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

| Nevada                                                                                          |   | 98-0177646                                                            |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
| (State                  or other jurisdiction ofincorporation                  or organization) |   | (I.R.S.                  EmployerIdentification                  No.) |

| No.                    201 Guangyuan Road, District C Investment Pioneering Park                    Jiangbei, |
|---------------------------------------------------------------------------------------------------------------|
| Ningbo,                    China 315033                                                                       |
| (Address                    of principal executive offices)                                                   |
|                                                                                                          |
|                                                                                                          |
| (86)                    21-56689332                                                                           |
| (Issuer's                    telephone number)                                                                |
|                                                                                                          |
|                                                                                                          |
| Bldg                    14 Suite A09, International Trading Center,                                           |
| 29                    Dongdu Road Ningbo, China 315000                                                        |
| (Former                    name, former address and former fiscal year,                                       |
| if                    changed since last report)                                                              |

----

| **Item              1.**                                        | **Financial              Statements**                                                                                      |                                                                                                                                         |
|-----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                            |                                                                                                                            |                                                                                                                                         |   |
|                                                            | 1)                                                                                                                              | Consolidated              condensed balance sheet (unaudited) as of September              30, 2007                                     | 2 |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
|                                                            | 2)                                                                                                                              | Consolidated              condensed statements of operations (unaudited) for              the three months ended September 30, 2007 and 2006 | 3 |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
|                                                            | 3)                                                                                                                              | Consolidated              condensed statements of cash flows (unaudited) for the              three months ended September 30, 2007 and 2006 | 4 |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
|                                                            | 4)                                                                                                                              | Notes              to consolidated condensed financial statements (unaudited)                                                                | 5 |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
| **Item              2.**                                        | **Management’s              Discussion and Analysis of Financial Condition and              Results of Operations**  | 14                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
| **Item              3.**                                        | **Controls              and Procedures**                                                                                   | 19                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item              3A(T).**                                    | **Controls              and Procedures**                                                                                        | 20                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
| **PART                II. OTHER INFORMATION**    |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
|                                                            |                                                                                                                            |                                                                                                                                         |   |
| **Item              1.**                                        | **Legal              Proceedings**                                                                                    | 21                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item              2.**                                        | **Unregistered              Sales of Equity Securities and Use of Proceeds**                                                    | 21                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item 3.**                                                     | **Defaults Upon Senior              Securities**                                                                                | 21                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item              4.**                                        | **Submission              of Matters to a Vote of Security Holders**                                                            | 21                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item              5.**                                        | **Other              Information**                                                                                              | 22                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **Item              6.**                                        | **Exhibits**                                                                                                                    | 22                                                                                                                                           |
|                                                            |                                                                                                                            |                                                                                                                                         |
| **SIGNATURES**                                                  |                                                                                                                            | 23                                                                                                                                           |

----

| CURRENT                      ASSETS:                                                                                                                                                                |   |   |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|
|      Cash                                                                                                                                                                  |   | $      | 337,223    |   |
|      Accounts                      receivable (net of allowance for doubtful accounts of                      $186,046                                                     |   |   | 7,686,491  |   |
|      Inventories                                                                                                                                                           |   |   | 2,928,465  |   |
|      Advances                      on purchases                                                                                                                            |   |   | 6,257,807  |   |
|                         Other receivables                                                                                                                                       |   |   | 54,421     |   |
|                           Cash-restricted                                                                                                                                       |   |   | 266,042    |   |
|                         Note receivable                                                                                                                                         |   |   | 849,922    |   |
|      Prepaid                      expenses and other current assets                                                                                                        |   |   | 159,625    |   |
|                                                                                                                                                                                                |   |   |       |   |
|          Total                      Current Assets                                                                                                     |   |   | 18,539,996 |   |
|                                                                                                                                                                                                |   |   |       |   |
|                                                                                                                                                                                                     |   |   |            |   |
| Property                      and equipment - net                                                                                                                                                   |   |   | 3,005,161  |   |
| Land                      use rights - net                                                                                                                                                          |   |   | 2,615,955  |   |
| Intangible                      assets - net                                                                                                                                                        |   |   | 301,069    |   |
|                                                                                                                                                                                                |   |   |       |   |
|          Total                      Assets                                                                                                             |   | $      | 24,462,181 |   |
|                                                                                                                                                                                                |   |   |       |   |
| LIABILITIES                      AND STOCKHOLDERS' EQUITY                                                                                                                                           |
|                                                                                                                                                                                                |   |   |       |   |
| CURRENT                      LIABILITIES:                                                                                                                                                           |   |   |       |   |
|      Notes                      payable - current portion                                                                                                                  |   | $      | 4,009,513  |   |
|      Accounts                      payable                                                                                                                                 |   |   | 6,181,195  |   |
|      Accrued                      expenses                                                                                                                                 |   |   | 357,999    |   |
|      Advances                      from customers                                                                                                                          |   |   | 141,694    |   |
|      Income                      tax payable                                                                                                                               |   |   | 1,572,585  |   |
|                         Other payables                                                                                                                                          |   |   | 2,302,731  |   |
|      Liability                      in connection with acquisition                                                                                                         |   |   | 573,022    |   |
|      Due                      to related party                                                                                                                             |   |   | 341,616    |   |
|                                                                                                                                                                                                |   |   |       |   |
|          Total                      Current Liabilities                                                                                                |   |   | 15,480,355 |   |
|                                                                                                                                                                                                |   |   |       |   |
|                                                                                                                                                                                                |   |   |       |   |
| Minority                      Interest                                                                                                                                                              |   |   | 679,438    |   |
|                                                                                                                                                                                                |   |   |       |   |
| STOCKHOLDERS'                      EQUITY:                                                                                                                                                          |   |   |       |   |
|      Preferred                      stock ($.001 Par Value; 25,000,000 Shares Authorized: (No shares                      issued                      and outstanding      |   |   | -          |   |
|      Common                      stock ($.001 Par Value; 200,000,000 Shares Authorized; 96,363,982                      shares                      issued and outstanding |   |   | 96,364     |   |
|      Additional                      paid-in capital                                                                                                                       |   |   | 9,335,763  |   |
|      Accumulated                      deficit                                                                                                                              |   |   | (1,293,525 | ) |
|      Deferred                      compensation                                                                                                                            |   |   | (420,551   | ) |
|      Other                      comprehensive income - foreign currency                                                                                                    |   |   | 584,337    |   |
|                                                                                                                                                                                                |   |   |       |   |
|          Total                      Stockholders' Equity                                                                                               |   |   | 8,302,385  |   |
|                                                                                                                                                                                                |   |   |       |   |
|          Total                      Liabilities and Stockholders' Equity                                                                               |   | $      | 24,462,181 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | For                the three Months EndedSeptember                30, |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2007                                                                  |       |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |
| NET                REVENUES                                                                                                                        |   | $                                                                     | 7,929,498  |   |   | $ | 4,832,984 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| COST                OF                SALES                                                                                                        |   |                                                                  | 7,331,333  |   |   |   | 4,460,470 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| GROSS                PROFIT                                                                                                                        |   |                                                                  | 598,165    |   |   |   | 372,514 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| OPERATING                EXPENSES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                  |       |   |   |   |   |   |
| Stock-based                consulting                expenses                                                                                                               |   |                                                                  | 86,878     |   |   |   | 86,878 |   |
| Selling                expenses                                                                                                                                             |   |                                                                  | 192,308    |   |   |   | 114,833 |   |
| General                and                administrative                                                                                                                    |   |                                                                  | 234,339    |   |   |   | 313,360 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| Total                Operating                Expenses                                                                                                                                                              |   |                                                                  | 513,525    |   |   |   | 515,071 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| INCOME                (LOSS) FROM OPERATIONS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                  | 84,640     |   |   |   | (142,557 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| Other                income                                                                                                                                                 |   |                                                                  | 60,051     |   |   |   | 93,663 |   |
| Debt                issuance                costs                                                                                                                           |   |                                                                  | (2,657     | ) |   |   |   |   |
| Interest                (expense)                                                                                                                                           |   |                                                                  | (79,491    | )  |   |   | (33,432 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| Total                Other Income                (Expense)                                                                                                                                                          |   |                                                                  | (22,097    | ) |   |   | 60,231 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| INCOME                (LOSS) BEFORE INCOME                TAXES                                                                                    |   |                                                                  | 62,543     |   |   |   | (82,326 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| INCOME                TAXES                                                                                                                        |   |                                                                  | (90,898    | ) |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| NET                LOSS BEFORE MINORITY                INTEREST                                                                                    |   |                                                                  | (28,355    | ) |   |   | (82,326 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| MINORITY                INTEREST IN INCOME OF SUBSIDIARY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                  | (75,870    | ) |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| NET                INCOME                (LOSS)                                                                                                    |   |                                                                  | 104,225    |   |   |   | (82,326 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| OTHER                COMPREHENSIVE INCOME:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                  |       |   |   |   |   |   |
| Unrealized                foreign currency                translation                                                                                                       |   |                                                                  | 98,779     |   |   |   | 83,054 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| COMPREHENSIVE                INCOME                (LOSS)                                                                                          |   | $                                                                     | (5,446     | ) |   | $ | 728 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| NET                LOSS PER COMMON SHARE – BASIC AND DILUTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                                                                     | (0.00      | ) |   | $ | (0.00 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  |       |   |   |   |   |   |
| WEIGHTED                COMMON SHARES OUTSTANDING – BASIC AND DILUTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                  | 96,363,982 |   |   |   | 64,532,069 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | For                the three Months EndedSeptember                30, |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2007                                                                  |       |   | 2006 |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |
| Net                loss                                                                                                                                                        |   | $                                                                     | (104,225   | ) |   | $ | (82,326 | ) |
| Adjustments                to reconcile net loss                to net cash used in operating Activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                  |       |   |   |   |   |   |
| Depreciation                and                amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                  | 121,573    |   |   |   | 94,884 |   |
| Stock-based                compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                  | 86,878     |   |   |   | 86,878 |   |
| Allowance                for doubtful                accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                  | (20,408    | ) |   |   | - |   |
| Minority                interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                  | 75,870     |   |   |   | 152,412 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| Changes                in assets and                liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                  |       |   |   |   |   |   |
| Accounts                receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                  | (344,178   | ) |   |   | 23,983 |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                  | (830,611   | ) |   |   | 1,094,545 |   |
| Prepaid                and other current                assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                  | (781,197   | ) |   |   | (2,626,547 | ) |
| Other                receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                  |       |   |   |   | 3,284 |   |
|  Increase                in notes                receivable                                                                                                               |   |                                                                  | 286,288    |   |   |   | - |   |
| Advances                to                employees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                  | 25,618     |   |   |   | - |   |
| Advances                on                purchases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                  | (2,090,774 | ) |   |   | 308,005 |   |
| Other                assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                  | (12,630    | ) |   |   | 12,787 |   |
| Accounts                payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                  | 2,993,729  |   |   |   | 923,959 |   |
| Accrued                expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                  | (117,524   | ) |   |   | (93,902 | ) |
| Advances                from                customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                  | 116,339    |   |   |   | (20,974 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| NET                CASH USED IN OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  | (595,241   | ) |   |   | (123,012 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| Due                to related                parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  | -          |   |   |   | (5,976 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                  |            |   |   |   |  |   |
| Decrease                in restricted                cash                                                                                                                      |   |                                                                  | -          |   |   |   | 9,660 |   |
| Capital                expenditures                                                                                                                                            |   |                                                                  | (229,629   | ) |   |   | (165,061 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| NET                CASH FLOW (USED IN) PROVIDED BY INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                  | (229,629   | ) |   |   | (161,377 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| Proceeds                from notes                payable                                                                                                                      |   |                                                                  | 63,135     |   |   |   | 67,000 |   |
| Repayment                of notes                payable                                                                                                                       |   |                                                                  | -          |   |   |   | (63,157 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| NET                CASH FLOWS PROVIDED BY FINANCING ACTIVITITES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                  | 63,135     |   |   |   | 3,843 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| EFFECT                OF EXCHANGE RATE ON                CASH                                                                                    |   |                                                                  | 66,079     |   |   |   | 76,736 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| NET                DECREASE IN                CASH                                                                                               |   |                                                                  | (695,296   | ) |   |   | (203,810 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| CASH                – Beginning of                year                                                                                     |   |                                                                  | 1,032,519  |   |   |   | 466,272 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| CASH                – End of                period                                                                                         |   | $                                                                     | 337,223    |   |   | $ | 262,462 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                  |       |   |   |   |   |   |
| SUPPLEMENTA                CASH FLOW INFORMATION:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                  |       |   |   |   |   |   |
| Cash                paid for:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                  |       |   |   |   |   |   |
| Interest                                                                                                                                                                                                |   | $                                                                     | 79,492     |   |   | $ | 33,432 |   |
| Income                taxes                                                                                                                                                                             |   | $                                                                     | -          |   |   | $ | 1,651 |   |

----

**DRAGON          INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES          TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER          30, 2007**

**NOTE            1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING            POLICIES**

| ·                       | Dragon                International Group., a Florida corporation (“Dragon Florida”) is a wholly                owned subsidiary of Dragon Nevada.  Dragon Nevada acquired a                100% interest in Dragon Florida in October                2004. |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                       | Ningbo                Dragon International Trade Co., Ltd., (“Ningbo Dragon”).  Ningbo                Dragon is a wholly owned subsidiary of Dragon Florida.  Dragon                Florida acquired a 70% interest in Ningbo Dragon in June 2004 and                the                remaining 30% interest in December                2004. |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·                       | Ningbo                Dragon Packaging Technology Co., Ltd., (“Dragon Packaging”) is a wholly                owned subsidiary of Ningbo Dragon.  Ningbo Dragon acquired a                100% interest in Dragon Packaging in June                2005. |
|------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                       | Hangzhou                Yongxin Paper Co., Ltd., (“Yongxin”) is a 60% owned subsidiary of Ningbo                Dragon.  The 60% interest was acquired in July                2005. |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                       | Shanghai                JinKui Packaging Material Co., Ltd. (“JinKui”) is a wholly owned                subsidiary of Dragon Nevada.  Dragon Nevada acquired a 100%                interest in JinKui in June 2006. |
|------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                       | Wellton                International Fiber Corp. (“Wellton”) is a 51% owned subsidiary of Dragon                Nevada.  Dragon Nevada acquired a 51% interest in Wellton in                June 2007. |
|------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

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

----

**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

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

*Accounting for the      Impairment or Disposal of Long-Lived Assets, *

----

**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

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

**NOTE      2 - INVENTORIES**

| Raw              materials  |   | $      | 504,579   |   |
|-----------------------------|--------|--------|-----------|--------|
| Finished              goods |   |   | 2,423,886 |   |
|                        |   | $      | 2,928,465 |   |

**NOTE      3 - LAND USE RIGHTS**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Three                Month Period Ended September                30, |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2007                                                                 |      |
| Land                Use Rights (estimated remaining life of 46 years)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                                                    | 2,747,469 |   |
| Less:  Accumulated                Amortization                                                                                      |   |                                                                 | (131,514  | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                                                    | 2,615,955 |   |

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**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

**NOTE      4 - NOTES PAYABLE**

| Notes                payable to Bank of Agriculture, due on June 26, 2008.  Interest                only payable monthly at a rate of 7.23%.  Secured by the assets                of Dragon Packaging                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $      | 1,665,614     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes                payable to Bank of Agriculture, due on June 21, 2008. Interest only                payable monthly at a rate of 7.23%.  Secured by the assets of                Dragon Packaging                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 866,120       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes                payable to Bank of Agriculture, due on June 15, 2008. Interest only                payable monthly at a rate of 7.88%.  Secured by a third party,                Yangke Co., Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 266,498       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes                payable to Bank of Agriculture, due on June 15, 2008 Interest only                payable                monthly at a rate of 7.88%.  Secured by a third party, Yangke                Co., Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 266,498       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes              payable to Bank of Agriculture.  Interest only.  Secured by              assets of Dragon Packaging.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 133,249       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes              payable to Bank of Agriculture.  Interest only.  Secured by              assets of Dragon Packaging.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |  133,249 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Bank                guaranteed Note to Bank of Transportation, due on November 16, 2007.                Interest only payable monthly at a rate of 7.344%.  Secured by                equipment and personal guarantee of officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 173,224       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes                payable to Bank of Agriculture, due on November 15, 2007. Non-interest                bearing.  Secured by cash deposit of 50% of face value of the                note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 266,498       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Bank                guaranteed note to Bank of Transportation, due December 5, 2007.                Non-interest bearing.  Secured by cash deposit of 50% of the                face value of the note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 26,650        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Bank                guaranteed note to Bank of Transportation, due on December 5, 2007.                Non-interest bearing. Secured by cash deposit of 50% of the face                value of                the note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 68,913        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Notes                Payable to two shareholders, Interest only payable annually at a                rate of                8%, $100,000 due on January 10, 2008 and $43,000 due on April 11,                2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 143,000       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Total                                                                                                                                                            |   |   | 4,009,513     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Less                current                Portion                                                                                                               |   |   | -             |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |          |   |
| Long-Term                Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $      | 4,009,513     |   |

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**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

**NOTE      5 - STOCKHOLDERS' EQUITY**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Shares |       |   | WeightedAverageExercise                Price |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |       |   |                                         |   |
| Outstanding                at July 1, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 43,315,282 |   |                                         | $      | 0.145 |   |
| Granted                                                                                                                                     |   |   | -          |   |                                         |   | - |   |
| Exercised                                                                                                                                   |   |   | -          |   |                                         |   | - |   |
| Forfeited                                                                                                                                   |   |   | -          |   |                                         |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |       |   |                                         |   |   |   |
| Outstanding                at September 30,                2007                                                                             |   |   | 43,315,282 |   |                                         | $      | 0.145 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |       |   |                                         |   |   |   |
| Warrants                exercisable at end of                period                                                                         |   |   | 43,315,282 |   |                                         | $      | 0.145 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |       |   |                                         |   |   |   |
| Weighted-average                fair value of warrants granted during the period                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | -          |   |                                         |   | - |   |

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**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

**NOTE      5 - STOCKHOLDERS' EQUITY (CONTINUED)**

|   Warrants                  Outstanding and Exercisable |   |
|-------------------------------------------------------------------|--------|
|                                                              |   | Weighted |   |   |   |   |   |
|                                                              |   | Average |   | Weighted |   | Weighted |   |
| Range                  of                                         |   | Remaining |   | Average |   | Average |   |
| Exercise                                                          |   | Contractual |   | Exercise |   | Exercise |   |
| Prices                                                            |   | Shares |   | Life                  (Years) |   | Price |   |
| $0.300                                                            |   | 150,000 |   | 2.78 |   | $  0.30 |   |
| $0.150                                                            |   | 32,851,276 |   | 3.60 |   | $  0.15 |   |
| $0.125                                                            |   | 10,000,006 |   | 4.34 |   | $0.125 |   |
| $0.010                                                            |   | 314,000 |   | 3.03 |   | $  0.01 |   |

**NOTE      6 - OPERATING RISK**

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**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

**NOTE      6 – OPERATING RISK (CONTINUED)**

**NOTE      7 – RECENT ACCOUNTING PRONOUNCEMENTS**

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**DRAGON        INTERNATIONAL GROUP CORP. AND SUBSIDIARIES**

**NOTES        TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2007**

**NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS      (CONTINUED)**

**NOTE 8 – SUBSEQUENT EVENT**

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|   | · | Dragon                  International Group., a Florida corporation (“Dragon Florida”) is a wholly                  owned subsidiary of Dragon Nevada.  Dragon Nevada acquired a                  100% interest in Dragon Florida in October                  2004. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Ningbo                  Dragon International Trade Co., Ltd., (“Ningbo Dragon”).  Ningbo                  Dragon is a wholly owned subsidiary of Dragon Florida.  Dragon                  Florida acquired a 70% interest in Ningbo Dragon in June 2004 and                  the                  remaining 30% interest in December                  2004. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | Ningbo                  Dragon Packaging Technology Co., Ltd., (“Dragon Packaging”) is a wholly                  owned subsidiary of Ningbo Dragon.  Ningbo Dragon acquired a                  100% interest in Dragon Packaging in June                  2005. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Hangzhou                  Yongxin Paper Co., Ltd., (“Yongxin”) is a 60% owned subsidiary of Ningbo                  Dragon.  The 60% interest was acquired in July                  2005. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Shanghai                  JinKui Packaging Material Co., Ltd. (“JinKui”) is a wholly owned                  subsidiary of Dragon Nevada.  Dragon Nevada acquired a 100%                  interest in JinKui in June 2006. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Wellton                  International Fiber Corp. (“Wellton”) is a 51% owned subsidiary of Dragon                  Nevada.  Dragon Nevada acquired a 51% interest in Wellton in                  June 2007. On September 28, 2007, the Company entered into an agreement                  to                  acquire the remaining 49% of Wellton not already owned.  This                  transaction is expected to close on or before December 1,                  2007. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (i)    a                    description of the conclusions of our principal executive and                    principal                    financial officers, or persons performing similar functions,                    regarding the                    effectiveness of our disclosure controls and procedures (as defined                    in                    Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as                    of the end of the period covered by the report, based on the                    evaluation of                    these controls and procedures required by paragraph (b) of Rule                    13a-15 or                    Rule 15d-15 under the Exchange Act;                    and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|
|   | (ii)   a                    report of management on the small business issuer's internal                    control over                    financial reporting; as well as changes in our internal control                    over                    financial reporting identified in connection with its evaluation                    that                    occurred during our last fiscal quarter that has materially affected,                    or                    is reasonably likely to materially affect, our internal control                    over                    financial reporting. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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