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
         30,1998.

(  )     TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________  TO
         _________

Commission file number: 1-355


                           DRAGON DIAMOND CORPORATION
             (Exact name of registrant as specified in its charter)

           Utah                                                   87-0128639
(State of other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

         107 West Wade, Suite 7, P.O. Box 9, Payson, Arizona 85547-0009
              (Address of principal executive offices) (Zip Code)

         Registrant's telephone number, including area code:(520) 474-9151

                            DRAGON MINING CORPORATION
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes    __X__    No      ____

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

   4,423,983 shares of common stock, $.001 par value, as of November 10, 1998

Traditional Small Business Disclosure Format (Check One): YES ____    NO __X__

Exhibit index on page 11                                            Page 1 of 22



<PAGE>



                           DRAGON DIAMOND CORPORATION
                                   FORM 10-QSB

                                      INDEX

                         PART I - FINANCIAL INFORMATION

Item 1.   Condensed Balance Sheet, September 30, 1998 and December 31, 1997...3

          Condensed Statement of Operations,
          Nine and Three Months Ended September 30, 1998 and 1997.............4

          Condensed Statements of Cash Flow,
          Nine Months Ended September 30, 1998 and 1997.......................5

          Condensed Statements of Shareholder's Equity,
          September 30, 1998 and December 31, 1997............................6

          Notes to Condensed Financial Statements.............................7

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................8

                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings...................................................9

Item 2.   Changes in Securities...............................................9

Item 3.   Defaults Upon Senior Securities.....................................9

Item 4.   Submission of Matters to a Vote of Security Holders.................9

Item 5.   Other Information...................................................10

Item 6.  Exhibits and Reports on Form 8-K.....................................11

SAFE HARBOR STATEMENT

This report contains both historical and prospective  statements  concerning the
Company and its operations.  Historical statements are based on events that have
already  happened;  examples  included  the  reported  financial  and  operating
results, descriptions of pending and completed transactions,  and management and
compensation matters.  Prospective  statements,  on the other hand, are based on
events that are reasonably  expected to happen in the future;  examples  include
the timing of projected  operations,  contingencies or other foreseeable events,
and projected  operating  results.  Prospective  statements  (which are known as
"forward-looking  statements" under the Private Securities Litigation Reform Act
of 1995)  may or may not prove  true with the  passage  of time  because  of the
future risks and uncertainties.

                                        2

<PAGE>



                           DRAGON DIAMOND CORPORATION
                  (FORMERLY KNOWN AS DRAGON MINING CORPORATION)

<TABLE>
<CAPTION>
                                             BALANCE SHEETS-UNAUDITED


                                                  September               December 31
ASSETS                                               1998                    1997
                                                    ----                     ----
<S>                                           <C>                     <C>    
Current Assets:
 Cash and cash equivalents                    $           258         $       6,538 
                                              ----------------        --------------
         Total current assets                             258                 6,538 
                                              ----------------        --------------

Plant and equipment, net                                    0                     0

Mineral Properties, net                                30,000                     0 
                                              ----------------        --------------

         Total assets                         $        30,258         $       6,538 
                                              ================        ==============


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
         Accounts payable                             142,214                 5,633
         Note Payable-Related Party                         0             2,100,000 
                                              ----------------         -------------
                  Total current liabilities           142,214             2,105,633 
                                              ----------------         -------------

Shareholders'  Equity  (Deficit)  
         Common  stock,  $.01  par  value, authorized
         50,000,000, of which 4,423,983 and 2,314,383 
         were issued and outstanding as of
         September 30, 1998 and 1997, respectively.    44,240                23,144

         Additional Paid-in Capital                 5,192,393             3,103,889
         Accumulated Deficit                      ( 5,348,589)           (5,230,445)
                  Total shareholders' equity 
                  (deficit)                          (111,956)           (2,095,764)

                  Total liabilities and shareholders'
                  equity                      $        30,258          $      6,538 
                                              ================         =============



</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                        3

<PAGE>

<TABLE>


                                            DRAGON DIAMOND CORPORATION
                                   (FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>

                                    CONDENSED STATEMENT OF OPERATIONS-UNAUDITED

                                            For the three months ended:        For the nine months ended:
                                             Sept. 30,          Sept. 30,         Sept. 30,        Sept. 30,
                                               1998              1997              1998              1997
                                               ----              ----              ----              ----

<S>                                         <C>              <C>                <C>                <C>    
Operating Expenses:
   General and Administrative               $ 113,108        $    1,550         $ 118,212          $  6,598
   Exploration                                      0                 0                 0                 0 
                                            ----------       -----------        ----------         ---------     
         Operating (Loss)                    (113,108)           (1,550)         (118,212)           (6,598)
                                            ----------       -----------        ----------         ---------

Other Income
   Interest Income                                  7                39                68               126 
                                            ----------       -----------        ----------         ---------

         Net (Loss)                         $(113,101)          $(1,511)        $(118,144)         $ (6,724)
                                            ==========       ===========        ==========         =========

Net Loss per common share                   $    (.03)       $     (.01)        $    (.04)         $   (.01)
                                            ==========       ===========        ==========         =========


Weighted average common
   Shares outstanding                       3,720,783          2,314,383         2,783,182         2,314,383
                                            ==========       ===========        ==========         =========


</TABLE>








    The accompanying notes are an integral part of the financial statements.

                                        4

<PAGE>

<TABLE>


                           DRAGON DIAMOND CORPORATION
                  (FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>

                   CONDENSED STATEMENT OF CASH FLOWS-UNAUDITED

                                                                       For the nine months ended:
                                                                       September 30,     September 30,
                                                                            1998            1997
                                                                            ----            ----
<S>                                                                     <C>               <C>

Cash flows from operating activities:

Net (loss)                                                              $ (118,144)       $  (6,724)

Adjustments to reconcile net (loss) to net cash provided by operating activities:
         Increase in liabilities                                           111,864            3,933 

         Net cash used in operating activities                              (6,280)          (2,791)

Cash flows from investing activities:
         Mineral properties                                                (30,000)               0 
                                                                        -----------       ----------

         Net cash used in investing activities                             (30,000)               0

Cash flows from financial activities:
         Proceeds from issuance of common stock                          2,109,600                0
         Increase in debt                                                   30,000                0
         Payment of debt                                                (2,109,600)               0 
                                                                        -----------       ----------

         Net cash provided by financing activities                          30,000                0 
                                                                        -----------       ----------

         Net increase (decrease) in cash                                    (6,280)          (2,791)

Cash and cash equivalents at beginning of period                             6,538            9,869 
                                                                        -----------       ----------

Cash and cash equivalents at end of period                              $      258        $   7,078 
                                                                        ===========       ==========



</TABLE>








    The accompanying notes are an integral part of the financial statements.

                                        5

<PAGE>

<TABLE>


                           DRAGON DIAMOND CORPORATION
                  (FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
         FOR THE PERIODS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 1998




                                            Common Stock      Additional
                                    Number of                 Paid-In         Accumulated
                                    Shares           Amount   Capital         Deficit               Total

<S>                                 <C>             <C>       <C>             <C>                <C>
Balance, December 31, 1996          23,143,826      $23,144   $3,103,889      $(5,222,797)       $(2,095,764)

Net (loss) year ended
      December 31, 1997                                                            (7,648)            (7,648)
                                    ----------      -------   ----------      ------------       ------------

Balance, December 31, 1997          23,143,826       23,144    3,103,889       (5,230,445)        (2,103,412)
                                    ----------      -------   ----------      ------------       ------------

Reverse stock split ten-for-one    (20,829,443)
Stock issued for debt                2,109,600       21,096    2,088,504                           2,109,600
Net (loss) period ended
     September 31, 1998                                                          (118,144)          (118,144)
                                    ----------      -------   ----------      ------------       ------------  

Balance, September 30, 1998          4,423,983      $44,240   $5,192,393      $(5,348,589)       $  (111,956)
                                    ==========      =======   ==========      ============       ============





</TABLE>



















    The accompanying notes are an integral part of the financial statements.

                                        6

<PAGE>




                           DRAGON DIAMOND CORPORATION
                  (FORMERLY KNOWN AS DRAGON MINING CORPORATION)

Notes to Condensed Financial Statements

GOING  CONCERN-The  Company has continued to incur net losses.  At September 30,
1998  the  Company  had  a  working  capital  deficiency  of  $  141,956  and  a
stockholders'  deficiency of $111,956. The Company requires funds for its future
operations and will attempt to meet its obligations by raising  additional funds
through the sale of equity.  There can be no assurance  that the Company will be
able to raise funds to meet its obligations.

DISCLOSURES-The  unaudited condensed financial  statements have been prepared by
the Company in accordance  with  generally  accepted  accounting  principles for
interim  financial  information  with the  instructions  to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting  principles for complete
financial  statements.   In  the  opinion  of  the  Company's  management,   all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair  presentation  have been  included.  Operating  results for the  nine-month
period ended  September 30, 1998 are not  necessarily  indicative of the results
that may be expected for the full year ending December 31, 1998.

For further information refer to the financial  statements and footnotes thereto
in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1997.

Recent Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 130, REPORTING  COMPREHENSIVE INCOME, and
SFAS  No.  131,   DISCLOSURES  ABOUT  SEGMENTS  OF  AN  ENTERPRISE  AND  RELATED
INFORMATION.  SFAS  No.  130  requires  that  an  enterprise  report,  by  major
components and as a single total, the change in its net assets during the period
from nonowner  sources;  and SFAS 131 establishes  annual and interim  reporting
standards for an enterprise's  operating segments and related  disclosures about
its products, services,  geographic areas and major customers. Adoption of these
statements will not impact the Company's financial
position,  results of operations or cash flows and any effect will be limited to
the form and content of its  disclosures.  Both  statements  are  effective  for
fiscal  years  beginning  after  December 15,  1997,  with  earlier  application
permitted.



                                        7

<PAGE>



Item 2.  Management's Discussion And Analysis of Financial Condition And Results
         of Operations.

RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998.

Nine months ended September 30, 1998 compared to nine months ended September 30,
1997.

General and  Administrative  costs increased  significantly due to the increased
activity of the Company.  The  activity  resulted in a focus on diamonds for the
Company,  a name change,  reverse stock split and other changes  approved by the
shareholders.  In addition a  significant  amount of travel and other costs were
incurred which ultimately  resulted in the acquisition of a significant  mineral
property which was completed subsequent to the end of the quarter.

Three months ended  September 30, 1998 compared to three months ended  September
30, 1997

General and  Administrative  costs increased  significantly due to the increased
activity of the Company.  The  activity  resulted in a focus on diamonds for the
Company,  a name change,  reverse stock split and other changes  approved by the
shareholders.  In addition a  significant  amount of travel and other costs were
incurred which ultimately  resulted in the acquisition of a significant  mineral
property which was completed subsequent to the end of the quarter.

LIQUIDITY AND CAPITAL RESOURCES.

The Company is an exploration  stage mining company and for financial  reporting
purposes  has  been  categorized  as  a  development  stage  company  since  its
inception.  At September  30, 1998,  it had no recurring  sources of revenue and
negative  working  capital.  The Company  had  incurred  losses and  experienced
negative cash flows from operations in every year since inception.

The Company expects to meet its 1998 obligations from funds from the sale of its
common stock.

YEAR 2000 PROBLEM

The  Company  is aware of the  issues  associated  with the  programing  code in
existing  computer systems as the year 2000 approaches.  The "year 2000" problem
is pervasive and complex as virtually every computer  operation will be affected
in some way by the  rollover  of the two digit  year  value to 00.  The issue is
whether computer systems will properly recognize date sensitive information when
the  year  changes  to  2000.  Systems  that  do  not  properly  recognize  such
information  could  generate  erroneous  data or cause a system to fail.  As the
Company's  records  are  kept by  hardware  and  software  consist  of  recently
purchased year 2000 compliant products, the year 2000 problem is not anticipated
to a significant direct impact on the Company's operations.


                                        8

<PAGE>



                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings (Item 103)

                  Not Applicable.

Item 2.   Changes in Securities

                  Not Applicable

Item 3.   Defaults Upon Senior Securities

                  Not Applicable

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

                  The annual meeting of shareholders  was held on July 31, 1998.
                  A total of  23,143,826  shares  were  entitled  to vote at the
                  annual meeting. Of those shares 21,055,836 were represented at
                  the meeting, and all 21,055,836 shares were voted in favor of,
                  and approved, the following actions:

                  1)       Elected four directors: Thomas J. Ian Wright, Larry 
                           N. Lorenz, Aubrey McGinnis and Thomas L. Crom;

                  2)       Amended the Articles of Incorporation to increase the
                           number  of  authorized   shares  from  25,000,000  to
                           50,000,000;

                  3)       Ratified the issuance of 15,000,000  shares (prior to
                           the reverse-split) to Marbella Capital Corp.;

                  4)       Approved the issuance of 21,000,000  shares (prior to
                           the reverse-split) to Marbella Capital Corp to retire
                           debt of $2,100,000;

                  5)       Approved a 1-for-10 reverse stock split;

                  6)       Approved an amendment to the Articles of 
                           Incorporation to change the name of the Company from 
                           "Dragon Mining Corporation" to "Dragon Diamond 
                           Corporation";

                  7)       Approved the Company's 1998 Stock Option Plan; and

                  8)       Approved the Company's 1998 Restricted Stock Plan.


                                        9

<PAGE>



Item 5.   Other Information

                  Subsequent  to the end of the quarter  the  Company  signed an
                  agreement with South African Diamond  Holding Corp.  ("SADIA")
                  for the joint  development of the Natal I and Natal II diamond
                  concessions, 65 miles southeast of the city of Caicara, in the
                  Guaniamo Diamond district of southern Venezuela. Venezuela has
                  traditionally  been a significant  diamond producer,  with the
                  Guaniamo  Diamond   District  alone  producing   approximately
                  1,000,000  carats in diamonds  per year for over two  decades.
                  Mr. Thomas Crom, an officer,  director and  shareholder of the
                  Company,   is  also  an  officer,   director  and   beneficial
                  shareholder of SADIA.

                  The  Natal  I  and  Natal  II  concessions  are  two  adjacent
                  concessions with a total area of  approximately  15,735 acres,
                  in  which  remote   sensing  has  located  three   significant
                  exploration  targets.  The targets are: (i) fourteen  possible
                  kimberlitic  bodies with surface areas that range in size from
                  four acres to as large as 40 acres;  (ii) Quaternary  alluvial
                  deposits  located  along the  principal  water courses and the
                  tributaries  of  Quebrada  Grande and  Quebrada  Resbalon  del
                  Diablo,  (iii) the paleolithic  alluvial  remnants of Tertiary
                  age.  At  the  present  time  small  scale  alluvial   diamond
                  production by local Venezuelans is taking place within the two
                  concessions along the Quebrada Resbalon del Diablo.

                  The two  Natal  concessions  are  located  immediately  to the
                  north-northwest  of several  known  diamondiferous  kimberlite
                  occurrences including one which is already producing diamonds.
                  Targets  identified  to  date  have  surface   characteristics
                  similar to  diamondiferous  kimberlites found elsewhere in the
                  world and the diamondiferous potential of these kimberlites is
                  supported  by  the  observation  that  the  area  of  economic
                  alluvial diamond deposits is considerably  more extensive that
                  the currently  identified area of kimberlite bodies. The small
                  scale  diamond  production  by  local  Venezuelans  along  the
                  Quebrada  Resbalon del Diablo  indicates that some, if not all
                  of  the   kimberlites   located  within  the  concessions  are
                  diamondiferous.

                  The combination of a favorable  location on projection of both
                  structural and alluvial diamond trends,  and the potential for
                  economic  kimberlites  within the  concessions  indicates  the
                  potential  for  a  successful  lode  diamond  exploration  and
                  development  program  in  conjunction  with  alluvial  diamond
                  production.

                  The Company  can earn a 50%  interest  in the  concessions  by
                  spending  $250,000  on the  property  and by  issuing  250,000
                  shares of its common stock to SADIA, both over a three period.
                  The Company  can  increase  its  interest to 75% by spending a
                  total of $750,000 within the three year period.

                  The Company is continuing discussions on a number of producers
                  and  holders  of  African  diamond  properties  with  plans of
                  acquiring additional diamond properties and production.


                                       10

<PAGE>



Item 6.  Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>

         Regulation S-B                                                   Consecutive
             Number                Exhibit                                Page Number
               <S>                                                             <C>

                10       Agreement on  Exploration  of Natal I and Natal II    13
                         Concessions.

                27       Financial Data Schedule                               21
</TABLE>


          b)       Reports on Form 8-K:  None




                                       11

<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                       DRAGON DIAMOND CORPORATION
                                             (Registrant)



November 14, 1998                   BY:/s/Thomas L. Crom
-----------------
                                              Thomas L. Crom,
                                              Chief Financial Officer
                                              (Principal Financial
                                              and Accounting Officer)

                                       12