UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-QSB/A


(Mark One)

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

                  For the quarterly period ended March 31, 2007

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

              For the transition period from ________ to __________

                         Commission File Number: 0-23485

                        DRAGON INTERNATIONAL GROUP CORP.
                        --------------------------------
          (Exact name of small business issuer as specified in charter)

                   Nevada                                 98-0177646
                   ------                                 ----------
      (State or other jurisdiction of                  (I.R.S. Employer
       incorporation or organization)                 Identification No.)

     No. 201 Guangyuan Road, District C Investment Pioneering Park Jiangbei,
                              Ningbo, China 315033
                    ----------------------------------------
                    (Address of principal executive offices)

                                (86) 21-56689332
                           (Issuer's telephone number)

                Bldg 14 Suite A09, International Trading Center,
                       29 Dongdu Road Ningbo, China 315000
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: At May 18, 2007 there were 96,363,982
shares of common stock issued and outstanding.

Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]


<PAGE>


                      Restatement of financial statements

The financial statements for the fiscal year ended June 30, 2006 and for the
three month period and nine month period ended March 31, 2007, have been
restated to correct the accounting treatment previously accorded certain
transactions.

     o    In July 2005, the Company entered into a consulting agreement with
          China Direct Investments, Inc. to provide business development and
          management service. In connection with this agreement, the Company
          issued 400,000 shares of common stock with a fair value on the date of
          grant of $.26 per share totaling $104,000. Initially, the Company had
          recorded deferred consulting expense and amortized the cost over the
          one year term of the agreement. Due to the absence of vesting and
          forfeiture provisions, as provided in EITF 96-18, the Company
          determined that the measurement date of the transaction was triggered
          and, absent a sufficiently large disincentive for non-performance,
          which was not provided in the agreement, the financial statements have
          been restated to expense the entire fair value of $104,000 as of the
          effective date of the agreement.

     o    For the fiscal year ended June 30, 2006 and for the three month period
          and nine month period ended March 31, 2007, the Company erroneously
          filed financial statements presenting in their statement of cash flows
          the decrease of restricted cash as an investing activity. The Company
          is now presenting this as a financing activity, in accordance with
          SFAS 95 "Statement of Cash Flows". This error did not affect the
          balance sheet as of March 31, 2007, nor the statements of operations
          for the three month period and nine month period ended March 31, 2007.
          With these corrections, the statements of cash flows for the nine
          month periods ended March 31, 2007 and March 31, 2006 reflect an
          increase in cash flows from financing activities of $1,219,540 and
          $1,092,928, respectively.

     o    For the year ended June 30, 2006, the Company erroneously did not
          value the reduction in exercise price of existing warrants (from $0.30
          to $0.15 for the 3,704,800 July 2005 Warrants and the reduction in
          exercise price from $0.40 to $0.15 for the 1,787,500 March 2005
          Warrants) associated with an induced conversion offer. The value of
          the reduction in exercise price was calculated at $447,238, and was
          reflected in the statement of operations as an increase in interest
          expense, and a resultant increase in net loss and net loss per share
          for the year ended June 30, 2006. The Company had recorded the
          valuation of the reduction in exercise price as an increase in
          additional paid-in capital.

     o    For the fiscal year ended June 30, 2006, the Company erroneously had
          deferred, over a three year period, $540,000 in consulting expense
          related to the issuance of 6,000,000 shares of its common stock to
          China Direct, Inc. and $395,675 related to the issuance of 4,700,000
          common stock purchase warrants exercisable at $0.15 per share over a
          five year period, also to China Direct, Inc. In addition, in February
          2006, the Company issued warrants to purchase 500,000 shares of common
          stock, exercisable for five years at $.15 per share, to Skybanc, Inc.
          for a one year financial advisory consulting agreement. The Company
          had incorrectly deferred the fair value of these warrants of $71,243
          over the contract term. The Company has restated the related financial
          statements to recognize the full expense of these agreements
          immediately upon entering into the consulting agreements in January
          2006 and February 2006, under the provisions of EITF 96-18 and SFAS
          123. These corrections resulted in an increase in consulting expense
          for year ended June 30, 2006 and a reduction in consulting expense for
          subsequent periods and deferred compensation on our balance sheet for
          a similar amount.

     o    In March 2007, pursuant to a consulting agreement, the Company issued
          4,000,000 shares of its common stock to Capital One Resource, Co.,
          Ltd., a wholly owned subsidiary of China Direct, Inc. Initially, the
          Company had recorded and reported this issuance incorrectly as a cost
          of raising capital related to the private placement of $1,500,000 in
          units sold during the quarter. The Company has restated the financial
          statements to recognize the full expense of this agreement immediately
          upon entering into the consulting agreement in March 2007 under the
          provisions of EITF 96-18 and SFAS 123. This correction resulted in an
          increase in consulting expenses for the quarter ended and nine month
          period ended March 31, 2007 of $360,000.


<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

         Certain statements in this report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, the risk of doing business in the
People' Republic of China, our ability to implement our strategic initiatives,
our access to sufficient capital, the effective integration of our subsidiaries
in the PRC into a U.S. public company structure, economic, political and market
conditions and fluctuations, government and industry regulation, Chinese and
global competition, and other factors. Most of these factors are difficult to
predict accurately and are generally beyond our control. You should consider the
areas of risk described in connection with any forward-looking statements that
may be made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this report in
its entirety. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this report and you
should not rely on these statements without also considering the risks and
uncertainties associated with these statements and our business.

         When used in this quarterly report on Form 10-QSB, the terms:

         o  "Dragon Nevada," "we," and "us" refer to Dragon International Group
            Corp., a Nevada corporation, and our subsidiaries,

         o  "Dragon Florida" refers to our subsidiary Dragon International Group
            Corp., a Florida corporation,

         o  "Ningbo Dragon" refers to our subsidiary Ningbo Dragon International
            Trade Co., Ltd., a PRC company, formerly known as Ningbo Anxin
            International Trade Co., Ltd.

         o  "Yonglongxin" refers to Ningbo Dragon's subsidiary Ningbo City
            Jiangdong Yonglongxin Special Paper Co., Ltd. a PRC company

         o  "R&D Center" refers to Yonglongxin's subsidiary Xianyang Naite
            Research and Development Center, a PRC company,

         o  "Dragon Packaging" refers to Ningbo Dragon's subsidiary Ningbo
            Dragon Packaging Technology Co., Ltd., formerly known as Ningbo
            XinYi Paper Product Industrial Co., Ltd., a PRC company,

         o  "Yongxin" refers to Ningbo Dragon's subsidiary Hangzhou Yongxin
            Paper Co., Ltd., a PRC company,

         o  "JinKui" refers to Dragon Nevada's subsidiary Shanghai JinKui
            Packaging Material Co., Ltd., a PRC company,


         All per share information contained in this Form 10-QSB/A gives
retroactive effect to the one for nine reverse split of our common stock
effective March 3, 2003 and the six for one forward stock split of our common
stock effective July 27, 2004.


                                       -2-

<PAGE>


<TABLE>
<CAPTION>
                               PART I - FINANCIAL INFORMATION

                     DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                                 CONSOLIDATED BALANCE SHEET
                                       March 31, 2007
                                        (Unaudited)

                                           ASSETS
                                                                                Restated
                                                                              ------------
<S>                                                                           <C>
CURRENT ASSETS:
    Cash ...................................................................  $    205,048
    Accounts receivable (net of allowance for doubtful accounts of $164,381)     4,067,442
    Inventories ............................................................     4,164,245
    Advances on purchases ..................................................     2,747,672
    Prepaid expenses and other current assets ..............................       518,353
                                                                              ------------

        Total Current Assets ...............................................    11,702,760

CASH-RESTRICTED ............................................................       258,368
PROPERTY AND EQUIPMENT - Net ...............................................     2,505,647
LAND USE RIGHTS - Net ......................................................     2,568,615
INTANGIBLE ASSETS - Net ....................................................       331,048
                                                                              ------------

        Total Assets .......................................................  $ 17,366,438
                                                                              ============

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Notes payable - current portion ........................................  $  2,580,331
    Accounts payable .......................................................     5,877,086
    Accrued expenses .......................................................       238,574
    Advances from customers ................................................         9,251
                                                                              ------------
        Total Current Liabilities ..........................................     8,705,242

Notes Payable - long-term portion ..........................................        48,000
                                                                              ------------

        Total Liabilities ..................................................     8,753,242
                                                                              ------------

STOCKHOLDERS' EQUITY:
    Preferred stock ($.001 Par Value; 25,000,000 Shares Authorized;
        No shares issued and outstanding) ..................................             -
    Common stock ($.001 Par Value; 200,000,000 Shares Authorized;
        96,363,982 shares issued and outstanding) ..........................        96,364
    Additional paid-in capital .............................................    10,143,001
    Accumulated deficit ....................................................    (2,050,536)
    Other comprehensive income - foreign currency ..........................       424,367
                                                                              ------------

        Total Stockholders' Equity .........................................     8,613,196
                                                                              ------------

        Total Liabilities and Stockholders' Equity .........................  $ 17,366,438
                                                                              ============


                  See notes to unaudited consolidated financial statements

                                            -3-
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                 DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (Unaudited)

                                                      For the Three Months Ended       For the Nine Months Ended
                                                               March 31,                       March 31,
                                                     ----------------------------    ----------------------------
                                                         2007            2006            2007            2006
                                                     ------------    ------------    ------------    ------------
                                                       Restated        Restated        Restated        Restated
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
NET REVENUES .....................................   $  3,304,682    $  4,706,959    $ 13,326,569    $ 14,198,378

COST OF SALES ....................................      2,986,343       4,075,040      12,202,786      12,958,989
                                                     ------------    ------------    ------------    ------------

GROSS PROFIT .....................................        318,339         631,919       1,123,783       1,239,389
                                                     ------------    ------------    ------------    ------------

OPERATING EXPENSES:
     Selling expenses ............................        110,298         120,383         248,244         281,195
     General and administrative ..................        679,813       1,207,975       1,169,935       1,483,906
                                                     ------------    ------------    ------------    ------------

        Total Operating Expenses .................        790,111       1,328,358       1,418,179       1,765,101
                                                     ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS .............................       (471,772)       (696,439)       (294,396)       (525,712)
                                                     ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE):
     Other income ................................         (9,803)         71,155          90,270         275,868
     Debt issuance costs .........................              -        (242,396)              -        (338,091)
     Settlement of debt ..........................              -      (1,337,801)              -      (1,337,801)
     Interest expense ............................        (52,186)     (1,605,860)       (128,949)     (2,237,352)
                                                     ------------    ------------    ------------    ------------

        Total Other Income (Expense) .............        (61,989)     (3,114,902)        (38,679)     (3,637,376)
                                                     ------------    ------------    ------------    ------------

LOSS BEFORE INCOME TAXES .........................       (533,761)     (3,811,341)       (333,075)     (4,163,088)

INCOME TAXES .....................................        (15,513)         (4,232)        (15,513)         (1,431)
                                                     ------------    ------------    ------------    ------------

NET LOSS BEFORE MINORITY INTEREST ................       (549,274)     (3,815,573)       (348,588)     (4,164,519)

MINORITY INTEREST IN LOSS OF SUBSIDIARY ..........              -          17,925               -          16,641
                                                     ------------    ------------    ------------    ------------

NET LOSS .........................................       (549,274)     (3,797,648)       (348,588)     (4,147,878)

OTHER COMPREHENSIVE INCOME:
   Unrealized foreign currency translation .......         71,753          28,764         424,367         149,437
                                                     ------------    ------------    ------------    ------------

COMPREHENSIVE INCOME (LOSS) ......................   $   (477,521)   $ (3,768,884)   $     75,779    $ (3,998,441)
                                                     ============    ============    ============    ============

NET LOSS PER COMMON SHARE
      Basic ......................................   $      (0.01)   $      (0.07)   $      (0.00)   $      (0.09)
                                                     ============    ============    ============    ============
      Diluted ....................................   $      (0.01)   $      (0.07)   $      (0.00)   $      (0.09)
                                                     ============    ============    ============    ============

      Weighted Common Shares Outstanding - Basic .     84,734,268      55,995,073      73,477,296      45,010,729
                                                     ============    ============    ============    ============
      Weighted Common Shares Outstanding - Diluted     84,734,268      55,995,073      73,477,296      45,010,729
                                                     ============    ============    ============    ============

                             See notes to unaudited consolidated financial statements

                                                        -4-
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                 DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)

                                                                                       For the Nine Months Ended
                                                                                               March 31,
                                                                                     ----------------------------
                                                                                         2007             2006
                                                                                     -----------      -----------
                                                                                       Restated         Restated
                                                                                     -----------      -----------
<S>                                                                                  <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss .................................................................     $  (348,588)     $(4,147,878)
      Adjustments to reconcile net loss to net cash used in
          operating activities:
          Depreciation and amortization ........................................         293,277          113,251
          Stock-based compensation .............................................         360,000        1,110,918
          Amortization of discount on debentures payable .......................               -        1,580,779
          Amortization of debt issuance costs ..................................               -          338,091
          Common stock and warrants issued in connection
              with debt settlement .............................................               -        1,785,039
          Allowance for doubtful accounts ......................................         (18,706)          83,290
          Minority interest ....................................................               -          (16,977)

      Changes in assets and liabilities:
          Accounts receivable ..................................................         890,249       (1,261,700)
          Inventories ..........................................................        (870,399)          33,163
          Prepaid and other current assets .....................................         410,429          292,749
          Other receivables ....................................................               -          535,112
          Advances to employees ................................................         (42,218)          10,221
          Advances on purchases ................................................      (1,942,010)      (1,098,418)
          Other assets .........................................................          78,759          (10,030)
          Accounts payable .....................................................       2,475,647          852,332
          Accrued expenses .....................................................      (1,803,539)        (780,448)
          Advances from customers ..............................................         (59,443)         (23,456)
                                                                                     -----------      -----------

NET CASH USED IN OPERATING ACTIVITIES ..........................................        (576,542)        (603,962)
                                                                                     -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Cash acquired in acquisition .............................................               -           33,654
      Increase in notes receivable .............................................        (420,484)               -
      Capital expenditures .....................................................        (533,405)        (389,594)
                                                                                     -----------      -----------

NET CASH FLOWS USED IN INVESTING ACTIVITIES ....................................        (953,889)        (355,940)
                                                                                     -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Due from related parties .................................................           3,498           23,000
      Proceeds from notes payable ..............................................       1,944,355          716,030
      Repayment of notes payable ...............................................      (2,078,231)        (193,830)
      Proceeds from exercise of stock warrants .................................           1,000                -
      Proceeds from sale of common stock .......................................       1,401,000                -
      Proceeds from debentures payable .........................................               -          503,500
      Prepayment of debentures payable .........................................               -         (275,328)
      Decrease in restricted cash ..............................................          12,918          367,906
      Placement fees paid ......................................................         (65,000)         (48,350)
                                                                                     -----------      -----------

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES ................................       1,219,540        1,092,928
                                                                                     -----------      -----------

EFFECT OF EXCHANGE RATE ON CASH ................................................          49,667           30,826
                                                                                     -----------      -----------

NET (DECREASE) INCREASE IN CASH ................................................        (261,224)         163,852

CASH  - beginning of year ......................................................         466,272          902,559
                                                                                     -----------      -----------

CASH - end of period ...........................................................     $   205,048      $ 1,066,411
                                                                                     ===========      ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid  for:
              Interest .........................................................     $   131,532      $   177,455
                                                                                     ===========      ===========
              Income Taxes .....................................................     $    15,513      $   113,391
                                                                                     ===========      ===========

      Non-cash investing and financing activities
              Issuance of common stock for future services .....................     $         -      $ 1,110,918
                                                                                     ===========      ===========
              Deferred discount and beneficial conversion on debentures payable      $         -      $   420,845
                                                                                     ===========      ===========
              Issuance of common stock for convertible debt ....................     $         -      $ 1,666,837
                                                                                     ===========      ===========
              Issurance  of c/s for liability in connection with acquisition ...     $         -      $   168,205
                                                                                     ===========      ===========

      Acquisition details:
              Fair value of assets acquired ....................................     $         -      $ 1,142,348
                                                                                     ===========      ===========
              Goodwill .........................................................     $         -      $   486,120
                                                                                     ===========      ===========
              Liabilities assumed ..............................................     $         -      $ 1,148,468
                                                                                     ===========      ===========
              Common stock issued in connecxtion with acquisition ..............     $         -      $   480,000
                                                                                     ===========      ===========


                             See notes to unaudited consolidated financial statements.

                                                        -5-
</TABLE>

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Dragon International Group Corp., (the "Company" or "Dragon Nevada") formerly
Retail Highway.com, Inc. ("Retail") was incorporated in the State of Nevada on
February 17, 1993 under the name LBF Corporation. Effective April 17, 1999,
Retail acquired certain assets to facilitate its entry into electronic commerce
and changed its name to "Retail Highway.com, Inc."

On or about August 13, 2004, Dragon Nevada entered into an Agreement and Plan of
Reorganization (the "Merger"), subsequently amended on September 30, 2004 and
effective October 4, 2004. Pursuant to the Merger, Dragon Nevada issued
24,625,000 shares of its common stock for the acquisition of all of the
outstanding capital stock of Dragon International Group Corp., a Florida
corporation ("Dragon Florida"). For financial accounting purposes, the Merger
has been treated as a recapitalization of Dragon Nevada with the former
shareholders of Dragon Nevada retaining 1,280,234 shares of common stock, or
approximately 5%. Furthermore, Dragon Nevada's prior management resigned their
respective positions and was replaced by management of Dragon Florida.

In connection with the Merger, Dragon Nevada undertook a reverse stock split of
its common stock, whereby one (1) share of common stock was issued in exchange
for every eight (8) shares of common stock outstanding immediately prior to
October 4, 2004, the effective date. All share and per-share information
included in this report has been presented to reflect this reverse stock split.

Additionally, as part of the Merger, Dragon Nevada amended its Articles of
Incorporation, whereby Dragon Nevada changed its name to "Dragon International
Group Corp.," as well as re-established its capitalization to the authorized
capital structure immediately prior to the Merger, which consisted at the date
of merger of 25,000,000 shares of Preferred Stock, par value $0.001 per share,
and 50,000,000 Common Shares, par value $.001 per share. On May 31, 2005, Dragon
Nevada increased its authorized common shares to 200,000,000.

Effective June 30, 2004, Dragon Florida entered into a Stock Purchase Agreement
to acquire 70% of Ningbo Dragon International Trade Co., Ltd. ("Ningbo Dragon"),
formerly known as Ningbo Anxin International Trade Co., Ltd. ("Anxin"). On
December 31, 2004, Dragon Florida acquired the remaining 30% of Ningbo Dragon.
In connection with the acquisition of the remaining 30% of Ningbo Dragon, the
Company issued an additional 4,000,000 shares of common stock. For financial
accounting purposes, the issuance of these shares was treated as part of the
recapitalization of Dragon Nevada and valued at par value. Ningbo Dragon,
established in 1997 and incorporated in the Peoples Republic of China ("PRC"),
is located in the city of Ningbo, located in the Zhejiang Province of the PRC,
approximately 200 miles south of Shanghai. The acquisition of Ningbo Dragon by
Ningbo Florida has been accounted for as a reverse acquisition under the
purchase method for business combinations. Accordingly, the combination of the
two companies is recorded as a recapitalization of Dragon Florida, and
ultimately Dragon Nevada, pursuant to which Ningbo Dragon is treated as the
continuing entity. Effective July 7, 2005 Ningbo Dragon changed its name to
Ningbo Dragon International Trading Co., Ltd.

                                       -6-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

THE COMPANY (CONTINUED)

Ningbo Dragon is involved in the pulp and paper industry, operating as a
manufacturer and distributor of paper and integrated packaging paper products.
Ningbo Dragon, through a subsidiary, holds an ISO9000 certificate and national
license to import and export products. In addition to its own operations, Ningbo
Dragon operates subsidiaries, including: (i) Ningbo City Jiangdong Yonglongxin
Special Paper Co., Ltd. ("Yonglongxin") which holds an ISO9000 certificate and
operates a civil welfare manufacturing facility in Fuming County of the Zhang'ai
Village in Ningbo, China. Yonglongxin operates the Xianyang Naite Research &
Development Center ("R&D Center"), created to develop, design and improve
production methods in the specialty packaging industry in China. (ii) Ningbo
Dragon holds a 60% interest in Hangzhou Yongxin Paper Co., Ltd. ("Yongxin").
Yongxin manufactures, sells, and distributes packaging materials for the tobacco
industry in China. (iii) Ningbo Dragon Packaging Technology Co., Ltd. ("Dragon
Packaging"), formerly known as Ningbo XinYi Paper Product Industrial Co., Ltd.
("XinYi"). XinYi changed its name on August 1, 2006. XinYi operates a pulp and
manufacturing facility. Dragon Nevada acquired Shanghai JinKui Packaging
Material Co., Ltd. ("JinKui") in June 2006. JinKui, a wholly owned subsidiary of
Dragon Nevada, manufactures specialized packaging products for the
pharmaceutical industry. Ningbo Dragon has a distribution network covering east
and central China.

Henceforth Dragon Nevada, Dragon Florida, Ningbo Dragon or any of our
subsidiaries are to be referred to as the "Company", unless reference is made to
the respective company for reference to events surrounding that company.


The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The accompanying financial statements for the interim
periods are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
periods presented. These financial statements should be read in conjunction with
the financial statements for the year ended June 30, 2006 and notes thereto
contained on Form 10-KSB/A of the Company as filed with the Securities and
Exchange Commission. The results of operations for the nine months ended March
31, 2007 are not necessarily indicative of the results for the full fiscal year
ending June 30, 2007.

Restatement of financial statements

The financial statements for the fiscal year ended June 30, 2006 and for the
three month period and nine month period ended March 31, 2007, have been
restated to correct the accounting treatment previously accorded certain
transactions.

     o    In July 2005, the Company entered into a consulting agreement with
          China Direct Investments, Inc. to provide business development and
          management service. In connection with this agreement, the Company
          issued 400,000 shares of common stock with a fair value on the date of
          grant of $.26 per share totaling $104,000. Initially, the Company had
          recorded deferred consulting expense and amortized the cost over the
          one year term of the agreement. Due to the absence of vesting and
          forfeiture provisions, as provided in EITF 96-18, the Company
          determined that the measurement date of the transaction was triggered
          and, absent a sufficiently large disincentive for non-performance,
          which was not provided in the agreement, the financial statements have
          been restated to expense the entire fair value of $104,000 as of the
          effective date of the agreement.

     o    For the fiscal year ended June 30, 2006 and for the three month period
          and nine month period ended March 31, 2007, the Company erroneously
          filed financial statements presenting in their statement of cash flows
          the decrease of restricted cash as an investing activity. The Company
          is now presenting this as a financing activity, in accordance with
          SFAS 95 "Statement of Cash Flows". This error did not affect the
          balance sheet as of March 31, 2007, nor the statements of operations
          for the three month period and nine month period ended March 31, 2007.
          With these corrections, the statements of cash flows for the nine
          month periods ended March 31, 2007 and March 31, 2006 reflect an
          increase in cash flows from financing activities of $1,219,540 and
          $1,092,928, respectively.

     o    For the year ended June 30, 2006, the Company erroneously did not
          value the reduction in exercise price of existing warrants (from $0.30
          to $0.15 for the 3,704,800 July 2005 Warrants and the reduction in
          exercise price from $0.40 to $0.15 for the 1,787,500 March 2005
          Warrants) associated with an induced conversion offer. The value of
          the reduction in exercise price was calculated at $447,238, and was
          reflected in the statement of operations as an increase in interest
          expense, and a resultant increase in net loss and net loss per share
          for the year ended June 30, 2006. The Company had recorded the
          valuation of the reduction in exercise price as an increase in
          additional paid-in capital.

     o    For the fiscal year ended June 30, 2006, the Company erroneously had
          deferred, over a three year period, $540,000 in consulting expense
          related to the issuance of 6,000,000 shares of its common stock to
          China Direct, Inc. and $395,675 related to the issuance of 4,700,000
          common stock purchase warrants exercisable at $0.15 per share over a
          five year period, also to China Direct, Inc. In addition, in February
          2006, the Company issued warrants to purchase 500,000 shares of common
          stock, exercisable for five years at $.15 per share, to Skybanc, Inc.
          for a one year financial advisory consulting agreement. The Company
          had incorrectly deferred the fair value of these warrants of $71,243
          over the contract term. The Company has restated the related financial
          statements to recognize the full expense of these agreements
          immediately upon entering into the consulting agreements in January
          2006 and February 2006, under the provisions of EITF 96-18 and SFAS
          123. These corrections resulted in an increase in consulting expense
          for year ended June 30, 2006 and a reduction in consulting expense for
          subsequent periods and deferred compensation on our balance sheet for
          a similar amount.

     o    In March 2007, pursuant to a consulting agreement, the Company issued
          4,000,000 shares of its common stock to Capital One Resource, Co.,
          Ltd., a wholly owned subsidiary of China Direct, Inc. Initially, the
          Company had recorded and reported this issuance incorrectly as a cost
          of raising capital related to the private placement of $1,500,000 in
          units sold during the quarter. The Company has restated the financial
          statements to recognize the full expense of this agreement immediately
          upon entering into the consulting agreement in March 2007 under the
          provisions of EITF 96-18 and SFAS 123. This correction resulted in an
          increase in consulting expenses for the quarter ended and nine month
          period ended March 31, 2007 of $360,000.

Components of the restatements are detailed in the following tables.

Balance sheet data as of March 31, 2007:

<TABLE>
<CAPTION>
                                                   As Filed    Adjustment to Restate       Restated
                                                -------------  ---------------------    -------------
<S>                                             <C>                  <C>                <C>
   Deferred Compensation                        $     594,307   (a)  $    (594,307)     $           -
   Additional paid-in capital                   $   9,335,763   (b)        447,238
                                                                (c)        360,000
                                                -------------        -------------      -------------
                                                $   9,335,763        $     807,238      $  10,143,001
                                                =============        =============      =============

   Accumulated deficit                          $    (648,991)  (a)  $    (854,941)
                                                                (b)       (447,238)
                                                                (d)        (99,366)
                                                -------------        -------------      -------------
                                                $    (648,991)       $  (1,401,545)     $  (2,050,536)
                                                =============        =============      =============
</TABLE>

Consolidated statements of operations for the three months ended March 31, 2007:

<TABLE>
<CAPTION>
                                                   As Filed    Adjustment to Restate       Restated
                                                -------------  ---------------------    -------------
<S>                                             <C>                  <C>                <C>
General and administrative expenses
(including stock-based consulting expenses)     $     406,691   (a)  $     (86,878)     $
                                                                (c)        360,000
                                                -------------        -------------      -------------
                                                $     406,691        $     273,122      $     679,813
                                                =============        =============      =============
Net loss per share
   Basic                                        $       (0.00)       $       (0.01)     $       (0.01)
   Diluted                                              (0.00)               (0.01)             (0.01)
</TABLE>

Consolidated statements of operations for the nine months ended March 31, 2007:

<TABLE>
<CAPTION>
                                                   As Filed    Adjustment to Restate       Restated
                                                -------------  ---------------------    -------------
<S>                                             <C>                  <C>                <C>
General and administrative expenses
(including stock-based consulting expenses)
                                                $   1,070,569   (a)  $    (260,634)     $
                                                                (c)        360,000
                                                -------------        -------------      -------------
                                                $   1,070,569   (d)  $      99,366      $   1,169,935
                                                =============        =============      =============
Net loss per common share
   Basic                                        $       (0.00)       $       (0.00)     $       (0.00)
   Diluted                                              (0.00)               (0.00)             (0.00)
</TABLE>

     (a)  To expense the entire fair value of common stock and warrants issued
          to China Direct Investment, Inc. in January 2006 and Skybanc, Inc. in
          February 2006, previously accounted for as deferred compensation and
          amortized as stock based consulting expenses and reverse amortization
          of the related expense in subsequent periods.

     (b)  To recognize the fair value of the reduction in exercise price of
          3,704,800 common stock purchase warrants (July 2005 warrants) from
          $.30 to $.15 and 1,787,500 common stock purchase warrants (March 2005
          warrants) from $.40 to $.15 in January 2006.

     (c)  To recognize the entire fair value of 4,000,000 shares of common stock
          issued to Capital One Resource Co., Ltd., a wholly owned subsidiary of
          China Direct, Inc. in March 2007. This transaction had previously been
          accounted for as a cost of raising capital rather than consulting
          expense.

     (d)  Represents net difference in stock based consulting expense
          recognized:

            Reverse amortization of previously capitalized
               consulting fees                                   $  (260,634)
            Consulting expense recognized in connection with
               January 2007 Stock issuance                           360,000
                                                                 -----------
                                                                 $    99,366
                                                                 ===========


Certain reclassifications have been made to the prior year to conform to the
current year presentation.


                                       -7-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates in 2007 and
2006 include the allowance for doubtful accounts of accounts receivable, the
useful life of property, plant and equipment and land use rights.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid instruments purchased with a maturity of three months or less
and money market accounts to be cash equivalents. At March 31, 2007, the Company
maintains a cash balance of $463,416. Of this amount $454,487 is held in China,
and $8,929 is held in the U.S. Of the cash balance of $454,487 held in China,
$258,368 is restricted. The amount of $258,368 is being held in a bank account
as collateral for certain letters of credit and is presented as restricted cash
on the accompanying balance sheet.

ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. At March 31, 2007, the allowance for doubtful accounts was
$164,381.

INVENTORIES

Inventories, consisting of raw materials and finished goods related to the
Company's products are stated at the lower of cost or market utilizing the
weighted average method.

ADVANCES ON PURCHASES

At March 31, 2007, advances on purchases amounted to $2,747,672. This amount
consists of a prepayment by the Company for merchandise that had not yet been
shipped to the Company. The Company will recognize the payment as expenses when
the Company takes delivery of the goods.

INTANGIBLE ASSETS / INTELLECTUAL PROPERTY

The Company amortizes the intangible assets and intellectual property acquired
in connection with their various acquisitions. The Company amortizes these
assets based on expected useful lives of these assets, based on Company
management projecting forward future revenue and expense streams of these
acquired entities. For the nine months ended March 31, 2007 and 2006,
amortization expenses for intangible assets amounted to $79,775 and $0,
respectively.

                                       -8-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

LONG - LIVED ASSETS

The Company reviews its long-lived assets for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Long-lived assets under certain circumstances are reported at the
lower of carrying amount or fair value. Assets to be disposed of and assets not
expected to provide any future service potential to the company are recorded at
the lower of carrying amount or fair value less cost to sell. To the extent
carrying values exceed fair values; an impairment loss is recognized in
operating results.

STOCK-BASED COMPENSATION

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity based compensation issued to employees. The
Company has adopted FAS No.123R in the first quarter of fiscal year 2006.

NET INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during each period. The following
table presents a reconciliation of basic and diluted earnings per share:


<TABLE>
<CAPTION>
                                                    For the Three Months            For the Nine Months
                                                       Ended March 31,                 Ended March 31,
                                                    2007            2006            2007            2006
                                                ------------    ------------    ------------    ------------
                                                  Restated        Restated        Restated        Restated
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Net loss ....................................   $   (549,274)   $ (3,797,648)   $   (348,588)   $ (4,147,878)
Weighted average shares outstanding - basic .     84,734,268      55,995,073      73,477,296      45,010,729
Loss per common share - basic ...............   $      (0.01)   $      (0.07)   $      (0.00)   $      (0.09)
                                                ============    ============    ============    ============

Net loss ....................................   $   (549,274)   $ (3,797,648)   $   (348,588)   $ (4,147,878)
                                                ============    ============    ============    ============
Weighted average shares outstanding - basic .     84,734,268      55,995,073      73,477,296      45,010,729
Effect of dilutive securities
   Unexercised warrants .....................              -               -               -               -
   Convertible debentures ...................              -               -               -               -
   Convertible note payable .................              -               -               -               -
                                                ------------    ------------    ------------    ------------
Weighted average shares outstanding - diluted     84,734,268      55,995,073      73,477,296      45,010,729
                                                ============    ============    ============    ============
Loss per common share - diluted .............   $      (0.01)   $      (0.07)   $      (0.00)   $      (0.09)
                                                ============    ============    ============    ============
</TABLE>



                                       -9-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

REVENUE RECOGNITION

The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectibility is reasonably assured. The
following policies reflect specific criteria for the various revenue streams of
the Company:

The Company's revenues from the sale of products are recorded when the goods are
shipped, title passes, and collectibility is reasonably assured.

SHIPPING AND HANDLING COSTS

The Company accounts for shipping and handling costs as a component of selling
expenses.

FOREIGN CURRENCY TRANSLATION

Transactions and balances originally denominated in U.S. dollars are presented
at their original amounts. Transactions and balances in other currencies are
converted into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in
determining net income or loss.

For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive loss. As
of March 31, 2007, the exchange rate for the Chinese dollar or Renminbi ("RMB")
was 1 United States dollar for 7.7409 RMB.

The functional and reporting currency is the U.S. dollar. The functional
currency of the Company's Chinese subsidiaries is the local currency, the
Chinese dollar or Renminbi ("RMB"). The financial statements of the subsidiaries
are translated into United States dollars using year end rates of exchange for
assets and liabilities, and average rates of exchange for the period for
revenues, costs, and expenses. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not material during the periods presented. The cumulative translation
adjustment and effect of exchange rate changes on cash at March 31, 2007 and
2006 were $49,667 and $30,826, respectively.

                                      -10-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions in the
United States and China. At March 31, 2007, the Company, held a total of
$463,416 in bank deposits. Of this amount $454,487 is held in China, and $8,929
is held in the U.S. Of the cash balance of $454,487 held in China, $258,368 is
restricted. The amount of $258,368 is being held in a bank account as collateral
for certain letters of credit and is presented as restricted cash on the
accompanying balance sheet. The remaining unrestricted cash balance of $196,119
held in bank deposits in China may not be insured. The Company has not
experienced any losses in such accounts through March 31, 2007. The Company also
performs ongoing credit evaluations of its customers to help further reduce
credit risk.

NOTE 2 - INVENTORIES

At March 31, 2007, inventories consisted of the following:

                         Raw materials    $ 1,532,320
                         Finished goods     2,631,925
                                          -----------
                                          $ 4,164,245
                                          ===========

NOTE 3 - LAND USE RIGHTS

In connection with the acquisition of Ningbo Dragon Packaging Technology Co.,
Ltd. ("Dragon Packaging"), the Company acquired land use rights pursuant to an
agreement with the Chinese government. At March 31, 2007 the land use rights are
valued at $2,667,954. Under the terms of the agreement, the Company has rights
to use certain land until March 4, 2053. The Company amortized these land use
rights over the contract period beginning July 1, 2005. For the nine months
ended March 31, 2007, amortization expenses amounted to $44,457.

    Land Use Rights                   Estimated Life 46 year    $ 2,667,954
    Less: Accumulated Amortization                                   99,339
                                                                -----------
                                                                $ 2,568,615
                                                                ===========

                                      -11-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 4 - PROPERTY AND EQUIPMENT

At March 31, 2007, property and equipment consisted of the following:

                                      Estimated Life
Auto and truck ...................      10 Years        $   197,981
Manufacturing equipment ..........       5 Years          1,788,040
Building and improvements ........      20 Years          1,119,403
Office equipment .................       5 Years             61,124
                                                        -----------
                                                          3,166,548
Less: Accumulated depreciation ...                         (660,901)
                                                        -----------
                                                        $ 2,505,647
                                                        ===========

For the nine months ended March 31, 2007 and 2006, depreciation expense for
property and equipment amounted to $169,045 and $113,251, respectively.

                                      -12-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 5 - NOTES PAYABLE

Notes payable to Bank of Agriculture, due on August 15, 2007.
Interest only payable monthly at a rate of 6.732%. Secured by
equipment and personal guarantee of officer. .......................  $  129,184

Notes payable to Bank of Agriculture, due on August 15, 2007.
Interest only payable monthly at a rate of 6.732%. Secured by
equipment and personal guarantee of officer. .......................     129,184

Notes payable to Bank of Agriculture, due on November 15, 2007.
Interest only payable monthly at a rate of 6.732%. Secured by
equipment and personal guarantee of officer. .......................     542,572

Notes payable to Bank of Agriculture, due on November 15, 2007.
Interest only payable monthly at a rate of 6.732%. Secured by
equipment and personal guarantee of officer. .......................     645,920

Notes payable to Bank of Agriculture, due on November 15, 2007.
Interest only payable monthly at a rate of 7.344%. Secured by
equipment and personal guarantee of officer. .......................     129,184

Notes payable to Bank of Agriculture, due on November 15, 2007.
Interest only payable monthly at a rate of 7.344%. Secured by
equipment and personal guarantee of officer. .......................     387,552

Bank acceptances payable. Non-interest bearing. Secured by
equipment and personal guarantee of officer. .......................     516,735

Notes Payable to two shareholders, interest only payable annually
at a rate of 8%, $100,000 due on January 10, 2008 and $48,000 due
on April 11, 2008 ..................................................     148,000
                                                                      ----------

Total ..............................................................   2,628,331

Less Current Portion ...............................................   2,580,331
                                                                      ----------

Long-Term Portion ..................................................  $   48,000
                                                                      ==========

                                      -13-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 6 - STOCKHOLDERS' EQUITY

COMMON STOCK


In January 2006, as a result of the repricing of 3,704,800 warrants from $.30
per share to $.15 per share and 1,787,500 warrants from $.40 per share to $.15
per share, the Company recognized an expense of $447,238, representing the
incremental fair value of the repricing under the provisions of SFAS 123(R). The
fair value of the repricing was calculated using the Black-Scholes
option-pricing model using the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 4.39%, volatility of 171% and
expected term of 4.2 years for the 3,704,800 July 2005 warrants and 4 years for
the 1,787,500 March 2005 warrants.

On March 8, 2007, the Company entered into a consulting agreement with Capital
One Resource Co., Ltd., a wholly owned subsidiary of China Direct, Inc. Under
the terms of the agreement, the Company issued 4,000,000 shares of its common
stock with a fair value of $0.09 per share totaling $360,000. Due to the absence
of vesting and forfeiture provisions, as provided in EITF 96-18, or a
sufficiently larger disincentive for non-performance, the entire fair value of
the shares was expensed on the effective date of the agreement.


On October 30, 2006, the Company received gross proceeds of $100,000 from the
sale of 2,000,000 shares of Common Stock to H.K. Mingtai Investment Co., Ltd., a
financial institution in China.

On January 30, 2007 (the "January 2007 initial Offering"), the Company completed
an initial $750,000 units of securities consisting of 8,333,336 shares of Common
Stock, common stock purchase warrants to purchase 8,333,336 shares of common
stock exercisable at a$.125 per share for a period of five years, and common
stock purchase warrants to purchase 4,166,670 shares of common stock exercisable
at $.15 per share for a period of five years.

On February 27, 2007 (the "January 2007 second Offering"), the Company completed
the sale of an additional $750,000 financing of units of its securities
consisting of 8,333,336 shares of Common Stock, common stock purchase warrants
to purchase 8,333,336 shares of common stock exercisable at a$.125 per share for
a period of five years, and common stock purchase warrants to purchase 4,166,670
shares of common stock exercisable at $.15 per share for a period of five years.

In total the Company sold $1,500,000 of units (net proceeds of $1,301,000) which
consisted of 16,666,672 shares of Common Stock, and common stock purchase
warrants to purchase 16,666,672 shares of common stock exercisable at $.125 per
share for a period of five years and common stock purchase warrants to purchase
8,333,340 shares of common stock exercisable at $.15 per share for a period of
five years. The Common Stock was purchased at a price of $.09 per share.

COMMON STOCK PURCHASE WARRANTS

A summary of the status of the Company's outstanding stock warrants as of March
31, 2007 and changes during the period then ended is as follows:

                                                                   Weighted
                                                                   Average
                                                                   Exercise
                                                     Shares        Price
                                                   ----------      --------
      Outstanding at July 1, 2006 ...........      16,834,600      $ 0.147
      Granted ...............................      26,666,682        0.130
      Exercised .............................         186,000        0.010
      Forfeited .............................               -            -
                                                   ----------      -------
      Outstanding at March 31, 2007 .........      43,315,282      $ 0.139
                                                   ==========      =======
      Warrants exercisable at end of period .      43,315,282      $ 0.139
                                                   ==========      =======
      Weighted-average fair value of warrants
       granted during the period ............                      $ 0.130
                                                                   =======

                                      -14-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK WARRANTS (CONTINUED)

The following information applies to all warrants outstanding at March 31, 2007:

                               Warrants Outstanding        Warrants Exercisable
                             -------------------------     ---------------------
              Weighted
               Average       Weighted         Weighted
Range of      Remaining      Average           Average
Exercise     Contractual     Exercise         Exercise
Prices         Shares        Life (Years)       Price        Shares       Price
--------     -----------     ------------     --------     ----------    -------
 $0.300         150,000         3.28           $ 0.30         150,000    $ 0.30
 $0.150      24,517,940         3.86           $ 0.15      24,517,940    $ 0.15
 $0.125      18,333,342         4.88           $ 0.125     18,333,342    $ 0.125
 $0.010         314,000         3.28           $ 0.01         314,000    $ 0.01

NOTE 7 - OPERATING RISK

(a) Country risk

The Company's revenues will be mainly derived from the sale of pulp, paper and
packaging products in the Peoples Republic of China (PRC). The Company hopes to
expand its operations to countries outside the PRC, however, such expansion has
not been commenced and there are no assurances that the Company will be able to
achieve such an expansion successfully. Therefore, a downturn or stagnation in
the economic environment of the PRC could have a material adverse effect on the
Company's financial condition.

(b) Products risk

In addition to competing with other companies, the Company could have to compete
with larger U.S. or foreign companies who have greater funds available for
expansion, marketing, research and development and the ability to attract more
qualified personnel if access is allowed into the PRC market. If U.S. or foreign
companies do gain access to the PRC markets, they may be able to offer products
at a lower price. There can be no assurance that the Company will remain
competitive should this occur.

                                      -15-

<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007

NOTE 7 - OPERATING RISK (CONTINUED)

(c) Exchange risk

The Company can not guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of Chinese
Renminbi converted to U.S. dollars on that date. The exchange rate could
fluctuate depending on changes in the political and economic environments
without notice.

(d) Political risk

Currently, PRC is in a period of growth and is openly promoting business
development in order to bring more business into PRC. Additionally PRC allows a
Chinese corporation to be owned by a United States corporation. If the laws or
regulations are changed by the PRC government, the Company's ability to operate
the PRC subsidiaries could be affected.

(e) Key personnel risk

The Company's future success depends on the continued services of executive
management in China. The loss of any of their services would be detrimental to
the Company and could have an adverse effect on business development. The
Company does not currently maintain key-man insurance on their lives. Future
success is also dependent on the ability to identify, hire, train and retain
other qualified managerial and other employees. Competition for these
individuals is intense and increasing.

(f) Performance of subsidiaries risk

All of the Company's revenues will be derived via the operations of the
Company's Chinese subsidiaries. Economic, governmental, political, industry and
internal company factors outside of the Company's control affect each of the
subsidiaries. If the subsidiaries do not succeed, the value of the assets and
the price of our common stock could decline. Some of the material risks relating
to the partner companies include the fact that the subsidiaries are located in
China and have specific risks associated with that and the intensifying
competition for the Company's products and services and those of the
subsidiaries.

                                      -16-

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following analysis of our consolidated financial condition and
results of operations for the nine months ended March 31, 2007 and 2006
(unaudited) should be read in conjunction with the consolidated financial
statements, including footnotes, and other information presented elsewhere in
this Form 10QSB.

OVERVIEW

         Through our subsidiaries, we manufacture and distribute assorted
industrial paper and packaging products. All of our operations are located in
the People's Republic of China (the "PRC").

         Our operations are conducted through subsidiaries located in China. We
are a manufacturer and distributor of a variety of paper products and packaging
materials. Ningbo Dragon established in 1997, is located in Ningbo, of the
Zhejiang Province in China, approximately 200 miles south of Shanghai. The main
consumers of our products are packaging companies for the tobacco industry,
cosmetics industry, pharmaceutical industry, as well as the wine and spirits,
and the beverage industry. Our products are used both as a finished product and
as well as a raw material to manufacture a variety of paper products and
packaging materials.

         Although we operate various entities, we identify our products under
one product segment. The various entities combine their various resources to
support the manufacture and distribution of paper and pulp related products.

         Dragon International Group Corp., a Nevada corporation ("Dragon
Nevada"), is a holding company with interests in the following subsidiaries:

-        Dragon International Group Corp., a Florida corporation ("Dragon
Florida") is a wholly owned subsidiary of Dragon Nevada. Dragon Nevada acquired
a 100% interest in Dragon Florida on October 4, 2004.

-        Ningbo Dragon International Trade Co., Ltd., ("Ningbo Dragon"),
formerly known as Ningbo Anxin International Trade Co., Ltd., was created on
August 29, 1997. Ningbo Dragon is a wholly owned subsidiary of Dragon Florida.
Dragon Florida acquired a 70% interest in Ningbo Dragon on June 21, 2004. On
December 31, 2004 Dragon Nevada acquired the remaining 30% interest in Ningbo
Dragon.

-        Ningbo City Jiangdong Yonglongxin Special Paper Co., Ltd.
("Yonglongxin") was created as a wholly owned subsidiary of Ningbo Dragon on
November 8, 1999. Xianyang Naite Research and Development Center ("R&D Center")
was acquired by Yonglongxin on August 1, 2005.

-        Ningbo Dragon Packaging Technology Co., Ltd., ("Dragon Packaging")
formerly known as Ningbo XinYi Paper Product Industrial Co., Ltd., is a wholly
owned subsidiary of Ningbo Dragon. Ningbo Dragon acquired a 100% interest in
Dragon Packaging on June 1, 2005.

-        Hangzhou Yongxin Paper Co., Ltd., ("Yongxin") is a subsidiary, of which
Ningbo Dragon International Trade Co., Ltd., ("Ningbo Dragon"), holds a 60%
interest. Ningbo Dragon acquired a 60% interest on July 1, 2005

-        Shanghai JinKui Packaging Material Co., Ltd. ("JinKui") is a wholly
owned subsidiary of Dragon Nevada. Dragon Nevada acquired a 100% interest in
JinKui on June 30, 2006.

                                      -17-

<PAGE>

         Our operations are conducted through Ningbo Dragon International Trade
Co., Ltd. ("Ningbo Dragon"), our wholly owned subsidiary. Ningbo Dragon,
established in 1997, is located in the Zhejiang Province of Ningbo in China,
approximately 200 miles south of Shanghai. Ningbo Dragon is involved in the pulp
and paper packaging material industry, operating as a manufacturer and
distributor of paper and integrated packaging paper products. Ningbo Dragon,
through a subsidiary, holds an ISO9000 certificate and national license to
import and export products. In addition to its own operations, Ningbo Dragon
operates four subsidiaries, including: (i) Ningbo City Jiangdong Yonglongxin
Special Paper Co., Ltd. ("Yonglongxin") which holds an ISO9000 certificate and
operates a civil welfare manufacturing facility in Fuming County of the Zhang'ai
Village in Ningbo, China 315040; Yonglongxin operates the Xianyang Naite
Research & Development Center ("R&D Center"), created to develop, design and
improve production methods in the specialty packaging industry in China. (ii)
Hangzhou Yongxin Paper Co., Ltd. ("Yongxin") manufactures, sells, and
distributes cigarette packaging materials, (iii) Ningbo Dragon Packaging
Technology Co., Ltd. ("Dragon Packaging"), is a manufacturer of specialized
packaging materials products for the pharmaceutical and food industry, and (iv)
Shanghai JinKui Packaging Material Co., Ltd. ("JinKui"), is a manufacturer of
specialized packaging products for the pharmaceutical and food industry. Ningbo
Dragon has a distribution network covering east and central China. Unless
otherwise indicated, all references to our Company in this report include our
subsidiary companies.

Below is an organization chart of Dragon Nevada:

[GRAPHIC OMITTED]

                                      -18-

<PAGE>

         Ningbo Dragon International Trade Co., Ltd. ("Ningbo Dragon") formerly
known as Ningbo Anxin International Trade Co., Ltd. operates as an agent of pulp
and paper goods. Ningbo Dragon resells pulp and paper products manufactured
overseas and distribute these products within China.

         Jiangdong Yonglongxin Special Paper Co., Ltd. ("Yonglongxin") is a
manufacturer of specialty paperboard products. It operates a factory in Fuming
County of the Zhang'ai Village in Ningbo, China.

         Hangzhou Yongxin Paper Co., Ltd. ("Yongxin"), which manufactures, sells
and distributes cigarette packing materials. Yongxin, established in 2003, is
located in the Hengjie Village of Liuxia Town Hangzhou, of the Zhejiang Province
in China. In August 2005, we issued 1,000,000 shares of our common stock to
acquire 60% of Yongxin. Prior to the acquisition, Yongxin was a competitor of
Yonglongxin. Yongxin's underlying business had stalled mainly due a lack of
working capital.

         Ningbo Dragon Packaging Technology Co., Ltd. ("Dragon Packaging")
formerly known as Ningbo XinYi Paper Product Industrial Co., Ltd. ("XinYi"), is
involved in the paper industry, operating a manufacturing facility of pulp and
paper products. As a result of this acquisition we have acquired land on which
we have constructed a new 91,000 square foot facility.

         Xianyang Naite Research & Development Center (the "R&D Center"), was
created to develop production methods in the specialty paper packaging industry
in China.

         Even though we are a U.S. company, because all of our operations are
located in the PRC, we face risks associated with doing business in that
country. These risks, among others, include risks associated with the ongoing
transition from state business ownership to privatization, operating in a
cash-based economy, various government policies, unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
challenges in staffing and managing operations in a communist country,
differences in technology standards, employment laws and business practices,
longer payment cycles and problems in collecting accounts receivable, changes in
currency exchange rates and currency exchange controls. We are unable to control
the vast majority of these risks associated both with our operations and the
country in which they are located and these risks could result in significant
declines in our revenues and adversely affect our ability to continue as a going
concern.

FOREIGN EXCHANGE CONSIDERATIONS

         Since revenues from our operations in the PRC accounted for 100% of our
net revenues for the nine months ended March 31, 2007 and March 31, 2006, how we
report net revenues from our PRC-based operations is of particular importance to
understanding our financial statements. Transactions and balances originally
denominated in U.S. dollars are presented at their original amounts.
Transactions and balances in other currencies are converted into U.S. dollars in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation", and are included in determining net income or
loss. For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the prevailing exchange rate on the respective balance sheet date.

         Revenues and expenses are translated at weighted average exchange rates
for the period to approximate translation at the exchange rates prevailing at
the dates those elements are recognized in the financial statements. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining comprehensive
loss.

                                      -19-

<PAGE>

         The functional currency of our Chinese subsidiaries is the local
currency, the Renminbi or the Chinese dollar, ("RMB"). The financial statements
of our subsidiaries are translated to U.S. dollars using year-end rates of
exchange for assets and liabilities, and average rates of exchange for the
period for revenues, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions are included in the consolidated statements of
operations and were not material during the periods presented. The cumulated
translation adjustment and effect of exchange rate changes on cash at March 31,
2007 and 2006 were $49,667 and $30,826 respectively. Until 1994, the Renminbi
experienced a gradual but significant devaluation against most major currencies,
including the U.S. dollar. There was a significant devaluation of the Renminbi
on January 1, 1994 in connection with the replacement of the dual exchange rate
system with a unified managed floating rate foreign exchange system. Since 1994,
the value of the Renminbi relative to the U.S. dollar has remained stable;
appreciating slightly against the U.S. dollar. On July 21, 2005, the PRC
announced that the Renminbi would be pegged to a basket of currencies rather
than just tied to a fixed exchange rate to the U.S. dollar. It also increased
the value of its currency 2% higher against the U.S. dollar, effective
immediately

         If any devaluation of the Renminbi were to occur in the future, returns
on our operations in China, which are expected to be in the form of Renminbi,
will be negatively impacted upon conversion to U.S. dollars. Although we attempt
to have most future payments, mainly repayments of loans and capital
contributions denominated in U.S. dollars, if any increase in the value of the
Renminbi were to occur in the future, our product sales in China and in other
countries may be negatively affected.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         We have identified critical accounting policies that, as a result of
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved could result in material changes to
our financial position or results of operations under different conditions or
using different assumptions.

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates in 2006 and 2005 include the allowance for
doubtful accounts and the useful life of property, plant and equipment.

         Inventories, consisting of raw materials and finished goods related to
our products are stated at the lower of cost or market utilizing the weighted
average method.

         Our financial instruments consist of accounts receivable, accounts
payable and long-term debt. The fair values of financial instruments approximate
their recorded values. Fair value of loans payable to security holders and
balances of bank lines of credit, in the circumstances, are not reasonably
determinable.

         We review the carrying value of property and equipment and land-use
rights for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.

                                      -20-

<PAGE>

         Details regarding our use of these policies and the related estimates
are described in the accompanying financial statements as of March 31, 2007.
During the nine month period ended March 31, 2007, there have been no material
changes to our critical accounting policies that impacted our consolidated
financial condition or results of operations.

REVENUE RECOGNITION

         Dragon Nevada follows the guidance of the Securities and Exchange
Commission's Staff Accounting Bulletin 104 for revenue recognition. In general,
the Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectibility is reasonably assured.
The following policies reflect specific criteria for the various revenue streams
of the Company:

         Dragon Nevada's revenues from the sale of products are recorded when
the goods are shipped, title passes, and collectibility is reasonably assured.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No.48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No.109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires that entities
recognize the impact of a tax position in their financial statements, if that
position is more likely than not to be sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006. Dragon Nevada believes that the
adoption of FIN 48 will not have a material effect on Dragon Nevada's financial
statements.

         In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. The Statement is to be effective for Dragon Nevada's financial
statements issued in 2008; however, earlier application is encouraged. Dragon
Nevada is currently evaluating the timing of adoption and the impact that
adoption might have on its financial position or results of operations.

         In September 2006, the Staff of the SEC issued SAB No. 108:
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements". SAB No. 108 provides
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of determining whether
the current year's financial statements are materially misstated. The SEC staff
believes registrants must quantify errors using both a balance sheet and income
statement approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. This Statement is effective for fiscal years ending
after November 15, 2006. The adoption of SAB No. 108 did not have a significant
impact on Dragon Nevada's consolidated financial statements.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities-including an amendment of FAS
115" (Statement 159). Statement 159 allows entities to choose, at specified
election dates, to measure eligible financial assets and liabilities at fair
value that are not otherwise required to be measured at fair value. If a company
elects the fair value option for an eligible item, changes in that item's fair
value in subsequent reporting periods must be recognized in current earnings.
Statement 159 is effective for fiscal years beginning after November 15, 2007.
We are currently evaluating the potential impact of Statement 159 on our
financial statements. We do not expect the impact will be material.

                                      -21-

<PAGE>

RESULTS OF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 2006

         The following table provides certain comparative information on our
results of operations for the nine months ended March 31, 2007 and nine months
ended March 31, 2006


                                     Nine Months Ended March 31,
                                     ---------------------------
                                         2007           2006             $
                                      (Unaudited)    (Unaudited)      Change
                                     ------------   ------------   ------------
                                       Restated       Restated
                                     ------------   ------------
Net Revenues ......................  $ 13,326,569   $ 14,198,378   $   (871,809)
Cost of Sales .....................    12,202,786     12,958,989       (756,203)
                                     ------------   ------------   ------------
Gross profit ......................     1,123,783      1,239,389       (115,606)
Selling expenses ..................       248,244        281,195        (32,951)
General and administrative expenses     1,169,935      1,483,906       (313,971)
                                     ------------   ------------   ------------
Total operating expenses ..........     1,418,179      1,765,101       (346,922)
Loss from operations ..............      (294,396)      (525,712)       231,316
                                     ------------   ------------   ------------
Total other income (expense) ......       (38,679)    (3,637,376)     3,598,697
                                     ------------   ------------   ------------
Net loss ..........................  $   (348,588)  $ (4,147,878)  $  3,799,290

<TABLE>
<CAPTION>
                                                       Nine Months Ended March 31,
                                                       ---------------------------
                                                           2007            2006          %
                                                       (Unaudited)     (Unaudited)     Change
                                                       -----------     -----------     ------
                                                         Restated        Restated
                                                       -----------     -----------
<S>                                                       <C>             <C>           <C>
OTHER KEY INDICATORS:
Cost of sales as a percentage of revenues ..........      91.6%           91.3%         0.3%
Gross profit margin ................................       8.4%            8.7%        -0.3%
Selling expenses as a percentage of revenues .......       1.9%            2.0%        -0.1%
GA expenses as a percentage of revenues ............       8.7%           10.4%        -3.7%
Total operating expenses as a percentage of revenues      13.2%           12.4%         0.8%
</TABLE>


         Although we operate various entities, we identify our products under
one product segment. The various entities combine their various resources to
support the manufacture and distribution of paper and pulp related products.

REVENUES

         During the nine months ended March 31, 2007, we generated revenues
$13,326,569, as compared to revenues of $14,198,378 for the nine months ended
March 31, 2006, a decrease of $871,809 or approximately 6.1%. For the nine
months ended March 31, 2007, we recorded revenues of approximately $1,097,365
from our JinKui subsidiary acquired effective June 30, 2006. This increase in
our consolidated revenue was offset by a decrease in revenues related to Ningbo
Dragon, Yonglongxin and Yongxin.

                                      -22-

<PAGE>

         During the nine months ended March 31, 2007, Ningbo Dragon generated
revenues of $9,965,382, as compared to revenues of $10,341,050 for the nine
months ended March 31, 2006, a decrease of $375,668. This decrease is a result
of the loss of a customer, Indonesia APP Group Company, during the current
quarter. For the nine months ended March 31, 2007 this customer accounted for
approximately $5,824,000. For the nine months ended March 31, 2006 this customer
accounted for approximately $6,200,000 of revenues.

         During the nine months ended March 31, 2007, Yonglongxin generated
revenues of $2,175,670, as compared to revenues of $3,820,966 for the nine
months ended March 31, 2006, a decrease of $1,645,296, or approximately 43.1%.
This decrease in sales was caused by the Chinese New Year holiday, the recent
relocation to our new manufacturing facility and related repairs and maintenance
which interrupted our production activities.

COST OF SALES AND GROSS PROFIT

         During the nine months ended March 31, 2007, cost of goods sold was
$12,202,786, compared to $12,958,989 during the nine months ended March 31,
2006, a decrease of $756,203, or approximately 5.8%. As a percentage of net
revenues, our cost of goods sold for the nine months ended March 31, 2007 was
91.6%, as compared to 91.3% for the nine months ended March 31, 2006, a 3 basis
point increase.. We expect our cost of goods sold will remain consistent with
historical measures.

         For the nine months ended March 31, 2007, gross profit for the period
was $1,123,783, as compared to gross profit of $1,239,389 for the nine months
ended March 31, 2006, a decrease of $115,606. For the nine months ended March
31, 2007, gross profit on a percentage basis decreased to approximately 8.4%
from 8.7% for the comparable period ended March 31, 2006, a 3 basis point
decrease. Our margins have decreased slightly due to an increase in cost of
goods sold. As mentioned earlier we expect our cost of goods sold will be
consistent with our historical measures.

TOTAL OPERATING EXPENSES


         For the nine months ended March 31, 2007, total operating expenses
amounted to $1,418,179 or 10.6% of net revenues compared to $1,765,101 or
approximately 12.4% of net revenues for the nine months ended March 31, 2006, a
decrease of $346,922. This decrease was attributable to the following:

         o a decrease in general and administrative expenses between the periods
of $313,971, primarily due to a decrease in stock-based consulting expenses
recognized between the periods, which was offset, in part, by increases in other
components.

During fiscal 2006, the Company issued 6 million common shares and 4.7 million
common stock purchase warrants exercisable at $0.15 per share for a period of
five years. The common shares and warrants had a fair value of $540,000 and
$395,675, respectively, which was expensed upon entering into the agreement. In
fiscal 2007, the Company issued 4 million common shares under a consulting
agreement with a fair value of $360,000, which was expensed on the contract
date. The difference between the periods of $575,675 is reflected in the
reduction in general and administrative expenses for both the quarterly and nine
month comparative periods.

         o an increase of $86,575 in non stock-based consulting expenses and
professional fees. At March 31, 2007 consulting expenses and professional fees
were $105,858, as compared to a $19,283 for the nine months ended March 31,
2006. For the nine months ended March 31, 2006 we received a credit of $34,325
related to consulting expenses.


         o an increase of $15,281 in depreciation and amortization expenses.
For the nine months ended March 31, 2007, amortization expenses amounted to
$87,228 as compared to $71,947 for the nine months ended March 31, 2006. The
increase is primarily attributable to amortization of land use rights and
goodwill we inherited in connection with our acquisition of JinKui in June 2006,
and

                                      -23-

<PAGE>


         o an increase of $47,696 in salary and wage expenses. For the nine
months ended March 31, 2007, salary and wage expenses amounted to $137,908, as
compared to $90,212 for the nine months ended March 31, 2006. During the nine
months ended March 31, 2007 we incurred $39,693 in salary and wages associated
with JinKui that was acquired effective June 30, 2006. During the nine months
ended March 31, 2006 the Company increased its wage and salary rate by
approximately 40%, and this new wage rate is reflected in our expenses for the
nine months ended March 31, 2007. The Company evaluates the wage and salary
expenses each year.


         o These increases were offset by a decrease of $63,410 in bad debt
recovery. At March 31, 2007 we reflected a bad debt recovery of ($24,411) as
compared to $38,999 at March 31, 2006.



         Selling expenses decreased by $32,951. For the nine months ended
March 31, 2007, selling expenses amounted to $248,244, as compared to $281,195
for the nine months ended March 31, 2006. This decrease is attributable to the
decrease in shipping costs of approximately $20,214, which was caused by a
decrease in shipping costs associated with discounts earned by shipping larger
shipments on a per unit basis, and a decrease in fuel charges based on lower
fuel costs realized during the nine months ended March 31, 2007 as compared to
the nine months ended March 31, 2006.


TOTAL OTHER EXPENSE


         For the nine months ended March 31, 2007, total other expenses
decreased $3,598,697. For the nine months ended March 31, 2007 total other
expenses were $38,679, as compared to total other expense of $3,637,376 for the
nine months ended March 31, 2006. This decrease in total other expense of
$3,598,697 is primarily associated with the following:

         In January 2006, as a result of the repricing of 3,704,800 warrants
from $.30 per share to $.15 per share and 1,787,500 warrants from $.40 per share
to $.15 per share, the Company recognized an expense of $447,238, representing
the incremental fair value of the repricing under the provisions of SFAS 123(R).
The fair value of the repricing was calculated using the Black-Scholes
option-pricing model using the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 4.39%, volatility of 171% and
expected term of 4.2 years for the 3,704,800 July 2005 warrants and 4 years for
the 1,787,500 March 2005 warrants.

         On March 8, 2007, the Company entered into a consulting agreement with
Capital One Resource Co., Ltd., a wholly owned subsidiary of China Direct, Inc.
Under the terms of the agreement, the Company issued 4,000,000 shares of its
common stock with a fair value of $0.09 per share totaling $360,000. Due to the
absence of vesting and forfeiture provisions, as provided in EITF 96-18, or a
sufficiently larger disincentive for non-performance, the entire fair value of
the shares was expensed on the effective date of the agreement.


      *  a decrease of $1,337,801 in expenses related to the settlement of debt.
For the nine months ended March 31, 2007 we reflect debt settlement expenses of
$0 as compared to a loss of $1,337,801 for the nine months ended March 31, 2006.
The debt settlement costs were related to a conversion offer made to the
investors from prior offerings in March of 2005 and July of 2005. In accordance
with FAS No. 84, "Induced Conversion of Convertible Debt", an expense was
recognized equal to the fair value of the additional securities and other
consideration issued to induce conversions. Accordingly, we recorded debt
settlement expense of $914,689 related to the additional shares issued upon
conversion and $423,112 of debt settlement expense related to warrants granted
to purchase 5,642,300 shares of our common stock at $.15 per share for an
aggregate debt settlement expense of $1,337,801.

                                      -24-

<PAGE>

      *  a decrease of $338,091 in debt issuance costs. For the nine months
ended March 31, 2007, debt issuance costs were $0 as compared to $338,091 for
the nine months ended March 31, 2006. For the nine months ended March 31, 2006,
debt issuance costs were related to the amortization of placement agent fees
paid in connection with our March 2005 private placement and July 2005 private
placement. In February 2006, upon conversion of the July Notes to common stock
under the terms of the January conversion offer, we expensed all unamortized
debt issuance costs. For the nine months ended March 31, 2007, we did not have
any such debt issuance costs.


      *  a net decrease of $2,108,403 in interest expense. For the nine months
ended March 31, 2007, net interest expense was $128,949, as compared to net
interest expense of $2,237,352 for the nine months ended March 31, 2006, a net
decrease of $1,661,165. For the nine months ended March 31, 2006, the net
interest expense of $2,237,352 included the recording of $1,580,779 in
amortization of discount on debentures payable related to our July 2005 private
placement. In February 2006, upon conversion of these debentures into common
stock, we expensed all unamortized discounts related to the debentures. Fiscal
2006 also included $447,238 in interest expenses attributable to the repricing
of 5,492,300 warrants in January 2006 in connection with the Company's January
2006 conversion offer as discussed above.


      *  a decrease of $185,598 in other income. For the nine months ended March
31, 2007 other income was $90,270 as compared to $275,868 for the nine months
ended March 31, 2006. For the nine months ended March 31, 2007 we recognized
income from rebates of the value added taxes of $72,764, as compared to $249,151
for the nine months ended March 31, 2006. We accrued for value-added taxes
("VAT") recorded on the sale of our paper products. Our paper products are
subject to VAT, as imposed by the PRC or the local provincial tax authorities in
the PRC. We charge, collect and remit VAT on the sales of our products. We
routinely receive abatements of VAT, as we participate in our local provincial
program of hiring employees with physical handicaps. The respective tax
authorities in the PRC notify us of our VAT abatements after the VAT is
collected. We incorporate the tax in our cost and pass it off to the end
customer. Until we receive notification of the amount of VAT abated from the
respective tax authorities, this VAT remains accrued. Upon notification from the
tax authorities that VAT had been either abated, or has been partially abated as
determined by the respective tax authority, the excess of accrued VAT is then
reclassified into other income as this rebate is not remitted to the customer.
Under PRC tax regulations; in the event that VAT collected by us from customers
are either abated, or partially abated, the amount of VAT abated is not required
to be refunded to customers.


NET LOSS

         As a result of these factors, we reported a net loss of $(348,588) or a
net loss of ($.00) per share for the nine months ended March 31, 2007, as
compared to a net loss of $(3,998,441) or a net loss of $(.09) per share for the
nine months ended March 31, 2006.


         Although we operate various entities, we identify our products under
one product segment. The various entities combine their resources to support the
manufacture, distribution of paper and pulp related products.

                                      -25-

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. The following table provides certain selected balance sheet
comparisons between March 31, 2007 (unaudited) and June 30, 2006 (audited):


<TABLE>
<CAPTION>
                                             MARCH 31, 2007
                                               (UNAUDITED)     JUNE 30, 2006     $ CHANGE
                                             --------------    -------------    -----------
                                                Restated         Restated
                                             --------------    -------------
<S>                                           <C>              <C>              <C>
Working capital ........................      $ 2,997,518      $   558,414      $ 2,439,104
Cash ...................................      $   205,048      $   466,272      ($  261,224)
Accounts receivable, net ...............        4,067,442        4,938,985         (871,543)
Inventories ............................        4,164,245        3,293,846          870,399
Advances on purchases ..................        2,747,672          805,662        1,942,010
Prepaid expenses and other .............          518,353          466,080           52,273
Due from related parties ...............                0            3,498           (3,498)
Total current assets ...................       11,702,760        9,974,343        1,728,417
Cash-restricted ........................          258,368          262,287           (3,919)
Property and equipment, net ............        2,505,647        2,132,697          372,950
Land use rights, net ...................        2,568,615        2,524,568           44,047
Intangible assets, net .................          331,048          393,928          (62,880)

                                              -----------      -----------      -----------
Total Assets ...........................       17,366,438       15,287,823        2,078,615
                                              -----------      -----------      -----------

Notes payable - current portion ........        2,580,331        2,762,207         (181,876)
Accounts payable .......................        5,877,086        3,401,439        2,475,647
Accrued expenses .......................          238,574        2,042,113       (1,803,539)
Advances from customers ................            9,251           68,694          (59,443)
Liability in connection with acquisition                0        1,141,476       (1,141,476)
Total current liabilities ..............        8,705,242        9,415,929         (710,687)
Notes payable - long-term portion ......           48,000                0           48,000

                                              -----------      -----------      -----------
Total Liabilities ......................      $ 8,753,242      $ 9,415,929      ($  662,687)
                                              -----------      -----------      -----------
</TABLE>


         At March 31, 2007, we held cash and cash equivalents of $205,048 and
working capital of $2,997,518, as compared to cash and cash equivalents of
$466,272 and working capital of $558,414 at June 30, 2006. At March 31, 2007,
our cash position by geographic area is as follows:

         United States   $  8,929
         China .......    196,119
                         --------
         Total .......   $205,048
                         ========

         In addition to our increase in working capital of $2,439,104, our
current assets increased approximately $1,728,417 from June 30, 2006 to March
31, 2007. This increase was offset by decreases in total current liabilities of
approximately $710,687 at March 31, 2007 as compared to June 30, 2006. The
decrease in our current liabilities is primarily attributable to an increase in
accounts payable of $2,475,647 which were offset by a decrease in accrued
expenses of $1,803,539 and a decrease in liabilities of $1,141,476 in connection
with the acquisition of JinKui in June 2006.

                                      -26-

<PAGE>

         At March 31, 2007 changes in our total assets are as follows:

      *  an increase of $870,399 in inventories. At March 31, 2007, our
inventories of raw materials and finished goods amounted to $4,164,245, as
compared to inventories of $3,293,846, representing an increase of approximately
26.4%, from June 30, 2006. The increase in inventory levels is primarily
attributable to products associated with our JinKui acquisition. JinKui has
increased inventory levels in anticipation of increased demand for its products
during the fourth quarter.

      *  an increase of $1,942,010 in advances on purchases. At March 31, 2007,
our advances on purchases amounted to $2,747,672 as compared to $805,662 at June
30, 2006. The primary causes for the increase in our advances on purchases is
associated with payments of $243,792 related to construction materials for our
new facilities which was recently completed, and a down payment of $2,100,789 on
products related to our services as an agent of pulp and paper goods. Ningbo
Dragon pays a 30% deposit on certain goods distributed by Ningbo Dragon. This
advance reflects the deposit on goods which have not yet been received.

      *  an increase in prepaid expenses of $52,273. At March 31, 2007 our
prepaid expenses were $518,353 as compared to $466,080 at June 30, 2006.

      *  an increase of $372,950 in property and equipment, net of accumulated
deprecation. At March 31, 2007 we reflected property and equipment, net of
accumulated depreciation of $2,505,647 as compared to $2,132,697 at June 30,
2006. This increase is related to the increased value of our property as a
result of our new facility.

         These increases were offset by the following;

      *  a decrease of $871,543 in accounts receivable. At March 31, 2007 our
accounts receivable, were $4,067,442, as compared to $4,938,985 at June 30,
2006. This decrease is associated with a decrease in revenues for the three
months ended March 31, 2007. As is customary in the PRC, we extend relatively
long payment terms to our customers. Our terms of sale generally require payment
within 120 days, which is considerably longer than customary terms offered in
the United States, however, we believe that our terms of sale are customary
amongst our competitors for a company of our size within our industry and
recently we have been collecting our accounts receivable on a timely basis.

      *  a decrease of $3,498 in due from related parties. At March 31, 2007 due
from related parties was $0 as compared to $3,498 at June 30, 2006. This
decrease is due the satisfaction of amounts due from related parties during the
nine months ended March 31, 2007.

      *  a decrease of $3,919 in restricted cash. At March 31, 2007 restricted
cash was $258,368 as compared to $262,287 at June 30, 2006. This decrease in our
restricted cash is attributable to letters of credit outstanding. The decrease
represents normal business fluctuations in the amount of letters of credit the
company has outstanding at any given date.

      *  a decrease of $44,047 in land use rights, net of accumulated
amortization. At March 31, 2007 land use rights net of accumulated amortization
was $2,568,615 as compared to $2,524,568 at June 30, 2006.

      *  a decrease of $62,880 of intangible assets, net of accumulated
depreciation. At March 31, 2007 we reflected intangible assets, net of
accumulated depreciation of $331,048 as compared to $393,928 at June 30, 2006.

         As a result of the foregoing, our total assets increased $2,078,615 at
March 31, 2007 from June 30, 2006.

                                      -27-

<PAGE>

         Our total liabilities at March 31, 2007 decreased $662,687 from June
30, 2006. Principal changes in our total liabilities at March 31, 2007 from June
30, 2006 include the following;

      *  an increase of $2,475,647 in accounts payable. At March 31, 2007
accounts payable was $5,877,086 as compared to $3,401,439 at June 30, 2006.

         These increases were offset by the following:

      *  a decrease of $181,876 in notes payable-current portion. At March 31,
2007 notes payable-current portion were $2,580,331 as compared to $2,762,207 at
June 30, 2006. This decrease in notes payable long term was offset by an
increase of $48,000 in notes payable-long term. At March 31, 2007 notes
payable-long term were $48,000 as compared to $0 at June 30, 2006. Our notes
payable is described in Note 5-Notes Payable to the consolidated financial
statements appearing elsewhere in this quarterly report.

      *  a decrease of $1,803,539 in accrued expenses. At March 31, 2007 accrued
expenses were $238,574 as compared to $2,042,113 at June 30, 2006.

      *  a decrease of $59,443 in advances from customers. At March 31, 2007
advances from customers were $ $9,251 as compared to $68,694 at June 30, 2006.
Advances from customers decreased as a result of our decrease in revenues during
the nine months ended March 31, 2007.

      *  a decrease of $1,141,476 in liabilities associated with the acquisition
of JinKui. This liability associated with acquisition are related to JinKui.
During the nine months ended March 31, 2007, Dragon Nevada has satisfied this
liability. On October 30, 2006 Dragon Nevada issued 8,095,574 shares of common
stock with a fair value of $1,141,,476 to JinKui. At March 31, 2007 liabilities
associated with acquisitions were $0 as compared to $1,141,476 at June 30, 2006.

         As a result of the foregoing, our total assets increased $2,078,615 at
March 31, 2007 from June 30, 2006.

         For the nine months ended March 31, 2007 our cash decreased to $205,048
from $466,272 at June 30, 2006 a decrease of $261,224 or approximately 56%. This
decrease consisted of total cash used in operating activities of $576,542; net
cash used in investing activities of $937,473; and net cash flow provided by
financing activities of $1,203,124, and the effect of exchange rates on cash of
$49,667.

         Net cash used in operating activities for the nine months ended March
31, 2007 was $576,542 as compared to net cash used in operating activities of
$603,962 for the nine months ended March 31, 2006. For the nine months ended
March 31, 2007, we used cash to fund increases in inventories of $870,399, a
decrease in advances from customers of $59,443, increases in advances on
purchases of $1,942,010, and increases in accrued expenses of $1,803,539. The
decreases were offset by a net decrease in prepaid and other current assets of
$410,429, a decrease in accounts receivables of $890,249, an increase in
accounts payable of $2,475,647, and a decrease in other assets of $78,759. These
items, combined with a net increase of non-cash items of $535,205 were offset by
our net loss during the nine month period ended March 31, 2007.

         In comparison for the nine months ended March 31, 2006, we used cash to
fund an increase in accounts receivables and advances on purchases, the
reduction in accrued expenses and advances from customers. The decreases were
offset by an increase in accounts payable of $852,332. These items, combined
with a net addition of our non-cash items of $3,579,334 were offset by our net
loss during the nine month period ended March 31, 2006.

                                      -28-

<PAGE>


         Net cash used in investing activities during the nine months ended
March 31, 2007 was $953,889 as compared to net cash used in investing activities
of $(355,940) for the nine months ended March 31, 2006. During the nine months
ended March 31, 2007, we used cash for capital expenditures of $533,405 of which
$465,022 was used to purchase equipment for our new manufacturing facility.
During the nine months ended March 31, 2007 we increased our notes receivable by
$420,484. Our notes payable is described in Note 5-Notes Payable to the
consolidated financial statements appearing elsewhere in this quarterly report.

         During the nine months ended March 31, 2006, net cash used in investing
activities was $355,940 which was comprised of net cash used for capital
expenditures of $389,594, partially offset by cash of $33,654 acquired in the
acquisition of Yongxin in August 2005.


         Ningbo Dragon has invested approximately $1,300,000 to construct a new
facility. The Company recently completed construction on the new facility
located at No. 201 Guangyuan Road, Investment Pioneering Park, Jiangbei
District, Ningbo, 315033.

         This facility consists of a total of 91,000 square feet consisting of
approximately 20,000 square feet of office space, approximately 17,000 square
feet of warehouse space; approximately 40,000 square feet for manufacturing, and
approximately 14,400 square feet utilized as a dormitory for employees of the
Company.


         Net cash provided by financing activities during the nine months ended
March 31, 2007 was $1,219,540, as compared to net cash provided by financing
activities of $1,092,928 during the nine months ended March 31, 2006. During the
nine months ended March 31, 2007, we received gross proceeds of $1,944,355 from
notes payable offset by the satisfaction of notes payable of $2,078,231. On
October 30, 2006, the Company received gross proceeds of $100,000 from the sale
of 2,000,000 shares of common stock to H.K. Mingtai Investment Co., Ltd., a
financial institution in China. The company also received net proceeds of
$1,301,000 from the sale of 16,666,672 shares of its common stock, and common
stock purchase warrants to purchase 16,666,672 shares of common stock
exercisable at $.125 per share for a period of five years and common stock
purchase warrants to purchase 8,333,340 shares of common stock exercisable at
$.15 per share for a period of five years. The company decreased its restricted
cash balance by $367,906 and received $1,000 for exercise of common stock
purchase warrants.


         From time to time, we need additional working capital for our
operations. In 2006, Yonglongxin borrowed money pursuant to several lines of
credit that we have established with two separate banks. We renewed pre-existing
loans of $1,944,355 from the Bank of Agriculture with 6 to 12 month terms from
November 2006 to November 2007, with an annual interest rate ranging from 6.138%
to 7.344%. We repaid loans of $62,450 to Ningbo Commercial Bank (Tianyuan
Branch) and $620,083 to Bank of Agriculture during the nine months ended March
31, 2007. All loans are renewable when they mature. We expect to generate
sufficient cash flows from financing and operations to meet our debt services.
We do not anticipate these loans will have material impact on our liquidity. We
are current on all payments relating to these loans and expect to renew the
loans upon maturity at terms and at interest rates comparable to our current
loans.

                                      -29-

<PAGE>

OFF BALANCE SHEET ARRANGEMENTS

         As of the date of this report, we do not have any off-balance sheet
arrangements that we are likely to have a current or future effect on our
financial condition material to our shareholders. In the ordinary course of
business, we enter into operating lease commitments, purchase commitments and
other contractual obligations. These transactions are recognized in our
financial statements in accordance with generally accepted accounting principles
in the United States.

RECENT CAPITAL RAISING TRANSACTIONS

JANUARY 2007 PRIVATE PLACEMENT

         On January 30, 2007 the Company entered into a subscription agreement
(the "Subscription Agreement") and related agreements (collectively with the
Subscription Agreement, the "Agreements") for the purchase of $1,500,000 units
of securities. The Company entered into the Agreements with nine (9) accredited
investors (the "Investors") for an aggregate of $1,500,000 of financing of units
of its securities consisting of 16,666,672 shares of common stock, common stock
purchase warrants to purchase 16,666,672 shares of common stock exercisable at
$.125 per share for a period of five years, and common stock purchase warrants
to purchase 8,333,340 shares of common stock at an exercise price of $.15 per
share for a period of five years.

         The January 2007 Private Placement was conducted in two phases. On
January 30, 2007, the Company completed an initial closing (the "Initial
Closing") of $750,000 of units of securities consisting of 8,333,336 shares of
common stock, common stock purchase warrants to purchase 8,333,336 shares of
common stock exercisable at $.125 per share for a period of five years, and
common stock purchase warrants to purchase 4,166,670 shares of common stock
shares of common stock exercisable at $.15 per share for a period of five years.

         The second phase of the offering (the "Second Closing") was held on
February 27, 2007 for an additional $750,000 financing of units of its
securities consisting of 8,333,336 shares of common stock, common stock purchase
warrants to purchase 8,333,336 shares of common stock exercisable at $.125 per
share for a period of five years and common stock purchase warrants to purchase
4,166,670 shares of common stock shares of common stock exercisable at $.15 per
share for a period of five years. The Second Closing was conditioned upon
Wellton International Fiber Corp. engaging an SEC approved auditor to prepare
certain financial statements. Wellton International Fiber Corp. engaged an SEC
approved auditor on February 22, 2007.

         We paid a fee of $84,000 in cash to certain of the investors and issued
common stock purchase warrants to purchase an aggregate of 1,555,558 shares of
common stock exercisable at $.125 per share for a period of five years as a due
diligence fee related to the January 2007 Private Placement. The recipients of
the due diligence fee are as set forth below:

                                        TOTAL DUE DILIGENCE FEES PAID
                             ---------------------------------------------------
RECIPIENT                      CASH        COMMON STOCK PURCHASE WARRANTS @$.125
---------                    --------      -------------------------------------
Libra Finance ........       $  9,075                      168,056
Osher Capital, LLC ...         32,175                      595,834
Utica Advisors .......         41,250                      763,890
Robert Prager ........          1,500                       27,778
                             --------                    ---------
Totals: ..............       $ 84,000                    1,555,558

                                      -30-

<PAGE>

         We also paid Skyebanc, Inc. an NASD member and broker-dealer, a
finder's fee of $5,500 and issued common stock purchase warrants to purchase
111,112 shares of common stock at an exercise price of $.125 for a period of
five years.

         We granted the purchasers a right of first refusal for a period of 24
months from the second closing date, February 27, 2007. In the event we should
offer to sell common stock, debt or other securities to a third party (except in
certain instances). The purchasers have the right to purchase the offered
securities upon the same terms and conditions as we offered the securities to a
third party. In addition, other than in the event of excepted issuances, during
the 24 month period from the effective date of the registration statement to be
filed in conjunction with this private placement so long as the purchasers still
own any of the shares sold in such offering, (including the shares underlying
the warrants), if we should issue any common stock or securities convertible
into or exercisable for shares of common stock at a price per share of common
stock or exercise price per share of common stock which is less than the
purchase price of the shares paid by the purchasers in the offering, or less
than the exercise price of the common stock purchaser warrants exercisable at
$.125 per share, without the consent of each purchaser, then the purchaser's
have the right to elect to retroactively substitute any term or terms of such
new offering in connection with which the purchaser has a right of first refusal
for any term or terms of this unit offering and adjustments will be made
accordingly.

         Any subsequent adjustments in the exercise price of the common stock
purchase warrants will not result in additional shares of common stock of Dragon
Nevada being issued.

         We agreed to file a registration statement covering the shares of
common stock underlying the securities issued. In the event the registration
statement is not filed within 75 days after February 27, 2007, and the
registration statement is not declared effective by July 27 2007, we will be
required to pay liquidated damages in an amount equal to 2% for each 30 days (or
such lesser pro-rata amount for any period of less than 30 days) of the purchase
price of the outstanding shares and exercise price of the warrant shares owned
of record by such holder which are subject to such non-registration event, but
not to exceed in the aggregate 12% of the aggregate purchase price or $180,000.
The transaction documents also provide for the payment of liquidated damages to
the investors in certain events, including our failure to maintain an effective
registration statement covering the resale of the common shares issuable upon
conversion or exercise of the securities.

         We agreed not to file any registration statements without the consent
of the purchasers in the offering until the sooner of 24 months from the
effective date of the registration statement of which this prospectus is a part
or until all the shares, including the shares underlying the warrants, have been
resold or transferred by the purchasers pursuant to the registration statement
or Rule 144 of the Securities Act of 1933, without regard to volume limitations.
During this same exclusion period, we also agreed not to issue any equity,
convertible debt or other securities convertible into common stock or equity of
our company without the prior written consent of the purchasers.

ITEM 3.  CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
as of March 31, 2007, the end of the period covered by this quarterly report,
our management concluded its evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures.

                                      -31-

<PAGE>

Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system's objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.

Disclosure controls and procedures and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is accumulated and communicated to management including our
Chief Executive Officer and Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosure.

Based upon that evaluation, our company's Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were not effective because of the significant deficiency and the material
weakness described below. Measures are being taken to include documentation of
management oversight and review as part of the appropriate functional
procedures.


Restatement of financial statements

The financial statements for the fiscal year ended June 30, 2006 and for the
three month period and nine month period ended March 31, 2007, have been
restated to correct the accounting treatment previously accorded certain
transactions.

     o    In July 2005, the Company entered into a consulting agreement with
          China Direct Investments, Inc. to provide business development and
          management service. In connection with this agreement, the Company
          issued 400,000 shares of common stock with a fair value on the date of
          grant of $.26 per share totaling $104,000. Initially, the Company had
          recorded deferred consulting expense and amortized the cost over the
          one year term of the agreement. Due to the absence of vesting and
          forfeiture provisions, as provided in EITF 96-18, the Company
          determined that the measurement date of the transaction was triggered
          and, absent a sufficiently large disincentive for non-performance,
          which was not provided in the agreement, the financial statements have
          been restated to expense the entire fair value of $104,000 as of the
          effective date of the agreement.

     o    For the fiscal year ended June 30, 2006 and for the three month period
          and nine month period ended March 31, 2007, the Company erroneously
          filed financial statements presenting in their statement of cash flows
          the decrease of restricted cash as an investing activity. The Company
          is now presenting this as a financing activity, in accordance with
          SFAS 95 "Statement of Cash Flows". This error did not affect the
          balance sheet as of March 31, 2007, nor the statements of operations
          for the three month period and nine month period ended March 31, 2007.
          With these corrections, the statements of cash flows for the nine
          month periods ended March 31, 2007 and March 31, 2006 reflect an
          increase in cash flows from financing activities of $1,219,540 and
          $1,092,928, respectively.

     o    For the year ended June 30, 2006, the Company erroneously did not
          value the reduction in exercise price of existing warrants (from $0.30
          to $0.15 for the 3,704,800 July 2005 Warrants and the reduction in
          exercise price from $0.40 to $0.15 for the 1,787,500 March 2005
          Warrants) associated with an induced conversion offer. The value of
          the reduction in exercise price was calculated at $447,238, and was
          reflected in the statement of operations as an increase in interest
          expense, and a resultant increase in net loss and net loss per share
          for the year ended June 30, 2006. The Company had recorded the
          valuation of the reduction in exercise price as an increase in
          additional paid-in capital.

     o    For the fiscal year ended June 30, 2006, the Company erroneously had
          deferred, over a three year period, $540,000 in consulting expense
          related to the issuance of 6,000,000 shares of its common stock to
          China Direct, Inc. and $395,675 related to the issuance of 4,700,000
          common stock purchase warrants exercisable at $0.15 per share over a
          five year period, also to China Direct, Inc. In addition, in February
          2006, the Company issued warrants to purchase 500,000 shares of common
          stock, exercisable for five years at $.15 per share, to Skybanc, Inc.
          for a one year financial advisory consulting agreement. The Company
          had incorrectly deferred the fair value of these warrants of $71,243
          over the contract term. The Company has restated the related financial
          statements to recognize the full expense of these agreements
          immediately upon entering into the consulting agreements in January
          2006 and February 2006, under the provisions of EITF 96-18 and SFAS
          123. These corrections resulted in an increase in consulting expense
          for year ended June 30, 2006 and a reduction in consulting expense for
          subsequent periods and deferred compensation on our balance sheet for
          a similar amount.

     o    In March 2007, pursuant to a consulting agreement, the Company issued
          4,000,000 shares of its common stock to Capital One Resource, Co.,
          Ltd., a wholly owned subsidiary of China Direct, Inc. Initially, the
          Company had recorded and reported this issuance incorrectly as a cost
          of raising capital related to the private placement of $1,500,000 in
          units sold during the quarter. The Company has restated the financial
          statements to recognize the full expense of this agreement immediately
          upon entering into the consulting agreement in March 2007 under the
          provisions of EITF 96-18 and SFAS 123. This correction resulted in an
          increase in consulting expenses for the quarter ended and nine month
          period ended March 31, 2007 of $360,000.


                                      -32-
<PAGE>

All of our employees and accounting staff are located in the PRC and we do not
presently have a chief financial officer, comptroller or similarly titled senior
financial officer who is bilingual and experienced in the application of U.S.
Generally Accepted Accounting Principles. During fiscal 2006 we began a search
for an appropriate candidate who can fill such a position; however, as of March
31, 2007 have not engaged one and we are unable to predict when such a person
will be hired. During fiscal 2006 we also began providing additional training to
our accounting staff in the application of U.S. GAAP. As a result, our
management believes that a deficiency in our internal controls continues to
exist. Until we expand our staff to include a bilingual senior financial officer
who has the requisite experience necessary, and supplement the accounting
knowledge of our staff, it is likely that we will continue to have material
weaknesses in our disclosure controls and procedures.

Other than the items discussed above there have been no changes in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 30, 2007 (the "January 2007 initial Offering"), the Company completed
an initial $750,000 units of securities consisting of 8,333,336 shares of Common
Stock, common stock purchase warrants to purchase 8,333,336 shares of common
stock exercisable at a$.125 per share for a period of five years, and common
stock purchase warrants to purchase 4,166,670 shares of common stock exercisable
at $.15 per share for a period of five years.

On February 27, 2007 (the "January 2007 second Offering"), the Company completed
the sale of an additional $750,000 financing of units of its securities
consisting of 8,333,336 shares of Common Stock, common stock purchase warrants
to purchase 8,333,336 shares of common stock exercisable at a$.125 per share for
a period of five years, and common stock purchase warrants to purchase 4,166,670
shares of common stock exercisable at $.15 per share for a period of five years.

In total the Company sold $1,500,000 of units (net proceeds of $1,301,000) which
consisted of 16,666,672 shares of Common Stock, and common stock purchase
warrants to purchase 16,666,672 shares of common stock exercisable at $.125 per
share for a period of five years and common stock purchase warrants to purchase
8,333,340 shares of common stock exercisable at $.15 per share for a period of
five years. The Common Stock was purchased at a price of $.09 per share.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                      -33-

<PAGE>

ITEM 5.  OTHER INFORMATION

Effective January 16, 2007, Dragon International Group Corp., a Nevada
corporation (the "Registrant") entered into an agreement ("Agreement") whereby
it agreed to purchase fifty one (51%) percent of the common stock (the "Common
Stock") of Wellton International Fiber Corp., a corporation organized under the
laws of the British Virgin Islands ("Wellton"). Wellton operates as an agent for
the distribution of pulp, and waste paper in China. In exchange for the fifty
one (51%) percent of Wellton, the Registrant agreed to pay a purchase price (the
"Purchase Price") equal to fifty one (51%) percent of the value of the audited
net tangible assets, as stated on the Wellton audited financial statements for
the period ending December 31, 2006. The Purchase price will be in the form of
common stock of Dragon Nevada and shall not exceed $1,500,000 in the aggregate.
The parties have mutually agreed to extend the closing until no later than
September 30, 2007.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

31.1     Rule 13a-14(a)/15d-14(a) certification of CEO

31.2     Rule 13a-14(a)/15d-14(a) certification of principal accounting officer

32.1     Section 1350 certification of CEO

32.2     Section 1350 certification of principal accounting officer

                                      -34-

<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



Date: February 12, 2008


                                        DRAGON INTERNATIONAL GROUP CORP.


                                        By: /s/ David Wu
                                        ----------------
                                        David Wu,
                                        Chief Executive Officer,
                                        (Principal Executive Officer)

                                      -35-