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U.S. SECURITIES AND EXCHANGE COMMISSION

FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 2005

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

For the transition period from _______ to __________

Commission File Number 0-29657

SILVER DRAGON RESOURCES INC.

|Delaware                        | 33-0727323                              
|------------------------------- | ----------------------------------------
|(State or other jurisdiction of | (I.R.S.
    Employer Identification No.)
|incorporation or organization)  |                                         

1121 Steeles Avenue West, Suite 803 
Toronto, Ontario, Canada M2R 3W7(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (416) 661-4989

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock $0.0001 par value(Title of class)

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

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Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: The aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant, as
of March 30, 2006 was $34,270,550.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: As of March 30, 2006, the
Registrant had 46,020,533 common shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes [  
]     No [X]





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This Form 10-KSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation reform Act of 1995. For this
purpose any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology is intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within the Company's control. These
factors include but are not limited to economic conditions generally and in the
industries in which the Company may participate; competition within the
Company's chosen industry, including competition from much larger competitors;
technological advances and failure by the Company to successfully develop
business relationships.PART IITEM 1. DESCRIPTION OF BUSINESSCorporate HistorySilver Dragon Resources Inc., f/k/a American Entertainment and Animation
Corporation, and American Electric Automobile Company, Inc. (the "Company") was
formed in the State of Delaware on May 9, 1996.Electric Car OperationsThe Company was originally formed to go into the business of developing and
marketing electric automobiles. On June 15, 1996 the Company acquired all of the
outstanding stock of California Electric Automobile Co., Inc. ("CEAC"), a
California corporation formed on November 14, 1995, in consideration for
1,050,000 shares of the Company's common stock. Of the 1,050,000 shares, 900,000
were held in escrow pending the exercise of CEAC's option to purchase the assets
and business of San Diego Electric Automobile Company ("SDEAC"). On October 17,
1996 the Company exercised its option to purchase the assets and business of
SDEAC. The purchase price was the 900,000 shares of AEAC's common stock held in
escrow from the previous acquisition of CEAC.Chinese Electric Automobile OperationsOn May 18, 1996, the Company entered into an agreement with China Electric
Automobile Company of Hong Kong, Ltd. ("CEHK") in which each exchanged
approximately 5% of their outstanding common stock for the other company's
stock. The object of the relationship was the pursuit of business opportunities
and product development using the company's combined resources. On February 12,
1997, the Company entered into an agreement with CEHK to form a joint venture
named American Electric Automobile Company (Asia), Inc. ("AEAA"), a California
corporation, to engage in various electric vehicle related businesses, including
design, production and trading in electric vehicles and related parts. The
Company received forty-five percent of the ownership of AEAA and CEHK received
the remaining fifty-five percent ownership.
On January 31, 2001, the Company sold its interest in AEAA to Edward F. Myers
for $100. Mr. Myers was the former Chairman of the Company. After careful
consideration, the Board of Directors of the Company decided that it would be in
the Company's best interest to discontinue its investment into Asia. The
inherent risks involved in doing business in China, the difficulty in monitoring
the situation, as well as the continued monetary investment into Asia that would
have been required led the Board to the decision to discontinue its investment
in Asia.

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Investment by Bisell Investments Inc.

Originally, the Company was unsuccessful in its electric
automobile business. As a result, on August 23, 2000, the Company entered into a
Letter Agreement under which it agreed to issue 3,250,000 shares of restricted
common shares to Bisell Investments Inc. ("Bisell") for a total investment of
$275,000. On September 13, 2000 pursuant to the August 23, 2000 Letter of
Agreement, the Company accepted the resignations of Edward F. Myers, Betty N.
Myers and Gary Degano as directors and officers. The Company then appointed
Pierre Quilliam as a director, President and CEO; Stephen M. Cohen as director,
Secretary and Treasurer; and Denise Quilliam as a director. Edward F. Myers,
Betty N. Myers and Gary Degano remained as officers and directors of CEAC until
they resigned on February 16, 2001. On that date Pierre Quilliam was appointed
Chairman of CEAC, Stephen M. Cohen was appointed Secretary and Treasurer and
Glenn Roach was appointed President and elected to the Board of Directors of
CEAC.
On February 23, 2001, the Company moved from its facility in
San Diego to a new facility in Temecula, California, which was managed by Glenn
Roach. The facility was being used for conversion of Electric Vehicles and for
prototype development of the Electric Boats. In late 2001, the Company ran out
of funds to develop and operate its business, and efforts to raise capital to
continue business were not successful. As a result, the Company terminated
operations in January 2002.
Cyper Entertainment, Inc.

On February 28, 2002, the Company entered into an agreement
to purchase 100% of the shares of Cyper Entertainment Inc. ("Cyper"), a Korean
corporation (the "Acquisition Agreement") in consideration for 20,000,000 shares
of restricted common stock of the Company. Cyper was in the business of
manufacturing and distributing 3D digital animation, multi-media and
entertainment related products. On April 17, 2002, the Company completed the
acquisition of Cyper.
On May 31, 2002, the Company accepted the resignations of
Pierre Quilliam, Stephen Cohen and Denise Quilliam as Directors and Officers of
the Company. Simultaneously, the Company appointed Duk Jin Jang, Marc Hazout,
Jason Chung and John Chung to the Board of Directors. Mr. Jang was named
Chairman, Mr. Hazout was named President and CEO, and Jason Chung was named
Chief Financial Officer and Treasurer. Messrs. Jang, Chung and Chung were
appointed by the shareholders of Cyper. Mr. Hazout was appointed by the former
controlling shareholders of the Company.
On July 16, 2002, the Company amended its Certificate of
Incorporation to increase the number of shares of common stock that it is
authorized to issue to 150,000,000, and to change its name to "American
Entertainment and Animation Corporation."

The Acquisition
Agreement provided that Cyper and its controlling shareholders were obligated to
provide funds for the Company's administration, as well as auditing and legal
fees, and further provided that the Company had a right to rescind the
transaction in the event of a default by Cyper and its controlling shareholders.
On September 4, 2002, Mr. Hazout, acting on behalf of the Company, notified
Cyper that the Agreement was terminated and rescinded due to Cyper's defaults,
as well as based on certain misrepresentations made by Cyper in connection with
the Acquisition Agreement. As a result of the termination, Mr. Hazout requested
that the Company's transfer agent cancel the 20,000,000 shares issued to Cyper's
shareholders, and removed the directors appointed by Cyper under the authority
granted in the Acquisition Agreement. Mr. Hazout then appointed Pierre Quilliam
to the Board of Directors and named him Chairman of the Company. On September
21, 2002, Pierre Quilliam resigned as director and Chairman of the Company.

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On March 7, 2003, the Company filed an action in the Court of
Chancery in the State of Delaware for a declaration that the agreement to
acquire the shares of Cyper was validly rescinded and that the 20,000,000 common
shares issued pursuant to the transaction were validly cancelled. On April 28,
2003, the Company reached a settlement with the shareholders of Cyper, who
agreed to accept $20,000 cash, marketable securities in an unrelated company
with a fair market value of approximately $42,500, and 250,000 common shares of
the Company in full settlement and satisfaction of any claim to the 20,000,000
shares originally issued to them under the Acquisition Agreement. The cash and
marketable securities in the unrelated company were loaned to the Company by
Marc Hazout.
Art and Film Business

On December 3, 2002, the Company purchased from Tempest
Artwork Ltd. the exclusive option to acquire the rights to produce a feature
film or television production based on the original portrait of William
Shakespeare by John Sanders. The purchase price of the option was $30,000, and
was for a period of one year. The option price was $30,000 plus royalties on
various revenue streams that would be derived from the final production. The
Company did not have funding to produce the final production, and accordingly
did not exercise the option.
On May 28, 2003, the Company signed a letter of intent with
Words and Pictures Productions, Inc. to co-produce a full-length 3D animated
feature film based on the Uncle Mugsy animated character. The Company has not
signed a formal contract relating to the subject matter of the letter of intent,
and has no intention of doing so.
Silver Mining Business

On February 25, 2005, the Company amended its Certificate of
Incorporation to change its name to "Silver Dragon Resources Inc." in order to
better reflect its current business strategy focusing on global silver
exploration and development.
Overview. The Company's primary objective is to explore
for gold, silver, base metals and industrial minerals and, if warranted, to
develop those existing mineral properties. Its secondary objective is to locate,
evaluate, and acquire other mineral properties, and to finance their exploration
and development through equity financing, by way of joint venture or option
agreements or through a combination of both. See "Item 2. Description of
Property."
Agreement with Sino Silver Corp.

On April 24, 2005, the Company signed a Venture Agreement
with Sino Silver Corp. whereby the Company acquired 50% of Sino Silver's
interest in the net proceeds from the sale of minerals or the sale of mining
rights as a result of the exploration, evaluation and development of a property
located in the Erbaohuo Silver District in Northern China. Sino Silver owns 60%
of the equity in a Chinese company, Sanhe Sino-Top Resources & Technology, Ltd.,
which holds the exploration and mining rights to several properties, including
the one that is the subject of the Letter of Intent. In consideration for this
interest, the Company paid Sino Silver $150,000 on the closing date along with
250,000 restricted common shares of the Company. Pursuant to the Agreement, an
additional $200,000 is payable to Sino Silver within 2 years of the closing
date, along with the delivery of an additional 250,000 restricted common shares
of the Company.
Agreement with Linear Gold Corp.

On September 7, 2005, the Company entered into a Joint
Venture Agreement with Linear Gold Corp., Linear Gold Caribe, S.A. (Linear Gold
Corp. and Linear Gold Caribe, S.A. are collectively referred to as "Linear
Gold"), and Linear Gold Mexico, S.A. de C.V. ("Linear Mexico").
Linear Mexico, which is wholly-owned by Linear Gold, owns an
option ("Linear Mexico's Option") to acquire the exploration and exploitation
rights to the property known as the Tierra Blanca Property in Durango, Mexico
(the "Property"). Under Linear Mexico's Option, Linear Mexico is entitled to
acquire the exploration and exploitation rights to the Property by payment of
$2,000,000. Prior to exercising Linear Mexico's Option, and to keep Linear
Mexico's Option in force, Linear Mexico is required to pay the property owners
$20,000 in year one, $35,000 by April 6, 2006, and $70,000 by April 6, 2007.
Under the Agreement, the Company has the option to acquire a
55% interest in the Property. If the option is exercised, the property would be
conveyed to a newly formed corporation, which the Company would own 55% of, with
Linear Gold owning the remaining 45%. Upon execution of the Agreement, the
Company paid Linear Gold $45,000 and issued Linear Gold 100,000 shares of common
stock.
In order to exercise the option to acquire a 55% interest in
the Property, the Company must:
pay Linear Gold an additional $75,000 on March 31, 2006;
  issue Linear Gold an additional 200,000 shares of common
  stock on September 7, 2006;
  pay Linear Gold an additional $110,000 on March 31, 2007;
  and
  issue Linear Gold an additional 300,000 shares of common
  stock on September 7, 2007.In addition, the Company is required to make expenditures for
work on the Property in the following amounts: $150,000 in Year 1, $200,000 in
Year 2, and $500,000 in Year 3.
In the event the Company exercises the option to acquire an
interest in the Property, it would be responsible for paying 55% of the option
price (or $1,100,000) and 55% of any funds necessary to mine the Property.
The Company can terminate its obligation to pay funds and
issue shares under the Agreement at any time that it does not wish to continue
exploration of the Property on thirty days notice to Linear Gold. In the event
the Company makes all payments and issues all shares under the Agreement, but
Linear Gold elects not to exercise Linear Mexico's Option, then Linear Gold will
assign Linear Mexico's Option to a Mexican subsidiary of the Company in
consideration for $2.00.
In the event Linear Mexico's Option is exercised, and the
Company exercises its option under the Agreement, then Linear Gold and the
Company have agreed to work on good faith to develop a budget for mining the
Property, in which event both Linear Gold and the Company will have thirty days
to contribute their respective shares of the budget. In the event one party does
not contribute its share of the budget, the defaulting party's share of
ownership of the corporation established to own the mining rights will be
reduced to reflect its pro rata share of total capital contributed, based upon
an initial valuation of the Property of $3,545,454.50.
The company formed to own the mining rights will be governed
by a management committee composed of one member selected by each of the Company
and Linear Gold. Among the decisions the company cannot make without the
unanimous consent of both the Company and Linear Gold are: a decision to bring
the mine into production; the incurrence of any indebtedness other than normal
accounts payable; pledging, assigning or encumbering the company's assets; any
capital commitment in excess of $100,000; hiring any employees with an annual
salary in excess of $100,000; the creation of new classes of capital stock or
the issuance of any new shares of capital stock; or any disposition of the
assets of the company. Day to day management of the company will be handled by
an operator, which will be the entity that holds the greatest share of ownership
of the company.

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Cerro Las Minitas, Mexico

1.     On March 2, 2006, the Company's
wholly-owned subsidiary, Silver Dragon Mining De Mexico, S.A. De C.V. ("Silver
Dragon Mexico") entered into an agreement with Jaime Muguiro Pena (the
"Assignment Agreement") wherein Mr. Pena assigned to Silver Dragon Mexico the
mining and exploitation rights to 10 mining concessions, which include an
operating mine, totaling approximately 1354 hectares in Guadalupe, Durango,
Mexico in consideration for the payment to Mr. Pena of US$799,000 plus
applicable V.A.T. The Agreement requires Mr. Pena to carry out all necessary
actions to obtain registration in his favour of 3 of the 10 concessions, which
are in the process of being registered in the name of Mr. Pena. The purchase
price is payable as follows:
i)     US$100,000 was paid on the
  closing;
  ii)    US$100,000 payable six months from
  the closing date;
  iii)   US$100,000 payable twelve months from the
  closing date;
  iv)   US$200,000 payable twenty-four months from
  the closing date;
  v)    US$299,000 payable thirty-six months
  from the closing date.
All payments are subject to V.A.T.
Until such time as the purchase price is paid in full, Mr.
Pena retains a reservation of the concession domains and may continue to dispose
of up to 30 tons of ore per day from the mine. Silver Dragon Mexico is entitled
to all amounts mined over and above the 30 tons per day.
Silver Dragon Mexico has also entered into an Assets Bailment
Agreement with Mr. Pena which allows Silver Dragon Mexico the use of certain
mining equipment (the "Equipment") which, subject to the terms of the Assets
Bailment Agreement, is included in the purchase price for the mining concessions
referred to in the Assignment Agreement. Upon payment in full of the purchase
price pursuant to the Assignment Agreement, Silver Dragon Mexico can purchase
the Equipment for the sum of US$1,000 plus V.A.T.
2.     On March 2, 2006, Silver Dragon
Mexico entered into an agreement with Ramon Tomas Davila Flores (the "Assignment
Agreement") wherein Mr. Flores assigned to Silver Dragon Mexico the mining and
exploitation rights to 5 mining concessions, which include an operating mine,
totaling approximately 31 hectares in Guadalupe, Durango, Mexico in
consideration for the payment to Mr. Flores of US$245,000 plus applicable V.A.T.
which was paid on closing, along with 110,000 restricted common shares of the
Company
Silver Dragon Mexico has also entered into an Assets Purchase
Agreement with Mr. Flores for the purchase of certain mining equipment for the
sum of US$5,000 plus V.A.T.
3.     On March 8, 2006, Silver Dragon
Mexico entered into an agreement with Minera Real Victoria, S.A. De C.V. ("Minera")
wherein Minera assigned to Silver Dragon Mexico the mining and exploitationrights to 1 mining concession
known as "Puro Corazon" which includes an operating mine, totaling approximately
9 hectares, in Guadalupe, Durango, Mexico in consideration for the payment to
Minera of US$400,000 plus applicable V.A.T., along with 2 Million restricted
common shares of the Company The purchase price is payable as follows:

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vi)     US$100,000 was paid on the
  closing;
  vii)    US$100,000 payable six months from
  the closing date;
  viii)   US$100,000 payable twelve months from the
  closing date;
  ix)      US$100,000 payable
  twenty-four months from the closing date.
All payments are subject to V.A.T.
4.     On March 9, 2006, Silver Dragon
Mexico entered into an agreement with Silvia Villasenor Haro, the owner of Puro
Corazon, wherein, in consideration for the sum of US$50,000 plus V.A.T., she has
consented to the assignment of the mining and exploitation rights of Puro
Corazon to Silver Dragon Mexico. In addition, she has agreed to modify the
exploitation agreement of Minera which was assigned to Silver Dragon Mexico as
follows:
i)   The consideration
  to be paid to Ms. Haro due to the exploitation of the mining concession will
  be in the amount of USD$1.50 per ton of economic ore that is extracted from
  the mine, to be paid monthly, within the following 30 days as of the date in
  which the Silver Dragon Mexico receives the corresponding invoices.
  Regardless of the above, in the event that Silver Dragon
  Mexico does not initiate production over the lot regarding the Concession
  Title within a 6 months period of the date of execution of the Agreement,
  Silver Dragon Mexico must pay to Ms. Haro the monthly amount of $3,500.00
  dollars plus VAT. Such payment will be made for the period or periods of time
  during which no ore is extracted, and paid within the first eight days of the
  corresponding month.
  In the event that Silver Dragon Mexico pays Ms. Haro the
  above mentioned monthly consideration, such must be discounted from any future
  payment made by Silver Dragon Mexico to Ms. Haro as a result of the production
  and extraction of ore, subject to the condition that the payments due to Ms.
  Haro by the production and extraction of ore are maintained at least in the
  minimum monthly amount of US$3,500.00. If Silver Dragon Mexico decides not to
  produce nor extract ore, any monthly payments that are made to Ms. Haro will
  remain to her benefit.
  ii)   Option to
  Purchase. Silver Dragon Mexico has been granted the option to purchase the
  Concession, which can be exercised by Silver Dragon Mexico by providing
  written notice to Ms. Haro within a 30 days period in advance to the following
  events:
  a)  The Option to Purchase
    the Concession can be exercised by Silver Dragon Mexico within 3 years of
    the date of execution of the Agreement upon payment of the amount of
    USD$2,000,000 plus the applicable Value Added Tax ; or alternatively,

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b)  The Option to Purchase
    the Concession can be exercised by Silver Dragon Mexico within 5 years of
    the execution of this Addendum upon payment of the amount of USD$3,000,000
    plus the applicable Value Added Tax.
Sino Silver Corp.

On March 21, 2006, the Company entered into an Asset Purchase
Agreement with Sino Silver Corp. ("Sino Silver") and Sanhe Sino-Top Resources
and Technologies, Ltd. ("Sino-Top") wherein Sino Silver agreed to sell its 60%
interest in Sino-Top to the Company. Sino-Top holds the exploration and mining
rights to 9 properties in the Erbaohuo Silver District in Inner Mongolia, China.
The total purchase price is US$650,000 plus 4,000,000 restricted common shares
of the Company payable as follows:
x) US$150,000 was
  paid on the closing;
  xi) US$100,000
  payable on May 20, 2006;
  xii) US$400,000
  payable and the 4,000,000 restricted common shares of the Company deliverable
  upon receipt of the requisite approvals to the transfer by the local
  Provincial Department of Commerce in China;
The Company has also committed to invest approximately
US$1,300,000 into Sino-Top in 2006 towards exploration and property maintenance
on the nine properties in the portfolio, with emphasis on bringing the Erbahuo
mine into production in 2007 and advanced stage exploration on two properties (Zuanxinhu
and Saihanaobao). This agreement supersedes the Venture Agreement dated April
24, 2005 between the Company and Sino Silver.
Competition. Many companies are engaged in the
exploration of mineral properties. The Company encounters strong competition
from other mining companies in connection with the acquisition of properties
producing or capable of producing gold, silver, base metals and industrial
metals. Many of these companies have substantially greater technical and
financial resources than the company and thus the Company may be at a
disadvantage with respect to some of its competitors.
Regulation. The Company's interests in its properties
will be subject to various laws and regulations concerning exploration,
allowable production, taxes, labor standards, environmental protection, mine
safety, regulations relating to royalties, importing and exporting of minerals
and other matters. In addition, new laws or regulations governing operations and
activities could have a material adverse impact on the Company.
Environment. Environmental legislation in all countries
is evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed properties and a heightened degree of responsibility for
companies and their officers, directors and employees.

Recent Equity Sales

On January 31, 2005 the Company sold 1,500,000 shares of
common stock to accredited investors for a total of $30,000.

Between January 31, 2005 and April 5, 2005, the Company sold
180,000 shares of common stock in a private placement offering pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and/or Section 4(2) of the Securities Act, and/or Regulation D promulgated
thereunder. Each share was sold for a price of $0.10 and the Company has
received $18,000 in proceeds for the sale of the shares as of April 5, 2005.

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In September 2005, the Company sold 2,400,000 shares of
common stock to accredited investors for a total of $240,000.
In January 2006, the Company sold 2,500,000 shares of common
stock to accredited investors for a total of $250,000.
In March 2006, the Company sold 1,000,000 shares of common
stock to accredited investors for a total of $100,000.
In February and March 2006, the Company sold 1,000,000 Units
to accredited investors for a total of $1,000,000. Each Unit consists of one
share of the Company's common stock and 2 one-half of one (1/2) common stock
purchase warrants ("Warrant"). Each whole Warrant is exercisable at $2.00 per
common share and $5.00 per common share.
Intellectual Property

The Company has no patents, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts that management believes have
any value.
Employees

The Company has no full or part-time employees, other than
Marc Hazout, the Company's President, CEO. Mr. Hazout is employed pursuant to an
Employment Agreement.
Risk Factors

You should consider each of the following risk factors and
any other information set forth in this Form 10-KSB and the other Company's
reports filed with the Securities and Exchange Commission ("SEC"), including the
Company's financial statements and related notes, in evaluating the Company's
business and prospects. The risks and uncertainties described below are not the
only ones that impact on the Company's operations and business. Additional risks
and uncertainties not presently known to the Company, or that the Company
currently considers immaterial, may also impair its business or operations. If
any of the following risks actually occur, the Company's business and financial
condition, results or prospects could be harmed.
NO REVENUE AND MINIMAL ASSETS.
The Company presently does not have any revenues, nor does it
anticipate operating income in the near future. Ultimately, the Company hopes to
derive revenues from the producing silver mines in Guadalupe, Durango, Mexico.
In addition, the Company may obtain interests in mining properties that can be
sold or licensed to strategic partners or third parties and/or develop producing
mines on its own in order to generate revenues. These activities will be
undertaken over a number of years. No assurances can be given that the Company
will be able to obtain the necessary funding during this time to remain in
operation. The inability to raise additional funds will have a material adverse
affect on the Company's business, plan of operation and prospects.

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SPECULATIVE NATURE OF COMPANY'S PROPOSED MINING OPERATIONS.As
this is the Company's first foray into the business of silver mining, the
Company has a very limited experience upon which an evaluation of its future
success or failure can be made. The Company's ability to achieve and maintain
profitability and positive cash flow over time will be dependent upon, among
other things, its ability to (i) identify and acquire silver mining properties
or interests therein that ultimately have probable or proven silver reserves,
(ii) sell such silver mining properties or interests to strategic partners or
third parties or commence mining of silver, (iii) produce and sell silver at
profitable margins and (iv) raise the necessary capital to operate during this
period. At this stage in the Company's development, it cannot be predicted how
much financing will be required to accomplish its objectives. Furthermore, the
search for silver as a business is extremely risky. The Company cannot provide
any assurances that the silver mining interests that it acquires will contain
commercially exploitable reserves of silver. Exploration for minerals is a
speculative venture necessarily involving substantial risk. The current price of
an ounce of silver is approximately $11.08. The price of silver has increased
over the past few years thereby contributed to the renewed interest in silver
mining. However, the price of silver fluctuates, and in the event that the price
of silver falls, the interest in the silver mining industry may decline and the
value of the Company's business could be adversely affected.

COMPETITION IN THE SILVER EXPLORATION BUSINESS. The Company
competes with other silver mining and exploration companies possessing far
greater financial resources, technical facilities, personnel and experience in
connection with the acquisition of silver exploration and mining properties, and
is currently an insignificant participant in the business of silver exploration
and development.

CONFLICTS OF INTEREST - GENERAL. The officers and directors
are associated with other firms and are involved in a range of business
activities that may have business dealings with the Company at some point in
time. Due to these affiliations and the fact that some officers are expected to
devote only a portion of their time to the business of the Company, there are
potential inherent conflicts of interest in their acting as directors and as
officers. Each of the officers and directors is or may become an officer,
director, controlling shareholder, partner or participant in other entities
engaged in a variety of businesses. These existing and potential conflicts of
interest are irreconcilable and could involve the participating officers and
directors in litigation brought by the Company's shareholders or by the
shareholders of other entities with which the officers and directors are
currently, or may become, affiliated. To help alleviate this position somewhat,
management has adopted a policy of full disclosure with respect to business
transactions with any entity in which any or all of the officers or directors
are affiliated, either directly or indirectly. An officer or director may
continue any business activity in which such officer or director engaged prior
to joining the Company.

LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION. The
Company has neither conducted, nor have others made available to it, results of
market research indicating that market demand exists for the transactions
contemplated by the Company. Moreover, the Company does not have, and does not
plan to establish, a marketing organization. Even in the event demand is
identified for a merger or acquisition contemplated by the Company, there is no
assurance the Company will be successful in completing any such business
combination.

REGULATION. Now that the Company has acquired silver mining
interests outside Canada and the United States, such as the ones in Mexico, it
will have to deal with foreign regulatory and governmental agencies, and the
rules and regulations of such agencies. No assurances can be given that it will
be successful in its efforts. Furthermore, it is possible that the legal and
regulatory environment pertaining to the exploration and development of silver
mining properties in such jurisdictions will change. Uncertainty and new
regulations and rules could increase the Company's cost of doing business or
prevent it from conducting its business.

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NO DIVIDENDS. The Company has never paid cash dividends on
its common stock and has no plans to do so in the foreseeable future. The
Company intends to retain earnings, if any, to develop and expand its business.
PENNY STOCK RULES LIMIT MARKET AND LIQUIDITY. Trading in the Company's common
stock is subject to certain regulations adopted by the SEC commonly known as the
"Penny Stock Rules". The Company's common stock qualifies as penny stock and is
covered by Section 15(g) of the Securities and Exchange Act of 1934, as amended
(the "1934 Act"), which imposes additional sales practice requirements on
broker/dealers who sell the Company's common stock in the market. The "Penny
Stock" rules govern how broker/dealers can deal with their clients and "penny
stock". For sales of the Company's common stock, the broker/dealer must make a
special suitability determination and receive from clients a written agreement
prior to making a sale. The additional burdens imposed upon broker/dealers by
the "penny stock" rules may discourage broker/dealers from effecting
transactions in the Company's common stock, which could severely limit its
market price and liquidity. This could prevent investors from reselling the
Company's common stock and may cause the price of the common stock to decline.



---

LOW LIQUIDITY. Although the Company's common stock is listed
for trading on the Over-the-Counter Electronic Bulletin Board, the trading
market in the common stock has substantially less liquidity than the average
trading market for companies quoted on other national stock exchanges. A public
trading market having the desired characteristics of depth, liquidity and
orderliness depends on the presence in the marketplace of willing buyers and
sellers of our common stock at any given time. This presence depends on the
individual decisions of investors and general economic and market conditions
over which we have no control. Due to limited trading volume, the market price
of the Company's common stock may fluctuate significantly in the future, and
these fluctuations may be unrelated to the Company's performance. General market
price declines or overall market volatility in the future could adversely affect
the price of the Company's common stock, and the current market price may not be
indicative of future market prices.
ITEM 2. DESCRIPTION OF PROPERTY
Since March 1, 2004, the Company has been maintaining its
offices at 1121 Steeles Avenue West, Suite 803, Toronto, Ontario, Canada
ITEM 3. LEGAL PROCEEDINGS
The Company was not the subject of any pending or threatened
legal proceedings as of March 30, 2006.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon by the stockholders during the
fourth quarter of the fiscal year, as required to be reported upon by the
Company in response to this Item 4.
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER
MATTERS
The Company's common stock is registered with the United
States Securities and Exchange Commission under section 12(g) of the Securities
Exchange Act of 1934. The Company's stock is traded on the Over the Counter
Bulletin Board under the symbol "SDRG." From January 1, 2001 to July 16, 2002,
the Company's common stock traded under the symbol "AEAC." On or about July 16,
2002, the Company's trading symbol changed to "AEAN" as a result of the change
in the Company's name its previous name. On March 9, 2005, following the change
of the Company's name, the Company's trading symbol changed to "SDRG".
The following table summarizes the low and high prices for
the company's common stock for each of the calendar quarters for the fiscal
years ended December 31, 2004 and 2005.

|               | 2004  | 2005 
|-------------- | ----- | -----
|               |       |      
|               | High  | Low  
|               |       |      
|First Quarter  | 0.12  | 0.025
|               |       |      
|Second Quarter | 0.07  | 0.015
|               |       |      
|Third Quarter  | 0.09  | 0.016
|               |       |      
|Fourth Quarter | 0.075 | 0.022

---

The high and low quotes on the Company's common stock reflect
inter-dealer prices, without retail markup, mark-down or commission and may not
represent actual transactions. There were 109 shareholders of record of the
common stock as of December 31, 2005. This number does not include an
indeterminate number of shareholders whose shares are held by brokers in "street
name." The Company has not declared any cash dividends on its Common Stock
during its fiscal years ended on December 31, 2004 or 2005.
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Certain Forward-Looking Information

This Form 10KSB contains certain "forward-looking statements"
as such term is defined in the Private Securities Litigation Reform Act of 1995
or by the Securities and Exchange Commission in its rules, regulations and
releases. Without limiting the generality of the foregoing, words such as "may",
"will", "expect", "believe", "anticipate", "intend", "could", "estimate" or
"continue" or the negative or other variations thereof or comparable terminology
are intended to identify forward-looking statements.
Results of Operation
During the years ended December 31, 2005 and 2004, the
Company did not have any revenues.
During the years ended December 31, 2005 and 2004, the
Company incurred operating expenses of $543,688 and $387,921 respectively. The
increase is mainly a result increased,
advertising and promotion expenses which totaled $152,373 in 2005 and overall expenses
increased as a result of the Company's increased activities in 2005.
During the years ended December 31, 2005 and 2004, the
Company incurred net other income (expense) of $779 and ($11,106), respectively
which relates to interest income in 2005.
During the years ended December 31, 2005 and 2004, the
Company reported a net loss of ($542,909) and ($399,028), respectively. The
reason for the increase in 2005 is due to factors discussed above.
Liquidity and Capital Resources
As of December 31, 2005 the Company had $303 in cash, $9,500
in subscriptions receivable, which funds were subsequently received. In
addition, the Company had $56,521 in related party advances, and accounts
payable and accrued liabilities totaling of $139,437, for a working capital
deficit of ($195,655) compare to a working capital deficit of ($890,155) in
2004. During 2005, the Company has been dependent on loans from its sole
director and officer to pay routine expenses, and the issuance of its common
stock to satisfy expenses.
Going Concern

The Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.

---

As shown in the accompanying financial statements, the
Company incurred a large net operating loss in the year ended December 31, 2005,
and had significant unpaid accounts payable and accrued liabilities. These
factors create an uncertainty about the Company's ability to continue as a going
concern. The Company's management has provided operating capital to the Company
and has developed a plan to raise additional capital. The ability of the Company
to continue as a going concern is dependent on the success of this plan. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Off Balance Sheet Arrangements. The Company does not have
any off-balance sheet arrangements or contractual obligations that have had or
are reasonably likely to have a material current or future effect on the
Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that have not been disclosed in the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are attached hereto as Exhibit A.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
By resolution adopted on January 24, 2006, the board of
directors of Silver Dragon Resources Inc. elected to change independent
Accountants. The independent accounting firm of Moore Stephens Cooper Molyneux
LLP notified the Registrant on January 24, 2006 that they were terminating their
registration with the Public Company Accounting Oversight Board and therefore,
were resigning as the Registrant's accountants. The independent auditors report
on the consolidated financial statements for the two years ended December 31,
2003 and December 31, 2004, and the subsequent periods preceding December 31,
2005 contained no adverse opinion, no disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope or accounting principles,
except that each report issued by Moore Stephens Cooper Molyneux LLP for the
years ended December 31, 2004 and 2003, and the interim periods ended March 31,
2005, June 30, 2005 and September 30, 2005 respectively raised substantial doubt
about the Company's ability to continue as a going concern. The decision to
change accountants was approved by the Registrants board of directors. In
connection with the audits of the Company's consolidated financial statements
for each of the two years ended December 31 2003 and December 31, 2004, and
during any subsequent interim periods preceding December 31, 2005, as well as
the period up to and including January 24, 2006, there have been no
disagreements with Moore Stephens Cooper Molyneux LLP on any matters of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedures, which if not resolved to the satisfaction of Moore Stephens
Cooper Molyneux LLP would have caused Moore Stephens Cooper Molyneux LLP to make
reference to the subject matter of the disagreements in connection with their
reports.
Engagement of new independent accountants.
On January 24, 2006, the Registrant's board of directors
engaged SF Partnership LLP, 4950 Yonge Street, Suite 400 Toronto, Ontario, M2N
6K1 as its new independent auditors (the "new" accounting firm) to audit the
Registrant's financial statements. The Registrant, during the two most recent
fiscal years and the subsequent interim periods prior to the engagement of the
new accounting firm, did not consult with the new accounting firm with regard to
any of the matters listed in Regulation S-B items 304 (a) (2) (i) or (ii).
ITEM 8A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our
management, including our Chief Executive Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, the Chief Executive Officer concluded that, as of the end
of the period covered by this report, our disclosure controls and procedures
were effective to ensure that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms and timely alerting them to material
information relating to the Company required to be filed in its periodic SEC
filings. There has been no change in the Company's internal control over
financial reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
Audit Committee and Audit Committee Financial Expert
The Company has only one director and therefore does not have
an audit committee.
Code of Ethics
Currently, we have only limited business operations and only
one director and one officer and, therefore, we believe a code of ethics would
have limited utility. We intend to adopt a code of ethics as our business
operations expand and we have more directors, officers and employees.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information concerning
directors, executive officers and key employees of the Company:

|Name                   | Age | Position                                           
|---------------------- | --- | ---------------------------------------------------
|                       |     |                                                    
|Marc M. Hazout         | 41  | President, Chief
    Executive Officer and Director
|                       |     |                                                    
|Donald J.
    Robinson | 52  | Director
    (resigned on January 30, 2006)        

The term of office of each director of the Company ends at
the next annual meeting of the Company's stockholders or when such director's
successor is elected and qualifies. No date for the annual meeting of
stockholders is specified in the Company's bylaws or has been fixed by the Board
of Directors. Pursuant to the Company's bylaws, the date of the annual meeting
is to be determined by the current Board of Directors. Except as otherwise
indicated below, no organization by which any officer or director previously has
been employed is an affiliate, parent, or subsidiary of the Company.

During 2005, the Board of Directors held 2 meetings.

The following information sets forth the backgrounds and
business experience of the directors and executive officers:

Marc M. Hazout has been President, Chief Executive Officer
and a director of the Company since June 1, 2002. From 1985 to 1987, Mr. Hazout
was the Canadian licensee and franchisee for a multinational clothing
manufacturer and retailer. From 1987 to 1991, Mr. Hazout established a private
label apparel manufacturing and retailing company. From 1991 to 1998, Mr. Hazout
developed, owned and operated entertainment complexes in Toronto. Mr. Hazout
attended The Canadian Securities Institute from 1998-2000 and in 1999 worked as
an equity trader for Swift Trade Securities Inc. in Toronto. Since 1998, Mr.
Hazout has been President and C.E.O. of Travellers International Inc., an
investment and merchant banking firm headquartered in Toronto. Mr. Hazout
studied International Relations and Economics at York University in Toronto from
1983 to 1985. Mr. Hazout completed the Real Estate Licensing Course at Humber
College in Toronto in 1984.

---

Donald J. Robinson, Ph.D has been a director of the Company
since March 28, 2005. Dr. Robinson has been President and director of Eastmain
Resources (TSX:ER) since 1994. Dr. Robinson formerly operated a private
consulting firm, Robinson Exploration Services Limited ("RESL"), which
specialized in the exploration of base and precious metals within Canada, the
United States and Australia. For two years he managed the exploration of a
gold-rich VMS discovery at Lewis Ponds, Australia for Tri Origin Exploration
Ltd. Prior to forming RESL, Dr. Robinson initiated an integrated base and
precious metal program, on behalf of Westmin Resources Ltd., which led to the
discovery of the Eau Claire gold deposit at Clearwater. Dr. Robinson earned a
Ph.D. degree from the University of Western Ontario in 1982. His thesis, based
on the Redstone nickel-copper deposit located near Timmins, Ontario, was
sponsored by BHP Minerals Canada Ltd. (formerly Utah Mines Ltd.). Dr. Robinson
served on the board of the Company from March 28, 2005 until January 30, 2006,
when he resigned due to his time commitments as President and Director of
Eastmain Resources. There was no disagreement between Dr. Robinson and the
Company on any matter relating to the Company's operations, policies or
practices. Dr. Robinson did not resign for cause.

ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's Chief
Executive Officers during the last three fiscal years and other officers who
received compensation in excess of $100,000 during any of the last three fiscal
years. In accordance with Item 402(a)(5), the Company has omitted certain
columns from the table required by Item 402(b).

|Summary Compensation Table
|--------------------------
|                          
|                          
|                          
|                          
|Name and                  
|Principal Position        
|                          
|Marc Hazout,              
|CEO, Director             
|                          

> (a) The securities underlying
>   these options are the shares of the Company's Common Stock, $0.0001 par value.

---

Employment AgreementsOn March 31, 2005, the Company issued 3,254,018 restricted
shares to Mr. Hazout in consideration for accrued salary and expenses owing to
Mr. Hazout pursuant to his previous Employment Agreement which expired in July
2005.
On November 15, 2005, the Company entered into an Employment
Agreement with Marc Hazout. The Employment Agreement provides that Mr. Hazout
shall be employed by the Company for a term of five years, and is entitled to a
base salary of $288,000 per year. Mr. Hazout is also entitled to a commission on
sales generated by him consistent with the Company's commission policy for all
sales personnel. Further, he is entitled to 8 weeks paid holiday and 14 personal
days, sick leave, medical and group insurance, participation in pension or
profit sharing plans of the Company, and a car allowance of up to $3,000 per
month. In the event of a termination of the Employment Agreement without cause
by the Company, he will be entitled to severance equal to 100% of his remaining
base salary under the Employment Agreement, plus an amount equal to 75% of the
base salary plus full medical coverage for 12 months following the termination
date. The Employment Agreement contains provisions prohibiting him from
competing with the Company or soliciting customers or employees from the Company
for a period of one year following the termination of his employment.
Compensation of Directors

The Company's past policy has been to pay its non-management
directors $500 in restricted common stock for each board meeting attended. In
addition, directors are reimbursed for any reasonable expenses incurred in the
connection with attendance at board or committee meetings or any expenses
generated in connection with the performance of services on the behalf of the
Company. The Company currently has two directors, one of whom is also the chief
executive officer of the Company. The Company is currently exploring acquisition
possibilities. The Company anticipates that its policy on director compensation
will change when and if it makes a material acquisition.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of
March 30, 2006, with respect to the beneficial ownership of the Company's Common
Stock by (i) each executive officer and director of the Company, (ii) all
directors and executive officers of the Company as a group, and (iii) any person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's common stock.

|                                     | Amount and Nature of | Percent of
|------------------------------------ | -------------------- | ----------
|Name and Address of Beneficial Owner | Beneficial Ownership | Class (1) 
|                                     |                      |           
|Marc Hazout (2)                      | 17,221,751           | 37.4%     
|1121 Steeles Avenue West, Suite 803  |                      |           
|Toronto, Ontario M2R 3W7             |                      |           
|                                     |                      |           
|Donald J. Robinson                   | 25,000               |           
|RR#1, Orangeville, Ontario, L9W 2Y8  |                      |           
|                                     |                      |           
|Officers and
    Directors           | 17,221,751           | 37.4%     
|                                     |                      |           

---



> (1) Based on 46,020,533 shares
>   issued and outstanding as of March 17, 2006
>   (2) Based on 17,221,751 shares
>   owned by Travellers International, Inc., a company owned by Mr. Hazout.

Equity Compensation Plan Information

The following table provides information as of December 31, 2005 about our
compensation plans under which shares of stock have been authorized:

|                                                                | Number of            | Weighted-         | Number of      
|--------------------------------------------------------------- | -------------------- | ----------------- | ---------------
|                                                                | securities to be     | average exercise  | securities     
|                                                                | issued upon exercise | price of          | remaining      
|                                                                | of outstanding       | outstanding       | available for  
|                                                                | options, warrants    | options, warrants | future issuance
|Plan Category                                                   | and rights (a)       | and rights (b)    | I              
|Equity compensation plans approved by
    security holders:     |                      |                   |                
|None                                                            | --                   | --                | --             
|Equity compensation plans not approved by
    security holders: |                      |                   |                
|2002 Employee, Consultant and                                   | 4,000,000            | 0.043             | 440,420        
|Advisor Stock Compensation Plan                                 |                      |                   |                
|2002 Stock Option Plan                                          | 4,000,000            | 0                 | 4,000,000      
|Total                                                           | 8,000,000            | 0.043             | 4,440,420      

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On April 8, 2004, the Company issued Travellers International, Inc. 375,000
shares of the common stock in settlement of payables of $15,000 due to Mr.
Hazout.

On November 5, 2004, the Company issued Travellers International, Inc.
200,000 shares of the common stock in settlement of payables of $10,000 due to
Mr. Hazout.

On March 31, 2005, the Company issued Travellers International Inc. 3,254,018
shares of the common stock in settlement of accrued and outstanding salary and
expenses of $813,504.54 due to Mr. Hazout pursuant to his Employment Agreement
dated July 10, 2002.

On January 10, 2006 the Company issued Travellers International Inc.
1,000,000 shares of the common stock pursuant to the terms of the Employment
Agreement dated November 15, 2005 with Marc Hazout.

On March 1, 2006 the Company issued Travellers International Inc. 1,000,000
shares of the common stock in consideration for its assistance to the Company in
the acquisition of the mining rights in Cerro Las Minitas, Mexico.

---

Travellers International Inc. is controlled by Marc Hazout.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(b) The financial statements
  filed as part of this report are listed separately in the Index to Financial
  Statements.

|Regulation S-B | Description                                                                                                                                                  
|-------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.            |                                                                                                                                                              
|               |                                                                                                                                                              
|3.1(i)         | Articles of
    Incorporation (1)                                                                                                                            
|               |                                                                                                                                                              
|3.1(ii)        | Amendment to
    Articles of Incorporation (2)                                                                                                               
|               |                                                                                                                                                              
|3.1(iii)       | By-Laws (1)                                                                                                                                                  
|               |                                                                                                                                                              
|4.1            | Instruments
    defining the rights of holders (1)                                                                                                           
|               |                                                                                                                                                              
|11             | Statement re:
    computation of per share earnings (3)                                                                                                      
|               |                                                                                                                                                              
|16.1           | Letter on change
    in certifying accountants (4)                                                                                                           
|               |                                                                                                                                                              
|21             | Subsidiaries of
    the registrant                                                                                                                           
|               |                                                                                                                                                              
|23             | Consent of Moore
    Stephens Cooper Molyneux, LLP                                                                                                           
|               |                                                                                                                                                              
|31             | Rule
    13a-14(a)/15d-14(a) Certification by the Chief Executive Officer                                                                                    
|               |                                                                                                                                                              
|32             | Certification by
    the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference from
the Form 10-SB filed on February 23, 2000.

(2) Incorporated by reference from
the Form 10-SB/A filed on July 17, 2003. Most recent amendment attached.

(3) Included within financial
statements attached hereto as Exhibit A.

(4) Incorporated by reference from
the Form 8-K filed on January 27, 2006.

(5) Incorporated by reference from
the Form 8-K filed on November 7, 2001.

> (b) Reports on Form 8-K: None

---



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for professional services rendered by the principal
accountant was $9,989 for 2004 and $23,000 for 2005.

Audit-Related Fees were nil for 2004 and 2005. Tax Fees were nil for 2004 and
2005 All Other Fees were nil for 2004 and 2005.





---

SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.

|                     | SILVER DRAGON RESOURCES INC.                          
|-------------------- | ------------------------------------------------------
|                     |                                                       
|Dated: April 5, 2006 | /s/ Marc Hazout                                       
|                     | Marc Hazout, President and Chief Executive
    Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

|Dated: April 5,
    2006 | /s/ Marc Hazout          
|------------------------ | -------------------------
|                         | Marc Hazout,
    Director

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 and 2004



|CONTENTS                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                          
|Report of
    Independent Registered Public Accounting Firm - 2005                                                                                                                        
|Report of
    Independent Auditor - 2004                                                                                                                                                  
|Consolidated
    Balance Sheets as at December 31, 2005 and 2004                                                                                                                          
|Consolidated
    Statements of Operations for the Years Ended December 31, 2005, and 2004,
    and for the Period from June 15, 1996, [Date of Inception] Through to
    December 31, 2005
|Consolidated
    Statements of Stockholders' Deficit for the Periods from June 15, 1996 [Date
    of Inception] Through to December 31, 2005                                              
|Consolidated
    Statements of Cash Flows for the Years Ended December 31, 2005, and 2004,
    and for the Period June 15, 1996, [Date of Inception] Through to December
    31, 2005     
|Notes to
    Consolidated Financial Statements                                                                                                                                            

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders' ofSilver Dragon Resources
Inc., and Subsidiaries(Formerly American
Entertainment and Animation Corporation)

We have audited the
accompanying consolidated balance sheets of
Silver Dragon Resources Inc., and
Subsidiaries (a Delaware corporation in the development stage) as of
December 31, 2005, and the consolidated statements of stockholders' operations,
deficit and cash flows for two years in the period ended, and cumulative from
inception (June 15, 1996) through December 31, 2005, except as explained as
follows: We did not audit the cumulative data from June 15, 1996 to December 31,
2004. The cumulative data was audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts in the
cumulative data through December 31, 2004, is based solely on the report of
other auditors. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Silver Dragon Resources Inc., and Subsidiaries
as of December 31, 2005, and the results of their operations and comprehensive
loss, and their cash flows for the year then ended and for the period from,
inception (June 15, 1996) through December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in note 2 to the consolidated financial statements, the Company has
experienced operating losses since inception, has raised minimal capital, and
has no long term contracts related to its business plans. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are also described in note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

|                | "SF Partnership, LLP"
|--------------- | ---------------------
|Toronto, Canada | CHARTERED ACCOUNTANTS
|March 27, 2006  |                      

-1-

---



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

Silver Dragon Resources, Inc. 
(formerly American Entertainment and Animation Corporation)

We have audited the
accompanying consolidated balance sheet Silver Dragon Resources, Inc. and
subsidiary (a development stage company) as at December 31, 2004, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the year ended December 31, 2004 and for the period from June 15, 1996
[inception] to December 31, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the cumulative data from June 15, 1996 to December 31, 2001. The cumulative data
was audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts in the cumulative data through
December 31, 2001, is based solely on the report of other auditors.

We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, based
on our audit and the report of the other auditors, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Silver Dragon Resources, Inc. (formerly American
Entertainment and Animation Corporation) and subsidiary [a development stage
company] as of December 31, 2004 and the results of their operations and their
cash flows for the years then ended and for the period from June 15, 1996
(inception) to December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying
consolidated financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has recurring losses from operations and has a
net capital deficiency. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Managements' plans are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

|Toronto, Canada | Moore Stephens
    Cooper Molyneux LLP
|--------------- | --------------------------------------
|April 7, 2005   | CHARTERED
    ACCOUNTANTS             

-2-

---



|                                                                 |   |             |   |            
|---------------------------------------------------------------- | - | ----------- | - | -----------
|SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES                   
|(A
    DEVELOPMENT STAGE ENTERPRISE)                            
|(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)     
|Consolidated Balance Sheets                                     
|December 31, 2005                                               
|                                                                 |   | 2005        |   | 2004       
|ASSETS                                                           |   |             |   |            
|Current Assets                                                   |   |             |   |            
|Cash in bank                                                     | $ | 303         | $ | -          
|                                                                 |   |             |   |            
|Total Current
    Assets                                         |   | 303         |   | -          
|Mineral Rights
    (note 4)                                      |   | 589,126     |   | -          
|                                                                 |   |             |   |            
|Total Assets                                                     | $ | 589,429     | $ | -          
|                                                                 |   |             |   |            
|                                                                 |   |             |   |            
|LIABILITIES                                                      |   |             |   |            
|Current
    Liabilities                                          |   |             |   |            
|Bank indebtedness                                                | $ | -           | $ | 9          
|Accounts payable and accrued liabilities                         |   | 139,437     |   | 805,432    
|Advances from related party (note 5)                             |   | 56,521      |   | 84,714     
|                                                                 |   |             |   |            
|Total
    Current Liabilities                                    |   | 195,958     |   | 890,155    
|                                                                 |   |             |   |            
|Total
    Liabilities                                            |   | 195,958     |   | 890,155    
|                                                                 |   |             |   |            
|Commitments and
    Contingencies(note 10)                       |   |             |   |            
|STOCKHOLDERS'
    DEFICIT                                        |   |             |   |            
|Capital Stock                                                    |   |             |   |            
|Preferred stock, $0.0001 par value, 20,000,000shares authorized, |   |             |   |            
|none issued and outstanding                                      |   |             |   |            
|Common stock, $0.0001 par value, 150,000,000
    shares          |   |             |   |            
|authorized 35,670,533 shares issued and
    outstanding (2004 -  |   |             |   |            
|23,441,515)                                                      |   | 3,569       |   | 2,345      
|Additional Paid
    in Capital                                   |   | 3,479,837   |   | 1,645,026  
|Common Stock
    Subscriptions Receivable                        |   | (9,500)     |   | -          
|Deficit
    Accumulated During the Development Stage             |   | (3,080,435) |   | (2,537,526)
|                                                                 |   |             |   |            
|Stockholders'
    Deficit                                        |   | 393,471     |   | (890,155)  
|                                                                 |   |             |   |            
|Total
    Liabilities and Stockholders' Deficit                  | $ | 589,429     | $ | -          

The accompanying notes are an integral part of these
consolidated financial statements.

- 3 -

---



SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Consolidated Statements of Operations 
For the Years Ended December 31, 2005, and 2004, and 
For the Period from June 15, 1996 [date of inception] Through to December 31,
2005

|                                          |   |            |   |            | For the period
|----------------------------------------- | - | ---------- | - | ---------- | --------------
|                                          |   |            |   |            | from June 15, 
|                                          |   |            |   |            | 1996 [date of 
|                                          |   |            |   |            | inception]    
|                                          |   |            |   |            | through to    
|                                          |   | 2005       |   | 2004       | Dec. 31, 2005 
|                                          |   |            |   |            |               
|Net Revenues                              | $ | -          | $ | -          | $             
|Cost of revenues                          |   | -          |   | -          |               
|                                          |   |            |   |            |               
|Gross Profit                              |   | -          |   | -          |               
|                                          |   |            |   |            |               
|Operating Expenses                        |   |            |   |            |               
|Management and directors' fees            |   | 294,000    |   | 342,000    |               
|Advertising and promotion                 |   | 152,373    |   | -          |               
|Legal and accounting                      |   | 79,530     |   | 38,565     |               
|Development expenses                      |   | -          |   | -          |               
|Office and general                        |   | 12,785     |   | 7,356      |               
|Consulting expense                        |   | 5,000      |   | -          |               
|                                          |   |            |   |            |               
|                                          |   | 543,688    |   | 387,921    |               
|Other Income (Expenses)                   |   |            |   |            |               
|Interest income - related parties         |   | -          |   | -          |               
|Interest expense - related parties        |   | -          |   | -          |               
|Settlement with Cyper Entertainment, Inc. |   | -          |   | -          |               
|Loss on disposal of asset                 |   | -          |   | -          |               
|Loss on investment                        |   | -          |   | -          |               
|Other income (expense)                    |   | 779        |   | (11,106)   |               
|                                          |   |            |   |            |               
|                                          |   | 779        |   | (11,106)   |               
|                                          |   |            |   |            |               
|Loss Before Income Taxes                  |   | (542,909)  |   | (399,027)  |               
|Provision for income taxes                |   | -          |   | -          |               
|                                          |   |            |   |            |               
|Net Loss                                  | $ | (542,909)  | $ | (399,027)  | $             
|                                          |   |            |   |            |               
|Net Loss Per Common Share - Basic and     |   |            |   |            |               
|Diluted                                   | $ | (0.02)     | $ | (0.02)     |               
|                                          |   |            |   |            |               
|Weighted Average Number of Common         |   |            |   |            |               
|Shares Outstanding - Basic and Diluted    |   | 31,091,548 |   | 23,441,515 |               

The accompanying notes are an integral part of these
consolidated financial statements.

- 4 -

---



|SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES                   
|----------------------------------------------------------------
|(A
    DEVELOPMENT STAGE ENTERPRISE)                            
|(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)     
|Consolidated Statementss of Stockholders' Deficit               
|For
    the Periods from June 15, 1996 Through December 31, 2005
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Issuance of
    common stock to founders for services           
|Issuance of stock
    to founder for cash                       
|Issuance of stock
    for investment in CEHK                    
|Issuance of stock
    to purchase subsidiary                    
|Issuance of stock
    for cash                                  
|Net Loss, 1996                                                  
|                                                                
|Balance, December
    31, 1996                                  
|                                                                
|Issuance of stock
    for vehicle                               
|Issuance of stock
    for cash                                  
|Issuance of stock
    for services                              
|Net Loss, 1997                                                  
|                                                                
|Balance, December
    31, 1997                                  
|                                                                
|Issuance of stock
    for vehicle                               
|Issuance of stock
    for cash                                  
|Net loss, 1998                                                  
|                                                                
|Balance, December
    31, 1998                                  
|                                                                
|Issuance of stock
    for cash                                  
|Issuance of stock
    for debt                                  
|Issuance of stock
    for services                              
|Forgiveness of
    debt of related party                        
|Net loss, 1999                                                  
|                                                                
|Balance, December
    31, 1999                                  
|                                                                
|Cancelled stock
    returned to company                         
|Issuance of stock
    for cash                                  
|Cancelled shares
    for non-payment                            
|Issuance of stock
    for services                              
|Forgiveness of
    debt reclassification                        
|Net loss, 2000                                                  
|                                                                
|Balance, December
    31, 2000                                  
|                                                                
|Shares issued for
    services                                  
|Cash received for
    subscription receivable                   
|Shares issued for
    consulting agreement                      
|Other adjustment                                                
|Net loss, 2001                                                  
|                                                                
|Balance, December
    31, 2001                                  

The accompanying notes are an integral part of these
consolidated financial statements.

- 5 -

---



|SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES                                                    |              |         |            
|------------------------------------------------------------------------------------------------ | ------------ | ------- | -----------
|(A
    DEVELOPMENT STAGE ENTERPRISE)                                                             |              |         |            
|(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)                                      |             
|Consolidated Statements of Stockholders' Deficit (Continued)                                     |              |         |            
|For
    the Periods from June 15, 1996 Through December 31, 2005                                 |              |         |            
|                                                                                                 |              |         |            
|                                                                                                 |              |         |            
|                                                                                                 | Common Stock |         |            
|                                                                                                 |              |         |            
|                                                                                                 |              |         |            
|                                                                                                 |              |         | Additional 
|                                                                                                 | Number of    |         | Paid in    
|                                                                                                 | Shares       | Amount  | Capital    
|                                                                                                 |              |         |            
|Shares issued for private
    placement                                                          | 400,000      | $ 40    | $ 17,960   
|Shares issued for services -
    related party                                                   | 1,100,833    | 110     | 32,390     
|Shares issued for the reverse
    acquisition of Cyper                                           | 20,000,000   | 2,000   | -          
|Shares issued in relation to
    the reverse acquisition of Cyper                                | 4,000,000    | 400     | 119,600    
|Shares cancelled in lieu of
    issuance of warrants for past services rendered                  | (1,912,748)  | (191)   | -          
|Stock warrants issued for
    services - related party                                           | -            | -       | 31,000     
|Stock warrants exercised by
    management                                                       | 3,255,880    | 326     | -          
|Shares issued for the
    settlement of related party advances                                   | 116,118      | 12      | 23,212     
|Cancellation of shares issued
    in prior years                                                 | (65,467)     | (7)     | 7          
|Shares issued for the
    settlement of related party advances                                   | 370,000      | 37      | 66,619     
|Shares rescinded for the
    cancellation of related party advances                              | 2,233,333    | 223     | 46,777     
|Shares rescinded for the
    cancellation of the reverse acquisition of Cyper                    | (20,000,000) | (2,000) | -          
|Issuance of stock for
    settlement of Cyper reverse acquisition                                | 250,000      | 25      | 17,475     
|Shares issued for the
    settlement of advances made to the company for the Cyper settlement    | 1,388,889    | 139     | 62,361     
|Net loss, 2002                                                                                   | -            | -       | -          
|                                                                                                 |              |         |            
|Balance, December 31, 2002                                                                       | 18,005,404   | 1,801   | 1,420,074  
|                                                                                                 |              |         |            
|Shares issued for the
    settlement of related party advances                                   | 4,861,111    | 486     | 149,514    
|Shares issued for the
    settlement of accounts payable for services performed                  | 66,300       | 7       | 1,319      
|Shares returned as a result of
    clerical error in a prior year                                | (66,300)     | (7)     | (1,319)    
|Net loss, 2003                                                                                   | -            | -       | -          
|                                                                                                 |              |         |            
|Balance, December 31, 2003                                                                       | 22,866,515   | 2,287   | 1,569,588  
|                                                                                                 |              |         |            
|Shares issued for the
    settlement of related party advances                                   | 575,000      | 58      | 24,942     
|Short swing profits of
    shareholder                                                           | -            | -       | 50,496     
|Net loss, 2004                                                                                   | -            | -       | -          
|                                                                                                 |              |         |            
|Balance, December 31, 2004                                                                       | 23,441,515   | 2,345   | 1,645,026  
|                                                                                                 |              |         |            
|Shares issued for cash                                                                           | 4,880,000    | 488     | 597,012    
|Shares issued for services                                                                       | 7,595,000    | 760     | 1,149,270  
|Shares issued for the
    settlement of accounts payable to related party for services performed | 3,254,018    | 326     | 813,179    
|Shares cancelled                                                                                 | (3,500,000)  | (350)   | (724,650)  
|Net loss, 2005                                                                                   | -            | -       | -          
|                                                                                                 |              |         |            
|Balance, December 31, 2005                                                                       | 35,670,533   | $ 3,569 | $ 3,479,837

The accompanying notes are an integral part of these
consolidated financial statements.

- 6 -

---



|SILVER DRAGON RESOURCES INC.
    AND SUBSIDIARIES                                          
|-------------------------------------------------------------------------------------------
|(A DEVELOPMENT STAGE
    ENTERPRISE)                                                       
|(FORMERLY AMERICAN
    ENTERTAINMENT AND ANIMATION CORPORATION)                            
|Consolidated Statements of Cash
    Flows                                                  
|Years Ended December 31, 2005,
    and 2004, and                                           
|For the Periods from June 15,
    1996 [date of inception] through December 31, 2005       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cash Flows from Operating Activities                                                       
|Net loss                                                                                   
|Adjustments for:                                                                           
|Amortization                                                                               
|Impairment of investment                                                                   
|Writedown of assets                                                                        
|Writedown of inventory                                                                     
|Settlement of Cyper reverse acquisition                                                    
|Settlement of debt, net                                                                    
|Stock issued for management and directors fees to
    a related party                      
|                                                                                           
|                                                                                           
|Changes in non-cash working capital                                                        
|Inventories                                                                                
|Prepaid expenses                                                                           
|Other                                                                                      
|Accounts payable and accrued liabilities                                                   
|Accrued officer compensation                                                               
|                                                                                           
|Net Cash Used in Operating Activities                                                      
|                                                                                           
|Cash Flows from Investing Activities                                                       
|Investment in subsidiary                                                                   
|Proceeds from sale of equipment                                                            
|Acquisition of property and equipment                                                      
|Investments in mineral rights                                                              
|                                                                                           
|Net Cash Used in Investing Activities                                                      
|                                                                                           
|Cash Flows from Financing Activities                                                       
|Payment of notes payable                                                                   
|Advances receivable from related parties                                                   
|Proceeds from issuance of notes payable                                                    
|Advances payable related party                                                             
|Cash overdraft                                                                             
|Proceeds from subscriptions receivable, net                                                
|Proceeds from issuance of common stock                                                     
|                                                                                           
|Net Cash Provided by Financing Activities                                                  
|                                                                                           
|Change in Cash                                                                             
|Cash - beginning of period                                                                 
|                                                                                           
|Cash - end of period                                                                       
|                                                                                           
|The accompanying notes are an integral part of these
    consolidated financial statements.

- 7 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

1.

> Silver Dragon Resources, Inc. (formerly American
>   Entertainment and Animation Corporation) ("SDR" or the "The Company") a
>   Delaware corporation, was incorporated on May 9, 1996. The Company is
>   headquartered in Ontario, Canada and operates primarily in the United States
>   and Canada. On June 15, 1996, SDR acquired all of the outstanding stock of
>   California Electric Automobile Co., Inc. ("CEAC"), a California corporation
>   incorporated on November 14, 1995.
>   The Company is in the development stage as defined in
>   Financial Accounting Standards Board Statement No.7. "Accounting and Reporting
>   For Development Stage Companies." To date, the Company has generated minimal
>   sales and has devoted its efforts primarily to developing its products,
>   implementing its business strategy and raising working capital through equity
>   financing or short-term borrowings.
>   The Company's mission is to acquire and develop a portfolio
>   of silver properties in proven silver districts globally.

2.

> These financial statements have been prepared in accordance
>   with accounting principles generally accepted in the United States of America
>   with the assumption that the Company will be able to realize its assets and
>   discharge its liabilities in the normal course of business. The Company
>   incurred a net loss of approximately $1,052,035 (2004 - $399,027) for the year
>   and has accumulated losses since inception of approximately $3,589,561 (2004 -
>   $2,537,526). In addition, the Company has a working capital deficiency of
>   approximately $195,655 (2004 - $890,155) at December 31, 2005. The Company's
>   continuation as a going concern is uncertain and dependant on successfully
>   bringing its services to market, achieving future profitable operations and
>   obtaining additional sources of financing to sustain its operations. In the
>   event the Company cannot obtain the necessary funds, it will be necessary to
>   delay, curtail or cancel the further development of its products and services.
>   Though the business plan indicates profitable operation in the coming year,
>   these profits are contingent on completing and fulfilling contracts with
>   various providers of goods and services throughout the world to provide the
>   Company with a cashflow to sustain operations.
>   The financial statements do not include any adjustments to
>   reflect the possible future effects on the recoverability and classification
>   of assets or the amounts and classification of liabilities that may result
>   from the possible inability of the Company to continue as a going concern.

3.

> a)         
>   Principles of Consolidation
>   The consolidated financial statements include the
>     accounts of the Company and its wholly owned subsidiaries, California
>     Electric Automobile Co., Inc., and Silver Dragon Mining De Mexico. All
>     significant inter-company balances and transactions have been eliminated on
>     consolidation.

-8-

---



SILVER DRAGON RESOURCES
INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

3.

> b)        
>   Use of Estimates
>   The preparation of financial statements in conformity
>     with accounting principles generally accepted in the United States requires
>     management to make estimates and assumptions that affect the reported
>     amounts of assets and liabilities and the disclosure of contingent assets
>     and liabilities at the date of the financial statements and the reported
>     amounts of revenues and expenses during the reporting period. These
>     estimates are based on management's best knowledge of current events and
>     actions the Company may undertake in the future. Actual results may
>     ultimately differ from those estimates. These estimates are reviewed
>     periodically and as adjustments become necessary, they are reported in
>     earnings in the period in which they become available.
>   c)          Cash and Cash
>   Equivalents
>   For purposes of the cash flows statements, the Company
>     considers all highly liquid investments with original maturities of three
>     months or less at the time of purchase to be cash equivalents. There were no
>     cash equivalents at December 31, 2005.
>   d)         Mineral Rights
>   The Company records its interest in mineral rights at
>     cost. Accordingly, all costs associated with acquisition, exploration and
>     development of mineral reserves, including directly related overhead costs,
>     are capitalized and are subject to ceiling tests to ensure the carrying
>     value does not exceed the fair market value.
>     All capitalized costs of mineral properties subject to
>     amortization and the estimated future costs to develop proved reserves, are
>     amortized using the unit-of-production method using estimates of proved
>     reserves. Investments in unproved properties and major exploration and
>     development projects are not amortized until proved reserves associated with
>     the projects can be determined or until impairment occurs. If the results of
>     an assessment indicate that the properties are impaired, the capitalized
>     cost of the property will be added to the costs to be amortized. The Company
>     presently has no proven reserves. Where estimates of future net cash flows
>     are not available and where other conditions suggest impairment, management
>     assesses if carrying values can be recovered. If the carrying values exceed
>     estimated recoverable values, then the costs are written-down to fair values
>     with the write-down expensed in the period.

-9-

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
3.Summary of Significant Accounting Policies
(cont'd)

> e)         
>   Income Taxes
>   The Company accounts for income taxes pursuant to
>     Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
>     for Income Taxes". Deferred tax assets and liabilities are recorded for
>     differences between the financial statement and tax basis of the assets and
>     liabilities that will result in taxable or deductible amounts in the future
>     based on enacted tax laws and rates. Valuation allowances are established
>     when necessary to reduce deferred tax assets to the amount expected to be
>     realized. Income tax expense is recorded for the amount of income tax
>     payable or refundable for the period, increased or decreased by the change
>     in deferred tax assets and liabilities during the period.
>   f)          Advertising
>   Expense
>   Advertising costs are expensed as incurred.
>   g)          Loss per share of
>   Common Stock
>   The Company accounts for earnings per share pursuant to
>     SFAS No. 128, "Earnings per Share", which requires disclosure on the
>     financial statements of "basic" and "diluted" earnings (loss) per share.
>     Basic earnings (loss) per share is computed by dividing net income (loss) by
>     the weighted average number of common shares outstanding for the year.
>     Diluted earnings (loss) per share is computed by dividing net income (loss)
>     by the weighted average number of common shares outstanding plus potentially
>     dilutive securities outstanding for each year.
>   h)         Impairment of Long Lived
>   Assets
>   In accordance with SFAS No. 144, "Accounting for the
>     Impairment or Disposal of Long Lived Assets", long lived assets to be held
>     and used are analyzed for impairment whenever events or changes in
>     circumstances indicate that the related carrying amounts may not be
>     recoverable. The Company evaluates at each balance sheet date whether events
>     and circumstances have occurred that indicate possible impairment. If there
>     are indications of impairment, the Company uses future undiscounted cash
>     flows of the related asset or asset grouping over the remaining life in
>     measuring whether the assets are recoverable. In the event such cash flows
>     are not expected to be sufficient to recover the recorded asset values, the
>     assets are written down to their estimated fair value. Long lived assets to
>     be disposed of are reported at the lower of the carrying amount or the fair
>     value of the asset less cost to sell.

-10-

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
3.Summary of Significant Accounting Policies
(cont'd)

> i) Stock-based Compensation
>   The Company uses the intrinsic value method to account
>     for stock based compensation in accordance with Accounting Principles Board
>     ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and, as
>     permitted by SFAS No. 123, "Accounting for Stock Based Compensation",
>     provides pro forma disclosures of net income and earnings per common share
>     as if the fair value methods had been applied in measuring compensation
>     expense. Under the intrinsic value method, compensation cost for employee
>     stock awards is recognized as the excess, if any, of the deemed fair value
>     for financial reporting purposes of the Company's common stock on the date
>     of grant over the amount an employee must pay to acquire the stock.
>     Compensation cost is amortized over the vesting period using an accelerated
>     graded method in accordance with Financial Accounting Standards Board ("FASB")
>     Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
>     Variable Stock Option or Award Plans."
>     For all non-employee stock based compensation the Company uses the fair
>     value method in accordance with SFAS No. 123 and EITF 96-18.
>     In management's opinion, existing stock option valuation
>     models do not provide a reliable single measure of the fair value of
>     employee stock options that have vesting provisions and are not
>     transferable. In addition, option valuation models require the input of
>     highly subjective assumptions, and changes in such subjective assumptions
>     can materially affect the fair value estimate of employee stock options.
>     In December 2004, the FASB issued SFAS No. 123R, "Share
>     Based Payment". This pronouncement amends SFAS No. 123 and supersedes APB
>     Opinion No. 25. SFAS No. 123R requires that companies account for awards of
>     equity instruments issued to employees under the fair value method of
>     accounting and recognize such amounts in the statement of operations. The
>     implementation of this statement will be effective beginning with the
>     Company's first quarter of fiscal 2006, and will be adopted using the
>     modified prospective method.

-11-

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
3.Summary of Significant Accounting Policies
(cont'd)

> j)          
>   Foreign Currency Translation
>   The Company accounts for foreign currency translation
>     pursuant to SFAS No. 52, "Foreign Currency Translation". The Company's
>     functional currency is Canadian Dollars. All assets and liabilities are
>     translated into United States dollars using the current exchange rate.
>     Revenues and expenses are translated using the average exchange rates
>     prevailing throughout the year. Translation adjustments are included in
>     other comprehensive income for the period. Foreign transaction gains and
>     losses are immaterial.
>   k)          Fair Value of
>   Financial Instruments
>   The carrying amounts reported in the accompanying
>     financial statements for current assets and current liabilities approximates
>     fair value because of the short term maturity of these financial
>     instruments. The fair value of long-term convertible debt is indeterminable
>     due to terms of the instrument and the absence of a market for such
>     instruments.
>   l)           Recent
>   Accounting Pronouncements
>   In November 2004, the FASB issued SFAS No. 151,
>     "Inventory Costs, an amendment of ARB No. 43, Chapter 4." This statement
>     amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing" to clarify
>     the accounting for abnormal amounts of idle facility expense, freight,
>     handling costs, and wasted material (spoilage). SFAS No. 151 requires that
>     those items be recognized as current-period charges. In addition, this
>     statement requires that allocation of fixed production overheads to costs of
>     conversion be based upon the normal capacity of the production facilities.
>     The provisions of SFAS No. 151 are effective for inventory costs incurred in
>     fiscal years beginning after June 15, 2005. The Company is currently
>     evaluating the impact of SFAS No. 151 on its financial statements.
>     In December 2004, the FASB issued SFAS No. 153,
>     "Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29." SFAS
>     No. 153 replaces the exception from fair value measurement in APB Opinion
>     No. 29 for non-monetary exchanges of similar productive assets with a
>     general exception from fair value measurement for exchanges of non-monetary
>     assets that do not have commercial substance. A non-monetary exchange has
>     commercial substance if the future cash flows of the entity are expected to
>     change significantly as a result of the exchange. SFAS No. 153 is to be
>     applied prospectively, and is effective for non-monetary asset exchanges
>     occurring in fiscal periods after the December 2004 issuance of SFAS No.
>     153. The Company does not believe the impact of adoption of SFAS No. 153
>     will be significant to the overall results of operations or financial
>     position.

-12-

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
3.
Summary of Significant Accounting Policies
(cont'd)

> l)          
>   Recent Accounting Pronouncements (cont'd)
>   In December 2004, the FASB issued SFAS No. 123 (revised
>     2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires the
>     Company 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 cost of the employee services is recognized as compensation cost over
>     the period that an employee provides service in exchange for the award. SFAS
>     No. 123R will be effective July 1, 2005 for the Company and may be adopted
>     using a modified prospective method or a modified retrospective method.
>     In March 2005, the FASB issued FASB Staff Position ("FSP")
>     No. 46(R) 5, "Implicit Variable Interests under FASB Interpretation No.
>     ("FIN") 46 (revised December 2003), Consolidation of Variable Interest
>     Entities" ("FSP FIN 46R 5"). FSP FIN 46R 5 provides guidance for a reporting
>     enterprise on whether it holds an implicit variable interest in Variable
>     Interest Entities ("VIEs") or potential VIEs when specific conditions exist.
>     This FSP is effective in the first period beginning after March 3, 2005 in
>     accordance with the transition provisions of FIN 46 (revised December 2003),
>     "Consolidation of Variable Interest Entities an Interpretation of Accounting
>     Research Bulletin No. 51" ("FIN 46R"). The adoption of FSP FIN 46R 5 in 2005
>     did not have an impact on the Company's results of operations and financial
>     position.
>     In May 2003, the FASB issued SFAS No. 150, "Accounting
>     for Certain Financial Instruments With Characteristics of Both Liabilities
>     and Equity". SFAS No. 150 requires that issuers classify as liabilities the
>     following three types of freestanding financial instruments: (1) mandatory
>     redeemable financial instruments, (2) obligations to repurchase the issuer's
>     equity shares by transferring assets; and (3) certain obligations to issue a
>     variable number of shares. The Company adopted SFAS No. 150 for the year
>     ended December 31, 2003. The adoption of SFAS No. 150 did not have a
>     material impact on the financial position or results of operations of the
>     Company.



-13-

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

3.

> l)          
>   Recent Accounting Pronouncements (cont'd)
>   In March 2005, the FASB issued Interpretation No. 47,
>     "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"), which
>     will result in (1) more consistent recognition of liabilities relating to
>     asset retirement obligations, (2) more information about expected future
>     cash outflows associated with those obligations, and (3) more information
>     about investments in long lived assets because additional asset retirement
>     costs will be recognized as part of the carrying amounts of the assets. FIN
>     47 clarifies that the term "conditional asset retirement obligation" as used
>     in SFAS No. 143, "Accounting for Asset Retirement Obligations", refers to a
>     legal obligation to perform an asset retirement activity in which the timing
>     and/or method of settlement are conditional on a future event that may or
>     may not be within the control of the entity. The obligation to perform the
>     asset retirement activity is unconditional even though uncertainty exists
>     about the timing and/or method of settlement. Uncertainty about the timing
>     and/or method of settlement of a conditional asset retirement obligation
>     should be factored into the measurement of the liability when sufficient
>     information exists. FIN 47 also clarifies when an entity would have
>     sufficient information to reasonably estimate the fair value of an asset
>     retirement obligation. FIN 47 is effective no later than the end of fiscal
>     years ending after December 15, 2005. The adoption of FIN 47 in 2005 did not
>     have a material impact on the financial position or results of operations of
>     the Company.
>     In May 2005, the FASB issued SFAS No. 154, "Accounting
>     Changes and Error Corrections", which replaces APB Opinion No. 20,
>     "Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes in
>     Interim Financial Statements An Amendment of APB Opinion No. 28". SFAS No.
>     154 provides guidance on the accounting for and reporting of changes in
>     accounting principles and error corrections. SFAS No. 154 requires
>     retrospective application to prior period financial statements of voluntary
>     changes in accounting principle and changes required by new accounting
>     standards when the standard does not include specific transition provisions,
>     unless it is impracticable to do so. SFAS No. 154 also requires certain
>     disclosures for restatements due to correction of an error. SFAS No. 154 is
>     effective for accounting changes and corrections of errors made in fiscal
>     years beginning after December 15, 2005, and is required to be adopted by
>     the Company as of January 1, 2006. The impact that the adoption of SFAS No.
>     154 will have on the Company's results of operations and financial condition
>     will depend on the nature of future accounting changes adopted by the
>     Company and the nature of transitional guidance provided in future
>     accounting pronouncements.

-14-

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
4.Mineral Rights

|                  |           | Accumulated  | Net       | Net 
|----------------- | --------- | ------------ | --------- | ----
|                  | Cost      | Amortization | 2005      | 2004
|Mining properties |           |              |           |     
|Sino Silver       | $ 372,500 | $ -          | $ 372,500 | $ - 
|Linear Gold       | 216,626   | -            | 216,626   | -   
|                  |           |              |           |     
|                  | $ 589,126 | $ -          | $ 589,126 | $ - 

> Sino Silver
>   On April 24, 2005, the Company entered into a venture
>   agreement with Sino Silver Corp. ("Sino Silver") whereby the Company acquired
>   50% of Sino Silver's interest in the net proceeds from the sale of minerals or
>   the sale of mining rights as a result of the exploration, evaluation and
>   development of a property located in the Erbaohuo Silver District in Northern
>   China. In consideration for this interest, the Company paid Sino Silver
>   $150,000 on the closing date along with 250,000 restricted common stock of the
>   Company. Pursuant to the Agreement, an additional $200,000 is payable to Sino
>   Silver within 2 years of the closing date, along with the delivery of an
>   additional 250,000 restricted common stock of the Company. Included in these
>   costs are financing fees incurred through the issuance of 500,000 restricted
>   common stock.
>   Linear Gold
>   On September 7, 2005, the Company entered into a joint
>   venture agreement with Linear Gold Corp., Linear Gold Caribe, S.A. (Linear
>   Gold Corp. and Linear Gold Caribe, S.A. are collectively referred to as
>   "Linear Gold"), and Linear Gold Mexico, S.A. de C.V. ("Linear Mexico").
>   Linear Mexico, which is wholly-owned by Linear Gold, owns
>   an option to acquire the exploration and exploitation rights to the property
>   known as the Tierra Blanca Property in Durango, Mexico (the "Mexico
>   Property"). Under Linear Mexico's Option, Linear Mexico is entitled to acquire
>   the exploration and exploitation rights to the Property by payment of
>   $2,000,000. Prior to exercising Linear Mexico's Option, and to keep Linear
>   Mexico's Option in force, Linear Mexico is required to pay the property owners
>   $20,000 in year one, $35,000 by April 6, 2006, and $70,000 by April 6, 2007.
>   Under the agreement, the Company has the option to acquire
>   a 55% interest in the Mexico Property. If the option is exercised, the
>   property would be conveyed to a newly formed corporation, which the Company
>   would own 55% of, with Linear Gold owning the remaining 45%. Upon execution of
>   the agreement, the Company paid Linear Gold $45,000 and issued Linear Gold
>   100,000 shares of common stock.

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

5.

> Related party loans receivable consists of an advance to a
>   company controlled by an officer and shareholder of the Company. The advance
>   does not have a stated maturity date or interest rate.
>   During the year, the following transactions involving
>   related parties occurred:
>   In 2005 the Company issued 3,254,018 restricted common
>   shares, valued at $813,505 in settlement of all amounts owing to an officer of
>   the Company in accordance with the terms of his employment agreement.
>   In 2004, the Company issued 575,000 common shares, valued
>   at approximately $25,000, for advances of $25,000 from a company whose officer
>   and shareholder is a stockholder of the Company.
>   In 2003, the Company issued 4,861,111 common shares, valued
>   at $150,000, for advances of $150,000 from a company whose officer and
>   shareholder is an officer and stockholder of the Company.
>   During the year ended December 31, 2003 the Company issued
>   approximately 66,300 shares of its common stock, valued at approximately
>   $1,326, for services provided by a former officer and stockholders of the
>   Company. The shares were returned to the Company as the result of an over
>   issuance of shares in a prior year as a result of a clerical error.
>   The Company is party to a month-to-month lease for office
>   space for approximately $2,800 per month with a company owned by an officer
>   and stockholder of the Company. Rental expense under this lease for the year
>   ended December 31, 2005 was Nil (2004 - Nil).

6.

> SFAS No. 105, "Disclosure of Information About Financial
>   Instruments with Off-Balance Sheet Risk and Financial Instruments with
>   Concentration of Credit Risk", requires disclosure of any significant
>   off-balance sheet risk and credit risk concentration. The Company does not
>   have significant off-balance sheet risk or credit concentration. The Company
>   maintains cash and short-term investments with major financial institutions.
>   From time to time the Company has funds on deposit with commercial banks that
>   exceed federally insured limits. Management does not consider this to be a
>   significant credit risk as these banks and financial institutions are
>   well-known.

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004
7.Income Taxes

> The Company's income tax provision (recovery) has been calculated as
>   follows:

|                                                                                                |   | 2005        |   | 2004     
|----------------------------------------------------------------------------------------------- | - | ----------- | - | ---------
|                                                                                                |   |             |   |          
|Earnings before income taxes                                                                    | $ | (542,909)   | $ | (399,028)
|Deferred: Expected income tax recovery at the
    statutory rates of 34% (2004 - 32.6%)         |   | (184,589)   |   | (136,069)
|Current year losses not recognized                                                              |   | -           |   | -        
|Permanent differences                                                                           |   | -           |   | -        
|Other                                                                                           |   | (31,850)    |   | 32,069   
|Change in valuation allowance                                                                   |   | 389,542     |   | 104,000  
|                                                                                                |   |             |   |          
|Provision for income taxes                                                                      | $ | 173,103     | $ | -        
|                                                                                                |   |             |   |          
|                                                                                                |   |             |   |          
|                                                                                                |   |             |   |          
|The following summarizes the principal temporary
    differences and related future tax effect:
|                                                                                                |   | 2005        |   | 2004     
|                                                                                                |   |             |   |          
|Property, plant and equipment                                                                   | $ | -           | $ | -        
|Exploration and development                                                                     |   | -           |   | -        
|Losses carried forward                                                                          |   | 1,131,192   |   | 741,650  
|Other                                                                                           |   | -           |   | -        
|                                                                                                |   |             |   |          
|Subtotal - future income tax asset                                                              |   | 1,131,192   |   | 741,650  
|Valuation allowance                                                                             |   | (1,131,192) |   | (741,650)
|                                                                                                |   |             |   |          
|Net deferred income tax asset recorded                                                          | $ | -           | $ | -        

-17-

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

7.

> The Company has accumulated approximately $3,327,035 of taxable losses,
>   which can be used to offset future federal taxable income. The utilization of
>   the losses expires in years 2015 to 2025.
>   The Tax Reform Act of 1986 imposed substantial restrictions
>   on the utilization of net operating losses and tax credits in the event of an
>   "ownership change", as defined by the Internal Revenue Code. Federal and State
>   net operating losses are subject to limitations as a result of these
>   restrictions. Under such circumstances, the Company's ability to utilize its
>   net operating losses against future income may be reduced.

8.

> During the year ended December 31, 2005, the Company issued 3,254,018
>   shares of its common stock in lieu of $813,505 cash in settlement of amounts
>   owing to an officer of the Company in accordance with the terms of his
>   employment agreement.
>   During the year ended December 31, 2005, the Company issued 7,295,000
>   shares of its common stock in settlement of $1,150,000 in payables due for
>   services performed.
>   During the year ended December 31, 2004, the Company issued 575,000 shares
>   of its common stock in lieu of $25,000 cash in settlement of related party
>   advances.
>   During the year ended December 31, 2003, the Company issued 4,861,111
>   shares of its common stock in lieu of approximately $150,000 cash in
>   settlement of related party advances.
>   During the year ended December 31, 2003, the Company issued 66,300 shares
>   of its common stock for the settlement of approximately $1,326 of payables due
>   to a former director and current shareholder for services performed.
>   For the year ended December 31, 2005 and 2004, there were no cash payments
>   for income taxes and no cash was paid for accrued interest.

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

9.

> In the normal course of its operations, the Company has
>   been or, from time to time, may be named in legal actions seeking monetary
>   damages. While the outcome of these matters cannot be estimated with
>   certainty, management does not expect, based upon consultation with legal
>   counsel, that they will have a material effect on the Company's business or
>   financial condition or results of operations.

10.       Commitments and Contingencies

> In July 2002, the Company entered into an employment
>   agreement with an officer of the Company. During the years ended December 31,
>   2005 and 2004, $154,500 and $342,000 respectively is included in the statement
>   of operations in management and director fees. The term of the employment
>   agreement is for three years and carries an option for renewal upon mutual
>   agreement between the officer and the Company. On March 31, 2005, the Company
>   issued 3,254,018 restricted common shares, valued to $813,505 in settlement of
>   all amounts owing to the officer of the Company in accordance with the terms
>   of his employment agreement..
>   On November 15, 2005, the Company entered into an
>   employment agreement with an officer of the Company. The term of the agreement
>   is five years and carries an option for renewal upon mutual agreement between
>   the officer and the Company. The agreement includes a base salary of $288,000
>   per year, a signing bonus of 1,000,000 shares of common stock of the company
>   and a benefits package.
>   On December 8, 2005 the Company entered into a twelve month agreement
>   Uptick Capital for financing and strategic advice for fees totaling $27,000
>   and 1.5 million restricted common shares.
>   On January 10, 2006 the Company entered into a three month contract with
>   Small Cap Voice.Com Inc. for investor relations services for fees totaling
>   $15,000 and 100,000 restricted common shares.
>   On January 10, 2006 the Company entered into a three month contract with
>   Torrey Hills Capital for strategic planning services for fees of $32,500 and
>   300,000 restricted common shares.
>   On March 1, 2006 the Company entered into a twenty-four month contract with
>   an individual for administrative services for $4,000 per month and 1,000,000
>   restricted common shares.
>   On March 21, 2006, the Company entered into an Asset
>   Purchase Agreement with Sino Silver and Sanhe Sino-Top Resources and
>   Technologies Ltd. to purchase the assets of Sino Silver. The total purchase
>   price is US$650,000 plus 4,000,000 restricted common shares of the Company
>   payable as follows: US$150,000 was paid on the closing;US$100,000 payable on
>   May 20, 2006; US$400,000 payable and the 4,000,000 restricted common shares of
>   the Company deliverable upon receipt of the requested government approvals in
>   China. The Company has also committed to invest approximately US$1,300,000
>   into Sino-Top in 2006 .
>   On March 15, 2006 the Company entered into a three month contract with
>   Empire Relations Group for investor relations services for fees of $15,000 and
>   40,000 restricted common shares.

-19-

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SILVER DRAGON RESOURCES
INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

11.       
Subsequent Events

> On January 10, 2006 the Company entered into a two month
>   contract with Small Cap Voice.Com, Inc., who will provide the Company with
>   investor relations services in return for cash fees and 100,000 restricted
>   shares.
>   On January 10, 2006 the Company entered into a three month
>   consulting contract with Torrey Hills Capital, who will provide the Company
>   with strategic planning services in return for cash fees and 300,000 shares of
>   its restricted common stock. On January 10, 2006 the Company issued Travellers
>   International Inc. 1,000,000 shares of common stock pursuant to the terms of
>   the Employment Agreement dated November 15, 2005 with Marc Hazout.
>   On January 19, 2006 the Company entered into a contract
>   with an individual who will provide strategic planning services in return for
>   300,000 restricted shares.
>   On January 25, 2006 the Company issued 2,500,000 restricted
>   common shares valued at $250,000 under a private placement.
>   On February 17, 2006, the Company completed the sale of
>   1,000,000 Units, at a price of $1.00 per Unit, for total gross proceeds of
>   $1,000,000. Each Unit consists of one share of the Company's common stock and
>   2 one-half of one (1/2) common stock purchase warrants ("Warrant"). The first
>   half warrant is exercisable in whole warrants at $2.00 per common share and
>   the second half warrant in whole warrants at $5.00 per common share.
>   On March 1, 2006 the Company entered into a twenty-four
>   month contract with an individual for administrative services for fees and
>   1,000,000 restricted common shares.
>   On March 1, 2006 the Company entered into a contract with
>   an individual for investor relations services in The Peoples Republic of China
>   for 1,000,000 restricted common shares.
>   On March 1, 2006 the Company issued Travellers
>   International Inc. 1,000,000 shares of the common stock in consideration for
>   its assistance to the Company in the acquisition of the mining rights in Cerro
>   Las Minitas, Mexico.
>   On March 2, 2006, the Company's wholly-owned subsidiary,
>   Silver Dragon Mining De Mexico entered into an agreement for the mining and
>   exploitation rights to 10 mining concessions, which include an operating mine,
>   totaling approximately 1354 hectares in Guadalupe, Durango, Mexico in
>   consideration for the payment of US$799,000.
>   On March 2, 2006, Silver Dragon Mexico entered into an
>   agreement for the assignment of the mining and exploitation rights to 5 mining
>   concessions, which include an operating mine, totaling approximately 31
>   hectares in Guadalupe, Durango, Mexico in consideration for the payment of
>   US$245,000 plus applicable V.A.T. which was paid on closing, along with
>   110,000 restricted common shares of the Company. Silver Dragon Mexico has also
>   entered into an Asset Purchase Agreement with the same party for the purchase
>   of certain mining equipment for the sum of US$5,000 plus V.A.T.

-20-

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SILVER DRAGON RESOURCES
INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE) 
(FORMERLY AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION)Notes to Consolidated
Financial Statements 
December 31, 2005 and 2004

11.        Subsequent
Events (cont'd)

> On March 8, 2006, Silver Dragon Mexico entered into an
>   agreement for the assignment of the mining and exploitation rights to 1 mining
>   concession known as "Puro Corazon" which includes an operating mine, totaling
>   approximately 9 hectares, in Guadalupe, Durango, Mexico in consideration for
>   the payment of US$400,000 and 2 Million restricted common shares of the
>   Company.
>   On March 9, 2006, Silver Dragon Mexico entered into an
>   agreement for the assignment of the mining and exploitation rights of Puro
>   Corazon in consideration for the sum of US$50,000. In addition, the
>   exploitation agreement of Puro Corazon which was assigned to Silver Dragon
>   Mexico was modified to include minimum monthly fees of $3,500 based on
>   production and extraction. Silver Dragon Mexico has also been granted the
>   option to purchase the Concession.
>   On March 15, 2006 the Company entered into a four month
>   contract with Empire Relations Group who will provide investor relations
>   services in return for cash fees and 40,000 restricted shares.
>   On March 21, 2006, the Company entered into an Asset
>   Purchase Agreement with Sino Silver and Sanhe Sino-Top Resources and
>   Technologies, Ltd. ("Sino-Top") wherein Sino Silver agreed to sell its 60%
>   interest in Sino-Top to the Company. Sino-Top holds the exploration and mining
>   rights to 9 properties in the Erbaohuo Silver District in Inner Mongolia,
>   China. The total purchase price is US$650,000 plus 4,000,000 restricted common
>   shares of the Company. The Company has also committed to invest approximately
>   US$1,300,000 into Sino-Top in 2006 towards exploration and property
>   maintenance on the nine properties in the portfolio. This agreement supersedes
>   the Venture Agreement dated April 24, 2005 between the Company and Sino
>   Silver, and is subject to receipt of the requested government approvals in
>   China.



-21-

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