United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB


(Mark One)

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

         For the quarterly report ended September 30, 2005

[   ] 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 registrant as specified in its charter)


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



                                     Bldg 14
                    Suite A09, International Trading Center,
                                 29 Dongdu Road
                              Ningbo, China 315000
                    (Address of principal executive offices)

                                (86) 574-56169308
              (Registrant's telephone number, including area code)


Check whether the issuer (1) 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]

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 39,485,234 shares at
November 14, 2005

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


<PAGE>


            CAUTIONARY STATEMENT REGARDING FOWARD LOOKING INFORMATION


         This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of
the Securities and Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, as amended. These forward-looking statements are
subject to risks and uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from the
results, performance or achievements expressed or implied by the forward-looking
statements. You should not unduly rely on these statements. Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," "project," "contemplate,"
"would," "should," "could," or "may." With respect to any forward-looking
statement that includes a statement of its underlying assumptions or bases, we
believe such assumptions or bases to be reasonable and have formed them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, we
express an expectation or belief as to future results, that expectation or
belief is expressed in good faith and is believed to have a reasonable basis,
but there can be no assurance that the stated expectation or belief will result
or be achieved or accomplished. All subsequent written and oral forward-looking
statements attributable to us, or anyone acting on our behalf, are expressly
qualified in their entirety by the cautionary statements.



<PAGE>


                        DRAGON INTERNATIONAL GROUP CORP.
                                   FORM 10-QSB
                    QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
                                      INDEX



                                                                            Page

PART I - FINANCIAL INFORMATION

      Item 1 - Financial Statements

      Consolidated Balance Sheet
             September 30, 2005 (Unaudited)....................................3
      Consolidated Statements of Operations (Unaudited)
             For the Three Months Ended September 30, 2005 and 2004............4
      Consolidated Statements of Cash Flows (Unaudited)
             For the Three Months Ended September 30, 2005 and 2004............5

      Notes to Consolidated Financial Statements............................6-19

      Item 2 - Management's Discussion and Analysis or Plan of Operation...20-29

      Item 3 - Controls and Procedures........................................30


PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings..............................................30

       Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds...30

      Item 3 - Default upon Senior Securities ................................30

      Item 4 - Submission of Matters to a Vote of Security Holders............30

      Item 5 - Other Information..............................................31

      Item 6 - Exhibits.......................................................31

      Signatures..............................................................32










                                       -2-


<PAGE>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               September 30, 2005
                                   (Unaudited)

<table>
<caption>
                                           ASSETS

                                                                                     <c>
CURRENT ASSETS:
    Cash                                                                                             $    556,186
    Cash - restricted                                                                                     462,386
    Accounts receivable (net of allowance for doubtful accounts of $83,514)                             3,092,859
    Inventories                                                                                         1,740,317
    Other receivables                                                                                   1,408,498
    Prepaid expenses and other                                                                            329,924
                                                                                             ---------------------

        Total Current Assets                                                                            7,590,170

PROPERTY AND EQUIPMENT - Net                                                                              922,122
LAND USE RIGHTS - Net                                                                                   2,532,955
DEFERRED DEBT ISSUANCE COSTS                                                                              282,796
GOODWILL                                                                                                  486,120
                                                                                             ---------------------

        Total Assets                                                                                 $ 11,814,163
                                                                                             =====================

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt                                                                $  1,951,730
    Convertible debentures payable, net                                                                   291,693
    Convertible notes payable                                                                              10,188
    Accounts payable                                                                                    2,771,126
    Accrued expenses                                                                                    1,681,442
                                                                                             ---------------------

        Total Current Liabilities                                                                       6,706,179

CONVERTIBLE DEBENTURES PAYABLE, net                                                                       379,388
                                                                                             ---------------------

        Total Liabilities                                                                               7,085,567
                                                                                             ---------------------

MINORITY INTEREST                                                                                          14,274
                                                                                             ---------------------

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;
        39,485,234 shares issued and outstanding)                                                          39,485
    Additional paid-in capital                                                                          2,906,672
    Retained earnings                                                                                   1,747,991
    Deferred compensation                                                                                 (78,000)
    Other comprehensive income - foreign currency                                                          98,174
                                                                                             ---------------------

        Total Stockholders' Equity                                                                      4,714,322
                                                                                             ---------------------

        Total Liabilities and Stockholders' Equity                                                   $ 11,814,163
                                                                                             =====================

</table>
            See notes to unaudited consolidated financial statements
                                       -3-

<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)

<table>
<caption>


                                                                                          For the Three Months Ended
                                                                                                 September 30,
                                                                                  --------------------   --------------------
                                                                                         2005                   2004
                                                                                  --------------------   --------------------

                                                                              <c>                    <c>
NET REVENUES                                                                           $    4,622,110          $   3,542,850

COST OF SALES                                                                               4,515,664              3,236,882
                                                                                  --------------------   --------------------

GROSS PROFIT                                                                                  106,446                305,968
                                                                                  --------------------   --------------------

OPERATING EXPENSES:
     Selling expenses                                                                          48,835                150,241
     General and administrative                                                               259,125                 69,580
                                                                                  --------------------   --------------------

        Total Operating Expenses                                                              307,960                219,821
                                                                                  --------------------   --------------------

INCOME (LOSS) FROM OPERATIONS                                                                (201,514)                86,147
                                                                                  --------------------   --------------------

OTHER INCOME (EXPENSE):
     Other income                                                                             182,464                 19,218
     Gain on sale of assets                                                                         -                      -
     Debt issuance costs                                                                      (55,295)                     -
     Interest expense                                                                        (377,136)               (21,937)
                                                                                  --------------------   --------------------

        Total Other Income (Expense)                                                         (249,967)                (2,719)
                                                                                  --------------------   --------------------

INCOME (LOSS) BEFORE INCOME TAXES                                                            (451,481)                83,428

INCOME TAXES                                                                                    2,790                (39,591)
                                                                                  --------------------   --------------------

NET INCOME (LOSS) BEFORE MNORITY INTEREST                                                    (448,691)                43,837

MINORITY INTEREST IN LOSS OF SUBSIDIARY                                                         2,334                      -
                                                                                  --------------------   --------------------

NET INCOME (LOSS)                                                                            (446,357)                43,837

OTHER COMPREHENSIVE INCOME:
   Unrealized foreign currency translation                                                     98,174                      -
                                                                                  --------------------   --------------------

COMPREHENSIVE INCOME (LOSS)                                                            $     (348,183)          $     43,837
                                                                                  ====================   ====================

NET INCOME PER COMMON SHARE
      Basic                                                                            $        (0.01)          $       0.00
                                                                                  ====================   ====================
      Diluted                                                                          $        (0.01)          $       0.00
                                                                                  ====================   ====================

      Weighted Common Shares Outstanding - Basic                                           39,296,104             24,625,000
                                                                                  ====================   ====================
      Weighted Common Shares Outstanding - Diluted                                         39,296,104             24,625,000
                                                                                  ====================   ====================

</table>


          See notes to unaudited consolidated financial statements
                                    -4-

<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

<table>
<caption>

                                                                            For the Three Months Ended
                                                                                   September 30,
                                                                        ----------------------------------
                                                                             2005              2004
                                                                        ----------------  ----------------

                                                                    <c>                <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                      $   (446,357)      $    43,837
    Adjustments to reconcile net income (loss) to net cash provided
      by (used in) operating activities:
      Depreciation and amortization                                              32,277            16,787
      Stock-based compensation                                                   26,000                 -
      Amortization of discount on debentures payable                            324,460                 -
      Amortization of debt issuance costs                                        55,295                 -
      Allowance for doubtful accounts                                           (32,134)                -
      Minority interest                                                          (2,334)                -

    Changes in assets and liabilities:
      Accounts receivable                                                       694,460           289,402
      Inventories                                                              (133,120)        1,123,777
      Prepaid and other current assets                                           (3,730)          308,627
      Other receivables                                                        (408,687)                -
      Advances to employees                                                           -           431,147
      Advances on purchases                                                     254,729                 -
      Other assets                                                                4,154            (2,298)
      Accounts payable                                                         (352,069)       (1,830,943)
      Accrued expenses                                                         (455,755)          (15,290)
      Advances from customers                                                   (22,945)         (364,477)
                                                                        ----------------  ----------------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                            (465,756)              569
                                                                        ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Due from related parties                                                          -            40,924
    Cash acquired in acquisition                                                 33,654                 -
    Increase in short-term investments                                                -          (120,773)
    Decrease in restricted cash                                                 157,179                 -
    Capital expenditures                                                       (163,819)         (122,657)
                                                                        ----------------  ----------------

NET CASH FLOWS USED IN INVESTING ACTIVITIES                                      27,014          (202,506)
                                                                        ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from (repayment of) loans payable                                 (376,097)           12,078
    Proceeds from debentures payable                                            503,500                 -
    Placement fees paid                                                         (48,350)                -
                                                                        ----------------  ----------------

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                                  79,053            12,078
                                                                        ----------------  ----------------

EFFECT OF EXCHANGE RATE ON CASH                                                  13,316                 -
                                                                        ----------------  ----------------

NET DECREASE IN CASH                                                           (346,373)         (189,859)

CASH  - beginning of year                                                       902,559           285,856
                                                                        ----------------  ----------------

CASH - end of period                                                       $    556,186       $    95,997
                                                                        ================  ================

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid  for:
         Interest                                                           $    95,625       $    21,937
                                                                        ================  ================
         Income Taxes                                                       $    54,766       $    39,591
                                                                        ================  ================

    Non-cash investing and financing activities
         Issuance of common stock for future services                       $  104,000         $        -
                                                                        ================  ================
         Deferred discount and beneficial conversion on
         debentures payable                                                 $  420,845         $        -
                                                                        ================  ================

    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        $        -
                                                                        ================  ================

</table>
            See notes to unaudited consolidated financial statements.
                                       -5-

<page>




                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


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

The Company

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

On or around August 13, 2004, as amended on September 30, 2004 and effective
October 4, 2004, under an Agreement and Plan of Reorganization, the Company
issued 24,625,000 shares of the Company's common stock for the acquisition of
all of the outstanding capital stock of Dragon International Group Corp.,
("Dragon") a Florida corporation. For financial accounting purposes, the
exchange of stock will be treated as a recapitalization of Retail with the
former shareholders of the Company retaining 1,280,234 or approximately 5% of
the outstanding stock.

In connection with the merger, the Company effected a reverse stock split of the
Company's 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-shares
information has been restated to reflect this reverse stock split.

Additionally, as part of the Merger, the Company amended its Articles of
Incorporation, whereby the Company changed its name to Dragon International
Group Corp. as well as reestablished its capitalization to the authorized
capital structure immediately prior to the Merger, which consists 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. Further, the Company's prior management
resigned their respective positions with the Company and was replaced by
management of Dragon.

Dragon, a Florida corporation, was founded in June 2004. On June 30, 2004,
Dragon acquired 70% ownership interest of Ningbo Anxin International Co. Ltd.
("Anxin"). Anxin, established in 1997, is located in the Zhejiang Province of
Ningbo in China, approximately 200 miles south of Shanghai. Anxin is involved in
the pulp and paper industry, operating as a manufacturer and distributor of
paper and integrated packaging paper products. Anxin, through a subsidiary,
holds an ISO9000 certificate and national license to import and export products.


                                       -6-

<page>

                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
             POLICIES (Continued)

The Company (Continued)

In addition to its own operations, Anxin operates four subsidiaries, including:
(i) Jiangdong Yonglongxin Special Paper Company, Limited ("Yonglongxin"), holds
an ISO9000 certificate and operates a civil welfare manufacturing facility
Fuming County Zhang'ai Village in Ningbo, China..(ii) Hangzhou Yongxin Paper
Company, Limited ("Yongxin"). Yongxin manufactures, sells and distributes
cigarette packing materials (iii) Ningbo Xinyi Paper Product Industrial Company,
Limited ("Xinyi"). Xinyi operates in the pulp and paper industry, operating a
manufacturing facility and (iv) Xianyang Naite Research & Development Center
("R&D Center") The R&D Center was created to develop, design and improve
production methods in the specialty packaging industry in China. Anxin has a
distribution network covering east and central China. On December 31, 2004, we
issued 4,000,000 Common Shares for the remaining 30% interest in Anxin. The
Stock Purchase Agreement between Dragon and Anxin 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, pursuant to which Anxin is treated as the continuing
entity.

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, 2005 and notes thereto
contained on Form 10-KSB of the Company as filed with the Securities and
Exchange Commission. The results of operations for the three months ended
September 30, 2005 are not necessarily indicative of the results for the full
fiscal year ending June 30, 2006.

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 2005 and
2004 include the allowance for doubtful accounts of accounts receivable and the
useful life of property, plant and equipment and land use rights.


                                       -7-
<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


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

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 September 30, 2005, the allowance for doubtful accounts was
$83,514.

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
first-in, first-out method.

Net income (loss) per common 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. As of September
30, 2004, the Company did not have any common stock equivalents or potentially
dilutive securities outstanding. At September 30, 2005, there were warrants to
purchase 6,142,300 shares of common stock, 1,658,400 shares upon conversion of
convertible notes payable, and approximately 9,809,000 shared upon conversion of
outstanding convertible debentures and related interest, which could potentially
dilute future earnings per share.

Stock-based compensation

The Company accounts for stock options issued to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure", which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied. The Company accounts for stock options
and stock issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123.


                                       -8-

<page>

                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005

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

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 September 30, 2005, the exchange rate for the Chinese Renminbi (RMB) was $1
US for 8.1101 RMB.

The reporting currency is the U.S. dollar. The functional currency of the
Company's Chinese subsidiary, Anxin, is the local currency. 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
because the Chinese dollar (RMB) fluctuates with the United States dollar. The
cumulative translation adjustment and effect of exchange rate changes on cash at
September 30, 2005 and 2004 was not material.

On July 21, 2005, China let the RMB fluctuate ending its decade-old valuation
peg to the U.S. dollar. The new RMB rate reflects an approximate 2% increase in
value against the U.S. dollar. Historically, the Chinese government has
benchmarked the RMB exchange ratio against the U.S. dollar, thereby mitigating
the associated foreign currency exchange rate fluctuation risk. The Company does
not believe that its foreign currency exchange rate fluctuation risk is
significant, especially if the Chinese government continues to benchmark the RMB
against the U.S. dollar.


                                       -9-

<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


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. Almost
all of the Company's sales are credit sales which are primarily to customers
whose ability to pay is dependent upon the industry economics prevailing in
these areas; however, concentrations of credit risk with respect to trade
accounts receivables is limited due to generally short payment terms. The
Company also performs ongoing credit evaluations of its customers to help
further reduce credit risk.

NOTE 2 - INVENTORIES

At September 30, 2005, inventories consisted of the following:

         Raw materials                  $    977,050
         Finished goods                      763,267
                                       --------------
                                        $  1,740,317
                                       ==============

NOTE 3 - RELATED PARTY TRANSACTIONS

Due from related parties

The consolidated financial statements include balances and transactions with
related parties. From time to time, the Company receives advances from or
advances funds to several affiliated entities, owned by an officer of the
Company, for working capital purposes. These advanced are payable on demand and
are personally guaranteed by the officer. At September 30, 2005, the Company did
not have any outstanding balances with these affiliated entities.

Due to related party

The former President of the Company, from time to time, provided advances to the
Company for operating expenses. These advances are short-term in nature and
non-interest bearing. The amount due to the former President at September 30,
2005 was $18,345 and is included in accrued expenses on the accompanying balance
sheet.




                                      -10-

<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 4 - CONVERTIBLE NOTES PAYABLE

In September 2002, the former President of the Company lent the Company $10,000
to pay operating expenses pursuant to a note. This note is convertible into
1,333,333 shares of the Company's common stock at a conversion price of $0.0075
per share and is due on the earlier of (i) the Company successfully consummating
a merger or acquisition; or (ii) one year from the date of the note. Interest
accrues at the rate of 3% per annum and aggregated $532 through March 31, 2005.
Additionally, in April 2004, the former President of the Company entered into a
convertible note agreement with the Company to convert $31,124 of advances to
pay operating expenses into to a convertible note. This note is convertible into
4,149,867 shares of the Company's common stock at a conversion price of $0.0075
per share and is due on the earlier of (i) the Company successfully consummating
a merger or acquisition; or (ii) one year from the date of the note. Interest
accrues at the rate of 3% per annum and aggregated $558 through March 31, 2005.
Through June 30, 2005, the Company issued 4,136,789 shares of common stock in
connection with the conversion of $31,026 of this debt. At September 30, 2005,
convertible notes payable outstanding amounted to $10,188, which is convertible
into 1,358,400 shares of common stock.

NOTE 5 - ACQUISITION AND DISPOSITIONS

On July 1, 2005, the Company acquired 60% interest in Hangzhou Yongxin Paper
Company, Limited ("Yongxin"). Yongxin, established in 2003, is located in
Hangzhou of Zhejiang Province, China, and manufactures and sells high-end
cigarette packing material and was a direct competitor of ours. The Company
issued an aggregate of 1,000,000 shares of its common stock in consideration for
the nets assets of Yongxin. The fair value of the common stock issued was based
on the $.34 quoted trading price of the common stock on the acquisition date and
amounted to $340,000. The Company plans to consolidate Yongxin's operations with
its own subsidiary in Ningbo. All operations will be located in the new
manufacturing facilities in Ningbo. The Company acquired Yongxin as part of our
ongoing desire to consolidate its interests in its industry. The Company
accounted for this acquisition using the purchase method of accounting in
accordance with SFAS No. 141. On the date of acquisition, the fair value of net
assets exceeded the purchase price by $322,192. The excess had been applied to
goodwill. The results of operations of Yongxin are included in the consolidated
results of operations of the Company from the Acquisition Date.



                                      -11-

<page>


                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 5 - ACQUISITION AND DISPOSITIONS

On August 1, 2005, the Company acquired the Xianyang Naite Research &
Development Center ("Xianyang"), located in Ningbo, China, which was created to
improve production efficiencies in the specialty packaging industry. The Company
paid $25,000 in cash and issued 500,000 shares of its common stock in
consideration for this acquisition. The fair value of the common stock issued
was based on the $.28 quoted trading price of the common stock on the
acquisition date and amounted to $140,000. The new Research & Development Center
is expected to reduce time to commercialization for new products substantially
and allow the Company to leverage innovative paper transferring techniques
developed at the Center. The Company accounted for this acquisition using the
purchase method of accounting in accordance with SFAS No. 141. On the date of
acquisition, the fair value of net assets exceeded the purchase price by
$163,928. The excess had been applied to goodwill. The results of operations of
Xianyang are included in the consolidated results of operations of the Company
from the August 1, 2005.

In fiscal 2005, in order to consolidate operations, the Company merged the
operations and businesses of Anhong and Long'an into Anxin's. Currently, the
Company operates these businesses through Anxin. In connection with this
consolidation, the Company has a receivable of $598,734 from a third party which
is included in other receivables on the accompanying consolidated balance sheet.

For acquisitions during the three months ended September 30, 2005, the assets
acquired and liabilities assumed were as follows:

<table>
<caption>


                                    Yongxin            Xianyang            Total
                               ------------------ -------------------- -----------------

                            
                
                  


                     Cash         $   33,654             $       -       $    33,654
       Accounts receivable            543,564                    -           543,564
                 Inventory            496,009               25,733           521,742
Property and equipment, net             69,121                   -            69,121
           Accounts payable          (576,978)                   -          (576,978)
 Accrued expenses and other          (547,562)                   -          (547,562)
              Loans payable                 -              (24,661)          (24,661)
                   Goodwill            322,192             163,928           486,120
                                 ------------------ -------------------- -----------------

       Total purchase price        $   340,000           $  165,000        $  505,000
                                 ================== ==================== =================


</table>





                                      -12-


<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE

On March 1, 2005, the Company closed a private offering of Units, each Unit
consisting of a $50,000 8% Secured Convertible Debenture and 125,000 Class "A"
Warrants, each warrant exercisable to purchase one (1) share of our Common Stock
at an exercise price of $.40 per share for a period of five (5) years following
the closing of the offering. The investors in this offering were also granted
"piggyback" registration rights for the shares underlying the warrants, as well
as the shares reserved for issuance in the event of conversion of the
Debentures. The Company received gross proceeds of $357,500 from the sale of
these Units ($321,750 net) and granted 1,787,500 warrants. The Units were sold
to a total of 7 "accredited investors," as that term is defined under the
Securities Act of 1933, as amended. The debentures were scheduled to mature six
months following the closing of the offering. Interest only is payable monthly.
The relevant offering documents contained a provision which provided for each of
the investors to convert into the subsequent offering which took place beginning
in May 2005 (described below). Pursuant to the terms of this offering, each of
the investors retained ownership of the warrants issued to them in this offering
as part of the consideration for extending the maturity date of their debenture.
Originally, the Company or the holder could have converted a portion of the
remaining principal and accrued interest due into shares of common stock at a
conversion rate equal to a 20% discount to the weighted average bid price for
the previous five days prior to receipt of such Notice of Conversion with a
floor of $.40 per share.

In connection with the 1,787,500 warrants granted with the debentures, the
Company recorded imputed interest in the amount of $239,510 that was amortized
over the original life of the debentures (6 months). As incentive for these
debenture holders to convert their debentures to the terms of the subsequent
offering, the Company granted debenture holders 715,000 Class "A" Warrants, each
warrant exercisable to purchase one (1) share of the Company's Common Stock at
an exercise price of $.30 per share for a period of five (5) years following the
closing of the offering (July 2010). These warrants were treated as a discount
on the convertible debenture and in May 2005 were valued at $20,579 to be
amortized over the debenture term, which begins on July 11, 2005. The fair
market value of each stock warrant grant is estimated on the date of grant using
the Black-Scholes option-pricing model, in accordance with SFAS No. 123 using
the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 4.00%, volatility of 141% to 145% and expected term
of 5 years. Additionally, in connection with the debentures, the Company
recorded a beneficial conversion amount of $97,411 that will be amortized over
the life of the debentures.


                                      -13-


<page>


                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE (continued)

On May 9, 2005, the Company commenced a private offering of units, each unit
consisting of a secured, convertible promissory note and warrants (the "Units"),
totaling up to a maximum of $2,500,000. The Company closed this offering in July
2005, after the Company had sold an aggregate of $1,927,400 of these Units to 36
"accredited" investors, as that term is defined under the Securities Act of
1933, as amended. Each Unit consisted of a $100,000 secured convertible note
with a face value of the principal amount invested by each investor, carrying an
annual coupon of 8%, payable on a monthly basis in cash or common stock on the
first of every month and two hundred thousand (200,000) common stock purchase
warrants, each to purchase a share of the Company's common stock for every
dollar invested, exercisable at a purchase price of $.30 per share for a period
of five years following the final closing date of the offering period, subject
to adjustment upon the occurrence of specific events, including stock dividends,
stock splits, combinations or reclassifications of its common stock. The Notes
mature two years after issuance.

The Company has the option to satisfy principal and interest payments in cash or
common stock. The principal and interest is convertible into shares of our
"registered" common stock based on the following criteria: At the sole election
of the holder (the "Holder"), any portion of the unpaid principal balance of the
Note, together with any interest that may have accrued through the date of such
conversion, may be converted into shares of the Company's common stock. The
Holder shall provide us with fifteen (15) days written notice prior to such
payment ("Holder Conversion Notice"). The Holder may elect to receive shares of
the Company's common stock at a conversion rate equal to a 20% discount to the
average closing bid price for the previous five days to the Holder Conversion
Notice. The Holder will have a maximum conversion price of $.55 per share and a
minimum conversion price of $.20 per share. The Holder may elect to convert a
portion or all of any unpaid interest and/or principal due to the Holder
regardless as to whether the criteria as detailed herein are satisfied.

Principal payments will begin on the first day of the fourth month following the
final closing date of the offering. The amount of principal to be paid each
month shall be 1/21 of the total amount offered plus any accrued interest. The
remaining balance of the principal value of the Notes will be due on the first
day of the twenty-fourth month following the final closing of the offering.
However, the Company, at its sole option, may elect to pay the current portion
of principal and/or interest in shares of its common stock. The Company is
obligated to provide the Holder with fifteen (15) days written notice prior to
such payment ("Company Conversion Notice"). The Holder may receive shares of
common stock at a conversion rate equal to a 20% discount to the average closing
bid price for the previous five days to the Company Conversion Notice, subject
to a $.55 ceiling.


                                      -14-

<page>



                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE (continued)

The Company can elect to convert the current portion of unpaid interest and/or
principal due to the Holder under the condition that certain criteria are met
which include: (a) the Common Stock received for payment is fully registered at
the time of receipt and is delivered without restriction of any kind; and (b)
the average daily trading volume as measured for the prior twenty days to
payment is as follows: (i) 100,000 shares per day for principal balance in
excess of $2,000,000; (ii) 75,000 shares per day for principal balance in excess
of $500,000 but less than $2,000,000; (iii) 50,000 shares per day for principal
balance less than $500,000; (iv) no less than 100,000 shares per day if the
remaining principal balance is in excess of $2,000,000; and (v) the average
daily price per share as measured from the five trading days prior to payment is
no less than $0.24 per share. The stock must be delivered within five business
days of the first of the then current month.

In addition, the Company entered into a Registration Rights Agreement with these
investors pursuant to which the Company is obligated to file a registration
statement covering the above-referenced common stock and shares underlying the
warrants within 45 days of closing of this offering. The Company filed a
registration statement on August 15, 2005. If the registration statement is not
declared effective within 120 days of the closing, the Company is required to
pay a penalty of 2% of each investor's investment per month until such default
is cured, on a pro-rated daily basis. Should the registration statement not be
effective within 140 days from the closing date of the offering, and the closing
bid price for any three of the previous twenty trading days is greater than
$.6875, the Company is obligated to issue collateral shares on the monthly
payment date to the investor, as liquidated damages and not as a penalty,
equivalent to 2% per month of the investor's position as calculated under the
following formula:

             (Principal Balance of Investor + Accrued interest x 2%
              x (80% average of three highest closing bids - .55))

The average of the three highest closing bids would be measured from the 20 days
preceding the 1st of each month from which a payment is due. This penalty will
be in effect until such time as the registration statement is declared effective
and will be due each month, if applicable, along with the cash payment.



                                      -15-


<page>


                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005

NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE (continued)

Through June 30, 2005, the Company sold to investors an aggregate of $1,066,400
of the Units. In connection with these convertible debentures, warrants to
purchase 2,132,800 common shares were issued to the holders at an exercise price
per share of $0.30. The warrants are exercisable immediately and expire in July
2010. These warrants were treated as a discount on the convertible debenture and
in June 2005 were valued at $423,192 to be amortized over the debenture term,
which begins on July 11, 2005. The fair market value of each stock warrant grant
is estimated on the date of grant using the Black-Scholes option-pricing model,
in accordance with SFAS No. 123 using the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest rate of 4.00%,
volatility of 145% and expected term of 5 years. Additionally, in connection
with the debentures, the Company recorded a beneficial conversion amount of
$591,757 that will be amortized over the life of the debentures.

In July 2005, the Company sold to new investors an aggregate of $503,500 of the
Units. In connection with these convertible debentures, warrants to purchase
1,007,000 common shares were issued to the holders at an exercise price per
share of $0.30. The warrants are exercisable immediately and expire in July
2010. These warrants were treated as a discount on the convertible debenture and
in July 2005 were valued at $184,829 under SFAS No.123 using the Black-Scholes
option-pricing model to be amortized over the debenture term, which begins on
July 11, 2005. The fair market value of each stock warrant grant is estimated on
the date of grant using the Black-Scholes option-pricing model, in accordance
with SFAS No. 123 using the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 3.75%, volatility of 145% and
expected term of 5 years. Additionally, in connection with the debentures, the
Company recorded a beneficial conversion amount of $236,016 that will be
amortized over the life of the debentures.

For the three months ended September 30, 2005, the amount of amortization of
imputed interest and beneficial conversion charged to interest expense was
$324,460.

Skyebanc, Inc. ("Skyebanc"), an NASD broker dealer, acted as selling agent in
connection with the offering. The Company paid Skyebanc a total of eight percent
(8%) of the total proceeds resulting from the sale of the securities and
reimbursed Skyebanc, Inc. for its expenses in the amount of two percent (2%) of
the selling price of the securities sold on a non-accountable basis for an
aggregate cash placement fee of $190,740. Additionally, on July 1, 2005, the
Company granted Skyebanc 500,000 warrants to purchase 500,000 shares of its
common stock for its services related to the offering at an exercise price of
$.01 per share, which warrants expire on July 1, 2010. These warrants were
treated as a deferred debt offering cost and on July 1, 2005 were valued at
$168,205 to be amortized over the debenture term. The fair market value of each
stock warrant grant is estimated on the date of grant using the Black-Scholes
option-pricing model, in accordance with SFAS No. 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 3.75%, volatility of 145% and expected term of 5 years. At September 30,
2005, the placement fees were deemed to be a deferred debt offering cost on the
accompanying balance sheet and are being amortized as a debt issuance cost over
the debenture term of 24 months. For the three months ended September 30, 2005,
amortization of debt issuance costs amounted to $55,295.

                                      -16-


<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE (continued)

The convertible debenture liability is as follows at September 30, 2005:


Convertible debentures payable                              $     1,927,400
Less: unamortized discount on debentures                         (1,256,319)
                                                              --------------
Convertible debentures, net                                         671,081
Less: current portion of convertible debentures                    (291,693)
                                                              ---------------

Convertible debentures payable - long-term                    $     379,388
                                                              ===============

NOTE 7 - STOCKHOLDERS EQUITY

Common Stock

On July 1, 2005, in connection with the acquisition of a 60% interest in
Yongxin, the Company issued 1,000,000 shares of common stock (see note 5). The
fair value of the common shares issued was based on the $.34 quoted trading
price of the common stock on the acquisition date and amounted to $340,000.

On July 22, 2005, the Company entered into a one-year agreement with China
Direct Investments, Inc. to provide business development and management
services, effective July 1, 2005. In connection with this agreement, the Company
issued 400,000 shares of the Company's common stock. The Company valued these
services using the fair value of common shares on grant date at approximately
$.26 per share and recorded deferred consulting expense of $104,000 to be
amortized over the service period. For the three months ended September 30,
2005, amortization of deferred consulting expense amounted to $26,000.

On August 1, 2005, in connection with the acquisition of a 100% interest in
Xianyang, the Company issued 500,000 shares of common stock (see note 5). The
fair value of the common shares issued was based on the $.2 quoted trading price
of the common stock on the acquisition date and amounted to $140,000.

Stock Warrants

In July 2005, in connection with the private offering discussed in Note 6, the
Company granted 1,007,000 warrants to purchase 1,007,000 shares of the Company's
common stock exercisable at $.30 per share. The purchase warrants expire in July
2010.

In July 2005, in connection with the private offering discussed in Note 6, the
Company granted 500,000 warrants to purchase 500,000 shares of the Company's
common stock to the placement agent for services rendered exercisable at $.01
per share. The purchase warrants expire in July 2010.


                                      -17-

<page>


                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 6 - STOCKHOLDERS EQUITY (continued)

A summary of the status of the Company's outstanding stock warrants as of
September 30, 2005 and changes during the period then ended is as follows:


                                                                  Weighted
                                                                    Average
                                                                   Exercise
                                                  Shares             Price
                                            --------------      --------------
       Outstanding at July 1, 2004               4,635,300         $   0.34
        Granted                                  1,507,000             0.20
        Exercised                                        -                -
        Forfeited                                        -                -
                                             --------------       ------------

       Outstanding at June 30, 2005              6,142,300          $  0.31
                                              ==============     ==============

   Warrants exercisable at end of period         6,142,300          $   0.31
                                               ==============    ==============


    Weighted-average fair value of warrants
         granted during the period                                  $   0.20
                                                                   ============

The following information applies to all warrants outstanding at September 30,
2005:


<table>
<caption>
                                                            Warrants Outstanding          Warrants Exercisable
                                                       ----------------------------    -------------------------

                                   <c>             <c>               <c>            <c>            <c>

                                                         Weighted
                                                          Average         Weighted                     Weighted
                                                        Remaining         Average                      Average
                                                       Contractual        Exercise                     Exercise
     Range of Exercise Prices              Shares      Life (Years)        Price          Shares        Price
     ------------------------          -----------    ------------     -----------    -------------- ----------
        $0.40                             1,787,500         4.75           $ 0.40         1,787,500     $ 0.40
        $0.30                             3,854,800         4.80           $ 0.30         3,854,800     $ 0.30
        $0.01                               500,000         4.75           $ 0.01           500,000     $ 0.01
</table>


NOTE 7 - OPERATING RISK

(a) Country risk

The Company's revenues are mainly derived from the sale of paper 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.



                                      -18-

<page>



                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 7 - OPERATING RISK (continued)

(b) Products risk

In addition to competing with other companies, the Company could have to compete
with larger US 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. 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.

(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
Remnibi converted to US 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 is 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.


                                      -19-


<page>



ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following analysis of our results of operations and financial condition
should be read in conjunction with the financial statements of Dragon
International Group Corp. for the year ended June 30, 2005 and notes thereto
contained in Report on Form 10-KSB of Dragon International Group Corp. as filed
with the Securities and Exchange Commission.

This report on Form 10-QSB contains forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ materially
from those discussed in the forward-looking statements and from historical
results of operations. Among the risks and uncertainties which could cause such
a difference are those relating to our dependence upon certain key personnel,
our ability to manage our growth, our success in implementing the business
strategy, our success in arranging financing where required, and the risk of
economic and market factors affecting us or our customers. Many of such risk
factors are beyond our control.

Overview

On or around August 13, 2004, as amended on September 30, 2004 and effective
October 4, 2004, under an Agreement and Plan of Reorganization, we issued
24,625,000 shares of our common stock for the acquisition of all of the
outstanding capital stock of Dragon International Group Corp., ("Dragon") a
Florida corporation. For financial accounting purposes, the exchange of stock
was treated as a recapitalization of Retail with our former shareholders
retaining 1,280,234, or approximately 5% of the outstanding stock.

Dragon International Group Corp. ("Dragon"), a Florida corporation, was founded
in June 2004. On June 30, 2004, Dragon acquired 70% ownership interest of Ningbo
Anxin International Co. Ltd. ("Anxin") and on December 31, 2004, we issued
4,000,000 common shares for the remaining 30% interest in Anxin. Anxin,
established in 1997, is located in the Zhejiang Province of Ningbo in China,
approximately 200 miles south of Shanghai. Anxin is involved in the pulp and
paper industry, operating as a manufacturer and distributor of paper and
integrated packaging paper products. Anxin, through a subsidiary, holds an
ISO9000 certificate and national license to import and export products. The
Stock Purchase Agreement between Dragon and Anxin 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 Anxin, pursuant to which Dragon is treated as the continuing
entity.

Our operations are conducted through Ningbo Anxin International Co. Ltd.
("Anxin"), our wholly owned subsidiary. Anxin is a manufacturer and distributor
of specialty paper products and packaging materials. Anxin was established in
1997, is located in Ningbo, of the Zhejiang Province in China, approximately 200
miles south of Shanghai. Anxin distributes an assortment of paper products and
packaging materials. The main consumers of Anxin's products are packaging
companies for the tobacco industry, cosmetics industry, and the wine and spirits
industry. Anxin, through its wholly owned subsidiary, Jiangdong Yonglongxin
Special Paper Co. Ltd. ("Yonglongxin"), imports an assortment of paper and
packaging products. The products imported by Anxin are used both as a finished
product and as well as a raw material to manufacture a variety of paper products
and packaging materials. Products manufactured by Anxin or one of its
subsidiaries are then sold and distributed in China.



                                      -20-

<page>


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

         Anxin operates the following subsidiaries:

         -  Jiangdong Yonglongxin Special Paper Co. Limited. ("Yonglongxin")
         -  Hangzhou Yongxin Paper Company, Limited. ("Yongxin")
         -  Ningbo Xinyi Paper Product Industrial Co., Limited ("Xinyi")
         -  Xianyang Naite Research & Development Center (the "R&D Center")

         In fiscal 2005, Anxin consolidated the operations of two divisions in
an effort to reduce fixed operational expenses. Anxin continues operating the
underlying business of each entity from the headquarters located in Ningbo. The
two consolidated divisions are; Shanghai An'Hong Paper Company Limited,
("An'Hong") and Ningbo Long'An Industry and Trade Company Limited ("Long'An").
The remote operations were established in an effort to improve client relations
and extend the brand awareness of Anxin products and services throughout China.
Furthermore Anxin, the parent, can improve its status among financial
institutions in China, as a large group with additional operations in various
business segments. Unfortunately the cost of the additional offices proved too
costly. Anxin will service the clients of An'Hong and Long'An as they continue
to operate the underlying business of each entity from the headquarters in
Ningbo. The fixed assets, office equipment and entities were sold to Shanghai
DIJI Investment Management Company.

         The following information is intended to highlight developments in our
operations, to present our results of operations, to identify key trends
affecting our businesses and to identify other factors affecting our results of
operations for the periods indicated.

Results of Operations

Comparison of Our Results of Operations for our three months ended September
30, 2005 and 2004

         During the three months ended September 30, 2005, we generated revenues
of $4,622,110 as compared to revenues of $3,542,850 for the three months ended
September 30, 2004, an increase of $1,079,260 or 30.5%. In previous and the
current period, our revenues were negatively impacted by new regulations
administered by the Chinese government. In the first quarter of calendar 2005,
the Chinese government issued minimum production quotas for the cigarette
manufacturing industry. The government established a yearly quota of 100,000
boxes of cigarettes. This judgment unfavorably impacted smaller cigarette
manufacturers; many of who were customers of Anxin. Management of Anxin had made
the strategic decisions to target smaller manufacturers because Anxin sought to
limit the dependence on any one customer, as well management estimated it could
garner a higher margin from smaller manufacturers as opposed to larger
manufacturers, as larger manufactures have a higher level of pricing power. This
new quota impacted many of our clients, as they were forced to close plants or
merge with other industry participants in an effort to meet quotas. As an
indirect result orders for packaging materials was reduced.
The decrease in revenue discussed above was offset by increased revenues
generated through our sales agents as compared to the comparative period.


                                      -21-

<page>

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

            Anxin has witnessed a fluctuation in net revenues. It imports pulp
and paper products manufactured overseas and distributes those products in
China. The general process of a typical order are; (i) initial purchase order
from customer, (ii) relay the purchase order to international supplier (iii)
receive letter of credit from bank (iv) schedule transportation from supplier
(v) schedule transportation to customer (vi) receive payment from customer. This
entire process can take anywhere from two to three months. Often times,
extenuating factors such as weather or holidays, may prolong this process,
causing a delay in payment. This can lead to us incurring costs associated with
a purchase order and the realization of the revenues for the same purchase order
in different quarters.

            For the three months ended September 30, 2005, gross profit was
$106,446, as compared to gross profit of $305,968 for the three months ended
September 30, 2004, a decrease of $199,522. For the three months ended September
30, 2005, gross profit on a percentage basis decreased to 2.3% from 8.6% for the
three months ended September 30, 2004.

            We have witnessed a decrease in gross profit for 3 straight
quarters. The decrease in gross profit is attributable to higher cost of sales.
Anxin is experiencing higher raw material costs and increased
import/transportation costs. We have witnessed an increase in the cost of our
raw materials; such as raw pulp and pulp related products over the past 12
months. This increase has impacted the global paper industry; it is not specific
to our company. Additionally, we recorded increased revenues that were generated
through sales agents that we recognize a gross profit of approximately 1%.
Management of Anxin does not anticipate the trend to reverse. Furthermore,
increased oil prices over the past year have led to higher transportation costs
for our products. Anxin does not have any control over the international price
of oil. Management has made efforts to reduce fixed administrative costs to
alleviate the burden of an increase cost of sales for the fiscal year 2005. As
mentioned above, Anxin has consolidated the operations of Shanghai Anhong Paper
Company Ltd., ("An'Hong") and Ningbo Long'An Industry and Trade Company Limited
in 2005. The closures will allow Anxin to decrease fixed administrative costs.

            For the three months ended September 30, 2005, operating expenses
amounted to $307,960 or 7% of net revenues compared to $219,821 or 6.2% of
revenues for the three months ended September 30, 2004. The increase was
attributable to the following:

            For the three months ended September 30, 2005, selling expenses
amounted to $48,835 as compared to $150,241 for the three months ended September
30, 2005, a decrease of $101,406 or 67%. This decrease is attributable to a
decrease in shipping costs of approximately $70,000. Additionally, we
experienced a decrease in salaries of approximately $7,500 due to reduction in
sales staff and a decrease in other selling expenses due to the consolidation of
our operations.

            For the three months ended September 30, 2005, general and
administrative expenses were $259,125 as compared to $69,580 for the three
months ended September 30, 2004, an increase of $189,545, or approximately 273%.
For the three months ended September 30, 2005, we incurred professional fees of
$47,928 related to our SEC filings as compared to $4,736 for the three months
ended September 30, 2004, an increase of $43,192 or 912%. Additional increases
were due to increased bad debt expense of approximately $109,000, an increase in
salaries and related benefits of approximately $9,600 due to hiring of
additional administrative staff, and an increase other operating expenses.

                                      -22-

<page>

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  (continued)

            For the three months ended September 30, 2005, other income amounted
to $182,464 as compared to other income of $19,218 for the three months ended
September 30, 2004. Other income for the three months ended September 30, 2005
and 2004 was associated with income recognized from the collection of
value-added taxes on certain of our products which we receive a tax credit.

            For the three months ended September 30, 2005, debt issuance costs
were $55,295 as compared to $0 for the three months ended September 30, 2004, an
increase of $55,295 which was related to placements fees paid in connection with
debentures payable.

            For the three months ended September 30, 2005, interest expense was
$377,136 as compared to $21,937 for the three months ended September 30, 2004,
an increase of $355,199 and was related to 1) increased borrowings and 2) the
recording of $324,460 in amortization of discount of debentures payable that was
included in interest expense.

            As a result of these factors, we reported a net loss of $(446,357)
or a net loss of $(.01) per common share for the three months ended September
30, 2005 as compared to net income of $43,837 or net income of $.00 per common
share for the three months ended September 30, 2004.

         Anxin is making a conscious effort to increase the portion of sales
from Yonglongxin. The reason is twofold; (i) Anxin can control the price and
maintain higher margins on products manufactured within the organization (ii)
increase the tax benefits realized from output from the Yonglongxin factory.
Yonglongxin operates a welfare factory in the Fuming County of the Zhang'ai
Village in Ningbo. Yonglongxin has been certified as a civil welfare company by
the municipal government of Ningbo. Civil welfare companies in China enjoy
financial incentives including favorable tax status and value-added tax rebates.
These incentives translate to reduced costs, increasing our competitive edge.

Liquidity and Capital Resources

At September 30, 2005, we had $556,186 in cash. At September 30, 2005, our cash
position by geographic area is as follows:

           United States        $   82,978
           China                   473,208
                                  ---------
           Total                $  556,186
                                  =========



                                      -23-

<page>


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

         In March 2005, we raised $357,500 ($321,750 net) in capital from
accredited investors under a private offering of Units. Each Unit consisted of a
$25,000 8% Secured Convertible Debenture and a Class A Common Stock Purchase
Warrant to purchase 125,000 shares of our Common Stock at $.40 per share for a
period of five (5) years following the closing of the offering. The investors in
this offering were also granted "piggyback" registration rights for the shares
underlying the warrants, as well as the shares reserved for issuance in the
event of conversion of the Debentures. The Units were sold to a total of 7
"accredited investors," as that term is defined under the Securities Act of
1933, as amended. The Debentures are secured by property with an audited value
of $227,900 and 12,250,000 shares of Common Stock owned by David Wu, our
President and Chief Executive Officer. The Debentures were to mature six (6)
months following the closing of the offering. Interest only is payable monthly.
However, the investors in this offering converted to our second offering,
described below, pursuant to the original terms included in this offering.

        During the period from May 2005 to July 2005, we successfully closed a
second private offering of Units. We sold an aggregate of $1,569,900 from the
sale of the Units ($1,413,910 net) to a total of 36 "accredited investors," as
that term is defined under the Securities Act of 1933, as amended, including the
seven (7) investors who purchased Units in our prior offering undertaken in
March 2005, discussed above. Each Unit consisted of a $100,000 8% Secured
Convertible Promissory Note and a Class A Common Stock Purchase Warrant to
purchase 200,000 of our Common Stock at $.30 per share for a period of five (5)
years expiring July 1, 2010. The Notes are convertible into shares of our Common
Stock and mature two years after issuance. We have the option to satisfy
principal and interest payments in cash or Common Stock. The principal and
interest is convertible into shares of our "registered" Common Stock. At the
sole election of the Holder, any portion of the unpaid principal balance of the
Note, together with any interest that may have accrued through the date of such
conversion, may be converted into shares of our Common Stock. The Holder shall
provide us with fifteen (15) days written notice prior to such payment ("Holder
Conversion Notice"). The Holder may elect to receive shares of Common Stock at a
conversion rate equal to a 20% discount to the average closing bid price for the
previous five days to the date of the Holder's Conversion Notice. The Holder
will have a maximum conversion price of $.55 per share and a minimum conversion
price of $.20 per share. The Holder may elect to convert a portion or all of any
unpaid interest and/or principal due to the Holder regardless as to whether the
criteria as detailed herein are satisfied.

         Principal payments will begin on the first day of the fourth month
following the final closing date of the offering. The amount of principal to be
paid each month shall be 1/21 of the total amount offered plus any accrued
interest. The remaining balance of the principal value of the Notes will be due
on the first day of the twenty-fourth month following the final closing of the
offering. However, we, at our sole option, may elect to pay the current portion
of principal and/or interest in shares of our Common Stock.



                                      -24-
<page>


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  (continued)

         We are obligated to provide the Holder with fifteen (15) days written
notice prior to such payment ("Company Conversion Notice"). The Holder may
receive shares of Common Stock at a conversion rate equal to a 20% discount to
the average closing bid price for the previous five days to our Company
Conversion Notice, subject to a $.55 ceiling. We can elect to convert the
current portion of unpaid interest and/or principal due to the Holder under the
condition that certain criteria are met which include: (a) the Common Stock
received for payment is fully registered at the time of receipt and is delivered
without restriction of any kind; and (b) the average daily trading volume as
measured for the prior twenty days to payment is as follows: (i) 100,000 shares
per day for principal balance in excess of $2,000,000; (ii) 75,000 shares per
day for principal balance in excess of $500,000 but less than $2,000,000; (iii)
50,000 shares per day for principal balance less than $500,000; (iv) no less
than 100,000 shares per day if the remaining principal balance is in excess of
$2,000,000.00; and (v) the average daily price per share as measured from the
five trading days prior payment is no less than $0.24 per share. The stock must
be delivered within 5 business days of the first of the then current month.

         Net cash used in operating activities during the three months ended
September 30, 2005 were $465,756 as compared to net cash provided by operating
activities of $569 during the three months ended September 30, 2004. This
increase in cash used in operating activities is primarily attributable to:

         * an increase of $490,194 in our net loss. For the three months ended
September 30, 2005, we had a net loss of $446,357 compared to net income of
$43,837 for the three months ended September 30, 2004.

         * an increase of $15,490 in depreciation and amortization as a result
of an increase in property, plant and equipment as well as the amortization of
acquired land use rights.

         * an increase of $324,460 and $55,295 in amortization of discount on
debentures payable and debt issuance costs , respectively, related to the sale
of debentures payable.

         * an increase of $26,000 in stock-based compensation related to the
issuance of common stock to a consultant in the current period,

         * an increase of $32,134 in allowance for doubtful accounts which
represents an increase in our allowance for bad debt based on an analysis of our
receivable balances.

         * For the three months ended September 30, 2005, our net operating
assets increased by $422,963 as compared to a net increase in net operating
assets of $60,055 for the three months ended September 30, 2004,




                                      -25-

<page>


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  (continued)

         Net cash provided by investing activities during the three months ended
September 30, 2005 was $27,014 as compared to net cash used in investing
activities of $(202,506) for the three months ended September 30, 2004. During
the three months ended September 30, 2005, we used cash for capital expenditures
of $163,819 and had a decrease in our restricted cash balance by $157,179 that
collateralizes certain debt offset by cash received of $33,654 from
acquisitions. During the three months ended September 30, 2004, we used cash for
capital expenditures of $122,657, used cash to acquire short-term investments of
$120,773 and received advances from related parties of $40,924.

         Net cash provided by financing activities during the three months ended
September 30, 2005 was $79,053 as compared to net cash provided by financing
activities during the three months ended September 30, 2004 of $12,078. During
the three months ended September 30, 2005, we received gross proceeds of
$503,500 from debentures payable offset by the repayment of loans payable of
$376,097 and the payment of placement fees of $48,350. During the three months
ended September 30, 2004, we received proceeds from loans payable of $12,078.

         From time to time, we need additional working capital for our
operations. In 2005, Yonglongxin, a subsidiary of Anxin, borrowed money pursuant
to several lines of credit that we have established with two banks. We received
loans of $714,975 from Guangdong Development Bank (Ningbo Branch) with six to 12
months term from March 23, 2005 to March 22, 2006, with an annual interest rate
ranging from 5.22% to 6.264%. We received loans of $537,633 from Ningbo
Commercial Bank (Tianyuan Branch), with 6 to 12 months term from March 21, 2005
to February 21, 2006, with an annual interest rate ranging from 6.138% to
6.786%. All loans are renewable when they mature. We generate sufficient cash
flow from financing and operations to pay for our debt services. We do not
anticipate these loans will have material impact on our liquidity. These loans
are secured by inventory, equipment and assets owned by the third parties. We
are current on all payments relating to these loans and expect to renew the
loans at terms and at interest rates comparable to our current loans.

         We currently have no material commitments for capital expenditures.

         While we have sufficient funds to conduct our business and operations
as they are currently undertaken, we want to build an additional manufacturing
line in order to expand our paper product production. In relation to an offering
of securities, we received net proceeds of $1,734,660. A portion of the proceeds
will be used to update our manufacturing facilities.

Trends

         Management estimates that Federal SBS and Hang Kong CCB will continue
to witness strong consumer demand in the near future. Both products have a
strong reputation for quality and are produced by venerable industry
participants.






                                      -26-

<page>


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

         Domestic grades of SBS are improving, and should witness increased
demand as consumer confidence grows. If consumer confidence for domestic SBS
improves, demand for Federal SBS may decrease. We expect International Paper
Company will take measures to protect its market share, possibly in the form of
price incentives. There can be no assurances that such incentives will be
available in the future, or if available, that such incentives will result in
improved margins. From time to time, Anxin may purchase domestically
manufactured SBS. In the past Anxin has purchased solid bleached sulfate
paperboard ("SBS") from Zhong' Hua Paper Co., Ltd. Anxin expects Federal SBS
will continue to witness strong demand. Anxin will seek to garner a growing
share of sales of domestically produced SBS as this market gains acceptance.

         Anxin expects the demand for Hang Kong CCB to remain strong. Hang Kong
CCB has established a reputation for quality generally accepted by the industry
in China. Presently there are few alternatives to Hang Kong CCB available in
China and there are no substantial domestic manufacturers in China. Management
of Anxin believes it will take time for domestic grades of cast coated board to
be accepted by the industry. As a result, we expect the demand for Hang Kong CCB
to remain strong for the foreseeable future.

         Our organization has witnessed an increase in the cost of our raw
materials; such as raw pulp and pulp related products over the past 12 months.
This increase has impacted the global paper industry; it is not specific to our
company. Management of Anxin does not anticipate the trend to reverse.
Furthermore, increase oil prices over the past year have led to higher
transportation costs for our products. Anxin does not have any control over the
price of oil. In response, we have taken necessary actions to alleviate the
impact of rising costs including the reduction of fixed administration expenses
and the implementation of variable cost controls. Management estimates our gross
profit as a percentage will decline over the next few operating quarters.
Furthermore management has taken steps to improve operating results in the
future. Management has successfully acquired a manufacturing facility with the
acquisition of Yonglongxin. This should limit our dependence on foreign
manufactured goods, while attaining a level of control on both the price and
availability of our products. We have established an internal research and
development program with the acquisition of the Xianyang Naite Research &
Development Center. This research and development program could lead to the
creation of new innovative products. New innovative products could command a
higher profit margin in the industry. However, there is no guarantee that the
program will generate new products. There is no guarantee that any new products
will receive a favorable reception in the industry.

         In the first quarter of 2005, the Chinese government issued minimum
production quotas for the cigarette manufacturing industry. The government
established a yearly quota of 100,000 boxes of cigarettes. This judgment
unfavorably impacted smaller cigarette manufacturers; many of whom are customers
of Anxin. Management of Anxin had consciously sought target smaller
manufacturers because Anxin sought to limit the dependence on any one customer,
and Anxin can garner a higher margin from smaller manufacturers, as opposed to
larger manufacturers. Larger manufactures have a higher level of pricing power
than smaller manufacturers. This new quota impacted many of our clients, as they
were forced to close plants or merge with other industry participants in an
effort to meet quotas. As an indirect result, orders for packaging materials
were reduced.


                                      -27-

<page>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

         The quality of SBS produced domestically has improved. In response,
Anxin is exploring new forms of solid bleached sulfate paperboard produced
domestically. Domestic manufacturers have had success with new products such as
Zhong Hua solid bleached sulfate paperboard and a form of water-proof art paper.
Anxin is seeking ways to incorporate these new products into their product base.
In the event Anxin is successful with this effort, it will attempt to sell and
distribute the new products using the existing sales network. A main attraction
to employ domestic products is the reduced cost as compared to foreign sources.
Anxin, through its subsidiaries, has gradually increased the sales of domestic
products as it attempts to grab market share in this domestic market. Anxin
expects to obtain a higher profit margin on sales of domestically manufactured
SBS because of reduced raw material,, transportation and export costs. Anxin has
begun to establish a relationship with Ningbo Zhong' Hua Paper Company Limited
("Zhong Hua"), a manufacturer of SBS in China. Anxin believes that Zhong' Hua
will be able to provide a stable supply of quality grades of SBS. In the future,
the quality of SBS manufactured domestically should improve. Management plans to
protect our position in this segment by seeking to expand our manufacturing base
to incorporate our own proprietary form of a high quality SBS and establishing a
relationship with a domestic manufacturer of a high quality SBS. Although sales
of domestically produced SBS have gradually increased due to increased quality,
overall the domestic products will not substitute all imported products in the
near future, because customers will continue to demand the highest quality
grades, and foreign manufacturer will take measures to protect their market
share. As foreign manufacturers offer incentives to maintain market share, Anxin
could experience improved margins on foreign goods than it currently realizes on
foreign goods.

Inflation

         Although management expects that our operations will be influenced by
general economic conditions we do not believe that inflation had a material
effect on our results of operations during the three months ended September 30,
2005.


Critical Accounting Policies and Estimates

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


                                      -28-

<page>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

            A summary of significant accounting policies is included in Note 1
to the audited financial statements included Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended June 30, 2005. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about the company's
operating results and financial condition. During the three months ended
September 30, 2005, there have been no material changes to our critical
accounting policies that impacted our consolidated financial condition or
results of operations.

         We record property and equipment at cost. Depreciation on property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets. Expenditures for major renewals and betterments that extend
the useful lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. We review these
long-lived assets for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may not be
recoverable. If the undiscounted future cash flows of the long-lived assets are
less than the carrying amount, their carrying amount is reduced to fair value
and an impairment loss is recognized. To date, we have not recognized any
impairment losses.

         Accounting for Stock Based Compensation - We account for stock based
compensation utilizing Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. We have chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the estimated fair market value of our stock
at the date of the grant over the amount an employee must pay to acquire the
stock. We have adopted the "disclosure only" alternative described in SFAS 123
and SFAS 148 (See Recent Accounting Pronouncements), which require pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. Because of this election, we continue to account
for our employee stock-based compensation plans under Accounting Principles
Board (APB) Opinion No. 25 and the related interpretations. We are required to
comply with SFAS No. 123 (revised 2004) starting on the first day of our fiscal
year 2006. We are currently evaluating the effect that the adoption of SFAS No.
123 (revised 2004) will have on our consolidated operating results and financial
condition.

         We follow the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, we record
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 collectability is reasonably assured. Our revenues
from the sale of products are recorded when the goods are shipped, title passes,
and collectibility is reasonably assured.

                                      -29-

<page>


ITEM 3. CONTROLS AND PROCEDURES

         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 President as appropriate, to allow timely decisions regarding
required disclosure. Our management, including our President, 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.

         Based upon that evaluation, our company's President has concluded that
our disclosure controls and procedures were not effective because of the
significant deficiency and the material weakness described below.

         In previous quarters, we are restating our consolidated statement of
operations, as previously filed with the Securities and Exchange Commission.

         The restatement of our consolidated financial statements was made to
correct an error in the elimination of inter-company revenues and cost of sales.
As a result of this error, we have determined that there was a significant
deficiency in our internal control over financial reporting through March 31,
2005 related to elimination of inter-company revenues and cost of sales. We have
also determined that this control deficiency constituted a material weakness. We
have taken the remedial steps necessary to eliminate the material weakness
relating to financial disclosure controls that resulted in this restatement.


         Other than the changes 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.





                                      -30-

<page>



                           Part II - OTHER INFORMATION

Item 1. Legal Proceedings

         None

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

         On July 1, 2005, in connection with the acquisition of a 60% interest
         in Yongxin, we issued 1,000,000 shares of common stock.

         On July 22, 2005, we entered into a one-year agreement with China
         Direct Investments, Inc. to provide business development and management
         services, effective July 1, 2005. In connection with this agreement,
         the Company issued 400,000 shares of the Company's common stock.

         On August 1, 2005, in connection with the acquisition of a 100%
         interest in Xianyang, we issued 500,000 shares of common stock.

Item 3. Defaults Upon Senior Securities

                  None

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

                  None

Item 5. Other Information

                  None

Item 6.  Exhibits


Exhibit
Number              Description
------       ----------------
31.1   Rule 13a - 14(a)/15d-14(a) Certification of the Chief Executive Officer *
31.2   Rule 13a - 14(a)/15d-14(a) Certification of the Chief Financial Officer *
32.1   Certification of Chief Executive Officer Certification under
       Section 906 *
32.2   Certification of Principal Financial and Accounting Officer Certification
       under Section 906 *

              * Filed herein



                                      -31-
<page>



                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Ningbo, China on November 23, 2005.

                             DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

                                 By: /s/ David Wu
                                         David Wu,
                                        CEO, Principal Executive Officer




                                      -32-