U.S. Securities and Exchange
                        Commission Washington, D.C. 20549

                                   Form 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the quarterly period ended March 31, 2005

                                       OR

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

                  For the transition period from _____ to _____

                         Commission file number 0-27937

                           DRAGON PHARMACEUTICAL INC.
        (Exact name of small business issuer as specified in its charter)


            Florida                                    65-0142474
(State or other jurisdiction of             (IRS Employer Identification No.)
 incorporation or organization)



                      1055 West Hastings Street, Suite 1900
                           Vancouver, British Columbia
                                 Canada V6E 2E9
                    (Address of principal executive offices)

                                 (604) 669-8817
                          (Issuer's telephone number)

                  (Former address if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be  filed by  Section  13 or 15(d) of the  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 [ ]


Number of shares of common stock outstanding as of March 31, 2005: 62,878,004


<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.   Financial Statement


                           DRAGON PHARMACEUTICAL INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004



                                    CONTENTS


PAGE   F-1          CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 (UNAUDITED)
                    AND DECEMBER 31, 2004

PAGE   F-2          CONSOLIDATED  STATEMENTS  OF  OPERATIONS  AND  COMPREHENSIVE
                    INCOME FOR THE THREE  MONTHS  ENDED  MARCH 31, 2005 AND 2004
                    (UNAUDITED)

PAGE   F-3          CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY  FOR THE
                    PERIODS  ENDED MARCH 31, 2005  (UNAUDITED)  AND DECEMBER 31,
                    2004

PAGE   F-4          CONSOLIDATED  STATEMENTS  OF CASH FLOWS FOR THE THREE MONTHS
                    ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)

PAGES  F-5 TO F-21  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                        2

<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004

                                     ASSETS
<TABLE>
<CAPTION>
<S>     <C>                                    <C>                  <C>                  <C>

                                                              March 31, 2005          December 31,
                                              Note              (Unaudited)               2004
                                             ----------       ------------------ -----------------
CURRENT ASSETS
    Cash and cash equivalents                                 $  1,785,238           $   910,425
    Accounts receivable, net of allowances      2                8,770,244             6,675,298
    Inventories, net                            3               16,585,898            16,623,906
    Value added tax receivable                                          -                162,443
    Prepaid expenses                                             1,154,013               911,228

                                                         ------------------      -----------------
Total Current Assets                                            28,295,393            25,283,300
                                                         ------------------      -----------------

PROPERTY AND EQUIPMENT, NET                    4                63,883,442            63,520,202

OTHER ASSETS
    Intangible assets, net                     6                 2,650,693               432,769
    Other receivables                                            2,428,564             2,213,842
    Investments -cost                                               12,077                12,077
                                                         ------------------      -----------------
    Total Other Assets                                           5,091,334             2,658,688
                                                         ------------------      -----------------

TOTAL ASSETS                                             $       97,270,169    $      91,462,190
------------                                             ==================      =================


                                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                    $          4,766,797    $       3,047,485
    Accrued retirement benefits                7                     114,432              114,432
    Other payables and accrued liabilities     8                  17,117,072           17,705,163
    Notes payable - short-term                 9                   5,033,816           12,884,057
    Due to related companies                  11                     627,889            4,660,984
                                                         -------------------      -----------------
    Total Current Liabilities                                     27,660,006           38,412,121
                                                         -------------------      -----------------

LONG-TERM LIABILITIES
    Long term accounts payable                10                  21,904,603            21,873,147
    Long term retirement benefits              7                     841,713               870,321
    Notes payable - long-term                  9                  14,770,532             6,316,426
    Due to related companies                  11                           -             1,328,502
                                                         -------------------      -----------------
    Total Long-Term Liabilities                                   37,516,848            30,388,396
                                                         -------------------      -----------------


TOTAL LIABILITIES                                                 65,176,854            68,800,517
                                                         -------------------      -----------------


COMMITMENTS AND CONTINGENCIES                                                                   -

STOCKHOLDERS' EQUITY
  Authorized: 200,000,000 common shares at
    par value of $0.001 each Issued and
    outstanding: 62,878,004 (December 31, 2004:
    44,502,004) common shares                                        62,878                 44,502
  Additional paid-in capital                                     22,138,830             13,983,002
  Retained earnings
    Unappropriated                                                1,235,080                   -
    Appropriated                                                  8,686,318              8,686,318
  Due from stockholder                                              (29,791)               (52,149)
                                                         -------------------      -----------------
     Total Stockholders' Equity                                  32,093,315             22,661,673
                                                         -------------------      -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $       97,270,169       $     91,462,190
------------------------------------------               ===================      =================

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

</TABLE>

                                       F-1
<PAGE>

                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
         FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)



<TABLE>
<CAPTION>
<S>     <C>                                          <C>                  <C>                       <C>
                                                     Note           2005 (Unaudited)          2004 (Unaudited)
                                                   ----------     --------------------      --------------------

NET SALES                                             12           $     11,828,663    $           7,155,036

COST OF SALES                                                             8,619,484                3,957,103
                                                                   --------------------      --------------------

GROSS PROFIT                                                              3,209,179                3,197,933
                                                                   --------------------      --------------------

OPERATING EXPENSES
  Selling expense                                                         1,143,967                   808,902
  General and administrative expenses                                     1,004,141                   422,030
  Depreciation and amortization                                             249,608                    12,458
                                                                   --------------------      --------------------
  Total Operating Expenses                                                2,397,716                 1,243,390
                                                                   --------------------      --------------------

INCOME FROM OPERATIONS                                                      811,463                 1,954,543

OTHER INCOME (EXPENSE)
  Interest expense                                                         (241,051)                  (14,615)
  Other income                                                               11,084                     -
  Funds Released by Chinese Government Related to
    Asset Acquisition of a State-owned Enterprise
    by the Company                                     13                    885,864                     -
  Other expense                                                             (35,534)                     -
                                                                   --------------------      --------------------
    Total Other Income                                                      620,363                 (14,615)
                                                                   --------------------      --------------------

INCOME FROM OPERATIONS BEFORE TAXES                                       1,431,826                1,939,928

INCOME TAX EXPENSE                                    1(M)                (196,746)                     -
                                                                   --------------------      --------------------

NET INCOME                                                                1,235,080                1,939,928

OTHER COMPREHENSIVE INCOME
  Foreign currency translation loss                                                -                     -
                                                                   --------------------      --------------------
COMPREHENSIVE INCOME                                               $      1,235,080    $           1,939,928
                                                                   ====================      ====================

Net income per share - basic and diluted                           $           0.02    $                 0.04
                                                                   ====================      ====================

Weighted average number of shares outstanding
during the period - basic and diluted                                    60,427,871                44,502,004
                                                                   ====================      ====================

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

</TABLE>
                                      F - 2

<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
     FOR THE PERIODS ENDED MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004


<TABLE>
<CAPTION>
<S>     <C>                                   <C>          <C>           <C>         <C>            <C>           <C>         <C>
                                                 Common Stock        Additional  Unappropriated Appropriated
                                                                      Paid-In      Retained        Retained    Due From
                                             Shares       Amount      Capital      Earnings        Earnings   Stockholder     Total
                                            ----------  -----------  ----------- ------------   -----------  ------------   --------
Balance, December 31, 2003, adjusted        44,502,004     $ 44,502  $ 7,841,363  $ 6,054,864   $1,286,784   $ (228,148) $14,999,365
for the effect of recapitalization
of reverse acquisition (Note 5(B))

Registered capital appropriation                     -            -   6,141,639   (6,141,639)            -            -            -

Notes receivable - stockholders                      -            -           -             -            -      175,999      175,999

Net income for the year ended
 December 31, 2004                                   -            -           -     7,486,309            -            -    7,486,309

Transfer to retained earnings for
 appropriated statutory and staff welfare
 reserves                                            -            -           -    (7,399,534)    7,399,534           -            -
                                            ----------  -----------   ---------- --------------   ----------  ----------  ----------

Balance, December 31, 2004                  44,502,004    $  44,502   13,983,002             -    8,686,318     (52,149)  22,661,673

Reverse acquisition  (Note 5(B))            18,376,000       18,376    5,740,370             -            -           -    5,758,746

Related party debt forgiveness                       -            -    2,415,458             -            -           -    2,415,458

Notes receivable - stockholders                      -            -            -             -            -      22,358       22,358

Net income for the three months
 ended March 31, 2005                                -            -            -     1,235,080            -           -    1,235,080
                                            ----------  -----------  -----------   -----------    ----------    --------  ----------

Balance, March 31, 2005 (Unaudited)         62,878,004   $  62,878   $22,138,830   $ 1,235,080    $8,686,318   $(29,791) $32,093,315
                                            ==========  ===========  ===========   ===========    ==========    ========  ==========


              The accompanying notes are an integral part of these
                       consolidated financial statements.
</TABLE>
                                      F - 3

<PAGE>


                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
         FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)


<TABLE>
<CAPTION>
<S>     <C>                                                                               <C>                   <C>
                                                                                          2005                   2004
                                                                                -------------------    -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                    $        1,235,080    $        1,939,928
     Adjustments to reconcile net income to NET cash
        provided by (used in)operating activities:
     Depreciation and amortization                                                       1,416,661                377,881
     Allowance for doubtful accounts                                                        12,610                182,500
     Provision for excess and obsolete inventories                                         476,583                      -
     Funds Released by Chinese Government Related to Asset
        Acquisition of a State-owned Enterprise by the Company                            (745,828)                     -
  Changes in operating assets and liabilities, net of effect of reverse
   acquisition (Note 5(B)):
   (Increase) decrease in:
     Accounts receivable                                                                  (725,437)            (1,493,528)
     Inventories                                                                           146,990               (368,914)
     Value added tax receivable                                                            162,443                     -
     Prepaid expenses                                                                     (142,364)               (16,363)
     Other assets                                                                         (214,722)                     -
     Deposits                                                                                    -              1,166,953
   Increase (decrease) in:
     Accounts payable                                                                       90,780              8,290,203
     Other payables and accrued expenses                                                   160,585             (3,942,683)
                                                                                -------------------    -------------------
        Net Cash Provided By (Used In) Operating Activities                              1,873,381              6,135,977
                                                                                -------------------    -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                     (782,134)           (13,148,687)
   Cash acquired in connection with reverse acquisition  (Note 5(B))                     2,103,481                      -
                                                                                -------------------    -------------------
     Net Cash Provided By (Used In) Investing Activities                                 1,321,347           (13,148,687)
                                                                                -------------------    -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                                             603,865              7,246,378
   Due to related companies                                                             (2,946,138)              (289,914)
   Due from stockholder                                                                     22,358                228,148
                                                                                -------------------    -------------------
     Net Cash Provided By (Used In)  Financing Activities                               (2,319,915)             7,184,612
                                                                                -------------------    -------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                  874,813                171,902

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                           910,425                515,791
                                                                                -------------------    -------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $        1,785,238     $          687,693
                                                                                ===================    ===================

 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid during the period for interest expense                               $          245,373     $          14,615
                                                                                ===================    ===================
 Cash paid during the period for income taxes                                   $          166,495     $               -
                                                                                ===================    ===================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During
March 2005, $2,415,459 of loans payable to an entity related to a director of
the Company was converted into equity of the Company.

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                      F - 4


<PAGE>

                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------


NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

          (A)  Organization and Basis of Presentation

          The Company was formed on August 22, 1989 as First Geneva  Investments
          Inc. under the laws of the State of Florida.  The Company  changed its
          name to Dragon  Pharmaceutical  Inc. on August 31, 1998. Pursuant to a
          share exchange  agreement,  dated July 29, 1998, the Company  acquired
          100% of the  issued  and  outstanding  shares of Allwin  Newtech  Ltd.
          ("Allwin") by issuing  7,000,000  common  shares of the Company.  This
          transaction was accounted for as a reverse acquisition.

          Allwin was  incorporated  under the laws of the British Virgin Islands
          on February 10, 1998. Pursuant to a Sino-Foreign  Co-operative Company
          Contract,  dated  April 18,  1998,  Allwin  and a Chinese  corporation
          formed a limited  liability  company  under the Chinese law,  named as
          Sanhe Kailong  Bio-pharmaceutical  Co., Ltd.  ("Kailong"),  located in
          Hebei Province,  China. Allwin has a 95% interest in Kailong. Pursuant
          to another Sino-foreign  Co-operative Company Contract, dated July 27,
          1999,  Allwin  completed the  acquisition of a 75% interest in Nanjing
          Huaxin  Bio-pharmaceutical  Co. Ltd. ("Huaxin").  In January 2002, the
          Company acquired the balance of Huaxin. Kailong is inactive and Huaxin
          is in the business of the  production  and sales of  biopharmaceutical
          products in China. Allwin Biotrade Inc.  ("Biotrade") was incorporated
          in the  British  Virgin  Islands  on June 6, 2000 for the  purpose  of
          marketing and distributing  biopharmaceutical  products outside China.
          Dragon   Pharmaceuticals   (Canada)   Inc.   ("Dragon   Canada")   was
          incorporated in British Columbia, Canada on September 15, 2000 for the
          purpose of researching and developing new biopharmaceutical products.

          Pursuant  to a share  purchase  agreement,  dated June 11,  2004,  the
          Company acquired 100% of the issued and outstanding shares of Oriental
          Wave Holding Limited  ("Oriental  Wave") by issuing  44,502,004 common
          shares of the Company.  This  transaction was completed on January 12,
          2005 and has been  accounted  for as a reverse  acquisition  (See Note
          5(B)).

          Oriental  Wave was  incorporated  in the  British  Virgin  Islands  on
          January  7,  2003.  Shanxi  Weiqida   Pharmaceutical  Company  Limited
          ("Shanxi  Weiqida"),  a People's  Republic of China limited  liability
          company  was  incorporated  on January  22,  2002.  Shanxi  Weiqida is
          principally  engaged in research and development,  manufacturing,  and
          selling of  pharmaceutical  products in the People's Republic of China
          ("PRC").

          During 2003,  Shanxi  Weiqida's  shareholders  exchanged 100% of their
          ownership of Shanxi Weiqida for 50,000 shares of Oriental Wave under a
          reorganization   plan.   The   transfer   was   accounted   for  as  a
          reorganization  of entities under common control as the companies were
          beneficially   owned  by  identical   shareholders  and  share  common
          management.  The  financial  statements  have been  prepared as if the
          reorganization had occurred retroactively.

                                       F-5
<PAGE>

                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          The  consolidated  financial  statements  include the  accounts of the
          Company  and  its  100%  owned  subsidiaries:  Oriental  Wave,  Shanxi
          Weiqida,  Allwin,  Kailong,  Huaxin,  Biotrade and Dragon Canada.  All
          significant   intercompany   balances  and   transactions   have  been
          eliminated in consolidation.

          (B)  Use of Estimates

          In  preparing  financial   statements  in  conformity  with  generally
          accepted  accounting  principles,   management  is  required  to  make
          estimates and assumptions  that affect the reported  amounts of assets
          and   liabilities   and  the  disclosure  of  contingent   assets  and
          liabilities  at the date of the financial  statements and revenues and
          expenses during the reported period.  Actual results could differ from
          those estimates.

          (C)  Cash Equivalents

          For purposes of the cash flow  statements,  the Company  considers all
          highly liquid investments with original  maturities of three months or
          less at the time of purchase to be cash equivalents.

          (D)  Accounts Receivable

          The Company extends  unsecured credit to its customers in the ordinary
          course of business but  mitigates the  associated  risks by performing
          credit checks and actively  pursuing  past due accounts.  An allowance
          for  doubtful   accounts  is   established   and  recorded   based  on
          management's  assessment  of the credit  history with the customer and
          current relationships with them.

          (E)  Investments

          During the twelve months ended  December 31, 2004, the Company made an
          investment in a private company of $12,077. The investment  represents
          less than 1% of the total equity  outstanding  of the private  company
          outstanding  as of March 31, 2005. The private  company  investment is
          carried at cost and written down to fair market value when indications
          exist that this  investment  has other than  temporarily  declined  in
          value.  As of March 31,  2005,  no  impairment  in the value of the
          investment has been recorded.

          (F)  Inventories

          Inventories  are  stated at the lower of cost or  market  value,  cost
          being determined on a first-in, first-out method. The Company provides
          inventory   allowances  based  on  excess  and  obsolete   inventories
          determined  principally  by  customer  demand and  product  expiration
          dates.

                                       F-6
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          (G)  Property and Equipment

          Property  and   equipment  are  stated  at  cost,   less   accumulated
          depreciation.   Expenditures   for   additions,   major  renewals  and
          betterments  are  capitalized  and  expenditures  for  maintenance and
          repairs are charged to expense as incurred.

          Depreciation  is provided on a  straight-line  basis,  less  estimated
          residual value over the assets  estimated  useful lives. The estimated
          useful lives are as follows:

               Buildings                                 50 Years
               Plant and machinery                       10 Years
               Motor vehicles                            8 Years
               Furniture, fixtures and equipment         5 Years

          Land use rights are stated at cost, less accumulated amortization. The
          land use rights are amortized over the term of the relevant  rights of
          50 years from the date of acquisition.

          Depreciable  assets are reviewed  for  impairment  whenever  events or
          changes in circumstances  indicate that the carrying amount may not be
          recoverable based on projected undiscounted cash flows associated with
          the assets.  A loss is recognized for the difference  between the fair
          value and the carrying amount of the assets.  Fair value is determined
          based  upon  market  quote,  if  available,  or is based on  valuation
          techniques.

          (H)  Fair Value of Financial Instruments

          The carrying  amount of the Company's  cash,  receivables and payables
          and  short-term  bank loan  approximates  their  fair value due to the
          short maturity of those instruments.

          (I)  Intangible Assets

          Under  the  Statement  of  Accounting   Standards  ("SFAS")  No.  142,
          "Goodwill  and Other  Intangible  Assets",  all  goodwill  and certain
          intangible  assets  determined  to have  indefinite  lives will not be
          amortized  but  will be  tested  for  impairment  at  least  annually.
          Intangible  assets other than  goodwill  will be amortized  over their
          useful  lives of 10 years and reviewed for  impairment  in  accordance
          with  SFAS  No.  144,   "Accounting  for  Impairment  or  Disposal  of
          Long-Lived Assets".

          (J)  Revenue Recognition

          The  Company  recognizes  revenue  from  the  sale  of  pharmaceutical
          products at the time when title to the products transfers,  the amount
          is fixed and determinable,  evidence of an agreement  exists,  and the
          customer  bears  the risk of loss,  net of  estimated  provisions  for
          returns, rebates and sales allowances.

                                       F-7
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          (K)  Advertising Costs

          Advertising  costs  are  expensed  as  incurred.  Advertising  expense
          totaled  $981 and $1,159 for the three months ended March 31, 2005 and
          2004, respectively.

          (L)  Research and Development

          Research  and  development  costs  related to both  present and future
          products are expensed as incurred.  Total expenditures on research and
          development  charged to selling,  general and administrative  expenses
          for the three  months  ended March 31, 2005 and 2004 were  $12,310 and
          $52,238, respectively.

          (M)  Income Taxes

          The Company accounts for income taxes under the Statement of Financial
          Accounting   Standards   No.  109,   "Accounting   for  Income  Taxes"
          ("Statement  109").  Under  Statement  109,  deferred  tax  assets and
          liabilities   are   recognized   for  the  future   tax   consequences
          attributable to differences  between the financial  statement carrying
          amounts of existing assets and  liabilities  and their  respective tax
          bases.  Deferred tax assets and liabilities are measured using enacted
          tax rates  expected  to apply to taxable  income in the years in which
          those  temporary  differences are expected to be recovered or settled.
          Under Statement 109, the effect on deferred tax assets and liabilities
          of a change in tax rates is  recognized  in income in the period  that
          includes the enactment  date.  The Company  located its factories in a
          special economic region in China.  This economic region allows foreign
          enterprises a two-year  income tax exemption  from central  government
          tax beginning in the first year after they become profitable and a 50%
          income tax reduction for the  following  three years.  The Company was
          approved as a wholly owned foreign enterprise in October 2002.

          (N)  Foreign Currency Translation

          The  functional  currency  of  the  Company  is the  Chinese  Renminbi
          ("RMB").  Transactions  denominated  in currencies  other than RMB are
          translated  into United States dollars using period end exchange rates
          as to assets and liabilities and average exchange rates as to revenues
          and expenses.  Capital  accounts are  translated  at their  historical
          exchange rates when the capital  transaction  occurred.  Net gains and
          losses  resulting from foreign  exchange  translations are included in
          the  statements  of  operations  and  stockholder's  equity  as  other
          comprehensive gain (loss).

          (O)  Comprehensive Income

          The  foreign   currency   translation  gain  or  loss  resulting  from
          translation  of the  financial  statements  expressed in RMB to United
          States  Dollar  is  reported  as  other  comprehensive  income  in the
          statements of operations and stockholders' equity.


                                       F-8
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          (P)  Segments

          The Company operates in three reportable segments,  Chemical Division,
          Pharma Division and Biotech Division.

          (Q)  Earnings Per Share

          Income per share is  computed  using the  weighted  average  number of
          shares  outstanding  during the period.  The Company  adopted SFAS No.
          128,  "Earnings per share".  Diluted earnings per share, as determined
          using the treasury  method,  is equal to the basic income per share as
          common stock  equivalents  consisting of options to acquire  3,128,000
          common  shares  that  are  outstanding  at  March  31,  2005  are  not
          significantly dilutive, however, they may be dilutive in future.

          (R)  Reclassifications

          Certain 2004  balances have been  reclassified  to conform to the 2005
          presentation.

          (S)  Stock Based Compensation

          The Company  adopted the  disclosure-only  provisions  of Statement of
          Financial  Accounting  Standards No. 123 (SFAS 123),  "Accounting  for
          Stock-based Compensation",  as amended by SFAS No. 148 "Accounting for
          Stock-based Compensation - Transition and Disclosure - An amendment of
          SFAS No. 123". SFAS 123 encourages, but does not require, companies to
          adopt a fair value based  method for  determining  expense  related to
          stock-based  compensation.   The  Company  continues  to  account  for
          stock-based  compensation  issued to employees and directors using the
          intrinsic value method as prescribed under Accounting Principles Board
          Opinion (APB) No. 25,  "Accounting  for Stock Issued to Employees" and
          related Interpretations.

          (T)  Recent Accounting Pronouncements

          Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  151,
          "Inventory Costs - an amendment of ARB No. 43, Chapter 4 SFAS No. 152,
          "Accounting for Real Estate  Time-Sharing  Transactions - an amendment
          of FASB  Statements  No. 66 and 67," and SFAS No. 153,  "Exchanges  of
          Non-monetary  Assets  - an  amendment  of APB  Opinion  No.  29"  were
          recently issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no
          current  applicability  to the  Company  and  have  no  effect  on the
          financial statements.

                                       F-9
<PAGE>

                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------


NOTE 2    ACCOUNTS RECEIVABLE

          Accounts  receivable  at March 31, 2005  (unaudited)  and December 31,
          2004 consisted of the following:

                                              March 31, 2005
                                                (Unaudited)    December 31, 2004
                                              --------------   -----------------
          Trade and other receivables           $  9,208,581      $    6,799,872
          Less: allowance for doubtful accounts      438,337             124,574
                                               -------------   -----------------
          Accounts receivable, net              $  8,770,244      $    6,675,298
                                               =============   =================


          For the periods ended March 31, 2005 and 2004, the Company recorded an
          allowance for doubtful accounts of $12,610 and $182,500, respectively,
          in the Consolidated Statement of Operations.

NOTE 3    INVENTORIES

          Inventories  at March 31,  2005  (unaudited)  and  December  31,  2004
          consisted of the following:

                                             March 31, 2005        December 31,
                                               (Unaudited)            2004
                                             --------------    -----------------

          Raw materials                         $ 4,064,998       $   4,287,604
          Work-in-progress                       10,855,610          10,994,088
          Finished goods                          2,720,670           2,302,073
                                             ---------------   -----------------
                                                 17,641,278          17,583,765
          Less: provision for obsolescence
          and impairment                          1,055,380             959,859
                                             ---------------  ------------------
                                                $16,585,898       $  16,623,906
                                             ===============  ==================

          For the periods ended March 31, 2005 and 2004, the Company  recorded a
          provision for obsolete inventories of $476,583 and nil,  respectively,
          in the Consolidated Statement of Operations.

                                      F-10
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

NOTE 4    PROPERTY AND EQUIPMENT

          The following is a summary of property and equipment at March 31, 2005
          (unaudited) and December 31, 2004:
<TABLE>
<CAPTION>
<S>               <C>                                   <C>                <C>                     <C>
                                                                 March 31, 2005 (Unaudited)
                                                  ---------------------------------------------------------
                                                                        Accumulated            Net Book
                                                       Cost             Depreciation            Value
                                                  ---------------     -----------------     ---------------
          Plant and equipment                     $  42,770,616       $     4,384,223       $  38,386,393
          Land and buildings                         19,691,310               475,662          19,215,648
          Motor vehicles                                737,560               164,687             572,873
          Furniture and office equipment              2,942,351               819,419           2,122,932
          Leasehold improvements                      1,083,653             1,028,137              55,516
          Idle equipment                                555,339               455,339             100,000
          Construction in progress                    3,430,080                     -           3,430,080
                                                  ---------------     -----------------     ---------------

                                                  $   71,210,909      $     7,327,467       $   63,883,442
                                                  ===============     =================     ===============

                                                                     December 31, 2004
                                                  ---------------------------------------------------------
                                                                        Accumulated            Net Book
                                                       Cost             Depreciation            Value
                                                  ---------------     -----------------    ---------------
          Plant and equipment                     $   41,154,014      $      2,293,918     $    38,860,096
          Land and buildings                          19,687,676               381,521          19,306,155
          Motor vehicles                                 611,261                55,166             556,095
          Furniture and office equipment               2,499,188               392,511           2,106,677
          Construction in progress                     2,691,179                     -           2,691,179
                                                  ---------------     -----------------     ---------------

                                                  $    66,643,318     $      3,123,116      $    63,520,202
                                                  ===============     =================     ===============
</TABLE>

          Depreciation expense for periods ended the March 31, 2005 and 2004 was
          $1,286,636 and $362,785 respectively.

NOTE 5    ACQUISITIONS

          (A)  Land Use Rights

          During July 2003,  the Company  acquired land use rights and buildings
          from a government  liquidator in exchange for assuming  certain future
          employment,  healthcare and land acquisition  costs of the factory and
          its  former  employees.  The  agreement  requires  the  Company to pay
          certain  minimum  wages and health  care costs until the date of their
          employment,  retirement or death,  whichever  occurs first.  The total
          amount of the liabilities  assumed on the closing date was $8,897,685.
          The Company has  calculated  the related  asset value by computing the
          net present  value of the future  expected  payments to the  remaining
          employees assuming an interest rate of 3% and has recorded the land at

                                      F-11
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          a net present value of $3,332,907  (See Note 7). As of March 31, 2005,
          the Company had employed 651 former employees and 207 former employees
          have retired.

          (B)  Oriental Wave Holding Limited

          The Company  completed the acquisition of Oriental Wave on January 12,
          2005 whereby the Company issued  44,502,004  common shares in exchange
          for all of the issued and  outstanding  shares of Oriental  Wave.  The
          transaction  has been approved by the Company's  shareholders  and the
          regulatory   authorities,   who  also  approved  an  increase  in  the
          authorized share capital to 200,000,000 common shares.

          This transaction  resulted in the former shareholders of Oriental Wave
          owning  68.35% of the issued and  outstanding  shares of the  combined
          entity  at  the  close  of  the  transaction.   Accounting  principles
          applicable  to  reverse  acquisition  has been  applied  to record the
          acquisition.  Under this  basis of  accounting,  Oriental  Wave is the
          acquirer and, accordingly, the consolidated entity is considered to be
          a  continuation  of  Oriental  Wave with the net assets of the Company
          deemed to have been  acquired and  recorded at its fair market  value.
          The Statement of operations  includes the results of Oriental Wave for
          the entire  period and those of the  Company  from  January  13,  2005
          (unaudited).

          The net assets acquired were:

              Cash and short term securities                   $       2,103,481
              Accounts receivable                                      1,382,119
              Inventories                                                585,565
              Prepaid and deposits                                       100,421
                                                                ----------------
              Total Current Assets                                     4,171,586
              Fixed Assets                                               867,742
              Intangible and other assets, net                         2,349,222
                                                                ----------------
                     Total Assets                                      7,388,550
              Less accounts payables and accrued liabilities         (1,629,804)
                                                                ----------------
              Net assets acquired                               $      5,758,746
                                                                ================

          A summarized statement of operations for the Company for the twelve
          days ended January 12, 2005 is as follows:

             Sales                                              $        145,435
                                                                ----------------
             Gross Profit                                                109,059
                                                                ----------------
             Total operating expenses                                    166,881
                                                                ----------------
             Loss for the period                                $       (57,822)
                                                                ================

                                      F-12
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

NOTE 6    INTANGIBLE ASSETS

          The Company acquired  $603,865 in licenses from a company related to a
          director  with the  balance  being  recorded  pursuant  to the reverse
          acquisition of Oriental Wave (Note 5(B)).

          Intangible assets consist of the following as of March 31, 2005 and
          December 31, 2004:

                                              March 31, 2005        December 31,
                                                (Unaudited)             2004
                                              --------------      --------------

          Licenses                            $    2,951,814      $      603,865
          Less: accumulated amortization             301,121             171,096
                                              ---------------     --------------
                                              $    2,650,693      $      432,769
                                              ===============     ==============

          Amortization expense for the periods ended March 31, 2005 and 2004 was
          $130,025, and $15,096, respectively.

NOTE 7    ACCRUED RETIREMENT BENEFITS

          During July 2003,  the Company  acquired land use rights and buildings
          from a government  liquidator.  The present value of accrued  expected
          retirement benefits related to the land costs is recorded at March 31,
          2005 and December 31, 2004 as follows:

<TABLE>
<CAPTION>
<S>                                 <C>                                          <C>                      <C>
                                                                           March 31, 2005            December 31,

(Unaudited) 2004
                                                                          -----------------      -------------------

          Total liabilities assumed at closing date                       $      8,897,685       $        8,897,685
          Less:  net present value of  liabilities  not
                 expected to be paid                                             5,564,778                5,564,778
                                                                          -----------------      -------------------
          Present value of expected liabilities                                  3,332,907                3,332,907
          Less: amounts paid and liabilities not
                expected to be paid                                              2,376,762                2,348,154
                                                                          -----------------      -------------------
                                                                                   956,145                  984,753
          Less: current portion                                                    114,432                  114,432
                                                                          -----------------      -------------------

                                                                          $        841,713       $          870,321
                                                                          =================      ===================
</TABLE>

          Under the terms of the contract with the liquidator,  the Company will
          remain  contingently  liable for these  liabilities  until the date of
          retirement or re-employment for each employee (See Note 5(A)).

                                      F-13
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

NOTE 8    OTHER PAYABLES AND ACCRUED LIABILITIES

          Other payables and accrued liabilities at March 31, 2005 and December
          31, 2004 consist of the following:

                                               March 31, 2005       December 31,
                                                 (Unaudited)           2004
                                              ----------------    --------------
          Machinery and equipment payable        $   6,023,275    $   7,050,243
          Accrued expenses                           6,595,401        6,360,198
          Value added tax payables                     280,805                -
          Income taxes payable                         196,746          166,495
          Other taxes payable                          109,994          121,054
          Deposits received from customers           3,910,851        4,007,173
                                              ----------------   ---------------
                                              $  17,117,072        $ 17,705,163
                                              ================   ===============

NOTE 9    NOTES PAYABLE

          Balance at March 31, 2005 and December 31, 2004:
<TABLE>
<CAPTION>
<S>                               <C>                                           <C>                     <C>
                                                                          March 31, 2005           December 31,
                                                                            (Unaudited)               2004
                                                                         -----------------       --------------

          Note payable to a bank, interest rate of 6.372% per
          annum, guaranteed by a third party, due June 2005              $        420,290           $  420,290

          Note payable to a bank, interest rate of 6.372% per annum,
          guaranteed by a third party, due June 2005                              386,473              386,473

          Note payable to a bank, interest rate of 8.874% per
          annum, guaranteed by a third party, due July 2005                       603,865                    -

          Note payable to a bank, interest rate of 6.1380% per
          annum, guaranteed by a third party, due November 2005                 3,623,188             3,623,188

          Note payable to a bank, interest rate of 6.039% per annum,
          secured by leasehold land and fixed assets, due April 2005                    -             8,454,106

          Note payable to a bank, interest rate of 6.039% per annum,
          secured by leasehold land and fixed assets, due April 2006            1,811,594                   -

</TABLE>

                                      F-14
<PAGE>

                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------
<TABLE>
<CAPTION>
<S>                               <C>                                           <C>                     <C>
          Note payable to a bank, interest rate of 5.76% per annum,
          guaranteed by a third party, due November 2006                        6,316,426             6,316,426

          Note payable to a bank, interest rate of 6.039% per annum,
          secured by leasehold land and fixed assets, due April 2007            6,642,512                     -

                                                                           ----------------      ---------------
                                                                               19,804,348            19,200,483
          Less current maturities                                               5,033,816            12,884,057
                                                                           ----------------      --------------

                                                                           $   14,770,532        $    6,316,426
                                                                           ================     ================

          Maturities are as follows:

                   Fiscal year ended December 31,
                               2005                                                              $    5,033,816
                               2006                                                                   8,128,020
                               2007                                                                   6,642,512
                                                                                                 ---------------
                                                                                                 $   19,804,348
                                                                                                 ===============



NOTE 10   LONG TERM ACCOUNTS PAYABLE

          Long term accounts payable balances at March 31, 2005 and December 31,
          2004 is the final  payment of  construction  contracts  which had been
          finished through  December 31, 2004.  According to the contract terms,
          the final payments on the contracts will be settled as follows:

                                                                          March 31, 2005            December 31,
                                                                           (Unaudited)                  2004
                                                                        -------------------     --------------------
          Settlement Arrangement
          Accounts payable due 2006                                       $     21,904,603      $        21,873,147
                                                                        ===================     ====================

</TABLE>
                                      F-15
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

NOTE 11   DUE TO RELATED PARTIES

          The amounts due to related  party at March 31, 2005 and  December  31,
          2004 are unsecured and non-interest bearing:

                                                  March 31, 2005    December 31,
                                                   (Unaudited)          2004
                                                  --------------    ------------
          Due to a company owned by a stockholder
          and director due March 2006               $  402,199      $  1,328,502

          Due to a company owned by a stockholder
          and director due March 2006                  225,690         4,660,984
                                                    ------------    ------------
                                                       627,889         5,989,486
          Less: current maturities                     627,899         4,660,984
                                                    ------------   -------------
                                                    $        -      $  1,328,502
                                                    ============   =============


NOTE 12   SEGMENTS

          The  Company  operates  in  three  reportable  segments,   the  Pharma
          Division,  Chemical  Division  and Biotech  Division.  The  accounting
          policies of the  segments  are the same as described in the summary of
          significant   accounting  policies.   The  Company  evaluates  segment
          performance   based  on  income  from  operations.   All  intercompany
          transactions  between segments have been eliminated.  As a result, the
          components  of operating  income for one segment may not be comparable
          to  another  segment.  The  following  is a summary  of the  Company's
          segment  information for the periods ended March 31, 2005 and 2004 and
          as of March 31, 2005 and December 31, 2004.

<TABLE>
<CAPTION>
<S>               <C>                                            <C>               <C>                   <C>             <C>

                                                              Chemical             Pharma             Biotech
                                                              Division            Division           Division              Total
                                                           ---------------     ---------------     --------------   ----------------
          2005
          Three months ended March 31, 2005 (Unaudited)
          Sales                                            $     5,704,033     $     5,320,771     $      803,859   $     11,828,663
          Gross profit                                              34,425           2,508,222            666,532          3,209,179
          Depreciation and amortization                          1,063,263             153,804            199,594          1,416,661
          As of March 31, 2005 (Unaudited)
          Total assets                                          67,221,570          23,962,434          6,086,165         97,270,169
          Additions to long-lived assets                           757,262              18,452              6,420            782,134
          Intangible assets                                              -             417,672          2,233,021          2,650,693

</TABLE>

                                      F-16
<PAGE>
<TABLE>
<CAPTION>
<S>               <C>                                            <C>               <C>                   <C>             <C>
                                                               Chemical             Pharma             Biotech
                                                               Division            Division           Division              Total
                                                           ---------------     ---------------     --------------     --------------
          2004
          Three months ended March 31, 2004
          Sales                                            $       849,785     $     6,305,251     $            -     $    7,155,036
          Gross profit                                             328,173           2,869,760                  -          3,197,933
          Depreciation and amortization                            234,781             143,100                  -            377,881
          As of December 31, 2004
          Total assets                                          67,850,276          23,611,914                  -         91,462,190
          Additions to long-lived assets                        27,295,156             852,773                  -         28,147,929
          Intangible assets                                              -             432,769                  -            432,769

</TABLE>
NOTE 13   OTHER INCOME - Funds Released by Chinese  Government  Related to Asset
          Acquisition of a State-owned Enterprise by the Company

          In July 2003,  the Company,  through Shanxi  Weiqida,  acquired out of
          bankruptcy  the land use rights of a state-owned  enterprise.  (please
          also refer to Note 5(A)) During 2004, the Company received  $1,751,208
          from the government liquidator of the state-owned enterprise to assist
          the Company in the settlement of human resources  related  expenses in
          connection with the land use rights acquisition. The Company set up an
          offsetting  obligation  of  which  $818,806  remained  outstanding  at
          December 31, 2004.  During the first quarter of 2005,  the  government
          liquidator allowed the Company to retain the remaining cash balance of
          $745,828.

          During the first  quarter of 2005,  the  Datong  Municipal  Government
          approved the transfer of a fund with a balance of $140,036  originally
          reserved for the employee  housing  welfare as part of the liquidation
          process of the state-owned enterprise.

          As a result,  the Company recorded other income of $885,864 during the
          current period to reflect the above transactions.

NOTE 14   COMMITMENTS AND CONTINGENCIES

          (A)  Employee Benefits

          The full time  employees  of the  Company  are  entitled  to  employee
          benefits  including  medical  care,  welfare  subsidies,  unemployment
          insurance and pension benefits through a Chinese  government  mandated
          multi-employer  defined  contribution plan. The Company is required to
          accrue  for  those  benefits  based  on  certain  percentages  of  the
          employees'  salaries.  The total provision for such employee  benefits
          was $116,217  and  $141,730  for the periods  ended March 31, 2005 and
          2004,  respectively.  The Company is required to make contributions to
          the plans out of the amounts accrued for medical and pension benefits.
          The Chinese government is responsible for the medical benefits and the
          pension liability to be paid to these employees.

                                      F-17
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          (B)  Loan Guarantee

          The Company has  guaranteed  bank loans to two suppliers in the amount
          of $181,000  (RMB1.5  million)  due on August 11, 2005 and  $2,415,000
          (RMB20 million) due on July 16, 2005.

          The  Company has also  issued a  guarantee  to a bank as security  for
          loans to a third party  vendor of  $2,415,000  (RMB20  million) due on
          September 26, 2007 and $3,623,000  (RMB30  million) due on October 27,
          2007. This vendor pledged assets totaling $8,484,000 (RMB70.2 million)
          to the Company for this guarantee.

          (C)  Capital Commitments

          According  to the  Articles  of  Association  of Shanxi  Weiqida,  the
          Company  has  to  fulfill   registered  capital  of  $19,205,116  (RMB
          159,018,360) within five years from December 16, 2003. As of March 31,
          2005,  the Company has  fulfilled  $14,656,174  (RMB  121,353,123)  of
          registered capital  requirement and has registered capital commitments
          of $4,548,942 (See Note 14(A)).

          (D)  Contingent Employment Benefits

          During  July 2003,  the Company  acquired  land and  buildings  from a
          government   liquidator  in  exchange  for  assuming   certain  future
          employment,  healthcare and land acquisition  costs of the factory and
          its  former  employees.  Under  the  terms  of the  contract  with the
          liquidator,  the  Company  will remain  contingently  liable for these
          liabilities  until the date of retirement,  re-employment or death for
          each  employee.  As of March 31,  2005,  the  Company  has rehired 651
          former  employees,  207 employees have retired and  approximately  200
          former  employees  remain  unemployed.  If the  Company  is  unable to
          provide continued  employment to these individuals,  it will be liable
          to pay each former employee  approximately  $49 per month until his or
          her date of retirement or death,  whichever comes first (See Notes 5 &
          7).

          (E)  Operating Leases

          The Company has entered into operating  lease  agreements with respect
          to Huaxin's  production  plant in Nanjing,  China for an amount of RMB
          2,700,000  (US$326,217)  per annum until June 11, 2009 (see note 19(b)
          also) and the  Company's  administrative  offices in Vancouver  for an
          amount  escalating  from  CDN$200,000  to  CDN$230,000  (US$127,000 to
          US$146,000)  per annum until March 31,  2007.  The Company  decided to
          close the facility in Nanjing,  effective  July 31, 2005,  and build a
          new  facility  in  Datong,  China  at the  site  of the  manufacturing
          facilities  of  Oriental  Wave.  The  Company  has   renegotiated  the
          termination of its lease,  without penalty,  though the Company may be
          required to pay up to approximately RMB 600,000 ($72,500)  relating to

                                      F-18
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          severance  and benefit  costs  associated  with the  closure.  Minimum
          payments required under the agreements are as follows:

                 2005                              $ 247,989
                 2006                                189,964
                 2007                                 47,844
            -----------------------------------------------------
                 Total                              $485,797
            =====================================================

          (F)  Cell Line Development

          The Company has contracted with a European  Institute of Biotechnology
          to develop a high yield  proprietary cell line and production  process
          technology for the Company. Product from this advanced technology will
          be used by the  Company to enter the  European  market,  once  certain
          competitor's  patents  expire.  The total cost of development  will be
          $648,800 (EUROS  500,000) of which $387,600  (EUROS  300,000)  remains
          unpaid at March 31, 2005.

NOTE 15   STOCKHOLDERS' EQUITY

          (A) Capital Contribution (See note 13(C))

          On January 31, 2005 Oriental Wave paid Shanxi Weiqida $479,988 towards
          its registered capital requirement under Chinese law.

          On  February  22, 2005  Oriental  Wave paid  Shanxi  Weiqida  $198,682
          towards its registered capital requirement under Chinese law

          (B)  Appropriated Retained Earnings

          Shanxi Weiqida is required to make  appropriations  to reserves funds,
          comprising the statutory  surplus  reserve,  statutory  public welfare
          fund and discretionary surplus reserve,  based on after-tax net income
          determined in accordance with generally accepted accounting principles
          of the People's  Republic of China (the "PRC GAAP").  Appropriation to
          the statutory  surplus reserve should be at least 10% of the after tax
          net  income  determined  in  accordance  with the PRC GAAP  until  the
          reserve  is  equal  to  50%  of  the  entities'   registered  capital.
          Appropriations  to the statutory  public welfare fund are at 5% to 10%
          of the after tax net  income  determined  in  accordance  with the PRC
          GAAP. The statutory public welfare fund is established for the purpose
          of providing employee  facilities and other collective benefits to the
          employees  and  is   non-distributable   other  than  in  liquidation.
          Appropriations  to the  discretionary  surplus reserve are made at the
          discretion of the Board of Directors.

                                      F-19
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          (C)  Stock Options

          The Company did not grant any options  during the year ended  December
          31, 2004.  During the period ended March 31, 2005, the Company granted
          options to its directors and employees to purchase 2,260,000 shares at
          a price of $1.18 per  share  (being  the  market  price at the  time),
          expiring January 12, 2010.  Options to purchase  1,460,000 shares were
          exercisable   immediately  with  400,000  options  becoming  available
          January 12, 2006 and the balance of 400,000 options vesting on January
          12, 2007.

          The following summarizes stock option information for the period ended
          March 31, 2005:

          ----------------------------------------------------------------------
                                                                Weighted Average
                                                      Shares      Exercise Price
          ----------------------------------------------------------------------

          Options outstanding at December 31, 2003    2,599,000       $   2.04
          Forfeited                                    (705,000)      $   1.57
          Exercised                                    (145,000)      $   0.50
          ----------------------------------------------------------------------

          Options outstanding at December 31, 2004    1,749,000       $   2.36
          Granted                                     2,260,000       $   1.18
          Forfeited                                    (881,000)      $   2.93
          ----------------------------------------------------------------------
          Options outstanding at March 31, 2005       3,128,000       $   1.35
          ======================================================================
<TABLE>
<CAPTION>

<S>             <C>              <C>             <C>             <C>             <C>        <C>
                               Options Outstanding                                 Options Exercisable
          ----------------------------------------------------------------- --------------------------------
                                              Weighted
                                              Average         Weighted                           Weighted
             Range of                        Remaining         Average                           Average
             Exercise         Number        Contractual       Exercise           Number          Exercise
              Prices         Outstanding         Life             Price       Exercisable        Price
          ------------------------------------------------------------------- ------------------------------
          $0.01 - $1.00        350,000          3.01           $ 0.68             325,000         $ 0.68

          $1.01 - $2.00      2,478,000          4.55           $ 1.23           1,678,000         $ 1.25

          $3.01 - $4.00        300,000          0.62           $ 3.13             300,000         $ 3.13
                            ----------       ---------         -------          --------          ------
                             3,128,000           4.00          $ 1.35           2,303,000         $ 1.41
                            ==========       =========         =======          ==========        ======
</TABLE>

          The  Company  accounts  for  its  stock-based   compensation  plan  in
          accordance  with APB Opinion No. 25,  under which no  compensation  is
          recognized  in  connection  with  options  granted  to  employees  and
          directors except if options are granted with a strike price below fair
          value of the  underlying  stock.  The Company  adopted the  disclosure
          requirements  SFAS No. 123,  Accounting for Stock-Based  Compensation.
          Accordingly,  the Company is required to calculate and present the pro
          forma effect of all awards granted. For disclosure purposes,  the fair
          value of each option  granted to an employee has been  estimated as of
          the date of grant using the  Black-Scholes  option  pricing model with
          the following  assumptions:  risk-free interest rate of 5.5%, dividend
          yield 0%,  volatility of 90%, and expected lives of approximately 0 to
          5 years. The weighted average fair value of the options granted during
          the period  was $0.69.  Based on the  computed  option  values and the

                                      F-20
<PAGE>
                   DRAGON PHARMACEUTICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004
             ------------------------------------------------------

          number of the options issued, had the Company recognized  compensation
          expense, the following would have been its effect on the Company's net
          income:

          ------------------------------------- ---------------- ---------------
                                                      2005             2004
          ------------------------------------- ---------------- ---------------
          Net income for the period:
          - as reported                             $1,235,080       $1,939,928
          - pro-forma                                 $157,699       $1,939,928
          ------------------------------------- ---------------- ---------------
          Basic and diluted income per share:
          - as reported                                  $0.02            $0.04
          - pro-forma                                    $0.00            $0.04
          ------------------------------------- --------------- ----------------

NOTE 16   RELATED PARTY TRANSACTIONS

          See Notes 6 and 11.

NOTE 17   CONCENTRATIONS AND RISKS

          During the three  months ended March 31,  2005,  85% of the  Company's
          revenues were derived from  customers  located in China and 99% of its
          assets are  located  in China.  Comparatively,  100% of the  Company's
          revenues  during the three  months  ended March 31, 2004 were  derived
          from customers located in China and 100% of its assets were located in
          China.



                                      F-21
<PAGE>

Item 2.   Management's Discussion and Analysis and Plan of Operations

     The following  discusses the Company's  ("Dragon")  financial condition and
results  of  operations  for the  quarter  ended  March 31,  2005 based upon the
Company's   consolidated  financial  statements  which  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America (US GAAP). It should be read in conjunction with the Company's financial
statements and the notes thereto and other financial information included in the
Company's Form 10-KSB for the fiscal year ended December 31, 2004.

     Due to Dragon's  acquisition  of Oriental Wave Holding  Limited  ("Oriental
Wave") on January 12, 2005 being  deemed a reverse  take-over  transaction,  the
following  discussion  reflects  the  Company's  results of  operations  for the
quarter  ended March 31, 2005,  including  the results of Oriental  Wave for the
full  quarter and the  results of the biotech  business of Dragon for the period
from January 13, 2005 to March 31, 2005. Comparatively, the financial statements
for the quarter  ended March 31, 2004 only reflect the results of the Pharma and
Chemical businesses of Oriental Wave.

Overview
--------

     Incorporated in Florida, USA and headquartered in Vancouver,  B.C., Canada,
Dragon,  prior to the  acquisition  of  Oriental  Wave,  was formed to  develop,
market,   and  sell  biologics  such  as  Erythropoietin   (EPO)  in  China  and
international  markets  outside  of  China.  Dragon  manufactures  and sells EPO
through   its   wholly-owned   drug   manufacturing   company   Nanjing   Huaxin
Bio-pharmaceutical Co., Ltd. ("Nanjing Huaxin") located in Nanjing City, China,.
Dragon's EPO has been approved and marketed in nine countries  including  China,
India, Egypt, Brazil,  Ecuador, the Dominican Republic,  Trinidad-Tobago,  Peru,
and Kosovo.  In addition,  we are  preparing  to enter the European  market upon
obtaining product approval of our newly developed EPO products.

     On January 12, 2005, the Company completed the acquisition of Oriental Wave
in a reverse  take-over  transaction.  Oriental  Wave,  through its wholly owned
subsidiary in China,  Shanxi Weiqida  Pharmaceutical  Ltd.  ("Shanxi  Weiqida"),
currently has three  production  facilities in China: two Chinese State Food and
Drug  Administration   (SFDA)  certified  GMP  (Good   Manufacturing   Practice)
production facilities consisting of a pharmaceutical  facility with a production
capacity of 610 million tablets and capsules, 80 million injectables, 47 million
sachets of granules,  10 million  suppositories  and 180 tons of sterilized bulk
drugs per year, and a chemical plant  producing  clavulanic  acid with an annual
capacity of 30 tons. In addition,  Oriental Wave has a third facility  producing
7-ACA, an intermediate for Cephalosporin antibiotics, by a fermentation process.
7-ACA is an intermediate  product and does not require GMP certification for the
7-ACA production facility. Oriental Wave has received approval from the SFDA for
306 drugs, of which 66, mainly anti-infectious drugs, were actively exploited in
China in 2004.  Dragon acquired all of the  outstanding  shares of Oriental Wave
from Mr. Yanlin Han, Mr.  Zhanguo  Weng,  and Ms. Xuemei Liu. As a result of the
acquisition,  Mr.  Han,  Mr.  Weng,  and Ms. Liu  collectively  owned  68.35% of
Dragon's  outstanding  shares of common  stock at the time of the closing of the
transaction.

     As a result of the  acquisition  of Oriental Wave,  Dragon has  transformed
into a diversified and growth oriented generic pharmaceutical company with three
key business  units.  These units  consist of a Biotech  division for  biologics
products, such as EPO a Chemical division for bulk pharmaceutical  chemicals and
intermediates,  such as  Clavulanic  Acid and 7-ACA,  and a Pharma  division for
formulated drugs, including prescription,  over-the-counter drugs and sterilized
bulk drugs. The Company, after the acquisition,  has significantly increased the
size of operations and now has four manufacturing  facilities in China (three in
Datong city and one in Nanjing city), approximately 1,800 employees, an

                                        3
<PAGE>

additional 1,200 contract sales representatives in China, and 55 key products in
86 different  dosages and  presentations  currently in the Chinese  market.  The
Company now operates its three business divisions, a Pharma Division, a Chemical
Division, and a Biotech Division, through two indirect wholly-owned subsidiaries
in China, Shanxi Weiqida and Nanjing Huaxin.

Pharma Division
---------------

     The Pharma  Division's  operations  are located in the Datong  Economic and
Technology  Development Zone,  Datong City,  Shanxi Province,  China. The Pharma
Division produces and markets chemical generic, mainly  anti-infectious,  drugs.
The Pharma  Division  currently  holds 306 product  approvals  from the SFDA, of
which only 66 prescription,  over-the-counter,  and sterilized bulk products are
currently commercialized in China. The Company plans to build a new workshop for
the freeze-drying of temperature sensitive  pharmaceutical products. Among these
products is Levofloxacin,  a product marketed by the Company whose production is
currently  outsourced  to a third  party  contract  manufacturer.  The  business
strategy of the Pharma  Division is to focus on the expansion and development of
the Chinese  market by managing its product  portfolio and  selecting  promising
products for commercialization.

Chemical Division
-----------------

     The Chemical  Division's  operations are located at Datong Gongnong Road in
Datong  City,   Shanxi   Province,   China.  The  Chemical   Division   produces
pharmaceutical  intermediate and active  pharmaceutical  ingredients  (APIs), to
sell to other  pharmaceutical  companies for further  processing and formulation
into other  sterilized  bulk  drugs,  non-sterilized  bulk  drugs or  formulated
products.

     The Chemical  Division  manages the production of Clavulanic  Acid,  7-ACA,
and, in the future, Abamectin for both the Chinese and international markets. In
January 2004, the Chemical  Division began  operating a production  facility for
Clavulanic  Acid, and in July 2004,  the second  production  facility  producing
7-ACA started  operating.  The third production  facility for Abamectin,  with a
planned capacity of 120-tons, is currently under construction and is expected to
be completed in the fourth quarter of 2005. 2005 will be the first full year for
the Chemical Division to contribute sales and net income to the Company.

     One of the key  products in Chemical  Division is  Clavulanic  Acid, a drug
that combines with antibiotics to fight drug resistance. Dragon is currently the
sole producer in China.  Two Clavulanic Acid  containing  products were approved
for export to India and the initial sale of these  products to India  started in
2004. Another key product in the Chemical Division is 7-ACA, an intermediate for
Cephalosporin  antibiotics.  The  400-ton  annual  production  capacity of 7-ACA
positions Dragon to become one of the largest producers in the world. The export
of 7-ACA to India commenced in 2004. Dragon's Chemical Division has entered into
a 3-year long term supply  agreement with  Aurobindo  Pharma  Limited,  Indian's
fifth largest  pharmaceutical  company, to purchase 50% of the products from the
Chemical Division.

Biotech Division
----------------

     The Biotech  Division's  operations  are located in Nanjing  City,  Jiangsu
Province,  China. The sole product currently produced by the Biotech Division is
Erythropoietin or EPO, which stimulates red blood cell  development,  and is the
best selling drug in the world with a market size of approximately US$10 billion
in  2004.  Dragon's  EPO is the  generic  version  of the  originator's  (Amgen)
product. Dragon's Biotech Division develops,  manufactures,  and markets generic
biotech  products within China (72% of the divisional sales for fiscal 2004) and
in  developing  countries  as the current  core  markets,  and has already  been
approved and sold in 9 countries: China, India, Egypt, Brazil, Peru, Ecuador,

                                        4
<PAGE>

Trinidad-Tobago, the Dominican Republic and Kosovo. Currently, Dragon's EPO only
competes in countries where there is no patent  protection.  Dragon is, however,
preparing to enter the European  market with a new EPO product  currently  under
development in Austria.

     The Company will build a new  state-of-the-art  EPO production  facility in
Datong City,  China and relocate the EPO production from its current facility in
Nanjing city. The new EPO production  facility is under  construction  on a site
adjacent to the campus of the  Chemical  Division,  which  already  includes the
entire basic  infrastructure  such as power,  steam,  purified water supply, and
water treatment facilities.  The relocation of the EPO production site to Datong
City  will  allow  the  Company  to  capitalize   on  the  existing   production
infrastructure  and the  efficiency  of unified  operational  management.  It is
anticipated  that the  capacity  of the new  facility  will  double for bulk EPO
production and triple for the sterile vialing of the product.

Results of Operations
---------------------

     Dragon  accounted  for  the  acquisition  of  Oriental  Wave  as a  reverse
take-over  transaction,  as the former  shareholders  of  Oriental  Wave own the
majority of the shares of Dragon,  collectively  68.35% of the issued  shares of
common stock as of the closing of the  transaction.  Dragon operates a financial
year from  January 1 to December 31 and uses the purchase  method of  accounting
for financial  reporting purposes under US GAAP. Under this basis of accounting,
Oriental Wave has been identified as the acquirer and, accordingly, the combined
company is considered to be a  continuation  of the  operations of Oriental Wave
and  includes  the  accounts  of  Dragon  (before  the  acquisition)   from  the
acquisition  date.  Therefore,  Dragon reports  results for the first quarter of
2005,  which  includes  the  results of Oriental  Wave for the full  three-month
period ended March 31, 2005 and Dragon (before the  acquisition)  for the period
from  January  13,  2005 to March 31,  2005,  whereas  the results for the first
quarter of 2004  reflects  the  operations  of Oriental  Wave for a  three-month
period ended March 31, 2004.

Results of Operations for the Three Months Ended March 31, 2005 and 2004

     Sales.  Sales for the first quarter  ended March 31, 2005  increased 65% to
$11.83 million from $7.16 million for the same period in 2004.  $10.11  million,
or 85.5% of the sales  for the first  quarter  in 2005 were  generated  from the
sales of products in the Chinese  market,  and the  remaining  $1.72  million or
14.5% were  generated from the sales of products in the  international  markets.
All sales for the first quarter in 2004 were generated from the sale of products
in the Chinese market.  In the first quarter of 2005,  $5.32 million,  or 45% of
the sales, were from the Pharma Division,  $5.70 million,  or 48% of sales, were
from the Chemical  Division  and $0.80  million,  or 7% of sales,  were from the
Biotech Division. For the same period in 2004, 88% of sales were from the Pharma
Division  and 12% of sales  were  from the  Chemical  Division  which  commenced
operation  on January 1, 2004.  The  increase in sales  during the three  months
ended  March 31,  2005 as  compared  to the same  period  for the prior year was
primarily due to increases in sales from the Chemical and Biotech Divisions.

     Cost of sales for the three months  ended March 31, 2005 was $8.62  million
compared to $3.96 million for the three months ended March 31, 2004. The cost of
sales is attributed to the production costs of Dragon's  pharmaceutical products
with the  increase in the cost of sales  related to the growth in  products  and
sales in the  Chemical  Division.  Gross  profit and gross  margin for the three
months  ended  March 31, 2005 were $3.21  million  and 27.13%  compared to $3.20
million and 44.69% for the same period of 2004. The decrease in gross margin was
mainly due to the increase in sales of the Chemical  Division  whose  facilities
were new in 2004 and is  currently  at the  ramp up  stage of  production  which
incurs higher per unit  production and operation cost,  especially  depreciation
expenses.

                                       5
<PAGE>
Divisional Sales and Gross Margin Analysis

     The Company's businesses are organized under three business divisions:  the
Pharma Division, the Chemical Division and the Biotech Division.

Pharma Division
---------------

     The  Pharma  Division's  sales for the  first  quarter  of 2005 were  $5.32
million, accounting for 44.9% of the total sales of the Company.  Comparatively,
the Pharma  division's  sales were $6.30  million  for the same  period in 2004,
contributing 88% of the total sales of the Company.  The lower sales were mainly
due to the reduction in the retail price of certain  prescription  drugs imposed
by the Chinese  government.  The lower contribution from the Pharma division was
due to the relative  growth of the Chemical  division  achieved during the first
quarter of 2005 compared to 2004.  The overall gross margin for the division for
the first quarter increased to 47%,  representing a 164 basis point improvement
from the same period of 2004. The increase in the gross profit margin was mainly
due to the  increase in  production  level and the use of certain  self-produced
chemicals from the Chemical Division in the Pharma division.

Chemical Division
-----------------

     The  Chemical  Division's  sales for the first  quarter  of 2005 were $5.70
million, representing a 571% increase from the sales of $0.85 million during the
same period in 2004.  The increase is due to the  introduction  of 7-ACA and the
expansion of Clavulanic Acid sales outside China. The Chemical  division was new
in 2004 as only the  Clavulanic  Acid  facility had started  production  and the
sales  during the first  quarter  of 2004 were only made to  Chinese  customers.
Since then,  the Company  started the pilot  production of the 7-ACA  production
facility and the Company has received export permits to sell two Clavulanic Acid
products to the Indian market.

     The Chemical  Division's gross margin for the first quarter of 2005 was 1%.
The gross  margin for the  division  was low as the  Company has  increased  and
expanded the production  infrastructure  and the associated fixed  manufacturing
costs,  but it is  still  in the  process  of  ramping  up  production  to cost-
efficient  levels.  Production in the Chemical Division during the first quarter
of 2004 was limited to Clavulanic  Acid. Since then, the Company invested $15.78
million in capital  expenditure  for the 7-ACA facility and other new production
infrastructure (power, steam, purified water supply and water treatment).  These
new facilities have greatly increased production capacity and capability for the
Chemical  Division  and  also  have  increased  the  fixed  costs in the form of
depreciation  expense of the new  facilities  constructed  and  overhead  of the
utilities costs to power the new facilities. For example,  depreciation expenses
for the Chemical  Division  increased to $1.06  million for the first quarter of
2005 from $0.23  million  for the same  period of 2004.  These  fixed  costs are
expected to fall, or a per unit basis, with the ramp up of the production level.

                                       6
<PAGE>

Biotech Division
----------------

     The Biotech  Division's  sales for the period January 13, 2005 to March 31,
2005 were $0.80  million,  representing  7% of the  Company's  sales.  The gross
margin for the this  period was 82.92%.  The  acquisition  of  Oriental  Wave by
Dragon was  completed  on January  12, 2005 and was  accounted  for as a reverse
take-over  transaction.  As a result,  only sales from the Biotech Division from
January 13, 2005 to March 31, 2005 were included in the Company's  sales for the
first quarter of 2005.

     On a  pro-forma  basis  (which  includes  Dragon's  biotech  sales of $0.15
million  from  January 1 to 12,  2005) for the full first  quarter of 2005,  the
Biotech  Division's  sales were  $0.95  million  in 2005,  representing  an 8.1%
increase from Biotech  sales of $0.88  million for the same period in 2004.  The
increase in total sales  mainly came from the  increase in  international  sales
outside of China.  The Biotech  Division's  pro-forma  gross margin for the full
first  quarter of 2005 was 81.67%,  significantly  improved  from 71.86% for the
same  period of 2004.  The  improvement  of the gross  margin for the full first
quarter  of 2005 was due to a  combination  of a larger  percentage  of sales to
overseas customers (at a higher margin than the Chinese sales during the current
quarter) and no provision for inventory  obsolescence  was recorded in the first
quarter of 2005.

     Other  Income.  During  the  three  months  ended  March 31,  2005,  Dragon
recognized  $0.62 million of Other Income.  This amount  primarily  consisted of
$0.89  million from funds  released by the Chinese  government  related to asset
acquisition of a state-owned  enterprise by the Company in 2003. No similar gain
occurred during the same period of the prior year.

     During  2004,  the  Company  received  $1.75  million  from the  government
liquidator of the state-owned enterprise to assist the Company in the settlement
of human  resources  related  expenses  in  connection  with the land use rights
acquisition.  The Company set up an offsetting obligation of which $0.82 million
remained outstanding at December 31, 2004. During the first quarter of 2005, the
government  liquidator  allowed the Company to retain the remaining cash balance
of $0.75 million.

     During the first quarter of 2005, the Datong Municipal  Government approved
the transfer of a fund with a balance of $0.14 million  originally  reserved for
the  employee  housing  welfare  as  part  of  the  liquidation  process  of the
state-owned enterprise.

     As a result,  the Company recorded other income of $0.89 million during the
current period to reflect the above transactions.

     Expenses.  Total operating expenses were $2.40 million for the three months
ended March 31, 2005 compared to $1.24 million for the same period in 2004.  For
the three months ended March 31, 2005, the major category of operating  expenses
was  General  and  Administration  expenses  which  included  $0.46  million for
salaries, compensation and benefits, $0.192 million for travel and entertainment
expenses,  and $0.87  million for rent  compared to $0.12  million for salaries,
compensation  and  benefits  and $0.03  million  for  travel  and  entertainment
expenses for the three months of 2004.  Operating expenses also included selling
expense of $1.14 million and depreciation and amortization of $0.25 million. The
increase in operating expenses of $1.15 million for the three months ended March
31,  2005 as  compared  to the same  period  for the  prior  year  reflects  the
increased  overhead  related to the  operations  of both the Pharma and Chemical
Divisions  in 2005  (compared  to just the  Pharma  Division  and one of the two
facilities  of the  Chemical  Division in 2004) and the  addition of the Biotech
operations  and the head office in  Vancouver.  In  addition,  depreciation  and
amortization  expense increased during the three months ended March 31, 2005 due
to the increase in fixed assets of the Chemical Division in 2005.

                                        7
<PAGE>

     Net Income.  Dragon had net income of $1.24  million  for the three  months
ended March 31, 2005 compared to net income of $1.94 million for the same period
in 2004.  In addition,  net income  reflects  other income of $0.89 million from
funds  released  by the Chinese  government  related to asset  acquisition  of a
state-owned  enterprise  by the  Company in 2003 and income tax expense of $0.20
million.  Shanxi Weiqida is currently  subject to income tax at an incentive tax
rate, at half of the normal tax rate, for a period of three years  commencing in
2005.

     Basic Net Income Per Share. Dragon's net income per share has been computed
by  dividing  the net income for the period by the  weighted  average  number of
shares  outstanding  during the same period.  Net income per share for the three
months  ended March 31, 2005 was $0.02 per share and for the three  months ended
March 31,  2004 was $0.04  per  share.  The  weighted  average  number of shares
outstanding  during  the  three  months  ended  March  31,  2005 and  2004  were
60,427,871 and 44,502,004  shares,  respectively.  The outstanding  common stock
options have no significant  dilutive  effect on the weighted  average number of
shares outstanding.

Liquidity and Capital Resources

     As of March  31,  2005,  Dragon  had  current  assets  of  $28.30  million,
including a cash  balance of $1.79  million and  accounts  receivables  of $8.77
million, and current liabilities of $27.66 million.

     As of March 31, 2005, Dragon's current liabilities of $27.66 million were
as follows:

Accounts Payable                                                  $4,766,797
Accrued Retirement Benefits - current portion                       $114,432
Other Payables and Accrued Expenses                              $17,117,072
Due to Related Companies                                            $627,889
                                                                 -----------
Notes Payable-Short Term:
------------------------

Note payable to a bank, interest rate of
6.372% per annum,  due June 2005                  $420,290

Note payable to a bank, interest rate of
6.372% per annum, due June 2005                   $386,473

Note payable to a bank, interest rate of
4.779% per annum, due November 2005             $3,623,188

Note payable to a bank, interest rate of
8.874% per annum, due July 2005                   $603,865
                                                ------------     -----------
Notes Payable - Short Term Subtotal                               $5,033,816
                                                                 -----------
Total Current Liabilities                                        $27,660,004


     The Accounts payable were incurred as part of the normal course of business
of Dragon,  while Other  Payables and Accrued  Expenses were incurred as part of
the investment in establishing the Chemical Division.

                                        8
<PAGE>
     As of March 31, 2005,  Dragon had outstanding  short-term  notes (less than
one year term) totaling $5.03  million,  after $8.45 million,  originally due in
April  2005,  was  renewed  and  extended:  $6.64  million for two years and the
remaining $1.81 million for one year. Dragon believes that it will be successful
in  renegotiating  other notes due based on the assumption  that the Company has
enhanced  its  ability  to  generate  additional  profit  and cash flow from its
operation  since the  notes  were  originally  entered  into.  Since  then,  the
Company's Chemical division commenced  production and began generating sales and
cash flow.  Further, it entered into a three-year long term supply contract with
Aurobindo  Biopharma to supply  specified  amounts of Clavulanic  Acid and 7-ACA
produced  from its Chemical  Division.  Assuming  that Dragon is  successful  in
renegotiating its notes as mentioned above, it believes that it will have enough
cash flow for its operations for at least the next twelve months.

Long-term Liabilities:

     At March 31, 2005,  Dragon had long-term  liabilities  of $37.52 million as
follows:

Long-term accounts payable                                         $21,904,603
Long-term retirement benefits                                         $841,713

Note Payable - Long Term
------------------------
Note payable to a bank, interest rate of
6.039% per annum, due April 2006                  $1,811,594

Note payable to a bank, interest rate of 5.76%    $6,316,426
per annum, due November 2006

Note payable to a bank, interest rate of
6.039% per annum, due April 2007                  $6,642,512
                                                ----------------
Note Payable - Long Term                                           $14,770,532
                                                                 ---------------
Total Long-term Liabilities                                        $37,516,848
                                                                 ---------------

     As of March 31,  2005,  the Company had  long-term  retirement  benefits of
$0.84 million, which was incurred in July 2003 when Shanxi Weiqida acquired land
and  buildings  from a government  liquidator  in exchange for assuming  certain
future employment,  healthcare and land acquisition costs of the factory and its
former  employees  during  July 2003.  The  Company is  required  to pay certain
minimum  wages  and  health  care  costs  until  the date of  their  employment,
retirement,   or  death,  whichever  occurs  first.  The  total  amount  of  the
liabilities  assumed on the closing date was $8.90 million,  which  approximated
the  appraised  value of the land.  As of March 31,  2005,  Shanxi  Weiqida  had
employed 651 former  employees,  and 207 former  employees have retired.  Shanxi
Weiqida has  calculated  the related  asset value by  computing  the net present
value  of the  future  expected  payments  to the  remaining  approximately  200
employees  assuming an interest rate of 3%. As of March 31, 2005,  approximately
200 former  employees of Datong  Pharmaceutical  remained as the  obligation  of
Dragon.

     Dragon had  long-term  notes  payables (one to two years)  totaling  $14.77
million  of which  $1.81 is due April  2006,  $6.32  million  which  will be due
November  2006,  and $6.45  million  due April 2007,  in  addition to  long-term
account payables of $21.90 million due in 2006. Assuming Dragon can successfully
renew part of the short-term notes mentioned above, Dragon believes that it will
be able to meet its long-term notes payable and long-term  account payables when
they  become  due with the  expected  increase  in profit and cash flow from the
addition of the Chemical Division in 2005.

                                        9
<PAGE>
     Further,  Dragon has  engaged  an  investment  banker in the U.S.  to raise
capital through the sale of its equity  securities  which would enhance Dragon's
financial position.  However, no assurance can be given that Dragon will be able
to raise additional capital through the sale of its equity securities.

Item 3.   Controls and Procedures

     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of our  management,  including  our  Executive  Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls and procedures (as defined by Exchange Act Rule  13a-15(e))
as of the  end of our  third  fiscal  quarter  pursuant  to  Exchange  Act  Rule
13a-15(b).  Based upon that  evaluation,  our Chief Executive  Officer and Chief
Financial  Officer  concluded  that our  disclosure  controls and procedures are
effective in ensuring that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported  within the time periods  specified in the  Securities and Exchange
Commission's rules and forms.

     There have been no changes in our internal control over financial reporting
identified in connection  with our  evaluation as of the end of the first fiscal
quarter that occurred during such quarter that have materially affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

     The Company is not currently involved in any legal proceedings.


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

     On January 12, 2005, we completed the  acquisition  of all the  outstanding
shares of Oriental Wave pursuant to the Share Purchase Agreement.  In connection
with the  acquisition,  we issued an  aggregate of  44,502,004  shares of common
stock. In addition,  pursuant to the Share Purchase Agreement, Mr. Han, Mr. Weng
and Ms. Liu collectively  received  4,282,402  Additional Dragon Closing Shares.
The  Additional  Dragon  Closing  Shares  are being  held in  escrow  and may be
released  or  cancelled  depending  on whether or not  certain of our options or
warrants outstanding as of the closing date have been subsequently  exercised or
expired. Mr. Han, Mr. Weng and Ms. Liu will have no voting rights or dispositive
powers over the Additional  Dragon Closing Shares while they are held in escrow,
and they will not be deemed to be  outstanding  unless  they are  released  from
escrow.  The number of common stock and Additional  Dragon Closing Shares issued
in connection with the acquisition of Oriental Wave is as follows.

                                                               Additional Dragon
         Name                               Common Stock         Closing Shares*
         ----                               ------------       -----------------
         Yanlin Han                          31,151,403               2,997,682
         Zhanguao Weng                        8,900,401                 856,480
         Xuemei Liu                           4,450,200                 428,240

          * Subsequent to January 12, 2005,  881,000  options to acquire  common
     shares have expired, therefore,  1,902,570 Additional Dragon Closing Shares
     will be cancelled.  As a result, Mr. Yanlin Han's Additional Dragon Closing
     Shares will be 1,665,883,  Mr.  Zhanguo  Weng's  Additional  Dragon Closing
     Shares will be 475,966  and Ms.  Xuemei  Liu's  Additional  Dragon  Closing
     Shares will be 237,983.

                                       10
<PAGE>

     The issuance of the shares of common stock and  Additional  Dragon  Closing
Shares by us to Mr.  Han,  Mr. Weng and Ms. Liu  pursuant to the Share  Purchase
Agreement was exempt from registration upon reliance of Regulation S.

Item 3.   Defaults Upon Senior Securities.

          None

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

     On January  11,  2005,  we held our annual  meeting  of  shareholders.  The
following proposals were presented and adopted by our shareholders.
<TABLE>
<CAPTION>
<S>     <C>                                                                     <C>              <C>       <C>
Proposal                                                                          For         Against     Abstain
--------                                                                          ---        --------     -------
1.   To approve the issuance of our shares of common stock to complete the    11,907,466       38,850     5,112
     acquisition of all outstanding shares of Oriental Wave Holding Ltd.

2.   To approve an amendment to our Certificate of Incorporation to           16,812,137      123,147     3,212
     increase the number of authorized shares of common stock from
     50,000,000 shares to 200,000,000 shares.

3.   To elect Dr. Wick and Dr. Sun as directors to serve for one-year terms or
     until their successors have been elected and qualified;

         Dr. Wick                                                             16,889,246                  59,250

         Dr. Sun                                                              16,889,246                  59,250

4.   To ratify the appointment of Moore Stephens Ellis Foster Ltd.,           16,936,446        6,400      5,650
     Chartered Accountants, to audit our financial statements for the
     year ending December 31, 2004.

</TABLE>

Item 5.   Other Information.

          None

Item 6.   Exhibits.

          (a)  Exhibits.

               Exhibit No.

               31.1 Certification by the Principal Executive Officer Pursuant to
                     Section 302 of the Sarbanes-Oxley Act.

                                       11
<PAGE>

               31.2 Certification by the Principal  Accounting  Officer Pursuant
                    to Section 302 of the Sarbanes-Oxley Act.

               32   Certification  by  the  Principal  Executive  and  Financial
                    Officers Pursuant to Section 906 of the Sarbanes-Oxley Act.

                    (b) Reports on Form 8-K:

                    (1)  Form  8-K  filed  on  March  2,  2005  filing   certain
                         agreements  previously  entered  into by either  Dragon
                         Pharmaceutical  Inc. or Oriental Wave Holdings  Limited
                         related to their business.

                    (2)  Form 8-K filed January 18, 2005 announcing  approval of
                         the proposal  presented at Dragon's  annual  meeting of
                         shareholders held on January 11, 2005.


                                       12
<PAGE>

                                   SIGNATURES

     In accordance with 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.

                                         DRAGON PHARMACEUTICAL INC.
                                         (registrant)


Dated:   May 16, 2005                   /s/ Garry Wong
                                        ---------------------------
                                         Garry Wong
                                         Chief Financial Officer



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