injunction under Chinese law, in either of these cases, are
        severely limited, and without a means of recourse by virtue of the Chinese
        legal
        system, we may be unable to prevent these situations from occurring. The
        occurrence of any such events could have a material adverse effect on our
        business, financial condition and results of operations.
 
 ***We
        may be subject to product liability claims and product recalls, which could
        negatively impact our 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 our
        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
        may experience risks resulting from our plans for expansion.***
 
 We
        have
        acquired several companies and businesses and plan to continue to acquire
        companies in the future. Entering into an acquisition entails many risks,
        any of
        which could harm our business, including: (a) diversion of management’s
        attention from other business concerns; (b) failure to integrate the acquired
        company with our existing businesses; (c) additional operating expenses not
        offset by additional revenue; and (d) dilution of our stock as a result of
        issuing equity securities.
 
 If
        we are
        unable to implement our acquisition strategy, we may be less successful in
        the
        future. A key component of our growth strategy is accomplished by acquiring
        additional flour and noodle factories and, if our acquisition of a soybean
        business proves successful, our acquisition strategy may expand to include
        future acquisitions of soybean businesses. While there are many such companies,
        we may not always be able to identify and acquire companies meeting our
        acquisition criteria on terms acceptable to us. Additionally, financing to
        complete significant acquisitions may not always be available on satisfactory
        terms. Further, our acquisition strategy presents a number of special risks
        to
        us that we would not otherwise contend with absent such strategy, including
        possible adverse effects on our earnings after each acquisition, diversion
        of
        management’s attention from our core business due to the special attention that
        a particular acquisition may require, failure to retain key acquired personnel
        and risks associated with unanticipated events or liabilities arising after
        each
        acquisition, some or all of which could have a material adverse effect on
        our
        business, financial condition and results of operations.
  26
  **RISKS
        ASSOCIATED WITH DOING BUSINESS IN THE PEOPLE’S REPUBLIC OF CHINA.**
 
 ***We
        are subject to the risks associated with doing business in the People’s Republic
        of China.***
 
 As
        most
        of our operations are conducted in the PRC, we are subject to special
        considerations and significant risks not typically associated with companies
        operating in North America and Western Europe. These include risks associated
        with, among others, the political, economic and legal environments and foreign
        currency exchange. Our results may be adversely affected by changes in the
        political and social conditions in the PRC, and by changes in governmental
        policies with respect to laws and regulations, anti-inflationary measures,
        currency conversion and remittance abroad, and rates and methods of taxation,
        among other things.
 
 Although
        the majority of productive assets in the PRC are owned by the Chinese
        government, in the past several years the government has implemented economic
        reform measures that emphasize decentralization and encourage private economic
        activity. Because these economic reform measures may be inconsistent or
        ineffectual, there are no assurances that:
 
 -
              We
                  will be able to capitalize on economic reforms;-
              The
                  Chinese government will continue its pursuit of economic reform
                  policies;-
              The
                  economic policies, even if pursued, will be successful;-
              Economic
                  policies will not be significantly altered from time to time;
                  and-
              Business
                  operations in China will not become subject to the risk of
                  nationalization.
 
 ***Economic
        reform policies or nationalization could result in a total investment loss
        in
        our Class A Common Stock.***
 
 Since
        1979, the Chinese government has reformed its economic systems. Because many
        reforms are unprecedented or experimental, they are expected to be refined
        and
        improved. Other political, economic and social factors, such as political
        changes, changes in the rates of economic growth, unemployment or inflation,
        or
        in the disparities in per capita wealth between regions within China, could
        lead
        to further readjustment of the reform measures. This refining and readjustment
        process may negatively affect our operations.
 
 Over
        the
        last few years, China’s economy has registered a high growth rate. Recently,
        there have been indications that rates of inflation have increased. In response,
        the Chinese government has taken measures to curb this excessively expansive
        economy. These measures include restrictions on the availability of domestic
        credit, reducing the purchasing capability of certain of our customers, and
        limited re-centralization of the approval process for purchases of some foreign
        products. The Chinese government may adopt additional measures to further
        combat
        inflation, including the establishment of freezes or restraints on certain
        projects or markets. These measures may adversely affect our manufacturing
        operations.
 
 To
        date,
        reforms to China’s economic system have not adversely impacted our operations
        and are not expected to adversely impact operations in the foreseeable future;
        however, there can be no assurance that the reforms to China’s economic system
        will continue or that we will not be adversely affected by changes in China’s
        political, economic, and social conditions and by changes in policies of
        the
        Chinese government, such as changes in laws and regulations, measures which
        may
        be introduced to control inflation and changes in the rate or method of
        taxation.
 
 On
        November 11, 2001, China signed an agreement to become a member of the World
        Trade Organization (“WTO”), the international body that sets most trade rules,
        further integrating China into the global economy and significantly reducing
        the
        barriers to international commerce. China’s membership in the WTO was effective
        on December 11, 2001. China has agreed upon its accession to the WTO to reduce
        tariffs and non-tariff barriers, remove investment restrictions and provide
        trading and distribution rights for foreign firms. The tariff rate reductions
        and other enhancements will enable us to develop better investment strategies.
        In addition, the WTO’s dispute settlement mechanism provides a credible and
        effective tool to enforce members’ commercial rights. Also, with China’s entry
        to the WTO, it is believed that the relevant laws on foreign investment in
        China
        will be amplified and will follow common practices.
 
 ***The
        Chinese legal system is not fully developed and has inherent uncertainties
        that
        could limit the legal protections available to investors.***
 
 The
        Chinese legal system is a system based on written statutes and their
        interpretation by the Supreme People’s Court. Prior court decisions may be cited
        for reference but have limited legal precedents. Since 1979, the PRC government
        has been developing a comprehensive system of commercial laws, and considerable
        progress has been made in introducing laws and regulations dealing with economic
        matters such as foreign investment, corporate organization and governance,
        commerce, taxation and trade. Two examples are the promulgation of the Contract
        Law of the PRC to unify the various economic contract laws into a single
        code,
        which went into effect on October 1, 1999, and the Securities Law of the
        People’s Republic of China, which went into effect on July 1, 1999. However,
        because these laws and regulations are relatively new, and because of the
        limited volume of published cases and their non-binding nature, interpretation
        and enforcement of these laws and regulations involve uncertainties. In
        addition, as the Chinese legal system develops, changes in such laws and
        regulations, their interpretation or their enforcement may have a material
        adverse effect on our business operations.
  27
  ***Enforcement
        of regulations in China may be inconsistent.***
 
 Although
        the Chinese government introduced new laws and regulations to modernize its
        securities and tax systems on January 1, 1994, China does not yet possess
        an
        expansive body of business law. As a result, the enforcement, interpretation
        and
        implementation of regulations may prove to be inconsistent and it may be
        difficult to enforce contracts.
 
 ***We
        may experience lengthy delays in resolution of legal disputes.***
 
 As
        China
        has not developed a dispute resolution mechanism similar to the Western court
        system, dispute resolution over Chinese projects and joint ventures can be
        difficult and there is no assurance that any dispute involving our business
        in
        China can be resolved expeditiously and satisfactorily.
  ***We
        may experience an impact of the United States Foreign Corrupt Practices Act
        on
        our business.***
 
 We
        are
        subject to the United States Foreign Corrupt Practices Act, which generally
        prohibits Unites States companies from engaging in bribery or other prohibited
        payments to foreign officials for the purpose of obtaining or retaining
        business. Foreign companies, including some that may compete with us, are
        not
        subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
        theft
        and other fraudulent practices occur from time-to-time in mainland China.
        We
        have attempted to implement safeguards to prevent and discourage such practices
        by our employees and agents. We cannot assure you, however, that our employees
        or other agents will not engage in such conduct for which we might be held
        responsible. If our employees or other agents are found to have engaged in
        such
        practices, we could suffer severe penalties and other consequences that may
        have
        a material adverse effect on our business, financial condition and results
        of
        operations.
 
 ***Impact
        of governmental regulation on our operations.***
 
 We
        may be
        subjected to liability for product safety that could lead to a product recall.
        Our operations and properties are subject to regulation by various Chinese
        government entities and agencies. As a producer of food products, our operations
        are subject to production, packaging, quality, labeling and distribution
        standards. Our production and distribution facilities are also subject to
        various local environmental laws and workplace regulations.
 
 We
        believe that our current legal and environmental compliance programs adequately
        address such concerns and that we are in compliance with applicable laws
        and
        regulations. However, compliance with, or any violation of, current and future
        laws or regulations could require material expenditures or otherwise adversely
        affect our business and financial results.
 
 We
        may be
        liable if the consumption of any of our products cause injury, illness or
        death.
        We may also be required to recall certain of our products that become
        contaminated or are damaged. We are not aware of any material product liability
        judgment against us. However, a product liability judgment or a product recall
        could have a material adverse effect on our business or financial
        results.
 
 ***It
        may be difficult to serve us with legal process or enforce judgments against
        our
        management or us.***
 
 All
        of
        our assets are located in China. In addition, all of our directors and officers
        are non-residents of the United States, and all, or substantial portions
        of the
        assets of such non-residents, are located outside the United States. As a
        result, it may not be possible to effect service of process within the United
        States upon such persons. Moreover, there is doubt as to whether the courts
        of
        China would enforce:
 
 -
              Judgments
                  of United States courts against us, our directors or our officers
                  based on
                  the civil liability provisions of the securities laws of the United
                  States
                  or any state; or
 -
              Original
                  actions brought in China relating to liabilities against non-residents
                  or
                  us based upon the securities laws of the United States or any
                  state.
 
 ***The
        Chinese government could change its policies toward private enterprise or
        even
        nationalize or expropriate it, which could result in the total loss of your
        investment.***
 
 Our
        business is subject to significant political and economic uncertainties and
        may
        be adversely affected by political, economic and social developments in China.
        Over the past several years, the Chinese government has pursued economic
        reform
        policies including the encouragement of private economic activity and greater
        economic decentralization. The Chinese government may not continue to pursue
        these policies or may significantly alter them to our detriment from time
        to
        time with little, if any, prior notice. Changes in policies, laws and
        regulations or in their interpretation or the imposition of confiscatory
        taxation, restrictions on currency conversion, restrictions or prohibitions
        on
        dividend payments to shareholders, devaluations of currency or the
        nationalization or other expropriation of private enterprises could have
        a
        material adverse effect on our business. Nationalization or expropriation
        could
        even result in the total loss of our investment in China and in the total
        loss
        of your investment.
  28
  ***If
        relations between the United States and China worsen, our stock price may
        decrease and we may have difficulty accessing U.S. capital
        markets.***
 
 At
        various times during recent years, the United States and China have had
        significant disagreements over political and economic issues. Controversies
        may
        arise in the future between these two countries. Any political or trade
        controversies between the United States and China, whether or not directly
        related to our business, could adversely affect the market price of our Class
        A
        Common Stock and our ability to access U.S. capital markets.
 
 ***The
        Chinese economic, political and social conditions as well as government policies
        could affect our business.***
 
 All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including:
 
 -
              government
                  involvement;
 -
              level
                  of development;
 -
              growth
                  rate;
 -
              control
                  of foreign exchange; and
 -
              allocation
                  of resources.
 
 The
        economy of China has been transitioning from a planned economy to a more
        market-oriented economy. Although in recent years the Chinese government
        has
        implemented measures emphasizing the utilization of market forces for economic
        reform, the reduction of state ownership of productive assets and the
        establishment of sound corporate governance in business enterprises, a
        substantial portion of productive assets in China is still owned by the Chinese
        government. In addition, the Chinese government continues to play a significant
        role in regulating industry by imposing industrial policies. It also exercises
        significant control over China’s economic growth through the allocation of
        resources, controlling payment of foreign currency-denominated obligations,
        setting monetary policy and providing preferential treatment to particular
        industries or companies.
 
 The
        economy of China has experienced significant growth in the past 20 years,
        but
        growth has been uneven both geographically and among various sectors of the
        economy. The Chinese government has implemented various measures from time
        to
        time to control the rate of economic growth. Some of these measures benefit
        the
        overall economy of China, but may have a negative effect on us. For example,
        our
        operating results and financial condition may be adversely affected
        by:
 
 -
              changes
                  in the rate or method of taxation;
 -
              imposition
                  of additional restrictions on currency conversion and remittances
                  abroad;
 -
              reduction
                  in tariff or quota protection and other import restrictions;
                  and
 -
              changes
                  in the usage and costs of state-controlled transportation
                  services.
 
 ***Fluctuations
        in the value of the Chinese Renminbi relative to foreign currencies could
        affect
        our operating results.***
 
 Substantially
        all our revenues and expenses are denominated in the Chinese Renminbi. However,
        we use the United States dollar for financial reporting purposes. The value
        of
        Chinese Renminbi against the United States dollar and other currencies may
        fluctuate and is affected by, among other things, changes in China’s political
        and economic conditions. The Chinese government values the exchange rate
        of the
        Chinese Renminbi against a number of currencies, rather than just exclusively
        to
        the United States dollar. Although the Chinese government has stated its
        intention to support the value of the Chinese Renminbi, we cannot assure
        you
        that the government will not revalue it. As our operations are primarily
        in
        China, any significant revaluation of the Chinese Renminbi may materially
        and
        adversely affect our cash flows, revenues and financial condition. For example,
        to the extent that we need to convert United States dollars into Chinese
        Renminbi for our operations, appreciation of this currency against the United
        States dollar could have a material adverse effect on our business, financial
        condition and results of operation. Conversely, if we decide to convert our
        Chinese Renminbi into United States dollars for other business purposes and
        the
        United States dollar appreciates against this currency, the United States
        dollar
        equivalent of the Chinese Renminbi would be reduced. To date, we have not
        engaged in any hedging transactions in connection with our
        operations.
 
 ***The
        legal authorities in China are in the process of evaluating existing tax
        and fee
        benefits provided to foreign investors and companies; these benefits may
        be
        reduced or eliminated, which may cause expenses to rise impacting margins
        and
        net income.***
 
 The
        legal
        authorities are evaluating tax and fee benefits that have been available
        to
        foreign investors and companies operating in China and tax holidays for new
        enterprises. It is anticipated, in the near term, there are going to be changes
        that substantially reduce or eliminate many, if not all, of the tax and other
        governmental fee advantages that have been available to foreign entities
        and
        newly created entities whether or not such new entities are foreign. The
        goal is
        to institute greater equalization of tax and government fee treatment of
        all
        corporate and similar entities in China. China is being encouraged to create
        this more equal treatment because of its WTO obligations and public opinion
        within China. There may be phase-ins of various taxes and fees for entities
        that
        currently benefit from either no or lower tax rates and fees compared to
        wholly
        Chinese companies and entities, but there can be no assurance of this. Even
        if
        there are phase-in periods, the length of such periods is not known. Overall,
        it
        is expected that the cost of operating in China will increase for those
        companies and entities that have had various tax and fee advantages in the
        past.
  29
  ***The
        discontinuation of the preferential tax treatment currently available to
        our
        Chinese subsidiaries might adversely affect our results of operations.***
 
 Our
        Chinese operating subsidiaries are subject to the People’s Republic of China
        Enterprise Income Tax Law Concerning Foreign-Invested Enterprises and Foreign
        Enterprises. Under this law and its related regulations, our Chinese
        subsidiaries as foreign-invested enterprises, are generally subject to
        enterprise income tax at a statutory rate of 33% (30% national income tax
        plus
        3% local income tax) through 2007, and 25% from January 1, 2008 under the
        new tax law described below. However, as manufacturing foreign invested
        enterprises, our Chinese subsidiaries enjoyed “two-year exemption, three-year
        50% reduction” preferential tax treatment from their first profitable year.
        However, under the new tax law, a new manufacturing foreign-invested enterprise
        established after March 16, 2007 will not be entitled to such preferential
        tax
        treatment anymore.
 
 On
        March 16, 2007, the National People’s Congress of the People’s Republic of
        China passed the People’s Republic of China Enterprise Income Tax Law, which was
        effective as of January 1, 2008. In accordance with the new law, a unified
        enterprise income tax rate of 25% and unified tax deduction standards will
        be
        applied equally to both domestic-invested enterprises and foreign-invested
        enterprises. Enterprises established prior to March 16, 2007 eligible for
        preferential tax treatment in accordance with the currently prevailing tax
        laws
        and administrative regulations shall, under the regulations of the State
        Council, gradually be subject to the new tax rate over a five-year transition
        period starting from the effectiveness date of the new law. We expect details
        of
        the transitional arrangement for the five-year period from January 1, 2008
        to December 31, 2012 applicable to enterprises approved for establishment
        prior to March 16, 2007, to be set out in more detailed implementing rules
        to be adopted in the future.
  30
  **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 the Renminbi exchange rate relative to other currencies
        is
        considered minimal to our business operations. However, we use the United
        States
        dollar for financial reporting purposes and therefore, fluctuations in the
        exchange rate between the Renminbi and the U.S dollar will result in increases
        or decreases in other comprehensive income or loss. 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
        strengthen or devalue significantly against the US dollar. Exchange rate
        fluctuations may adversely affect the value, in US dollar terms, of the our
        net
        assets and income derived from its operations in the PRC.
 
 ***Interest
        Rate Risk***
 
 The
        Company does not have significant interest rate risk, as our debt obligations
        are primarily short-term in nature, with fixed interest rates. Our embedded
        derivatives liabilities
        are revalued each accounting period and their fair value can be affected
        by
        interest rate fluctuations based on changes in the risk free interest rate
        (generally the interest rate on intermediate term obligations of the United
        States Government).
 
 ***Credit
        Risk***
 
 We
        have
        not experienced significant credit risk as most of our customers are long-term
        customers with good payment records. Our receivables are regularly monitored
        by
        our credit manager.
 
 **Item
        4T. 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 March 25, 2008, the end of the period covered
        by
        this report (the “Evaluation Date”). Based on this evaluation, our chief
        executive officer and chief financial officer concluded as of the Evaluation
        Date that our disclosure controls and procedures were effective such that
        the
        material information required to be included in our Securities and Exchange
        Commission (“SEC”) reports is recorded, processed, summarized and reported
        within the time periods specified in SEC rules and forms relating to us and
        our
        consolidated subsidiaries, and was made known to others within those entities,
        particularly during the period when this report was being prepared.
 
 ***Changes
        in internal controls over financial reporting***
 
 There
        were no significant 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 three months ended March 25, 2008 that have materially
        affected, or are reasonably likely to materially affect, the Company’s internal
        control over financial reporting.
  31
 
 **PART
        II: OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings.**
 
 None.
 
 **Item
        1A. Risk Factors.**
 
 There
        have been no material changes in our business, operations or prospects that
        would require a change to the Risk Factor disclosure included in our most
        recent
        Annual Report on Form 10-K that have not already been disclosed.
  **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.**
 
 None.
  **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).
  32
  4.5
              
              Form
                  of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
                  (incorporated herewith by reference to Exhibit 4.1 to our Form
                  8-K filed
                  on July 12, 2005).4.6
              
              Form
                  of Warrant issued to Alliance Financial, LLC, Renaissance Advisors
                  BVI,
                  John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                  (incorporated herewith by reference to Exhibit 4.2 to our Registration
                  Statement on Form S-3 filed on August 11, 2005).4.7
              
              Securities
                  Purchase Agreement, dated July 11, 2005, relating to the sale of
                  the
                  Series A 7% Convertible Preferred Stock (incorporated herewith
                  by
                  reference to Exhibit 10.1 to our Form 8-K filed on July 12,
                  2005).4.8
              
              Registration
                  Rights Agreement, dated July 11, 2005, by and among New Dragon
                  Asia Corp.
                  and the investors named therein (incorporated herewith by reference
                  to
                  Exhibit 10.2 to our Form 8-K filed on July 12, 2005).4.9
              
              Form
                  of Warrant issued to Midsummer Investment Ltd. and Islandia, L.P.
                  (incorporated herewith by reference to Exhibit 4.1 to our Form
                  8-K filed
                  on December 23, 2005).4.10
              
              Form
                  of Warrant issued to Alliance Financial, LLC, Renaissance Advisors,
                  Inc.,
                  John F. Steinmetz, TN Capital Equities, Ltd. and Kathleen McDonnell
                  (incorporated herewith by reference to Exhibit 4.2 to our Registration
                  Statement on Form S-3 filed on January 20, 2006).4.11
              
              Securities
                  Purchase Agreement, dated December 22, 2005, relating to the sale
                  of the
                  Series B 7% Convertible Preferred Stock (incorporated herewith
                  by
                  reference to Exhibit 10.1 to our Form 8-K filed on December 23,
                  2005).4.12
              
              Registration
                  Rights Agreement, dated December 22, 2005, by and among New Dragon
                  Asia
                  Corp. and the investors named therein (incorporated herewith by
                  reference
                  to Exhibit 10.2 to our Form 8-K filed on December 23,
                  2005).4.13
              
              Registration
                  Rights Agreement, dated December 22, 2005, by and among New Dragon
                  Asia
                  Corp. and New Dragon Food Ltd. (incorporated herewith by reference
                  to
                  Exhibit 4.5 to our Registration Statement on Form S-3 filed on
                  January 20,
                  2006).10.1
              
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Flour (Yantai) Company
                  Limited, dated June 1, 1999 (incorporated herewith by reference
                  to Exhibit
                  10.1 to our Registration Statement on Form S-3 filed on October
                  3,
                  2003).10.2
              
              Subcontracting
                  Agreement, for the New Dragon Asia Flour (Yantai) Company Limited,
                  dated
                  June 26, 1999 (incorporated herewith by reference to Exhibit 10.2
                  to our
                  Registration Statement on Form S-3 filed on October 3,
                  2003).10.3
              
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Food (Yanti) Company
                  Limited, dated November 28, 1998 (incorporated herewith by reference
                  to
                  Exhibit 10.3 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).10.4
              
              Subcontracting
                  Agreement, for the New Dragon Asia Food (Yantai) Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.4 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).10.5
              
              Sino-Foreign
                  Joint Venture Contract for the New Dragon Asia Food (Dalian) Company
                  Limited, dated November 28, 1998 (incorporated herewith by reference
                  to
                  Exhibit 10.5 to our Registration Statement on Form S-3 filed on
                  October 3,
                  2003).10.6
              
              Subcontracting
                  Agreement, for the New Dragon Asia Food (Dalian) Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.6 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).10.7
              
              Sino-Foreign
                  Joint Venture Contract for the Sanhe New Dragon Asia Food Company
                  Limited,
                  dated November 28, 1998 (incorporated herewith by reference to
                  Exhibit
                  10.7 to our Registration Statement on Form S-3 filed on October
                  3,
                  2003).10.8
              
              Subcontracting
                  Agreement, for the Sanhe New Dragon Asia Food Company Limited,
                  dated
                  December 26, 1998 (incorporated herewith by reference to Exhibit
                  10.8 to
                  our Registration Statement on Form S-3 filed on October 3,
                  2003).
  33
  10.9
              
              Employment
                  Agreement between New Dragon Asia Corp. and Peter Mak, dated November
                  2,
                  2004 (incorporated herewith by reference to Exhibit 10.9 to our
                  Form 8-K
                  filed on June 29, 2005).10.10
              
              Employment
                  Supplement between New Dragon Asia Corp. and Peter Mak, dated June
                  22,
                  2005 (incorporated herewith by reference to Exhibit 10.9 to our
                  Form 8-K
                  filed on June 29, 2005).10.11
              
              Supplementary
                  Agreement to Employment Agreement between New Dragon Asia Corp.
                  and Peter
                  Mak, dated January 20, 2006 (incorporated herewith by reference
                  to Exhibit
                  10.10 to our Form 8-K filed on January 24, 2006).10.12
              
              Equity
                  Incentive Plan (incorporated herewith by reference to Exhibit B
                  to our
                  Definitive Information Statement on Schedule 14C filed on March
                  14,
                  2006).10.13
              
              Stock
                  Option Agreement between New Dragon Asia Corp. and Peter Mak, dated
                  December 13, 2006 (incorporated herewith by reference to Exhibit
                  10.1 to
                  our Form 8-K filed on December 15, 2006).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).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 the Chief Financial Officer Pursuant
                  to 18
                  U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
                  herewith.
  34
 
 **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:
                  May 8, 2008
              By:
              */s/
                  Li Xia Wang*Name:
                  Li Xia WangTitle:
                  Chief Executive Officer
  Dated:
                  May 8, 2008
              By:
              */s/
                  Peter Mak*Name:
                  Peter MakTitle:
                  Chief Financial Officer




35