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

FORM 10-QSB

[X]       
          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
          OF 1934

FOR THE QUARTERLY
PERIOD ENDED JANUARY 31, 2005

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

For the Transition
Period From ____ to _____

COMMISSION FILE NUMBER 0-9922

_________________

CATHAY MERCHANT GROUP,
INC.(Name of Small Business
Issuer in Its Charter)

|                                                             |                                       
|------------------------------------------------------------ | --------------------------------------
|DELAWARE                                                     | 04-2608713                            
|(State or Other Jurisdiction of
Employer Identification No.) | (I.R.S. Incorporation or Organization)

|                                                                                 |           
|-------------------------------------------------------------------------------- | ----------
|3604 Tower 1, Kerry Everbright City, 218 Tian Mu Road West, Shanghai, P.R. China | 200070    
|(Address of office)                                                              | (Zip Code)

Issuers
telephone number, including area code: (86) 21-6353-0012

Check whether the issuer: (1) filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days. [X] YES [ ] NO

The number of shares outstanding of
the Companys common stock as at December 9, 2004 was 18,796,829.

Transitional Small Business
Disclosure Format (check one): [     ] YES   [X] NO

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2

CATHAY MERCHANT GROUP,
INC. AND SUBSIDIARIESQUARTERLY REPORT  FORM 10-QSB THREE MONTHS ENDED
JANUARY 31, 2005

|TABLE OF CONTENTS                                           
|------------------------------------------------------------
|
|PART I                                                      
|Item 1.  Consolidated Financial Statements                  
|Item 2.  Management's Discussion and Analysis               
|Item 3.  Controls and Procedures                            
|PART II                                                     
|Item 1.  Legal Proceedings                                  
|Item 2.  Changes in Securities and Use of Proceeds          
|Item 3.  Defaults Upon Senior Securities                    
|Item 4.  Submission of Matters to a Vote of Security Holders
|Item 5.  Other Information                                  
|Item 6.  Exhibits and Reports on Form 8-K                   
|Signatures                                                  

FORWARD LOOKING STATEMENTS

Certain
statements contained in this Quarterly Report do not relate strictly to historical or
current facts. As such, they are considered forward-looking statements that
provide current expectations or forecasts of future events. Such statements are typically
characterized by terminology such as believe, anticipate,
should, intend, plan, expect,
estimate, project, strategy and similar expressions.
Our forward-looking statements generally relate to the prospects for our ability to
identify new business opportunities, develop new business strategies and execute such
business strategies. These statements are based upon assumptions and assessments made by
our management in light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors our management believes to be
appropriate. These forward-looking statements are subject to a number of risks and
uncertainties, including the following: our ability to identify and evaluate business
opportunities that will achieve profitable operations while maintaining sufficient cash to
operate our business and meet our liquidity requirements; our ability to obtain financing,
if required, on terms acceptable to us, if at all; our ability to successfully attract
strategic partners and to market both new and existing products and services domestically
and internationally; exposure to lawsuits and regulatory proceedings; governmental laws
and regulations affecting domestic and foreign operations; our ability to identify and
complete diversification opportunities; and the impact of acquisitions, divestitures,
restructurings, product withdrawals and other unusual items. Except as required by
applicable law, our company undertakes no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.

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3

|PART I |     FINANCIAL INFORMATION
|------ | --------------------------

|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

CATHAY MERCHANT GROUP,
INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

|                                           | JANUARY 31,
2005 | JULY 31,
2004
|------------------------------------------ | ---------------- | -------------
|
|ASSETS                                     |                  |              
|Current Assets:                            |                  |              
|Cash and cash equivalents                  |                  |              
|Refundable income taxes                    |                  |              
|Prepaid expenses and other                 |                  |              
|                                           |                  |              
|Total current assets                       |                  |              
|Fixed assets, net                          |                  |              
|                                           |                  |              
|Deferred credit facility costs             |                  |              
|                                           |                  |              
|Total assets                               |                  |              
|                                           |                  |              
|LIABILITIES & STOCKHOLDERS' EQUITY         |                  |              
|Current Liabilities:                       |                  |              
|Accounts payable                           |                  |              
|Accrued expenses                           |                  |              
|Accrued income taxes                       |                  |              
|                                           |                  |              
|Due to related parties                     |                  |              
|                                           |                  |              
|Total current liabilities                  |                  |              
|Stockholders' Equity:                      |                  |              
|Common stock                               |                  |              
|Additional paid-in capital                 |                  |              
|Accumulated deficit                        |                  |              
|Treasury stock, at cost                    |                  |              
|                                           |                  |              
|Total stockholders' equity                 |                  |              
|                                           |                  |              
|Total liabilities and stockholders' equity |                  |              
|                                           |                  |              

See accompanying notes.

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4

CATHAY MERCHANT GROUP, INC.
AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

|                                             | SIX MONTHS ENDED
JANUARY 31,
|-------------------------------------------- | ----------------------------
|
|Net sales                                    |                             
|Cost of goods sold                           |                             
|                                             |                             
|Gross loss                                   |                             
|Selling, general and administrative expenses |                             
|                                             |                             
|Operating loss                               |                             
|                                             |                             
|Other income:                                |                             
|Interest and financing charges, net          |                             
|Gain on sale of property and equipment       |                             
|                                             |                             
|                                             |                             
|                                             |                             
|Net loss                                     |                             
|                                             |                             
|Net loss per common share, basic and diluted |                             
|                                             |                             

See accompanying notes.

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5

CATHAY MERCHANT GROUP,
INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

|                                             | THREE MONTHS ENDED
JANUARY 31,
|-------------------------------------------- | ------------------------------
|
|Net sales                                    |                               
|Cost of goods sold                           |                               
|                                             |                               
|Gross loss                                   |                               
|Selling, general and administrative expenses |                               
|                                             |                               
|Operating loss                               |                               
|                                             |                               
|Other income (expense):                      |                               
|Interest and financing charges, net          |                               
|Gain on sale of property and equipment       |                               
|                                             |                               
|                                             |                               
|                                             |                               
|Net loss                                     |                               
|                                             |                               
|Net loss per common share, basic and diluted |                               
|                                             |                               

See accompanying notes.

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6

CATHAY MERCHANT GROUP,
INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

|                                               | SIX MONTHS ENDED
JANUARY 31,
|---------------------------------------------- | ----------------------------
|
|OPERATING ACTIVITIES:                          |                             
|Net loss                                       |                             
|Adjustments to reconcile net loss to net cash  |                             
|provided by operating activities:              |                             
|Depreciation and amortization                  |                             
|Gain on sale of property and equipment         |                             
|Changes in operating assets and liabilities:   |                             
|Accounts receivable                            |                             
|Refundable income taxes                        |                             
|Inventories                                    |                             
|Prepaid expenses and other                     |                             
|Due to related parties                         |                             
|Accounts payable and other current liabilities |                             
|                                               |                             
|Net cash provided by operating activities      |                             
|INVESTING ACTIVITIES:                          |                             
|Proceeds from sale of property and equipment   |                             
|Purchase of fixed assets                       |                             
|                                               |                             
|Net cash provided by (used in) investing       |                             
|activities                                     |                             
|FINANCING ACTIVITIES:                          |                             
|Proceeds from exercise of stock options        |                             
|Borrowing from a credit facility               |                             
|                                               |                             
|Net cash provided by financing activities      |                             
|                                               |                             
|Increase in cash and cash equivalents          |                             
|Cash and cash equivalents, beginning of period |                             
|                                               |                             
|Cash and cash equivalents, end of period       |                             
|                                               |                             
|SUPPLEMENTAL CASH FLOW INFORMATION:            |                             
|Income taxes paid                              |                             
|Interest expenses paid                         |                             

See accompanying notes.

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7

CATHAY MERCHANT GROUP, INC.
AND SUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|1. | DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ----------------------------------------------------------------------

Description of Business

We
are a financial holding company whose business is conducted primarily through our indirect
wholly owned operating subsidiary, CMG Shanghai Ltd. (CMG Shanghai), a company
organized under the laws of the Peoples Republic of China. In April 2004, we
acquired CMG Shanghai and its immediate parent, Cathay Merchant Group Ltd., a company
organized under the laws of Samoa. CMG Shanghai is an international merchant banking
company. Merchant banking encompasses a broad spectrum of activities related to the
integrated combination of merchant banking, trading, financing commercial trade and
proprietary investing. CMG Shanghais merchant banking activities may provide
specialized corporate finance services and advise clients on corporate strategy and
structure, including mergers and acquisitions and capital raising in Asia. These
activities may also include proprietary investing of our own capital in enterprises to
realize long-term or trading gains. Our current proprietary investment involves the
development of our first wind energy project in China, the Twin Dragons Wind Farm, which is
a 160-megawatt project in the Hebei Province in China.

We
were formed in January 1977 as American Electromedics Corp. and changed our name to
Equidyne Corporation in December 1999. In October 2004, we changed our name to Cathay
Merchant Group, Inc. Since our formation, we had invested in various medical device
companies and technologies. From January 1999 until January 2004, we had principally
focused on the development of patented, needle-free drug delivery systems, principally the
reusable INJEX System. In early 2002, our executive management evaluated our
technologies, markets and production capabilities and concluded that a change in our
strategic focus was necessary as our production capabilities were not cost effective nor
were our sales and marketing programs generating satisfactory results. We evaluated
strategic alternatives both within and outside of the medical products industry. On
January 6, 2004, Equidyne Systems, Inc., our wholly owned subsidiary, sold all its right,
title and interest in and to its needle-free technologies to HNS International Inc.

From
January 2004 to April 2004, we pursued the opportunity to enter into the international
merchant and investment banking industry, culminating in our acquisition of Cathay
Merchant Group Ltd. and CMG Shanghai in April 2004.

Basis of Presentation

The
unaudited interim period consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the SEC). Certain information and footnote disclosure normally
included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to such
SEC rules and regulations. The interim period consolidated financial statements should be
read together with the audited consolidated financial statements and accompanying notes
included in the Companys latest annual report on Form 10-KSB for the fiscal year
ended July 31, 2004. In the opinion of management, the interim period consolidated
financial statements contain all adjustments necessary in order to make the interim period
consolidated financial statements not misleading. The results for the periods presented
herein may not be indicative of the results for any subsequent period or the entire year.

|2. | LOSS
PER SHARE
|-- | --------------

Basic
loss per share is based upon the weighted average number of common shares outstanding
during the period. Diluted loss per share reflects the effect of dilutive securities, if
any, principally stock options and warrants. Dilutive securities were not included in the
calculation of diluted weighted average shares for the six and three months ended January
31, 2005 and 2004, due to their anti-dilutive effect.

The
following table sets forth the computation of basic and diluted loss per share (in
thousands, except per share amounts):

|                                      | SIX MONTHS ENDED
JANUARY 31,
|------------------------------------- | ----------------------------
|
|Net loss                              |                             
|                                      |                             
|Weighted-average shares               |                             
|                                      |                             
|Net loss per share, basic and diluted |                             
|                                      |                             

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8

|                                      | THREE MONTHS ENDED
JANUARY 31,
|------------------------------------- | ------------------------------
|
|Net loss                              |                               
|                                      |                               
|Weighted-average shares               |                               
|                                      |                               
|Net loss per share, basic and diluted |                               
|                                      |                               

|3. | STOCK-BASED
COMPENSATION
|-- | ------------------------

In
accordance with Statement No. 123, Accounting for Stock-Based Compensation
(FAS 123), the Company accounts for its two stock option plans and other
stock-based employee compensation using the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, as described more fully in the
Companys annual report on Form 10KSB for the year ended July 31, 2004. Accordingly,
compensation expense is recorded on the date of grant only to the extent the current
market price of the underlying stock exceeds the option exercise price. The Company did
not record any stock-based compensation expense in the six and three months ended January
31, 2005 and 2004.

Had
compensation expense been determined based on the fair values at dates of grant for its
stock options under FAS 123, as amended by FAS 148, net loss and net loss per share would
have been reported as indicated in the pro forma results below (in thousands, except per
share amounts):

|                                                                             | SIX MONTHS ENDED
JANUARY 31,
|---------------------------------------------------------------------------- | ----------------------------
|
|Net loss, as reported                                                        |                             
|Deduct:  Stock-based  employee  compensation  expense  determined under fair |                             
|value based method                                                           |                             
|                                                                             |                             
|Pro forma net loss                                                           |                             
|                                                                             |                             
|Net loss per share, basic and diluted, as reported                           |                             
|                                                                             |                             
|Net loss per share, basic and diluted, pro forma                             |                             
|                                                                             |                             

|                                                                             | THREE MONTHS ENDED
JANUARY 31,
|---------------------------------------------------------------------------- | ------------------------------
|
|Net loss, as reported                                                        |                               
|Deduct:  Stock-based  employee  compensation  expense  determined under fair |                               
|value based method                                                           |                               
|                                                                             |                               
|Pro forma net loss                                                           |                               
|                                                                             |                               
|Net loss per share, basic and diluted, as reported                           |                               
|                                                                             |                               
|Net loss per share, basic and diluted, pro forma                             |                               
|                                                                             |                               

For
purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period.

The
fair values under FAS 123 for options granted were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average assumptions:

|                      | 2004
|--------------------- | ----
|
|Expected life (years) | 3   
|Interest rate         | 4.0%
|Volatility            | 0.95
|Dividend yield        | 0.0%

In
December 2004, FAS 123 was revised, which eliminates the alternative to use APB Opinion
No.25s intrinsic value method of accounting that was provided in FAS 123 as
originally issued. The revised FAS123 requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. The Company does not expect that such revision will
have significant impact on the Companys financial position in the foreseeable near
future.

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9

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

OVERVIEW

We
are a financial holding company whose business is conducted primarily through our indirect
wholly owned operating subsidiary, CMG Shanghai Ltd. (CMG Shanghai), a company
organized under the laws of the Peoples Republic of China. In April 2004, we
acquired CMG Shanghai and its immediate parent, Cathay Merchant Group Ltd., a company
organized under the laws of Samoa. CMG Shanghai is an international merchant banking
company. Merchant banking encompasses a broad spectrum of activities related to the
integrated combination of merchant banking, trading, financing commercial trade and
proprietary investing. CMG Shanghais merchant banking activities may provide
specialized corporate finance services and advise clients on corporate strategy and
structure, including mergers and acquisitions and capital raising in Asia. These
activities may also include proprietary investing of our own capital in enterprises to
realize long-term or trading gains. Our current proprietary investment involves the
development of our first wind energy project in China, the Twin Dragons Wind Farm, which is
a 160-megawatt project in the Hebei Province in China. See Current Proprietary
Investment  The Twin Dragons Wind Farm Project, Hebei Province, China below
for more details.

We
were formed in January 1977 as American Electromedics Corp. and changed our name to
Equidyne Corporation in December 1999. In October 2004, we changed our name to Cathay
Merchant Group, Inc. Since our formation, we had invested in various medical device
companies and technologies. From January 1999 until January 2004, we had principally
focused on the development of patented, needle-free drug delivery systems, principally the
reusable INJEX System. In early 2002, our executive management evaluated our
technologies, markets and production capabilities and concluded that a change in our
strategic focus was necessary as our production capabilities were not cost effective nor
were our sales and marketing programs generating satisfactory results. We evaluated
strategic alternatives both within and outside of the medical products industry. On
January 6, 2004, Equidyne Systems, Inc., our wholly owned subsidiary, sold all its right,
title and interest in and to its needle-free technologies to HNS International Inc.

The
following discussion and analysis of the results of operations and financial condition of
our company for the six and three months ended January 31, 2005 should be read in
conjunction with the consolidated financial statements and related notes included in this
quarterly report, as well as our companys most recent annual report on Form 10-KSB
for the fiscal year ended July 31, 2004 filed with the U.S. Securities and Exchange
Commission (the SEC).

RESULTS OF OPERATIONS
 SIX MONTHS ENDED JANUARY 31, 2005

Net
product sales were $nil for the six months ended January 31, 2005, compared to $39,000 for
the same period in 2004. The decrease in sales through our companys distribution
partners reflected our change in strategic focus and the effect of the cessation of most
sales and marketing activities for the needle-free business. We sold all of our remaining
inventories to HNS International Inc. in December 2003. As a result of our acquisition of
Cathay Merchant Group Ltd. And CMG Shanghai Ltd., we refocused our business to pursue
merchant banking business in Asia. We are currently exploring business opportunities in
Asia and we do not expect to generate significant revenue from these operations in the
near term.

Cost
of sales for the six months ended January 31, 2005 were $nil, compared to $74,000 for the
same period in 2004.

Selling,
general and administrative expenses for the six months ended January 31, 2005 were $0.9
million compared to $2.0 million for the same period in 2004. Our company paid $0.5
million for reimbursement of expenses and administrative and management fees to MFC
Bancorp Ltd. (MFC Bancorp) and its subsidiaries (collectively with MFC
Bancorp, MFC) for the six months ended January 31, 2005. MFC has approximately
28% ownership of our company.

Gain
on sale of patents, property and equipment were $nil for the six months ended January 31,
2005, compared to $0.2 million in the same period in 2004.

We
reported net loss of $0.8 million, or $0.04 per common share for the six months ended
January 31, 2005, compared to a net loss of $1.8 million, or $0.12 per common share, in
the same period in 2004.

RESULTS OF OPERATIONS
 THREE MONTHS ENDED JANUARY 31, 2005

Net
product sales were $nil for the three months ended January 31, 2005, compared to $37,000
for the same period in 2004. The decrease in sales through our companys distribution
partners reflected our change in strategic focus to pursue merchant banking business in
Asia, and the effect of the cessation of most sales and marketing activities for the
needle-free business.

---

10

Cost
of sales for the three months ended January 31, 2005 were $nil, compared to $55,000 for
the same period in 2004.

Selling,
general and administrative expenses for the three months ended January 31, 2005 were $0.5
million compared to $0.4 million for the same period in 2004. Our company paid $0.3
million for reimbursement of expenses and administrative and management fees to MFC for
the three months ended January 31, 2005.

Gain
on sale of patents, property and equipment were $nil for the three months ended January
31, 2005, compared to $0.2 million in the same period in 2004.

We
reported net loss of $0.6 million, or $0.03 per common share for the three months ended
January 31, 2005, compared to a net loss of $0.2 million, or $0.01 per common share, in
the same period in 2004.

LIQUIDITY AND CAPITAL
RESOURCES

At
January 31, 2005, our company had working capital of $10.9 million, compared to working
capital of $10.2 million at July 31, 2004.

We
entered into a five-year $20 million revolving credit facility dated April 26, 2004 with
MFC Merchant Bank S.A. (MFC Merchant Bank), a subsidiary of MFC Bancorp, which
is to mature in March 2009. In August 2004, MFC Merchant Bank converted $1,575,000 of the
principal that we have drawn under the credit facility into 3,150,000 shares of our common
stock at the exercise price of $0.50 per share. As of January 31, 2005, we have an unused
portion of a credit facility of $18,425,000. We are required to pay interest on any
outstanding principal amount that we have drawn down under the credit facility on the
first banking day of each calendar month, at an annual rate of Libor (being the one month
London Inter-Bank Offered Rate fixed daily by the British Bankers Association) plus 3.5%,
based on a 360 day year. The credit facility is secured by a first fixed and specific
charge and security interest on all of our property, assets and undertakings imposed under
our promissory note in the aggregate principal amount of $20,000,000, and a floating
charge on all of our companys other property, assets and undertakings not
specifically mortgaged and charged under the promissory note, including after-acquired
assets or the proceeds of any and all assets. Our obligations under the credit facility
are also secured by a pledge agreement in the aggregate principal amount of $20,000,000,
pursuant to which we have pledged to MFC Merchant Bank all or our existing and future
pecuniary claims against third parties.

In
order to complete our proposed business plan for the international merchant banking
activities, we believe that additional capital will be required. As a general guideline,
we anticipate spending approximately $125,000 per month on our day-to-day general and
administrative operations during the fiscal year ending July 31, 2005. This cost includes
a monthly payment of $75,000 to MFC Merchant Bank for various financial and operating
advisory services pursuant to a financial advisory agreement dated January 1, 2004. In
addition to the $75,000 per month advisory costs, our company estimates spending
approximately $50,000 per month for general and administrative expenses associated with
the operation of our company. Since our start-up and development costs are not fixed, we
may be required to expend a significant amount of additional funds.

As
discussed below under the heading, Current Proprietary Investment  The Twin
Dragons Wind Farm Project, Hebei Province, China, we believe that we have sufficient
working capital to meet operating expenses in respect of the Twin Dragons Wind Farm
Project during the next twelve months. However, we are also seeking investments in or
acquisitions of companies, technologies or products in connection with our international
merchant banking activities. We may need additional capital if we pursue other
opportunities that we may identify through such activities. Should the need arise, we will
consider financing alternatives in addition to the possibility of further draws under our
credit facility with MFC Merchant Bank, including the possibility of effecting private
placements of our securities.

There
is no assurance that management will find suitable opportunities or effect the necessary
financial arrangements for such investments or provide the working capital needed for the
acquired activities.

---

11

Operating Activities

Operating
activities provided cash of $3.3 million for six months ended January 31, 2005, compared
to $0.7 million in the same period in 2004, primarily as a result of collection of
refundable income taxes.

Investing Activities

Investing
activities used cash of $72,000 for the six months ended January 31, 2005, compared to
$0.7 million cash provided in the same period in 2004, primarily due to purchase of fixed
assets in 2005.

Financing Activities

Financing
activities provided cash of $1.6 million for the six months ended January 31, 2005,
compared to $0.2 million in the same period in 2004, primarily due to borrowing from a
credit facility in 2005.

CURRENT PROPRIETARY INVESTMENT - THE
TWIN DRAGONS WIND FARM PROJECT, HEBEI PROVINCE, CHINA

On
December 3, 2004, our wholly-owned subsidiary, Cathay Merchant Group, was assigned, for
consideration of $10, all of MFC Bancorps rights and interest under a memorandum of
understanding dated September 16, 2004, and a subsequent addendum, among MFC Bancorp and
three Chinese county governments, Weichang Manchu Mongolia Autonomous County Government of
Hebei Province, Yudaokou County Government and Laowopu County Government, relating to an
initial development a new 160-megawatt wind energy project in Hebei Province, China, to be
known as the Twin Dragons Wind Farm.

Cathay
Merchant Group, our wholly-owned subsidiary, has the exclusive right to develop a wind
power project on 55 square kilometers of land in Hebei Province, for a minimum of three
years. Cathay Merchant Group is in the process of establishing a Shanghai-based
wholly-owned foreign enterprise under the laws of China, to be called Cathay Merchant
Group Wind Energy Company.

The
generation of electricity by the planned project will depend, in part, upon satisfactory
wind speeds at the site, and upon the number of turbines that we erect on the site. Our
company has commenced testing to determine the viability of the Twin Dragons Wind Farm.
One of the most important factors that will determine whether or not our company will
proceed with the development and construction of the project will be the wind speed in the
area where the property is located. The wind speed is also qualified by the height of the
wind measuring equipment, with the default height normally being 10 meters from the
ground.

The
wind measurement and analysis phase of the project is anticipated to take one year. If,
after this phase, our company elects to proceed with the development and construction of
the Twin Dragons Wind Farm, we must raise money and
commence the development, construction and operation of the wind farm to produce
electricity.

A
new Law on Renewable Sources was approved by the 14th Meeting of the Standing Committee of the National
People's Congress on February 28, 2005 that becomes effective as of January 1, 2006.  This new law includes
provisions that the power grid operators are required to purchase the full amount of electricity supplied
from registered renewable energy producers at a price to be calculated, adjusted and determined by the State
Council Price Bureau which will be publicly disclosed.  The new law also provides for subsidized local
financing institution loans and for tax incentives to be determined by State Council.

The
ultimate development and size of the wind farm will be dependent upon the economics of the site under
development and the general economics of wind energy development within China as well as conditions related
to the actual implementation of the new Law on  Renewable Sources.

Under
the memorandum of understanding with the three Chinese county governments, we must install
at least one wind power turbine no later than September 26, 2007, failing which the
Chinese county governments will be entitled to take over the project and transfer it to a
third party without penalty or compensation to our company. Our current plan for the first
phase of the development over the initial three-year period, assuming satisfactory wind
measurements, is to construct a 100-megawatt wind farm (between 50 to 70 wind turbines),
at an estimated cost of approximately $125 million.

---

12

Our
company intends to obtain land use rights for the construction and operation of the wind
farm. In anticipation of acquiring property rights to the proposed site, our company has
entered into a Wind Park Project Land Use Rights Agreement dated January 23, 2005, among
our wholly-owned subsidiary Cathay Merchant Group Limited, Weichang Manchu Mongolia
Autonomous County Government, Yudaokou Town Government and Laowopu Town Government. The
land use rights agreement is conditional upon obtaining a satisfactory feasibility study
and all necessary approvals for the operation of the proposed wind farm. The land use
rights agreement states that upon satisfaction of such conditions, Weichang Manchu
Mongolia Autonomous County Government, Yudaokou Town Government, and Laowopu Town
Government will carry out all reasonable efforts to obtain land use rights of the proposed
site for the construction and operation of a wind farm by Cathay Merchant Group, our
wholly-owned subsidiary. We anticipate that the land use rights will be for a term of 50
years and will cost our company a lump sum payment of approximately RMB125,000 for every
wind turbine that our company decides to install on the proposed site.

Our
estimated operating expenses for the project over the next twelve months total $0.4
million. We are installing a third meteorological mast on the property, which will require
us to incur an additional $50,000 in expenses, some of which will be absorbed by the
current budget.

Our
estimates of our operating expenses over the next twelve months may be significantly
impacted by legislative changes that are anticipated to be introduced in China within the
next 12 months, in part in connection with a review of Chinese energy policy and
regulation that the Chinese governments will be undertaking in connection with the
formulation of its 11th Five-Year Plan which will cover the period from 2006 to 2010.

We
anticipate that we will have sufficient working capital available to us to meet these
estimated costs and expenses over the next twelve months.

OFF-BALANCE SHEET
ARRANGEMENTS

The
following table sets forth our best estimates for material long-term obligations as at
July 31, 2004. Operating leases include commitments for office space, computers and office
equipment. As of July 31, 2004, our principal business office is located in Shanghai,
Peoples Republic of China. We occupy approximately 113 square meters of leased
office space, under an informal, month-to-month lease arrangement and payment under this
arrangement is not included in the following table. We paid $6,400 during the fiscal year
ended July 31, 2004, under this arrangement. The table excludes commitments such as open
purchase orders under long term agreements with customers and suppliers. We have no
minimum purchase or supply arrangements in place. Our contractual obligations as of July
31, 2004 were:

|                              | Payments Due by Period
(in $000's)
|----------------------------- | ----------------------------------
|Contractual
Obligations(1)    | Total                             
|Capital Lease Obligations     |                                   
|Operating Leases              |                                   
|Purchase Obligations (2)      |                                   
|                              |                                   
|Total Contractual Obligations |                                   
|                              |                                   

| | (1) | There have been no material changes to the contractual obligations of our
               company subsequent to January 31, 2005.
| | --- | --------------------------------------------------------------------------------------------------------------------------------

| | (2) | Purchase obligations represent engineering fee for wind speed measurements.
| | --- | ---------------------------------------------------------------------------

|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------

We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow for timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and procedures,
our management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

---

13

As
of January 31, 2005, the end of the quarter covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on the foregoing,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report.

There
have been no significant changes in our companys internal controls over financial
reporting that occurred during our most recent quarter that have materially, or are
reasonably likely to materially affect, our internal controls over financial reporting.

|PART II |  OTHER INFORMATION
|------- | -------------------

|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In
the ordinary course of conducting its business, our company may become subject to
litigation and claims regarding various matters. There was no outstanding litigation as of
January 31, 2005.

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

None.

|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
|------- | --------------------------------------------------

None.

|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.

|ITEM 6. | EXHIBITS
|------- | --------

| | Exhibit
31.1  Certification of the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit
32.1  Certification of the Principal Executive Officer and Principal Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURES

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

|                       |                                                                                                                                     
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------
|Dated:   March 4, 2005 | CATHAY MERCHANT GROUP, INC.
By: /s/ Michael J. Smith
Michael J. Smith
Chief Executive Officer, President and
Chief Financial Officer