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

                                   FORM 10-QSB



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

                     For the quarter ended December 31, 2006

                         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: 83,070,979 shares at February 14, 2007

When used in this report, the terms "Dragon," the "Company," "we," and "us"
refers to Dragon International Group Corp., a Nevada corporation, and our wholly
owned subsidiaries, Dragon International Group Corp. a Florida corporation,
("Dragon Florida") and Shanghai JinKui Packaging Material Company, Limited, a
Chinese corporation. Dragon Florida subsidiaries include its wholly owned
subsidiary Ningbo Dragon International Trade Company, Limited, a Chinese
corporation ("Ningbo Dragon"), f/k/a Ningbo Anxin International Trade Company,
Limited. Ningbo Dragon subsidiaries include its wholly owned subsidiaries,
Ningbo City Jiangdong Yonglongxin Special Paper Co., Ltd. ("Yonglongxin") and
Ningbo Dragon Packaging Technology Co., Ltd, ("Dragon Packaging") as well as its
60% ownership interest in Ningbo Dragon Hangzhou Yongxin Paper Co., Ltd.
("Yongxin")

The information which appears on our web site at www.drgg.net is not part of
this quarterly report.

<page>

         CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Certain statements in this quarterly report on Form 10-QSB contain or may
contain forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, global competition, and other factors as they relate to our doing business
solely within the People's Republic of China. Most of these factors are
difficult to predict accurately and are generally beyond our control. You should
consider the areas of risk described in connection with any forward-looking
statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events.

<page>





                        DRAGON INTERNATIONAL GROUP CORP.
                                   FORM 10-QSB
                    QUARTERLY PERIOD ENDED December 31, 2006

                                      INDEX


                                                                            Page

PART I - FINANCIAL INFORMATION

         Item 1 - Financial Statements

         Consolidated Balance Sheet
               December 31, 2006 (Unaudited)...................................4
         Consolidated Statements of Operations (Unaudited)
               For the Three and Six Months Ended December 31, 2006 and 2005...5
         Consolidated Statements of Cash Flows (Unaudited)
               For the Six Months Ended December 31, 2006 and 2005.............6

         Notes to Consolidated Financial Statements.........................7-16

         Item 2 - Management's Discussion and
         Analysis of Financial Condition and Results of Operations.........17-26

         Item 3 - Controls and Procedures.....................................29

PART II - OTHER INFORMATION

         Item 1 - Legal Proceedings...........................................36

         Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.36

         Item 3 - Default upon Senior Securities .............................37

         Item 4 - Submission of Matters to a Vote of Security Holders.........37

         Item 5 - Other Information...........................................37

         Item 6 - Exhibits....................................................37

         Signatures...........................................................38


<page>



                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2006
                                   (Unaudited)

<table>
<caption>
                                           ASSETS

                                                                                      <c>
CURRENT ASSETS:
    Cash                                                                                             $    174,562
    Accounts receivable (net of allowance for doubtful accounts of $163,042)                            5,252,947
    Inventories                                                                                         3,735,169
    Advances on purchases                                                                               2,865,382
    Prepaid expenses and other current assets                                                             122,704
                                                                                             ---------------------

        Total Current Assets                                                                           12,150,764

CASH-RESTRICTED                                                                                           255,836
PROPERTY AND EQUIPMENT - Net                                                                            2,324,520
LAND USE RIGHTS - Net                                                                                   2,557,499
INTANGIBLE ASSETS - Net                                                                                   353,020
                                                                                             ---------------------

        Total Assets                                                                                 $ 17,641,639
                                                                                             =====================

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Notes payable - current portion                                                                  $  3,170,035
    Accounts payable                                                                                    5,188,322
    Accrued expenses                                                                                    1,717,922
    Advances from customers                                                                                22,643
                                                                                             ---------------------
        Total Current Liabilities                                                                      10,098,922

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

        Total Liabilities                                                                              10,146,922
                                                                                             ---------------------

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;
        74,737,643 shares issued and outstanding)                                                          74,737
    Common stock issuable (890,000 shares)                                                                    890
    Additional paid-in capital                                                                          8,120,500
    Accumulated deficit                                                                                  (372,839)
    Deferred compensation                                                                                (681,185)
    Other comprehensive income - foreign currency                                                         352,614
                                                                                             ---------------------


        Total Stockholders' Equity                                                                      7,494,717
                                                                                             ---------------------

        Total Liabilities and Stockholders' Equity                                                   $ 17,641,639
                                                                                             =====================

</table>
            See notes to unaudited consolidated financial statements
                                       -4-

<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)
<table>
<caption>

                                                      For the Three Months Ended            For the Six Months Ended
                                                              December 31,                         December 31,
                                                   ----------------  ----------------   ----------------  ----------------
                                                        2006              2005               2006              2005
                                                   ----------------  ----------------   ----------------  ----------------

                                              <c>                <c>                <c>               <c>
NET REVENUES                                           $ 5,188,903       $ 4,869,309       $ 10,021,887       $ 9,491,419

COST OF SALES                                            4,755,973         4,368,285          9,216,443         8,883,949
                                                   ----------------  ----------------   ----------------  ----------------

GROSS PROFIT                                               432,930           501,024            805,444           607,470
                                                   ----------------  ----------------   ----------------  ----------------

OPERATING EXPENSES:
     Stock-based consulting expenses                        86,878            26,000            173,756            52,000
     Selling expenses                                       23,113            85,977            137,946           160,812
     General and administrative                            176,762            16,795            490,122           221,130
                                                   ----------------  ----------------   ----------------  ----------------

        Total Operating Expenses                           286,753           128,772            801,824           433,942
                                                   ----------------  ----------------   ----------------  ----------------

INCOME  FROM OPERATIONS                                    146,177           372,252              3,620           173,528
                                                   ----------------  ----------------   ----------------  ----------------

OTHER INCOME (EXPENSE):
     Other income                                            6,410            22,249            100,073           204,713
     Debt issuance costs                                         -           (40,400)                 -           (95,695)
     Interest expense                                      (43,331)         (254,356)           (76,763)         (631,492)
                                                   ----------------  ----------------   ----------------  ----------------

        Total Other Income (Expense)                       (36,921)         (272,507)            23,310          (522,474)
                                                   ----------------  ----------------   ----------------  ----------------

NET INCOME (LOSS) BEFORE MINORITY INTEREST                 109,256            99,745             26,930          (348,946)

MINORITY INTEREST IN LOSS OF SUBSIDIARY                          -            (3,618)                 -            (1,284)
                                                   ----------------  ----------------   ----------------  ----------------

NET INCOME (LOSS)                                          109,256            96,127             26,930          (350,230)

OTHER COMPREHENSIVE INCOME:
   Unrealized foreign currency translation                 269,560            22,499            352,614           120,673
                                                   ----------------  ----------------   ----------------  ----------------

COMPREHENSIVE INCOME (LOSS)                              $ 378,816         $ 118,626         $  379,544        $ (229,557)
                                                   ================  ================   ================  ================

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

      Weighted Common Shares Outstanding - Basic        71,275,524        39,979,799         67,885,372        39,637,951
                                                   ================  ================   ================  ================
      Weighted Common Shares Outstanding - Diluted      71,635,524        41,206,234         68,245,372        39,637,951
                                                   ================  ================   ================  ================
 </table>



            See notes to unaudited consolidated financial statements
                                       -5-

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


<table>
<caption>
                                                                                       For the Six Months Ended
                                                                                            December 31,
                                                                                  ---------------------------------
                                                                                       2006              2005
                                                                                  ----------------  ---------------

                                                                               <c>               <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                              $       26,930     $   (350,230)
    Adjustments to reconcile net income (loss) to net cash provided by (used in)
      operating activities:
      Depreciation and amortization                                                       204,267           58,922
      Stock-based compensation                                                            173,756           52,000
      Amortization of discount on debentures payable                                                       503,934
      Amortization of debt issuance costs                                                                   95,695
      Allowance for doubtful accounts                                                     (20,045)          12,063
      Minority interest                                                                         -            1,380

    Changes in assets and liabilities:
      Accounts receivable                                                                (293,917)      (1,023,979)
      Inventories                                                                        (441,323)       1,192,844
      Prepaid and other current assets                                                    343,376          930,349
      Advances on purchases                                                            (2,059,720)        (657,429)
      Other assets                                                                         78,759            4,154
      Accounts payable                                                                  1,786,883       (1,329,956)
      Accrued expenses                                                                   (324,191)        (439,075)
      Advances from customers                                                             (46,051)         (22,945)
                                                                                  ----------------  ---------------

NET CASH (USED IN) OPERATING ACTIVITIES                                                  (571,276)        (972,273)
                                                                                  ----------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Due from related parties                                                                3,498                -
    Cash acquired in acquisition                                                                -           33,654
    Decrease in restricted cash                                                            12,792          353,258
    Capital expenditures                                                                 (392,606)        (230,419)
                                                                                  ----------------  ---------------

NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES                                (376,316)         156,493
                                                                                  ----------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from notes payable                                                         1,944,355          548,746
    Repayment of notes payable                                                         (1,488,527)        (376,097)
    Proceeds from exercise of stock warrants                                                1,000                -
    Common stock issued for raising capital                                               100,000                -
    Proceeds from debentures payable                                                            -          503,500
    Prepayment of debentures payable                                                            -         (183,592)
    Placement fees paid                                                                         -          (48,350)
                                                                                  ----------------  ---------------

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                                           556,828          444,207
                                                                                  ----------------  ---------------

EFFECT OF EXCHANGE RATE ON CASH                                                            99,055           33,605
                                                                                  ----------------  ---------------

NET DECREASE IN CASH                                                                     (291,710)        (337,968)

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

CASH - end of period                                                                  $   174,562      $   564,591
                                                                                  ================  ===============

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid  for:
        Interest                                                                      $    80,796      $  134,625
                                                                                  ================  ===============
        Income Taxes                                                                  $         -      $   54,766
                                                                                  ================  ===============

    Non-cash investing and financing activities
        Issuance of common stock for future services                                  $         -      $   52,000
                                                                                  ================  ===============
        Deferred discount and beneficial conversion on debentures payable             $         -      $  420,845
                                                                                  ================  ===============
        Issuance of common stock for convertible debt                                 $         -      $    3,750
                                                                                  ================  ===============
        Issurance  of c/s for liability in connection with acquisition                $ 1,141,476      $       -
                                                                                  ================  ===============

    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.
                                       -6-
<page>


                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

The Company

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

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

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

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

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


                                      -7-

<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

The Company (Continued)

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

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

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

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

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 2006 and
2005 include the allowance for doubtful accounts of accounts receivable, the
useful life of property, plant and equipment and land use rights.


                                      -8-

<page>



                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid instruments purchased with a maturity of three months or less
and money market accounts to be cash equivalents. At December 31, 2006, the
Company maintains a cash balance of $430,398. Of this amount $429,554 is held in
China, and $844 is held in the U.S. Of the cash balance of $429,554 held in
China, $255,836 is restricted. The amount of $255,836 is being held in a bank
account as collateral for certain letters of credit and is presented as
restricted cash on the accompanying balance sheet.

Accounts receivable

Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. At December 31, 2006, the allowance for doubtful accounts was
$163,042.

Inventories

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

Advances on purchases

At December 31, 2006, advances on purchases amounted to $2,865,382. This amount
consists of a prepayment by the Company for merchandise that had not yet been
shipped to the Company. The Company will recognize the payment as expenses when
the Company takes delivery of the goods.

Intangible Assets / Intellectual Property

The Company amortizes the intangible assets and intellectual property acquired
in connection with their various acquisitions. The Company amortizes these
assets based on expected useful lives of these assets, based on Company
management projecting forward future revenue and expense streams of these
acquired entities. For the six months ended December 31, 2006 and 2005,
amortization expenses for intangible assets amounted to $52,812 and $0,
respectively.

Long - Lived Assets

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


                                      -9-


<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

Stock-based compensation

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

Net income (loss) per share

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

<table>
<caption>

                                                        For the Three Months Ended           For the Six Months
                                                            December 31, 2006                Ended December 31,
                                                                   2005                           2006 2005
                                                       -----------------------------    ------------------------------

                                                    <c>             <c>               <c>            <c>
Net income (loss)                                       $    109,256    $    96,127       $     26,930   $   (350,230)
Weighted average shares outstanding - basic               71,275,524     39,979,799         67,885,372     39,637,951
EPS - basic                                                    $0.00          $0.00       $      (0.00)   $      (0.01)
                                                       ============== ==============    =============== ==============

Net income (loss)                                       $    109,256     $   96,127       $    26,930    $ (350,230)
                                                       ============== ==============    =============== ==============
  Weighted average shares outstanding - basic             71,275,524     39,979,799         67,885,372     39,637,951
Effect of dilutive securities
   Unexercised warrants                                       36,000        422,617             36,000              -
   Convertible debentures                                          -              -                  -              -
   Convertible note payable                                        -        803,818                  -              -
                                                       -------------- --------------    --------------- --------------
  Weighted average shares outstanding- diluted            71,311,524     41,206,234         67,921,372     39,637,951
                                                       ============== ==============    =============== ==============
  EPS - diluted                                          $      0.00     $     0.00        $     (0.00)   $     (0.01)
                                                     ============== ==============    =============== ==============
</table>
Revenue recognition

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

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


                                      -10-

<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

Shipping and handling costs

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

Foreign currency translation

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

For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive loss. As
of December 31, 2006, the exchange rate for the Chinese dollar or Renminbi
("RMB") was 1 United States dollar for 7.8175 RMB.

The functional and reporting currency is the U.S. dollar. The functional
currency of the Company's Chinese subsidiaries is the local currency, the
Chinese dollar or Renminbi ("RMB"). The financial statements of the subsidiaries
are translated into United States dollars using year end rates of exchange for
assets and liabilities, and average rates of exchange for the period for
revenues, costs, and expenses. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not material during the periods presented. The cumulative translation
adjustment and effect of exchange rate changes on cash at December 31, 2006 and
2005 were $99,055 and $33,605, respectively.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions in the
United States and China. At December 31, 2006, the Company, held a total of
$430, 398 in bank deposits. Of this amount $429,554 is held in China, and $844
is held in the U.S. Of the cash balance of $429,554 held in China, $255,836 is
restricted. The amount of $255,836 is being held in a bank account as collateral
for certain letters of credit and is presented as restricted cash on the
accompanying balance sheet. The remaining unrestricted cash balance of $173,718
held in bank deposits in China which may not be insured. The Company has not
experienced any losses in such accounts through December 31, 2006. The Company
also performs ongoing credit evaluations of its customers to help further reduce
credit risk.


                                      -11-


<page>


                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 2 - INVENTORIES

At December 31, 2006, inventories consisted of the following:

         Raw materials          $         1,388,388
         Finished goods                   2,346,781
                                     -----------------
                                $         3,735,169
                                     =================

NOTE 3 - LAND USE RIGHTS

In connection with the acquisition of Ningbo Dragon Packaging Technology
Company, Limited ("Dragon Packaging"), the Company acquired land use rights
valued as of December 31, 2006 at $2,641,812 (Local currency of RMB 20,652,366)
through an agreement with the Chinese government, whereby the Company has rights
to use certain land until March 4, 2053. The Company amortized this land use
rights over the contract period beginning July 1, 2005. For the six months ended
December 31, 2006, amortization expenses amounted to $29,431.

    Land Use Rights                      Estimated Life      $ 2,641,812
                                            47 year
    Less: Accumulated Amortization                           $    84,313
                                                             --------------
                                                             $ 2,557,499
                                                            ===============

NOTE 4 - PROPERTY AND EQUIPMENT

At December 31, 2006, property and equipment consisted of the following:

                               Estimated Life
Auto and truck                   10 Years                $     177,678
Manufacturing equipment           5 Years                    1,701,415
Building and improvements        20 Years                    1,009,212
Office equipment                  5 Years                       50,095
                                                         -----------------
                                                             2,938,400
Less: Accumulated depreciation                                (613,880)
                                                          ---------------
                                                          $ 2,324,520
                                                        ==================

For the six months ended December 31, 2006 and 2005, depreciation expense for
property and equipment amounted to $122,024 and $61,352, respectively.


                                      -12-


<page>



                        DRAGON INTERNATIONAL GROUP CORP.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 5-NOTES PAYABLE

<table>

                                                                             <c>

Notes payable consisted of the following at December 31, 2006:

Notes payable to Bank of Agriculture, due on August 15, 2007. Interest only
payable monthly $ at a rate of 6.732%. Secured by equipment and personal
guarantee of officer.                                                                   127,918

Notes payable to Bank of Agriculture, due on August 15, 2007. Interest only
payable monthly at a rate of 6.732%. Secured by equipment and personal guarantee
of officer.                                                                             127,918

Notes payable to Bank of Agriculture, due on November 15, 2007. Interest only
payable monthly at a rate of 6.732%. Secured by equipment and personal guarantee
of officer.                                                                             537,256

Notes payable to Bank of Agriculture, due on November 15, 2007. Interest only
payable monthly at a rate of 6.732%. Secured by equipment and personal guarantee
of officer.                                                                             639,591

Notes payable to Bank of Agriculture, due on November 15, 2007. Interest only
payable monthly at a rate of 7.344%. Secured by equipment and personal guarantee
of officer.                                                                             127,918

Notes payable to Bank of Agriculture, due on November 15, 2007. Interest only
payable monthly at a rate of 7.344%. Secured by equipment and personal guarantee
of officer.                                                                             383,754

Notes payable to Bank of Agriculture, due on March 15, 2007. Interest only
payable monthly at a rate of 6.138%. Secured by equipment and personal guarantee
of officer.                                                                             614,007

Bank acceptances payable.  Non-interest bearing.  Secured by equipment and
personal guarantee of officer.                                                          511,673

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

Total                                                                                 3,218,035

Less Current Portion                                                                  3,170,035
                                                                                 -----------------

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

</table>



                                      -13-


<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 6- STOCKHOLDERS' EQUITY

Common Stock

For the six months ended December 31, 2006 and 2005, amortization of stock based
compensation amounted to $173,756 and $52,000, respectively.

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

Stock Warrants

A summary of the status of the Company's outstanding stock warrants as of
December 31, 2006 and changes during the period then ended is as follows:

                                                     Weighted
                                                     Average
                                                     Exercise
                                                     Shares            Price
                                                     -----------    -----------
 Outstanding at July 1, 2006                          16,834,600      $ 0.147
 Granted                                                       -            -
 Exercised                                               110,000         0.01
 Forfeited                                                     -            -
                                                     -----------    -----------
 Outstanding at December 31, 2006                     16,724,600      $ 0.148
                                                     ============== ===========

 Warrants exercisable at end of period                16,724,600      $ 0.148
                                                     ============== ===========
 Weighted-average fair value of warrants
 granted during the period                                            $ 0.148
                                                                    ===========

The following information applies to all warrants outstanding at December 31,
2006:


<table>
<caption>
                                                           Warrants Outstanding       Warrants Exercisable
                                                     ----------------------------    -------------------------
                                    Weighted
                                    Average          Weighted         Weighted
                                    Remaining        Average           Average
                                    Contractual      Exercise          Exercise
     Range of Exercise Prices       Shares           Life (Years)       Price            Shares            Price

                               <c>               <c>                <c>             <c>                <c>
     ------------------------      -----------       ------------      -----------      ----------        ---------
         $0.30                         150,000         3.53              $ 0.30                150,000      $ 0.30
         $0.15                      16,184,600         3.68              $ 0.15           16,184,600        $ 0.15
         $0.01                         390,000         3.53              $ 0.01                390,000      $ 0.01


</table>



                                      -14-

<page>

                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 7- OPERATING RISK

(a) Country risk

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

(b) Products risk

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

(d) Political risk

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

(e) Key personnel risk

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


                                      -15-


<page>



                DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 8- OPERATING RISK (Continued)

(f) Performance of subsidiaries risk

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


NOTE 9 - SUBSEQUENT EVENT

Effective January 16, 2007, Dragon International Group Corp., a Nevada
corporation (the "Registrant") entered into an agreement ("Agreement") whereby
it agreed to purchase fifty one (51%) percent of the common stock (the "Common
Stock") of Wellton International Fiber Corp., a corporation organized under the
laws of the British Virgin Islands (the "Company"). Wellton operates as an agent
for the distribution of pulp, and waste paper in China. The transactions
contemplated by the Agreement are expected to close (the "Closing Date") on or
before March 31, 2007. In exchange for the fifty one (51%) percent of Company's
Common Stock, the Registrant agreed to pay a purchase price (the "Purchase
Price") equal to fifty one (51%) percent of the value of the Company's audited
net tangible assets, as stated on the Company's audited financial statements for
the period ending December 31, 2006. The Company's audited financial statements
have yet to be prepared and the Agreement is conditional upon the engagement of
SEC approved auditor to prepare such audited financial statements. The Purchase
price will be in the form of common stock of Dragon Nevada and shall not exceed
$1,500,000 in the aggregate.

On January 30, 2007 the Company entered into agreements for the sale of
$1,500,000 units of securities. The Company entered into agreements with 9
accredited investors for $1,500,000 of financing of units of its securities
consisting of 16,666,672 shares of Common Stock, and Class A Common Stock
Purchase Warrants to purchase 16,666,672 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 8,333,340 shares of common stock. The
Common Stock is being purchased at a price of $.09 per share, the Class A
Warrants are exercisable at $.125 per share, and the Class B Warrants are
exercisable at $.15 per share, and both warrants are for a term of five years.

On January 30, 2007 the Company completed an initial $750,000 units of
securities consisting of 8,333,336 shares of Common Stock, and Class A Common
Stock Purchase Warrants to purchase 8,333,336 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 4,166,670 shares of common stock.


                                      -16-


<page>


The second phase of the offering will be an additional $750,000 financing of
units of its securities consisting of 8,333,336 shares of Common Stock, and
Class A Common Stock Purchase Warrants to purchase 8,333,336 shares of common
stock and Class B Common Stock Purchase Warrants to purchase 4,166,670 shares of
common stock. The Class A Warrants are exercisable at $.125 per share, and the
Class B Warrants are exercisable at $.15 per share, and both warrants are for a
term of five years. The second closing is expected to be completed on or before
March 31, 2007.

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. These factors include, but are not limited to economic, political,
and market conditions and fluctuations, government and industry regulation,
interest rate risk, global competition, and other factors as they relate to our
doing business solely within the Peoples Republic of China. Most of these
factors are difficult to predict accurately and are generally beyond our
control. 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.


                                      -17-

<page>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS

The following analysis of our results of operations and financial condition
should be read in conjunction with our financial statements for the years ended
June 30, 2006 and 2005 and notes thereto contained in our report on Form 10-KSB
as filed with the Securities and Exchange Commission.

Overview

Dragon International Group Corp. ("we," "us," "our," or "Dragon") was
incorporated on February 17, 1993 pursuant to the laws of the
State of Nevada.

We own a 100% interest in Dragon International Group Corp., a Florida
corporation ("Dragon Florida"). Dragon Florida owns 100% interest in Ningbo
Dragon International Trade Company, Limited ("Ningbo Dragon"), formerly known as
Ningbo Anxin International Trade Company, Limited ("Anxin"). Ningbo Anxin
International Trade Company, Limited changed its name to Ningbo Dragon
International Trade Company, Limited ("Ningbo Dragon") on July 7, 2005. Ningbo
Dragon is involved in the pulp, paper and packaging material industry, operating
as a manufacturer and distributor of pulp, paper and integrated packaging
products. Ningbo Dragon, through a subsidiary, holds an ISO9000 certificate and
national license to import and export products. Our operations are conducted in
China. Ningbo Dragon operates subsidiaries, including; (i) Ningbo City Jiangdong
Yonglongxin Special Paper Company, Limited ("Yonglongxin") that holds an ISO9000
certificate and operates a civil welfare manufacturing facility in Fuming County
of the Zhang'ai Village in Ningbo, China. Yonglongxin operates the Xianyang
Naite Research & Development Center (the "R&D Center"), created to develop,
design and improve production methods in the specialty packaging industry in
China; (ii) Hangzhou Yongxin Paper Company, Limited ("Yongxin"). Yongxin
manufactures, sells, and distributes packaging materials for the tobacco
industry in China; and (iii) Ningbo Dragon Packaging Technology Company, Limited
("Dragon Packaging"), a manufacturer of specialized packaging materials products
for the pharmaceutical and food industry. Shanghai JinKui Packaging Material
Company, Limited ("JinKui"), a wholly owned subsidiary of Dragon Nevada,
manufactures specialized packaging products for the pharmaceutical, food and
beverage industry. Ningbo Dragon has a distribution network covering east and
central China.

Our principal executive offices are located at Bldg 14, Suite A09, International
Trading Center, 29 Dongdu Road, Ningbo, China 315000, telephone:
86-574-56169308.

In 2005, we consolidated the operations of two divisions in an effort to reduce
fixed operational expenses. Ningbo Dragon operates 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 our products and services throughout China. Unfortunately, the cost
of the additional offices proved too costly. We now service the clients of
An'Hong and Long'An as they continue to operate the underlying business of each
entity from our headquarters in Ningbo. The fixed assets, office equipment and
entities were sold to Shanghai DIJI Investment Management Company.

We import pulp and paper products manufactured overseas and distribute 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; and (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 or shipment.

                                      -18-
<page>


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.

Effective January 16, 2007, Dragon International Group Corp., a Nevada
corporation (the "Registrant") entered into an agreement ("Agreement") whereby
it agreed to purchase fifty one (51%) percent of the common stock (the "Common
Stock") of Wellton International Fiber Corp., a corporation organized under the
laws of the British Virgin Islands (the "Company"). Wellton acts as an agent for
the distribution of pulp and waste paper products in China. The transactions
contemplated by the Agreement are expected to close (the "Closing Date") on or
before March 31, 2007. In exchange for the fifty-one (51%) percent of Company's
Common Stock, the Registrant agreed to pay a purchase price (the "Purchase
Price") equal to fifty-one (51%) percent of the value of the Company's audited
net tangible assets, as stated on the Company's audited financial statements for
the period ending December 31, 2006. The Company's audited financial statements
have yet to be prepared and the Agreement is conditional upon the engagement of
SEC approved auditor to prepare such audited financial statements. The purchase
price will be in the form of common stock of Dragon Nevada and shall not exceed
$1,500,000 in the aggregate.

In March 2005 and July 2005 we engaged in private offerings of our securities.
All of the offerings have been converted to common stock in January 2006.
Following is a description of these offerings:

March 2005 Private Placement

On March 1, 2005, we closed a private offering of Units. Each Unit consisted of
a secured convertible debenture with a face value of the principal amount
invested by each investor, carrying an annual coupon of 8% and 250,000 (5
warrants per dollar invested) Class A Common Stock Purchase Warrants to purchase
shares of our Common Stock at $.40 per share for a period of five (5) years
following the closing of the offering. The minimum subscription was for $50,000
or one Unit; however, we reserved the right to accept subscriptions for a
fractional Unit, which we did. We received gross proceeds of $357,500 from the
sale of these Units ($321,750 net). 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 was payable monthly.

We anticipated undertaking a subsequent offering to raise additional funds under
similar terms and conditions as provided in the March 2005 Private Placement and
as a result, the relevant offering documents contained a mandatory provision
that provided for each of the investors to convert into the subsequent offering.
This second offering, described below under the heading "July 2005 Private
Placement," took place beginning in May 2005 and was similar to the offering
terms of the March 2005 offering, with the exception of the primary term of the
Debenture. Each of the investors retained ownership of the warrants issued to
them in the March 2005 Private Placement.


                                      -19-

<page>


July 2005 Private Placement

During the period from May 9, 2005 to July 11, 2005, we successfully closed a
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 29 "accredited investors," as that term
is defined under the Securities Act of 1933, as amended. As well gross proceeds
of $357,500 received seven (7) investors who purchased Units under the terms of
the March 2005 Private Placement were invested under the terms of the July 2005
Private Placement. Each Unit consisted of a secured convertible debenture with a
face value of the principal amount invested by each investor, carrying an annual
coupon of 8% and 200,000 Class A Common Stock Purchase Warrants (5 warrants per
dollar invested) to purchase shares of our Common Stock at $.30 per share for a
period of five (5) years expiring July 1, 2010. The minimum subscription was for
$100,000 or one Unit; however, we reserved the right to accept subscriptions for
a fractional Unit, which we did. T

January Conversion Offer

In January 2006, we made an offer to all of the holders of our outstanding Units
wherein we offered the holders of the Units an opportunity to convert the
outstanding principal and interest owed pursuant to the Debentures into shares
of our Common Stock at a conversion price of $.09 per share. This offer also
provided for the reduction of the exercise price on the warrants included in the
Units issued in the July 2005 Private Placement from $.30 to $.15 per warrant
and the reduction of the exercise price on the warrants included in the Units
issued in the March 2005 Private Placement from $.40 to $.15 per Warrant. As
further inducement, if the holder agreed to convert, we also agreed to issue
additional common stock purchase warrants equal to the number of warrants held
by each Unit holder at the time of the January Conversion Offer. These
conversion warrants are exercisable at $.15 per warrant for a period of Five (5)
years. All of the Unit holders accepted our offer, except for two holders who
assigned their Debentures to third parties who subsequently converted under the
terms of the January Conversion Offer. These holders retained the warrants
issued as part of their original Units in both the March 2005 Private Placement
and the July 2005 Private Placement. As a result, we issued an aggregate of
18,478,565 shares of our Common Stock and 5,642,300 common stock purchase
warrants, pro rata to the number of Units held by each holder electing to
convert under the terms of the January Conversion Offer. We also reduced the
exercise price on the 3,704,800 warrants held by the converting holders from the
July 2005 Private Placement from $.30 to $.15 per share, while maintaining the
exercise price on 150,000 warrants at $.30 per share for those holders who
elected not to convert. We also reduced the exercise price on the 1,787,500
warrants received as consideration for the March 2005 Private Placement from
$.40 to $.15 per share. Results of Operations

Comparison of Results of Operations for the six months ended December 31, 2006
and 2005


                                      -20-

<page>


<table>
<caption>

                                                                 Six Months Ended December 31,
                                                              ---------------------------------


                                                  <c>              <c>              <c>           <c>
                                                          2006             2005             $             %
                                                       (Unaudited)      (Unaudited)       Change       Change
                                                     ---------------- ---------------- ------------- ------------

Net Revenues                                             $10,021,886   $9,491,419          $530,467         5.6%
Cost of sales                                             9,216,443      8,883,949          332,494         3.7%
Stock based consulting expenses                             173,756          52,000         121,756       234.1%
Selling expenses                                            137,946         160,812        (22,866)       -14.2%
General and administration(GA) expenses                     490,122         221,130         268,992       121.6%
Total operating expenses                                    801,824         433,942         367,882        84.8%
Operating income                                               3,620          173,528     (169,909)       -97.9%
Total other (expense)                                         23,310        (522,474)       545,784           NM
                                                     ---------------- ---------------- ------------- ------------
Net loss                                                   $  26,930       $(350,230)      $377,160           NM
                                                     ================ ================ ============= ============
</table>

NM= not meaningful
<table>
<caption>

                                                                           Six Months Ended December 31,
                                                                   --------------------------------
                                                                           2006             2005            %
                                                                      (Unaudited)        (Unaudited)    Change
                                                                   ---------------- --------------- -------------

                                                                <c>              <c>             <c>
Other Key Indicators:
Cost of sales as a percentage of revenues                                    92.0%           93.6%         -1.6%
Gross profit margin                                                           8.0%            6.4%          1.6%
Selling expenses as a percentage of revenues                                  1.4%            1.7%         -0.3%
GA expenses as a percentage of revenues                                       4.9%            2.4%          2.5%
Total operating expenses as a percentage of revenues                          8.0%            4.6%          3.4%

</table>

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


                                      -21-


<page>
Revenue

During the six months ended December 31, 2006, we generated revenues of
$10,021,887, as compared to revenues of $9,491,419 for the six months ended
December 31, 2005, an increase of $530,468 or 5.6%. For the six months ended
December 31, 2006, we recorded revenues of approximately $846,355 from our
JinKui subsidiary acquired effective June 30, 2006. Comparatively, JinKui
generated revenues of $474,069 for the six months ended December 31, 2005. This
increase in our consolidated revenue was offset by a decrease in sales from our
Yonglongxin and Yongxin subsidiaries.

Cost of Sales and Gross Profit

During the six months ended December 31, 2006, cost of goods sold was
$9,216,443, compared to $8,883,949 during the six months ended December 31,
2005, an increase of $332,949, or 3.7%. As a percentage of net revenues, our
cost of goods sold for the six months ended December 31, 2006 was 92.0%, as
compared to 93.6% for the six months ended December 31, 2005, a decrease as a
percentage of our revenues of 1.6%. Our cost of goods sold decreased due to
efficiencies achieved when we upgraded our machinery.

For the six months ended December 31, 2006, gross profit for the period was
$805,444, as compared to gross profit of $607,470 for the six months ended
December 31, 2005, an increase of $197,974. For the six months ended December
31, 2006, gross profit on a percentage basis increased to 8.0% from 6.4% for the
same period ended December 31, 2005, an increase of 1.6%. Our margins have
improved due to efficiencies achieved when we upgraded our machinery. Also, a
lower exchange rate has reduced our raw material costs slightly.

Total Operating Expenses

For the six months ended December 31, 2006, total operating expenses amounted to
$801,824 or 8.0% of net revenues compared to $433,942 or 4.6% of net revenues
for the six months ended December 31, 2005, an increase of $367,882. The
increase was attributable to the following:

o    For the six months ended December 31, 2006, we recorded non-cash
     compensation expenses of $173,756 as compared to $52,000 for the six months
     ended December 31, 2005, an increase of $121,756 or 234.1%. This amount
     represented the value amortized, for the shares of our common stock issued
     and warrants granted as compensation for consulting services and
     professional services being rendered to us. While we anticipate that we
     will enter into similar agreements during fiscal 2007, we cannot predict
     the amount of expense that will be attributable to such agreements.

o    For the six months ended December 31, 2006, selling expenses amounted to
     $137,946, as compared to $160,812 for the six months ended December 31,
     2005, a decrease of $22,866 or 14.2%. This decrease is attributable to the
     decrease in shipping costs of approximately $31,125, which is caused by a
     decrease in shipping costs associated with discounts earned by shipping
     larger shipments on a per unit basis, and a decrease in fuel charges based
     on lower fuel costs realized during the six months ending December 31,
     2006.



                                      -22-

<page>

o    For the six months ended December 31, 2006, general and administrative
     expenses were $490,122, as compared to $221,130 for the six months ended
     December 31, 2005, an increase of $268,992, or approximately 121.6%. The
     increase was attributable to the following:

o    For the six months ended December 31, 2006, consulting expenses amounted to
     $73,930 as compared to a credit of $21,766 for the six months ended
     December 31, 2005, an increase of approximately $95,696. For the six months
     ended December 31, 2005, we recorded a refund of consulting fees amounting
     to $29,059 from this agent, as they did not complete service as agreed,
     thereby reducing our general and administrative expenses.

o    For the six months ended December 31, 2006, amortization expenses amounted
     to $113,301 as compared to $6,905 for the six months ended December 31,
     2005, an increase of $106,396. The increase is primarily attributable to
     amortization of land use rights and goodwill we inherited in connection
     with our acquisition of JinKui in June 2006.

For the six months ended December 31, 2006, salary and wages amounted to
$61,135, as compared to $21,426 for the six months ended December 31, 2005, an
increase of $39,709. During the six months ended December 31, 2006 we incurred
$5,230 in salary and wages associated with JinKui that was acquired effective
June 30, 2006. During the six months ended December 31, 2005 the Company
increased its wage and salary rate by approximately 40%, and this new wage rate
is reflected in our expenses for the six months ending December 31, 2006.

Total Other Income

For the six months ended December 31, 2006, we reported total other income of
$23,310, as compared to total other expenses of $522,474 for the six months
ended December 31, 2005. This increase in total other income of $545,784 is
primarily associated with the following:

o     Income recognized from the value added tax rebates received from the
      respective tax authority.  For the six months ended December 31,
      2006, the income recognized from the value added tax rebate was
      $95,675, compared to $202,072 for the six months ended December 31,
      2005.  We accrued for value-added taxes ("VAT") recorded on the sale
      of our paper products.  Our paper  products are subject to VAT, as
      imposed by the PRC or the local provincial tax authorities in the PRC.
      We charge, collect and remit VAT on the sales of our products.  We
      routinely receive abatements of VAT, as we participate in our local
      provincial program of hiring employees with physical handicaps.  The
      respective tax authorities in the PRC notify us of our VAT abatements
      after the VAT is collected.  We incorporating the tax in our cost and
      pass it off to the end customer.  Until we receive notification of the
      amount of VAT abated from the respective tax authorities, this VAT
      remains accrued.  Upon notification from the tax authorities that VAT
      had been either abated, or has been partially abated as determined by
      the respective tax authority, the excess of accrued VAT is then
      reclassified into other income as this rebate is not remitted to the
      customer.  Under PRC tax regulations; in the event that VAT collected
      by us from customers are either abated, or partially abated, the amount
      of VAT abated is not required to be refunded to customers.

o    For the six months ended December 31, 2006, debt issuance costs were $0 as
     compared to $95,695 for the six months ended December 31, 2005. For the six
     months ended December 31, 2005, the debt issuance costs were related to the
     amortization of placement fees paid in connection with our March 2005
     Private Placement and July 2005 Private Placement. In February 2006, upon
     conversion of the July Notes to common stock under the terms of the January
     Conversion Offer, we expensed all unamortized debt issuance costs. For the
     six months ended December 31, 2006, we did not have any such debt issuance
     costs.


                                      -23-
<page>

o    For the six months ended December 31, 2006, interest expense was $76,763,
     as compared to $631,492 for the six months ended December 31, 2005, a
     decrease of $554,729. For the six months ended December 31, 2005, the
     interest expense of $631,492 was comprised of $561,248 of amortization for
     the discount on the July Notes that was included in interest expense
     related to the March 2005 Private Placement and July 2005 Private Placement
     and $70,244 of interest expenses related to other borrowings. In February
     2006, upon conversion of the July Notes to common stock, we expensed all
     unamortized discounts related to the July Notes and the March Notes.

Net Income

As a result of these factors, we reported a net income of $26,930 (less than
$.01 per share) for the six months ended December 31, 2006, as compared to net
loss of $(350,230) (less than $.01 per share) for the six months ended December
31, 2005.

Liquidity and Capital Resources

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

<table>

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

                                                          December 31,         June 30,           $ of            % of
                                                        2006 (Unaudited)         2006            Change          Change

Working capital                                             2,051,842          558,414       1,493,428           267.4%
Cash                                                          174,562          466,272       (291,710)           -62.6%
Accounts receivable, net                                    5,252,947        4,938,985         313,962             6.4%
Inventories                                                 3,735,169        3,293,846         441,323            13.4%
Prepaid expenses and other                                    122,704          466,080       (343,376)           -73.7%
Advance on purchases                                        2,865,382          805,662       2,059,720           255.7%
Due from related parties                                            0            3,498         (3,498)          -100.0%
Total current assets                                       12,150,764        9,974,343       2,176,421            21.8%
Cash restricted                                               255,836          262,287         (6,451)            -2.5%
Property and equipment, net                                 2,324,520        2,132,697         191,823             9.0%
Land use rights, net                                        2,557,499        2,524,568          32,931             1.3%
Intangible assets, net                                        353,020          393,928        (40,908)           -10.4%
Notes payable - current portion                             3,170,035        2,762,207         407,828            14.8%
Accounts payable                                            5,188,322        3,401,439       1,786,883            52.5%
Accrued expenses                                            1,717,922        2,042,113       (324,191)           -15.9%
Advances from customers                                        22,643           68,694        (46,051)           -67.0%
Liability in connection with acquisition                            0        1,141,476     (1,141,476)          -100.0%
Total current liabilities                                  10,098,922        9,415,929         682,993             7.3%
Notes payable - long-term portion                              48,000                           48,000
Total liabilities                                          10,146,922        9,415,929         730,993             7.8%

</table>


At December 31, 2006, we had $174,562 in cash. At December 31, 2006, our cash
position by geographic area is as follows:

         United States              $        844
         China                           173,718
                                    --------------
         Total                      $    174,562
                                    ========+=====


                                      -24-


<page>
Our working capital position increased $1,493,428 to $2,051,842 at December 31,
2006 from $558,414 at June 30, 2006. This increase in working capital is
primarily attributable to an increase of approximately $2,176,421 in current
assets at December 31, 2006 as compared to June 30, 2006, which was offset by
increases in current liabilities of approximately $682,993 at December 31, 2006
as compared to June 30, 2006. The increase in our current liabilities is
primarily attributable to an increase in accounts payable of $1,786,883 which
were offset by a decrease in accrued expenses of $324,191and a decrease in
liabilities of $1,141,476 in connection with the acquisition of JinKui in June
2006.

At December 31, 2006, our inventories of raw materials, work in process and
finished goods amounted to $3,735,169, an increase of $441,323, or approximately
13.4%, from June 30, 2006. The inventory increased in order to meet growing
demand for products associated with our JinKui acquisition. JinKui has witnessed
strong demand for its products. And as a result we increased inventory levels to
accommodate the growing demand for this new acquisition.

At December 31, 2006, our advances on purchases amounted $2,865,382, an increase
of $2,059,720, or approximately 255.7%, from June 30, 2006. The increase in our
advances on purchases is associated with payments made for a new construction
contract for Dragon Packaging and 30% down payment for goods which we import
through Ningbo Dragon, but have not yet been received.

At December 31, 2006 our accounts receivable, were $5,252,947, as compared to
$4,938,985 at June 30, 2006 an increase of $313,961 and reflects our increase in
sales. As is customary in the PRC, we extend relatively long payment terms to
our customers. Our terms of sale generally require payment within 120 days,
which is considerably longer than customary terms offered in the United States,
however, we believe that our terms of sale are customary amongst our competitors
for a company of our size within our industry and recently we have been
collecting our accounts receivable on a timely basis.

                                      -25-
<page>

Net cash used in operating activities for the six months ended December 31, 2006
was $571,276 as compared to net cash used in operating activities of $972,273
for the six months ended December 31, 2005. For the six months ended December
31, 2006, we used cash to fund increases in inventories of $441,323, an increase
in advances on purchases of 2,059,720, an increase in accounts payable of
$1,786,883 and a decrease in accrued expenses of $324,191. The decreases were
offset by a net decrease in prepaid and other current assets of $343,376, an
increase in accounts receivables of $293,917, combined with a net addition of
non-cash items of $357,978 which were offset by our net income.

For the six months ended December 31, 2005, we used cash to fund an increase in
prepaid and other current assets, the reduction in accrued expenses and advances
from customers. The decreases were offset by an increase in accounts payable of
$1,329,956. These items, combined with a net addition of our non-cash items of
$723,994 were offset by our net income.

Net cash used in investing activities during the six months ended December 31,
2006 was $376,316 as compared to net cash provided by investing activities of
$156,493 for the six months ended December 31, 2005. During the six months ended
December 31, 2006, we used cash for capital expenditures of $392,606 of which
$328,858 was used to purchase equipment for our Dragon Packaging division. We
decreased our restricted cash balance by $12,792 to collateralize certain debt.
During the six months ended December 31, 2005, we used cash for capital
expenditures of $230,419 and had a decrease in our restricted cash balance by
$353,258 to collateralize certain debt and received cash of $33,654 from the
acquisition of Yongxin in August 2005.


The Company is constructing a new facility for our Dragon Packaging subsidiary.
The facility is located at No. 201 Guangyuan Road, Investment Pioneering Park,
Jiangbei District, Ningbo, 315033 China. Ningbo Dragon who owns the new facility
has invested approximately $706,206 to construct the new facility.

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

Net cash provided by financing activities during the six months ended December
31, 2006 was $556,828, as compared to net cash provided by financing activities
of $444,207 during the six months ended December 31, 2005. During the six months
ended December 31, 2006, we received gross proceeds of $1,680,019 from notes
payable offset by the repayment of notes payable of $1,224,191. On October 30,
2006, the Company received gross proceeds of $100,000 from the sale of 2,000,000
shares of Common Stock to H.K. Mingtai Investment Company, Limited, a financial
institution in China. During the six months ended December 31, 2005, we received
gross proceeds of $503,500 from debentures payable offset by the repayment of
notes payable of $376,097 and the payment of placement agent fees of $48,350.

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


                                      -26-
<page>

On January 30, 2007 the Company entered into agreements for the sale of
$1,500,000 units of securities. The Company entered into agreements with 9
accredited investors for $1,500,000 of financing of units of its securities
consisting of 16,666,672 shares of Common Stock, and Class A Common Stock
Purchase Warrants to purchase 16,666,672 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 8,333,340 shares of common stock. The
Common Stock is being purchased at a price of $.09 per share, the Class A
Warrants are exercisable at $.125 per share, and the Class B Warrants are
exercisable at $.15 per share, and both warrants are for a term of five years.

On January 30, 2007 the Company completed an initial $750,000 units of
securities consisting of 8,333,336 shares of Common Stock, and Class A Common
Stock Purchase Warrants to purchase 8,333,336 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 4,166,670 shares of common stock.

The second phase of the offering will be an additional $750,000 financing of
units of its securities consisting of 8,333,336 shares of Common Stock, and
Class A Common Stock Purchase Warrants to purchase 8,333,336 shares of common
stock and Class B Common Stock Purchase Warrants to purchase 4,166,670 shares of
common stock. The Class A Warrants are exercisable at $.125 per share, and the
Class B Warrants are exercisable at $.15 per share, and both warrants are for a
term of five years. The second closing is expected to be completed on or before
March 31, 2007.

Off Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, such as changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors. An off-balance sheet
arrangement means a transaction, agreement or contractual arrangement to which
any entity that is not consolidated with us is a party, under which we have:

o    Any obligation under certain guarantee contracts;

o    Any retained or contingent interest in assets transferred to an
     unconsolidated entity or similar arrangement that serves as credit,
     liquidity or market risk support to that entity for such assets;

o    Any obligation under a contract that would be accounted for as a derivative
     instrument, except that it is both indexed to our stock and classified in
     stockholder's equity in our statement of financial position; and

o    Any obligation arising out of a material variable interest held by us in an
     unconsolidated entity that provides financing, liquidity, market risk or
     credit risk support to us, or engages in leasing, hedging or research and
     development services with us.

As of the date of this report, we do not have any off-balance sheet arrangements
that we are required to disclose pursuant to these regulations. In the ordinary
course of business, we enter into operating lease commitments, purchase
commitments and other contractual obligations. These transactions are recognized
in our financial statements in accordance with generally accepted accounting
principles in the United States

                                      -27-

<page>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

Details regarding our use of these policies and the related estimates are
described in the accompanying financial statements as of December 31, 2006.
During the six month period ended December 31, 2006, there have been no material
changes to our critical accounting policies that impacted our consolidated
financial condition or results of operations.

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 six months ended December 31, 2006.

                                      -28-

<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 CEO and CFO have concluded that our
disclosure controls and procedures were not effective because of the significant
deficiency and the material weakness described below. Measures are being taken
to include documentation of management oversight and review as part of the
appropriate functional procedures.

In our previous Annual Report on Form 10-KSB/A we restated our consolidated
balance sheet at June 30, 2006 and the consolidated statements of stockholders'
equity for the year ended June 30, 2006 as contained in the Annual Report on
Form 10-KSB for the year ended June 30, 2006 as previously filed with the
Securities and Exchange Commission.

The restatement was made in part to correct a clerical error related to the
classification of common stock to be issued in connection with the acquisition
of Shanghai JinKui Packaging Material Co., Ltd. (JinKui") on June 30, 2006. We
initially classified 8,095,574 shares of common stock, based on the fair value
of each share at $0.141 for a total of $1,141,476, as common stock issuable in
the stockholders' equity section of the initially issued balance sheet and
statements of stockholders' equity. We have reclassified these common shares to
be issued as a liability in connection with the acquisition. We were made aware
of the proper classification following the initial filing of our Form 10-KSB. As
a result of this clerical error, we have determined that there was a significant
deficiency in our internal controls over financial reporting as of June 30, 2006
related to the treatment of common stock to be issued in regards to the JinKui
acquisition. We determined, however, that such significant deficiency did not
rise to the level of a material weakness in our internal controls over financial
reporting. Because we have corrected our presentation of the common stock to be
issued, we believe that we have corrected this significant deficiency.

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.

                                      -29-
<page>


                                  RISK FACTORS

An investment in our Common Stock is a risky investment. In addition to the
other information contained in this report, prospective investors should
carefully consider the following risk factors before purchasing shares of our
Common Stock.

RISKS RELATED TO OUR BUSINESS

The management of our Company is located in the Peoples Republic of China
("PRC") and we are materially dependent upon advisory services of a U.S.
company. In the event this consultant fails to perform properly, or elects to
discontinue its relationships with us, the results could have a negative impact
on our ability to comply with the requirements of being a U.S. public reporting
company and may lead our Common Stock being de-listed from trading on the OTCBB.

None of the current members of our management have any experience in U.S. public
companies and these individuals are not fluent in English, except our President.
We have engaged China Direct Investments, Inc. to provide us with various
advisory and consulting services, including U.S. business methods and compliance
with SEC disclosure requirements. We selected China Direct Investments, Inc. to
provide these services to us in part because its staff includes Chinese-speaking
individuals with experience in the operation and regulatory framework applicable
to U.S. public companies. Until such time as we are able to expand our board of
directors to include English-speaking individuals who have experience with the
operation and regulatory framework applicable to U.S. public companies, we are
materially dependent upon our relationship with China Direct Investments, Inc.
Our contract with that company expires December 2008. If for any reason China
Direct Investments, Inc. should fail to provide the contracted services at the
anticipated levels or fails to extend its services and we have not added members
to our board of directors with the requisite experience, the abilities of our
board of directors to do business as a U.S. public company could be materially
and adversely affected. In such instances, we may be unable to prepare and file
reports as required by the Securities Exchange Act of 1934 on a timely basis
that could lead to our Common Stock being de-listed from trading on the OTCBB.

Certain agreements to which we are a party and which are material to our
operations lack various legal protections that are customarily contained in
similar contracts prepared in the United States. This could result in adverse
consequences to our business operations in the future.

Our operations are based in the People's Republic of China ("China" or "PRC"),
our operating subsidiaries are Chinese companies and all of our business and
operations are conducted in China. We are a party to certain material contracts,
including supply contracts, purchase contracts and the lease for our principal
offices and manufacturing facility. While these contracts contain the basic
business terms of the agreements between the parties, these contracts do not
contain certain provisions which are customarily contained in similar contracts
prepared in the U.S., such as representations and warranties of the parties,
confidentiality and non-compete clauses, provisions outlining events of
defaults, and termination and jurisdictional clauses. Because our material
contracts omit these types of clauses, notwithstanding the differences in
Chinese and U.S. laws, we may not have the same legal protections as we would if
the contracts contained these additional provisions. We anticipate that
contracts we enter into in the future will likewise omit these types of legal
protections. While we have not been subject to any adverse consequences as a
result of the omission of these types of clauses, and we consider the contracts
to which we are a party to contain all the material terms of our business
arrangements with the other party, we cannot provide assurances that future
events will not occur which could have been avoided if the contracts were
prepared in conformity with U.S. standards, or what the impact, if any, of these
hypothetical future events could have on our Company.

                                      -30-
<page>


We are materially reliant on revenues from our operations in the PRC. There are
significant risks associated with doing business in the PRC that may cause you
to lose your entire investment in our Company.

While our goal is to both expand our operations to countries outside the PRC, in
the foreseeable future our growth and success will remain tied to our existing
operations in the PRC. Therefore, a downturn or stagnation in the economic
environment of the PRC could have a material adverse effect on our financial
condition that could result in a significant loss of revenues and liquidity in
future periods.

We cannot assure you that the current Chinese policies of economic reform will
continue. Due to this uncertainty, there are significant economic risks
associated with doing business in China.

Although the majority of productive assets in China are owned by the Chinese
government, in the past several years the government has implemented economic
reform measures that emphasize decentralization and encourage private economic
activity. In keeping with these economic reform policies, the PRC has been
openly promoting business development in order to bring more business into the
PRC. Because these economic reform measures may be inconsistent or ineffectual,
there are no assurances that:

o the Chinese government will continue its pursuit of economic reform policies;

o the economic policies, even if pursued, will be successful;

o economic policies will not be significantly altered from time to time; and

o business operations in China will not become subject to the risk of
nationalization.


Even if the Chinese government continues its policies of economic reform, we may
be unable to take advantage of these opportunities in a fashion that will
provide financial benefit to our Company. Our inability to sustain our
operations in China at current levels could result in a significant reduction in
our revenues that would result in escalating losses and liquidity concerns

China's economy has experienced significant growth in the past decade, but such
growth has been uneven across geographic and economic sectors and has recently
been slowing. There can be no assurance that such growth will not continue to
decrease or that any slow down will not have a negative effect on our business.
The Chinese economy is also experiencing deflation which may continue in the
future. We cannot assure you that we will be able to capitalize on these
economic reforms, assuming the reforms continue. Given our material reliance on
our operations in the PRC, any failure on our part to continue to take advance
of the growth in the Chinese economy will have a material adverse effect on our
results of operations and liquidity in future periods.

We are subject to risks associated with the conversion of Chinese RMB into U.S.
dollars.

                                      -31-
<page>


We generate revenue and incur expenses and liabilities in both the Chinese
Dollar or Renminbi (RMB") and U.S. dollars. Since 1994, the official exchange
rate for the conversion of Chinese RMB to U.S. dollars has generally been
stable and the  RMB has appreciated slightly against the U.S. dollar. We
have not entered into agreements or purchased instruments to hedge our exchange
rate risks, although we may do so in the future. Our results of operations and
financial condition may be affected by changes in the value of RMB and
other currencies in which our earnings and obligations are denominated.
Recently, the Chinese government raised 2% of RMB against U.S. dollar by
floating  RMB with a basket of foreign currencies. 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 RMB converted to U.S.
dollars on that date. The exchange rate could fluctuate depending on changes in
the political and economic environments without notice.

We may not have sufficient protection of certain of our intellectual property.

We utilize certain technologies in the production of certain packaging paper
that are used in our products that are proprietary in nature. To protect our
proprietary rights, we rely generally on confidentiality agreements with
employees and third parties, and agreements with consultants, vendors and
customers, although we have not signed such agreements in every case. Despite
such protections, a third party could, without authorization, utilize our
propriety technologies without our consent. The unauthorized use of this
proprietary information by third parties could adversely affect our business and
operations as well as any competitive advantage we may have in our market
segment. We can give no assurance that our agreements with employees,
consultants and others who participate in the production of our products will
not be breached, or that we will have adequate remedies for any breach, or that
our proprietary technologies will not otherwise become known or independently
developed by competitors.

We have not voluntarily implemented various corporate governance measures, in
the absence of which, stockholders may have reduced protections against
interested director transactions, conflicts of interest and other matters.

We are not subject to any law, rule or regulation requiring that we adopt any of
the corporate governance measures that are required by the rules of national
securities exchanges or Nasdaq such as independent directors and audit
committees. It is possible that if we were to adopt some or all of the corporate
governance measures, stockholders would benefit from somewhat greater assurances
that internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. Prospective
investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.

We may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have those controls attested to by our
independent auditors.

                                      -32-
<page>

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal controls over financial
reporting in their annual reports, including Form 10-KSB. In addition, the
independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls. We were
not subject to these requirements for the fiscal year ended June 30, 2006. We
are evaluating our internal control systems in order to allow our management to
report on, and our independent auditors attest to, our internal controls, as a
required part of our annual report on Form 10-KSB beginning with our reports for
the fiscal year ended June 30, 2007.

While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive a positive
attestation from our independent auditors.

In the event we identify significant deficiencies or material weaknesses in our
internal controls that we cannot remediate in a timely manner or we are unable
to receive a positive attestation from our independent auditors with respect to
our internal controls, investors and others may lose confidence in the
reliability of our financial statements and our ability to obtain equity or debt
financing could suffer.

We do not have significant financial reporting experience, which may lead to
delays in filing required reports with the Securities and Exchange Commission
and suspension of quotation of our securities on the OTCBB, which will make it
more difficult for you to sell your securities.

The OTCBB limits quotations to securities of issuers that are current in their
reports filed with the Securities and Exchange Commission. These limitations may
be impediments to our quotation on the OTCBB. Because we do not have significant
financial reporting experience, we may experience delays in filing required
reports with the Securities and Exchange Commission. Because issuers whose
securities are qualified for quotation on the OTCBB are required to file these
reports with the Securities and Exchange Commission in a timely manner, the
failure to do so may result in a suspension of trading or delisting from the
OTCBB.

There are no automated systems for negotiating trades on the OTCBB and it is
possible for the price of a stock to go up or down significantly during a lapse
of time between placing a market order and its execution, which may affect your
trades in our securities.

Because there are no automated systems for negotiating trades on the OTCBB, they
are conducted via telephone. In times of heavy market volume, the limitations of
this process may result in a significant increase in the time it takes to
execute investor orders. Therefore, when investors place market orders, an order
to buy or sell a specific number of shares at the current market price, it is
possible for the price of a stock to go up or down significantly during the
lapse of time between placing a market order and its execution.

                                      -33-
<page>

Because our stock currently trades below $5.00 per share, and is quoted on the
OTCBB, our stock is considered a "penny stock" which can adversely affect its
liquidity.

As the trading price of our Common Stock is less than $5.00 per share, our
Common Stock is considered a "penny stock," and trading in our Common Stock is
subject to the requirements of Rule 15g-9 under the Securities Exchange Act of
1934. Under this rule, broker/dealers who recommend low-priced securities to
persons other than established customers and accredited investors must satisfy
special sales practice requirements. The broker/dealer must make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to the transaction.

SEC regulations also require additional disclosure in connection with any trades
involving a "penny stock," including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of securities
in the secondary market because few broker or dealers are likely to undertake
these compliance activities. In addition to the applicability of the penny stock
rules, other risks associated with trading in penny stocks could also be price
fluctuations and the lack of a liquid market.

"Penny Stock" rules may make buying or selling our Securities difficult.

Trading in our Securities will be subject to the "penny stock" rules for the
foreseeable future. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors must, prior to the
sale, make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to execute the transaction. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities they offer. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from recommending transactions
in our securities, which could severely limit the liquidity of our securities
and consequently adversely affect the market price for our securities.

We do not anticipate payment of dividends, and investors will be wholly
dependent upon the market for the Common Stock to realize economic benefit from
their investment.

As holders of our Securities, you will only be entitled to receive those
dividends that are declared by our board of directors out of surplus. We do not
expect to have surplus available for declaration of dividends in the foreseeable
future. Indeed, there is no assurance that such surplus will ever materialize to
permit payment of dividends to you as holders of the Securities. The board of
directors will determine future dividend policy based upon our results of
operations, financial condition, capital requirements, reserve needs and other
circumstances.

                                      -34-
<page>

RISKS RELATED TO OUR INDUSTRY

Our business is strongly conjunct with the cigarette industry and in the
exposure of risks derived from the fluctuation of the cigarette industry.

A majority of our clientele is involved in various aspects of the cigarette
manufacturing industry in China, which is facing significant governmental
actions aimed at reducing the consumption of cigarettes. As one of the largest
cigarette consumption markets in the world, the Chinese government is following
the world trends to enforce more regulations on the cigarette industry.
Management does not think the Chinese cigarette industry will have a regression
in the near future, but we cannot ignore the risks deriving from the fluctuation
of the cigarette industry.

Intense competition from existing and new entities may adversely affect our
revenues and profitability.

We face intense competition. The packaging products and paperboard industries
are highly competitive, and no single company dominates either industry. Our
competitors include large, vertically integrated packaging products and
paperboard companies and numerous smaller companies.

Because all of our businesses operate in highly competitive industry segments,
we regularly bid for sales opportunities to customers for new business or for
renewal of existing business. The loss of business or the award of new business
from our larger customers may have a significant impact on our results of
operations.

The primary competitive factors in the packaging products and paperboard
industries are price, design, product innovation, quality and service, with
varying emphasis on these factors depending on the product line and customer
preferences. We believe that we compete effectively with respect to each of
these factors. However, to the extent that any of our competitors becomes more
successful with respect to any key competitive factor, our business could be
materially adversely affected.

Provisions of our Articles of Incorporation and Bylaws may delay or prevent a
take-over that may not be in the best interests of our stockholders.

Provisions of our Articles of Incorporation and Bylaws may be deemed to have
anti-takeover effects, which include when and by whom special meetings of our
stockholders may be called, and may delay, defer or prevent a takeover attempt.
In addition, certain provisions of the Nevada Revised Statutes also may be
deemed to have certain anti-takeover effects which include that control of
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless these voting rights are approved by a majority of a
corporation's disinterested stockholders.

In addition, our Articles of Incorporation authorize the issuance of up to
25,000,000 shares of Preferred Stock with such rights and preferences as may be
determined from time to time by our Board of Directors. No shares are currently
outstanding. Our Board of Directors may, without stockholder approval, issue
Preferred Stock with dividends, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
our Common Stock.

                                      -35-
<page>

Our executive officers, directors and 5% or greater shareholders have the
ability to significantly influence matters requiring a shareholder vote and
other shareholders may not have the ability to influence corporate transactions.

Currently, our existing officers, directors and 5% or greater shareholders in
the aggregate beneficially own approximately 13% of our outstanding stock. As a
result, such persons, acting together, will have the ability to significantly
influence the vote on all matters requiring approval of our shareholders,
including the election of directors and approval of significant corporate
transactions.

We cannot predict whether we will successfully effectuate our current business
plan. Each prospective investor is encouraged to carefully analyze the risks and
merits of an investment in our Common Stock and should take into consideration
when making such analysis, among others, the Risk Factors discussed above.


Part II - OTHER INFORMATION

Item 1.  Legal Proceedings

None

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

On November 1, 2006, in connection with the acquisition of a 100% interest in
JinKui, we issued 8,095,000 shares of common stock pursuant to an exemption from
registration under section 4(2) of the Securities Act of 1933.

On October 30, 2006, the Company received gross proceeds of $100,000 from the
sale of 2,000,000 shares of Common Stock pursuant to an exemption from
registration under section 4(2) of the Securities Act of 1933 to H.K. Mingtai
Investment Company, Limited, a financial institution in China.

On January 16, 2007, the Company entered into agreements for the sale of
$1,500,000 units of securities. The Company entered into agreements with 9
accredited investors for $1,500,000 of financing of units of its securities
consisting of 16,666,672 shares of Common Stock, and Class A Common Stock
Purchase Warrants to purchase 16,666,672 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 8,333,340 shares of common stock. The
Common Stock is being purchased at a price of $.09 per share, the Class A
Warrants are exercisable at $.125 per share, and the Class B Warrants are
exercisable at $.15 per share, and both warrants are for a term of five years.

On January 30, 2007, the Company completed an initial $750,000 units of
securities consisting of 8,333,336 shares of Common Stock, and Class A Common
Stock Purchase Warrants to purchase 8,333,336 shares of common stock and Class B
Common Stock Purchase Warrants to purchase 4,166,670 shares of common stock.

The second phase of the offering will be an additional $750,000 financing of
units of its securities consisting of 8,333,336 shares of Common Stock, and
Class A Common Stock Purchase Warrants to purchase 8,333,336 shares of common
stock and Class B Common Stock Purchase Warrants to purchase 4,166,670 shares of
common stock. The Class A Warrants are exercisable at $.125 per share, and the
Class B Warrants are exercisable at $.15 per share, and both warrants are for a
term of five years. The second closing is expected to be completed on or before
March 30, 2007.

The second closing of the offering is conditioned upon the execution of a
binding and irrevocable agreement for the acquisition by the Company of an
entity which will become a subsidiary of the Company. The Company must file a
Form 8-K disclosing the execution of such agreement within 60 days after January
30, 2007 in order to satisfy this condition. On January 19, 2007 the Company
filed a Form 8-K reporting on the signing of the acquisition agreement which is
conditional upon the Company to be acquired engaging an SEC approved auditor to
prepare certain financial statements.

                                      -36-
<page>

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


                                      -37-

<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 February 14, 2007.

                        DRAGON INTERNATIONAL GROUP CORP.



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