Dragon International 10QSB 2008 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended September 30, 2007

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

For the transition period from ________ to __________

Commission File Number: 0-23485

DRAGON INTERNATIONAL GROUP CORP.

(Exact name of small business issuer as specified in charter)

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

No. 201 Guangyuan Road, District C Investment Pioneering Park Jiangbei,

Ningbo, China 315033

(Address of principal executive offices)

(86) 21-56689332

(Issuer's telephone number)

Bldg 14 Suite A09, International Trading Center,

29 Dongdu Road Ningbo, China 315000

(Former name, former address and former fiscal year,

if changed since last report)

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: At November 16, 2007 there were 96,363,982 shares of common stock issued and outstanding.

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

DRAGON INTERNATIONAL GROUP CORP.

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

INDEX

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

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEET

SEPTEMBER 30, 2007

(UNAUDITED)

ASSETS

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

See notes to unaudited consolidated condensed financial statements

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

SEPTEMBER 30, 2007

(UNAUDITED)

	For the three Months Ended September 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

See notes to unaudited consolidated condensed financial statements

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

SEPTEMBER 30, 2007

(UNAUDITED)

	For the three Months Ended September 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

See notes to consolidated condensed financial statements

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 Corp., (“we”, the “Company” or “Dragon Nevada”) was incorporated in the state of Nevada in 1993. Through our subsidiaries, all located and operating in the Peoples Republic of China (the “PRC”), we manufacture and distribute assorted paper products and paper based packaging materials.

Our main customers, also located in the PRC, are packaging companies for the tobacco, cosmetics and pharmaceutical industries as well as the wine, spirits and other beverage industries. Our products are used both as a finished product as well as a raw material input used by our customers in their further manufacture into a variety of paper products and packaging materials.

While we operate through various entities, we manage and identify our products under one product segment.

We operate as a holding company with interests in the following subsidiaries:

·	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.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

These statements have been prepared in accordance with the instructions to Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in financial statements included in our Annual Report on Form 10-KSB has been condensed or omitted.

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)

The accompanying financial statements for the interim periods are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. These financial statements should be read in conjunction with the financial statements for the year ended June 30, 2007 and notes thereto contained on Form 10-KSB of the Company as filed with the Securities and Exchange Commission. The results of operations for the three months ended September 30, 2007 are not necessarily indicative of the results for our full fiscal year ending June 30, 2008.

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

ESTIMATES

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

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. At September 30, 2007, the Company maintained a cash balance of $603,265. Of this amount $600,446 is held in China, and $2,819 is held in the U.S. Of the cash balance of $600,446 held in China, $266,042 is restricted, and is being held in a bank account as collateral for certain letters of credit and has been presented as restricted cash on the accompanying balance sheet.

ACCOUNTS RECEIVABLE

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

uncollectible. At September 30, 2007, the allowance for doubtful accounts was $186,046.

INVENTORIES

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

ADVANCES ON PURCHASES

At September 30, 2007, advances on purchases amounted to $6,257,807. This amount consists of prepayments by the Company for merchandise orders that had not yet been shipped to the Company.

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)

INTANGIBLE ASSETS / INTELLECTUAL PROPERTY

The Company recognizes the value and amortizes intangible assets and intellectual property acquired in connection with their various acquisitions. The Company amortizes these assets based on expected useful lives of these assets, based on Company management projecting forward future revenue and expense streams of these acquired assets. For the three months ended September 30, 2007 and 2006, amortization expenses for intangible assets amounted to $29,171 and $38,256, respectively.

LONG - LIVED ASSETS

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates its long-lived assets for possible impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less related costs to sell. To the extent carrying values exceed fair values; an impairment loss is recognized in operating results.

STOCK-BASED COMPENSATION

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

REVENUE RECOGNITION

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

SHIPPING AND HANDLING COSTS

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

FOREIGN CURRENCY TRANSLATION

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

For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the financial statements. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. At September 30,

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)

2007 and 2006, the exchange rates for the Chinese dollar or Renminbi ("RMB") for 1 United States dollar were 7.518 and 7.917, respectively.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions in the United States and China. At September 30, 2007, the Company, held a total of $603,265 in bank deposits. Of this amount $600,446 is held in China, and $2,819 is held in the U.S. Of the amount held in China, $266,042 is restricted. This amount is being held in a bank account as collateral for certain letters of credit and is presented as restricted cash on the accompanying balance sheet. The remaining unrestricted cash balance of $334,404 held in bank deposits in China may not be insured. The Company has not experienced any losses in such accounts through September 30, 2007. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

NOTE 2 - INVENTORIES

At September 30, 2007, inventories consisted of the following:

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

NOTE 3 - LAND USE RIGHTS

In connection with the acquisition of Ningbo Dragon Packaging Technology Co., Ltd. ("Dragon Packaging"), the Company acquired land use rights. At September 30, 2007 the land use rights are valued at $2,615,955. The Company has rights to use certain land until March 4, 2053. The Company amortized these land use rights over the contract period beginning July 1, 2005. For the three month periods ended September 30, 2007 and 2006, amortization expenses amounted to totaled $16,256 and $14,498, respectively.

	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

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

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007

NOTE 5 - STOCKHOLDERS' EQUITY

COMMON STOCK

For the three months ended September 30, 2007 and 2006, amortization of stock based compensation amounted to $86,878 and $86,878, respectively.

COMMON STOCK PURCHASE WARRANTS

A summary of the status of the Company's outstanding stock warrants as of September 30, 2007 and changes during the three month period then ended is as follows:

	Shares		Weighted Average Exercise 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		-		-

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007

NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK PURCHASE WARRANTS (CONTINUED)

The following information applies to all warrants outstanding at September 30, 2007:

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

(a) Country risk

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

(b) Products risk

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

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

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007

NOTE 6 – OPERATING RISK (CONTINUED)

(d) Political risk

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

(e) Key personnel risk

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

(f) Performance of subsidiaries risk

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

NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109." FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The adoption of FIN No. 48 is not expected to have a significant impact on our consolidated financial statements.

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

DRAGON INTERNATIONAL GROUP CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007

NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2006, the FASB issued SFAS No. 157; "Fair Value Measurements". This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. We are currently evaluating the provisions of FASB 157 to determine the future impact on our consolidated financial statements.

In December 2006, the FASB approved FASB Staff Position (FSP) No. EITF 00-19-2, "Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2"), which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, "Accounting for Contingencies". FSP EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. The guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, "Accounting for Derivative Instruments and Hedging Activities", and No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others", to include scope exceptions for registration payment arrangements. FSP EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the issuance date of this FSP, or for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years, for registration payment arrangements entered into prior to the issuance date of this FSP. We are currently evaluating the potential impact of FSP EITF 00-19-2 on our financial

statements. We do not expect the impact to be material.

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

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 8 – SUBSEQUENT EVENT

On September 28, 2007, the Company entered into an agreement to acquire the remaining 49% equity interest of Wellton International Fiber Corp. ("Wellton"), which will result in Wellton becoming a wholly owned subisidiary. Wellton was established in 2002 as a company organized under the laws of the British Virgin Islands and acts as an agent and supplier for paper pulp and waste paper. Under the terms of the agreement, the Company will issue 7,865,011 shares of Company common stock, valued at $0.07 per share, the closing trade price of the Company’s common stock on the Over-the-Counter-Bulletin-Board on April 23, 2007 in exchange for shares of Wellton. The consideration is equal to 49% of Wellton’s net tangible assets of $1,123,573 as stated in Welltons unaudited financial statements as of March 31, 2007. The transaction is expected to close on or before December 1, 2007.

ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDIITION AND RESULTS OF OPERATIONS

OVERVIEW

Dragon International Group Corp., (“we”, the “Company” or “Dragon Nevada”) was incorporated in the state of Nevada in 1993. Through our subsidiaries, all located in the Peoples Republic of China (the “PRC”), we manufacture and distribute assorted paper products and paper based packaging materials.

Our main customers, also located in the PRC, are packaging companies for the tobacco, cosmetics and pharmaceutical industries as well as the wine, spirits and other beverage industries. Our products are used both as a finished product as well as a raw material input used by our customers in the manufacture of a variety of paper products and packaging materials.

While we operate through various entities, we manage and identify our products under one product segment.

We operate as a holding company with interests in the following subsidiaries:

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 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.

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

FOREIGN EXCHANGE CONSIDERATIONS

Since revenues from our operations in the PRC accounted for 100% of our net revenues for the three months ended September 30, 2007 and September 30, 2006, how we report net revenues from our PRC-based operations is of particular importance to understanding our financial statements. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation", and are included in determining net income or loss. For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the prevailing exchange rate on the respective balance sheet date.

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

The functional currency of our Chinese subsidiaries is the local currency, the Renminbi or the Chinese dollar, ("RMB"). The financial statements of our subsidiaries are translated to U.S. dollars using period and rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not material during the periods presented. The cumulated translation adjustment and effect of exchange rate changes on cash at September 30, 2007 and 2006 were $66,079 and $76,736 respectively. Since 1994, the value of the Renminbi relative to the U.S. dollar has remained relatively stable; appreciating slightly against the U.S. dollar. On July 21, 2005, the PRC announced that the Renminbi would be pegged to a basket of currencies rather than just tied to a fixed exchange rate to the U.S. dollar.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

During the three month period ended September 30, 2007, there have been no material changes to our critical accounting policies that impacted our consolidated financial condition or results of operations.

REVENUE RECOGNITION

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

RECENT ACCOUNTING PRONOUNCEMENTS

statements. We do not expect the impact to be material.

RESULTS OF OPERATIONS

Revenues for the three month period ended September 30, 2007 totaled $7,929,498, reflecting an increase of $3,096,514 (64%) over the first fiscal quarter of the previous year. This overall increase reflected the net effect of a significant change in the makeup of our revenues. Included in the revenue for the current year’s quarter was $7,042,996 from Wellton International Fiber Corp. (“Wellton”), our 51% owned subsidiary. We acquired our interest in Wellton on June 29, 2007. Accordingly, no revenues generated by Wellton are included in revenue for the three month period ended September 30, 2006. This sharp increase was offset by a $3,946,482 reduction in revenues between the periods generated by our subsidiaries previously providing paper and proper products distribution services. Our subsidiary, Yonglongxin, has suspended its distribution operations and has shifted in focus to the manufacturing of paper products, which, while in the preliminary stages, is expected to lead to higher margins for the consolidated group. Our distribution operations have been shifted to Wellton.

Cost of sales increased from $4,460,470 for the fiscal quarter ended September 30, 2006 to $7,331,333 for the first fiscal quarter of the current year. This increase was attributable to the increased level of paper and paper products distribution revenues. Cost of sales relative to revenues remained relatively constant between the periods, increasing from 92.3% to 92.5%.

Despite the significant increase in revenues between the quarters, Operating Expenses remained relatively constant. Operating Expenses for the three month period ended September 30, 2007 totaled $513,525 compared to $515,071 for the comparable period of the preceding year. The increase in selling and general administrative expenses attributable to the Wellton acquisition, totally approximately $220,000, were offset by a similar reduction in these expenses by our subsidiaries reducing their distribution efforts, particularly in the area of selling expenses.

The increase in interest expense between the periods, increasing from $33,432 to $79,492 for the first fiscal quarter 2007, reflects the increase in bank borrowings between the periods as well as a slight increase in interest rates.

The minority interest in increase of subsidiary represents the 49% minority interest in Wellton for 2007. Wellton was acquired on June 29, 2007 and, accordingly, no minority interest was recognized during the previous year.

The recognition of a provision for income taxes during the first fiscal quarter 2007 primarily reflects the operations of Wellton, which recorded taxable income during the period.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2007, we had on hand approximately $337,000 in unrestricted cash, working capital of approximately $2,794,000 and an accumulated deficit since inception of approximately $1,294,000. Restricted cash on hand at September 30, 2007, totaling $266,042, is pledged against the repayment of notes held by the Bank of Transportation located in the RPC. Cash used to fund operating activities during the quarter totaled approximately $595,000.

Working capital decreased during the quarter ended September 30, 2007 to $2,794,000, down from $2,806,618 at our fiscal year ended June 30, 2007. While remaining relatively stable between the periods, increasing approximately 9%, certain components changed significantly.

The sharp increase on advances on purchases, increasing from $4,167,033 to $6,257,807, reflects an effort by the company to increase its supply of raw materials and product for redistribution associated with the pharmaceutical industry. This effort is also reflected in the increase of approximately $831,000 in inventory balances during the quarter. The Company believes the increase in demand in the industry segment will continue.

We have historically supplemented our operational cash flow through PRC based bank borrowings, which remained relatively constant during the first fiscal quarter of 2007. We believe we will be able to renew these borrowings as they come due, if and as needed. We are current on all payment obligations relating to these loans.

OFF BALANCE SHEET ARRANGEMENTS

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

ITEM 3. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended as of September 30, 2007, the end of the period covered by this quarterly report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.

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

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

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

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

“ITEM 3A(T). CONTROLS AND PROCEDURES

Please refer to Item 3 above for:

(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.

In addition, this quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this quarterly report.

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

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

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

None

ITEM 3. �� DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

10.1 Stock Purchase Agreement

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

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

32.1 Section 1350 certification of CEO

32.2 Section 1350 certification of principal accounting officer

SIGNATURES

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

Date: November 19, 2007.

DRAGON INTERNATIONAL GROUP CORP.

By: /s/ David Wu

David Wu,

Chief Executive Officer,

(Principal Executive Officer)

Dragon International (DRGGE) Inactive 10QSB2008 Q1 Quarterly report (small business)