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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549

FORM 10-K/A

(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,
2009

[  ] 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.
(Name of small business
issuer in its charter)

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

5160 Yonge Street, Suite 803Toronto, Ontario, M2N
6L9(Address of principal executive offices) (Zip Code)

Issuer's telephone number:(416) 223-8500

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)

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes [  ] No
[X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Act.     Yes [  ] No
[X]

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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K
or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one)

|Large accelerated filer [  ] | Non-accelerated filer   [  ]                | Accelerated filer   [  ] | Smaller reporting company  [X]
|---------------------------- | ------------------------------------------- | ------------------------ | ------------------------------
|                             | (Do not check if smaller reporting company) |                          |                               
|                             |                                             |                          |                               

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

APPLICABLE TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: The issuer had
93,111,257 shares of its Common Stock, $0.0001 par value, as of March 28, 2010.

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As of June 30, 2009, the aggregate market value of the issuers
common stock held by non-affiliates of the issuer was $8,380,013 based on upon
the closing sale price of the common stock as reported by the OTCBB on that
date.

Explanatory Note

This Amendment No.1 to our Form 10-K/A (the Amended Report)
amends the original Annual Report on Form 10-K of Silver Dragon Resources Inc.
for the fiscal year ended December 31, 2009. Various disclosure errors or
deficiencies were corrected, as set out below. The amendment had no effect on
the results of operations disclosed herein, the consolidated statements of
operations and comprehensive loss including loss per share, the consolidated
statements of shareholders equity, nor on the consolidated statements of cash
flows, in the attached financial statements.

Part I, Item 1, Description of BusinessThe
commentary was amended make it clearer that our current business focus is
primarily on acquisition and exploration rather than development and mining of
our properties. The risk factors were clarified to make it clearer that we will
require additional funding for our business during the year. Maps were added of
the Erbaohuo and Cerro las Minitas properties. Certain undocumented information
regarding the history of the Cerro Las Minitas property before it was acquired
by us was deleted.

Part I, Item 6, Managements Discussion and Analysis and
Plan of OperationThe commentary was amended make it clearer that our
current business focus is primarily on acquisition and exploration rather than
development and mining of our properties. The commentary on cash requirements
was clarified to make it clearer that we will require additional funding for our
business during the year.

A note as to critical accounting policies was added which
observed that significant accounting policies are set out in Note 3 to the
financial statements that are included in this Annual Report on Form 10K/A, and
that the most important accounting policies relate to mineral rights and to
equity investment. Please refer to Part I, Item 6 for a full description.

Consolidated Financial StatementsNote 13, Consolidated Statements of Cash Flows Supplemental
DisclosuresTwo editing errors were corrected. In the first
row of the table, Statement of operations was changed to Balance Sheet, and
in the second row the 2009 amount for stock-based compensation expense was
changed to $1,745,651.

These corrections have no effect on the consolidated statements
of operations and comprehensive loss, the consolidated statements of
shareholders equity, nor on the consolidated statements of cash flows.

SignaturesThe signatures were amended
to conform to SEC requirements.

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This Form 10-K contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934. For this purpose any statements contained in
this Form 10-K that are not statements of historical facts 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:

- the timing and outcome of our feasibility study;
- the estimation of mineral resources and the realization of mineral resources, if any, based on mineral resource estimates;
- the timing of exploration, development and production activities and estimated future production, if any;
- estimates related to costs of production, capital, operating and exploration expenditures;
- requirements for additional capital and our
ability to raise additional capital;
- governmental regulation of mining operations, environmental risks;
- title disputes or claims;
- the timing and outcome of referrals, if any, of prospective mining properties identified by Tianjin North China
Exploration Bureau;
- the development of cooperative relationship with North China Geological Exploration Bureau;
- our ability to procure the required permits;
- our ability to attract and retain qualified personnel; and
- the other factors and
information disclosed and discussed under "Risk Factors" above and elsewhere in this report.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Corporate History

Silver Dragon Resources, Inc. was initially incorporated in the State of Delaware on May 9, 1996 under the name American Electric Automobile Company Inc. On July16, 2002, we amended our Certificate of Incorporation to change our name to American
Entertainment & Animation Corporation. On February 25, 2005, we again amended our Certificate of Incorporation to change our name to "Silver Dragon Resources, Inc." in order to better reflect our current business focus on  silver. We operate in Mexico through our wholly-owned subsidiary, Silver Dragon Mining De Mexico S.A. de C.V. (''Silver Dragon Mexico''), a Mexican company incorporated on April 21, 2006.

We own a 40% equity interest in Sanhe Sino-Top Resources and Technologies, Ltd. (''Sino-Top''), which was originally incorporated in 2003 as a Chinese company wholly owned by Huaguan Industrial Corp. ("HIC''), a subsidiary of the state-owned North
China Geological Exploration Bureau. Sino-Top became an American-Chinese joint venture in 2005. Silver Dragon Resources Inc. acquired Sino-Top in 2006, and currently owns 40% of Sino-Top after having sold 50% of its ownership interest to its Chinese
partners. The Chinese side, led by Gansu Shengda Group Ltd. ("Shengda"), at 52%, and HIC, at 8%, collectively own 60% of Sino-Top. Sino-Top holds exclusive exploration and development rights to six properties in northern China (Inner Mongolia),
covering a total area of 139 km2. We own a 70% equity interest in the Erbahuo Silver mine via our Chifeng Silver Dragon subsidiary.

We are engaged in the acquisition and exploration of silver and other mineral properties in China and Mexico. Our primary focus is the exploration of seven properties located in the Erbaohuo Silver District in Northern China, as well as
the Cerro Las Minitas property located in Guadalupe, Durango, Mexico. We are still in our exploration stage and have not generated any revenues from the mining properties in China and Mexico.

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Silver Mining Business in China

Erbahuo Projects

On March 16, 2006, we entered into an agreement to acquire certain mining and exploration rights to the Erbaohuo Silver Project by purchasing a 60% interest in Sino-Top from Sino Silver. Sino-Top was an equity joint venture company originally
created under the Joint Venture Agreement dated April 14, 2005 between Sino Silver and certain other parties. Pursuant to the Asset Purchase Agreement, we acquired a 60% interest in Sino-Top and became a party to the Joint Venture Agreement.
Sino-Top holds the exploration and mining rights to nine properties in the Erbaohuo Silver District in Northern China ("Erbaohuo Projects"). The total purchase price was $650,000 plus 4,000,000 shares of our restricted common stock, all of which
had been delivered to Sino Silver following receipt of the requisite approvals to the transfer by the local Provincial Department of Commerce in China. In March 2007 we increased our interest from 60% to 90% in exchange for 2 million restricted
common shares of the company. On May 9, 2007 we received approval from the Ministry of Commerce to change the equity joint venture to a contractual joint venture. On June 10, 2008 we signed a letter of  intent with our stateowned Chinese Joint
venture partner Exploration Unit of North China Nonferrous Geological Exploration Bureau, also known as Huaguan Industrial Corp. (''HIC'') to sell 50% equity interest in Sanhe Sino-Top Resources & Technologies Ltd. (''Sino-Top''), not including
the Erbahuo mine, from Silver Dragon in exchange for US$4.5 million. With respect to the Erbahuo mine, the ninth exploration property controlled by Sino-Top, it would be 70% owned by Silver Dragon and 30% by HIC. On November 20, 2008 Gansu
Shengda Group Ltd. (Shengda), a private Chinese conglomerate, agreed to acquire 52% of the equity interests in Sanhe Sino-Top Resources & Technologies, Ltd. (''Sino-Top'') from Huaguan Industrial Corp. (``HIC''), Silver Dragon's state-owned
Chinese joint venture partner. On January 21, 2010 Sino-Top sold the Saihanaobao and Liangdi Properties to Chinese State-owned Entities for approximately USD$4.2 Million.

Prior to entering into the Asset Purchase Agreement described above, on April 14, 2005 we entered into a Venture Agreement with Sino Silver to acquire 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 and evaluation of the Aobaotugonao property located in the Erbaohuo Silver District. Consideration for the interest included cash payments of $350,000 over a two year period and the issuance of
500,000 shares of our common stock. On closing, we paid $150,000 cash and issued 250,000 restricted common shares. In addition, 4,500,000 restricted common shares were issued to parties who assisted in the transaction. Three million of these
shares were subsequently returned to us and cancelled. The Venture Agreement was superseded by the Asset Purchase Agreement described above.

We invested approximately a total of $893,398 into Sino-Top as of December 31, 2009 ($2,618,243 in 2008) and intend to invest funds to support approximately 40% of all of Sino-Tops expenses in 2010 with the focus on further exploration
and bringing the Erbaohuo silver mine and the Dadi mine into production in 2011, conducting advanced stage exploration on Laopandao and conducting further early stage exploration on 4 properties (Zuanxinhu, Aobaotugonao, Shididonggou and Yuanlinzi).

Strategic Cooperation Agreements

Silver Dragon and Sino-Top are party to strategic agreements with various parties, including the North China Geological Exploration Bureau (''NCGEB'').

On July 26, 2006, we signed a Strategic Cooperation Agreement with the Tianjin North China Exploration Bureau (''TNCEB'') in China. The TNCEB has access to mine assets located in various locations in China. The 5-year Agreement provides that
prospective mining properties identified by the TNCEB will be referred exclusively to Silver Dragon first. We have 90 days to review geological information and other information we reasonably may request. If we do not wish to develop such
properties, TNCEB may show the properties to other prospective purchasers. In the event that Silver Dragon chooses to acquire, develop or exploit any mining opportunities referred by the TNCEB, Silver Dragon and TNCEB will work towards a mutually
acceptable working agreement with respect to the purchase and/or exploration of the mining property. The TNCEB will provide technical, geological and other documentation as may be requested by Silver Dragon as part of its due diligence investigation
of prospective properties. In the event that TNCEB does not wish to participate in the joint
exploration of the property, we are required to pay TNCEB the amount equal to 1% of the purchase price of such property in cash or 2% of the purchase price
in non-cash consideration, including our common stock. If the seller of the property is an affiliate of TNCEB, we have no payment obligation.

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Silver Mining Business in Mexico

Cerro las Minitas Project

On March 2, 2006, Silver Dragon Mexico acquired 16 mining concessions from four individuals by entering into various assignment agreements. The total consideration paid by us through March 2008 is $1,045,000 plus 2,560,000 restricted shares. We
were obligated to pay a further $100,000 to one of these individuals by March 8, 2008 to fulfill our obligations under these agreements. On March 13, 2010 the Company settled the outstanding debt of $100,000 through the issuance of 360,000
shares of the Companys restricted stock.

Cerro las Minitas is comprised of 15 concessions covering 1,413 Hectares. It is located 68 kilometers northeast of the City of Durango, Mexico, and comprises the Cerro las Minitas mining district, part of the prolific silver belt of the Sierra Madre
Occidental. An NI 43-101 report has been completed and concluded that the exploration done by Silver Dragon Mexico indicates that the potential resources inferred there justify the cost of further exploration.

Competitive Factors

The silver mining industry is fragmented, with many silver prospectors and producers, small and large. We do not compete with anyone with respect to our Chinese properties or on the Cerro las Minitas properties. There is no competition for the
exploration or removal of minerals from these properties. We will either find silver on the properties or not. If we do not, we will cease or suspend further investment.

With respect to selling silver, we compete with both existing silver supplies and other silver producers. If the supply of silver exceeds demand in any given period, prices will fall until supply and demand is brought into balance. Many of these
companies have substantially greater technical and financial resources than us. Thus we may be at a disadvantage with respect to some of our competitors.

Governmental Approvals and Regulations

Our mineral exploration programs are subject to the regulations of various Chinese and Mexican authorities.

Regulatory Obligations in Mexico

In Mexico, our exploration activities are governed by the General Mining Law and the regulations promulgated thereunder.

We obtained initial authorizations and the relevant permits for the exploration of Cerro Las Minitas from the Ministry of Natural Resources (''SEMARNAT''). The initial authorization from SERMARNAT authorizing us to initiate the excavation of the
soil on Cerro Las Minitas was issued in 2006. The excavation of soil must be carried out using digger machines, which are registered and authorized by SEMARNAT. Our machines are duly registered and authorized by SEMARNAT. The company has documented
all requirements and has submitted its Environmental Impact Assessment / Manifestacion, or Manifestacion de Impacto Ambiental (''MIA'') for its Cerro las Minitas silver project in Durango, Mexico that includes a cyanide process for the sulfide
handling and Heap Leaching process for the handling of oxides. The MIA was officially submitted on Mar 23, 2009 to the Secretaria de Medio Ambiente y Recursos Naturales of Mexico (''SEMARNAT'') for review, and is the principal document in the
application process for a mine operating permit.

After the exploration stage, mining activities in Mexico will be carried out in accordance with the
environmental permit issued by the General Direction of Mining Ministry of Economy under the plan of operations for mining activity submitted by an applicant. Since
our current activities in Mexico are in the exploration stage, we have not yet submitted a plan of operations. After receiving confirmation of the existence of minerals, we are required to file an application with the General Direction of Mining of
the Ministry of Economy to obtain concession titles for the exploitation of the minerals. As of today, we have obtained fifteen Concession Titles for the Exploitation of Minerals in Cerro Las Minitas, which titles were granted according to the
applicable provisions of the General Mining Law. We will be required to obtain additional permits commonly referred to as the Sole Environmental License from SEMARNAT and the National Water Commission (''NWC''). After we successfully obtain
concession titles, we are required to submit annual reports in May of each year, detailing the work performed during the designated year on the properties specified by such concession titles.

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Once mining activities commence, we will be required to obtain additional permits and authorizations from the Ministry of Labor to operate special machineries used for the exploration of the Mining Field. Such special machineries include but are not limited to
pressured containers, boilers and other machineries designated for mining that are regulated by various National Official Norms (''NOM'').
Once mining activities commence we will also be required to file reports on safety, hygiene and minimum wage of our workers to the registry of the
Labor Commissions as provided under Mexican Federal Labor Law.

Regulatory Obligations in China

Exploration for and exploitation of mineral resources in China is governed by the Mineral Resources Law of the Peoples Republic of China (''PRC'') of 1986, amended effective January 1, 1997, and the Implementation Rules for the Mineral
Resources Law of the PRC, effective March 26, 1994. In order to further implement these laws, on February 12, 1998 the State Council issued three sets of regulations: (i) Regulation for Registering to Explore Mineral Resources Using the Block
System, (ii) Regulation for Registering to Mine Mineral Resources, and (iii) Regulation for Transferring Exploration and Mining Rights (together with the mineral resources law and implementation rules being referred to herein as "Mineral Resources
Law").

Under Mineral Resources Law, the Ministry of Land and Resources and its local authorities (the "MLR") is in charge of the supervision of mineral resource exploration and development. The mineral resources administration authorities of provinces,
autonomous regions and municipalities, under the jurisdiction of the State, are in charge of the supervision of mineral resource exploration and development in their respective administration areas. The people's governments of provinces, autonomous
regions and municipalities, under the jurisdiction of the State, are in charge of coordinating the supervision by the mineral resources administration authorities on the same level.

The Mineral Resources Law, together with the Constitution of the PRC, provides that mineral resources are owned by the State, and the State Council, the highest executive organization of the State, which regulates mineral resources on behalf of the
State. The ownership rights of the State include the rights to: (i) occupy, (ii) use, (iii) earn, and (iv) dispose of, mineral resources, regardless of the rights of owners or users of the land under which the mineral resources are located.
Therefore, the State is free to authorize third parties to enjoy its rights to legally occupy and use mineral resources and may collect resource taxes and royalties pursuant to its right to earn. In this way, the State can control and direct the
development and use of the mineral resources of the PRC.

Mineral Resources Licenses

China has adopted, under the Mineral Resources Law, a licensing system for the exploration and exploitation of mineral resources. The MLR is responsible for approving applications for exploration licenses and mining licenses. The approval of the MLR
is also required to transfer exploration licenses and mining licenses.

Applicants must meet certain conditions as required by related rules/regulations. Pursuant to the Regulations for Registering to Mine Mineral Resources, the applicant for mining rights must present the required documents, including a plan for
development and use of the mineral resources and an environmental impact evaluation report. The Mineral Resources Law allows individuals to exploit sporadic resources, sand, rocks and clay for use as construction materials and a small quantity of
mineral resources for sustenance. However, individuals are prohibited from mining mineral resources that are more appropriately mined at a certain scale by a company, specified minerals that are subject to protective mining by the State and certain
other designated mineral resources.

Once granted, all exploration and mining rights under the licenses are protected by the State from encroachment or disruption under the Mineral Resources Law. It is a criminal offence to steal, seize or damage exploration facilities, or disrupt the
working order of exploration areas.

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Exploration Rights

In order to conduct exploration, a Sino-foreign cooperative joint venture ("CJV") must apply to the MLR for an exploration license. Owners of exploration licenses are "licensees". The period of validity of an exploration license can be no more than
three years. An exploration license area is described by a "basic block". An exploration license for metallic and non-metallic minerals has a maximum of 40 basic blocks. When mineral resources that are feasible for economic development have been
discovered, a licensee may apply for the right to develop such mineral resources. The period of validity of the exploration license can be extended by application and each extension can be for no more than two years. The annual use fee for an
exploration license is RMB 100 per square kilometre for the first three years and increases by RMB 100 per square kilometre for each subsequent year, subject to a maximum fee of RMB 500 per square kilometre.

During the term of the exploration license, the licensee has the privileged priority to obtain mining rights to the mineral resources in the exploration area, provided that the licensee meets the qualifying conditions for mining rights owners. An
exploration licensee has the rights, among others, to: (i) explore without interference within the area under license during the license term, (ii) construct the exploration facilities, and (iii) pass through other exploration areas and adjacent
ground to access the licensed area.

After the licensee acquires the exploration license, the licensee is obliged to, among other things: (i) begin exploration within the prescribed term, (ii) explore according to a prescribed exploration work scheme, (iii) comply with State laws and
regulations regarding labour safety, water and soil conservation, land reclamation and environmental protection, (iv) make detailed reports to local and other licensing authorities, (v) close and occlude the wells arising from exploration work, (vi)
take other measures to protect against safety concerns after the exploration work is completed, and (vii) complete minimum exploration expenditures as required by the Regulations for Registering to Explore Resources Using the Block.

Mining Rights

In order to conduct mining activities, a CJV must also apply for a mining license from the MLR. Owners of mining rights, or "concessionaires", are granted a mining license to mine for a term of no more than ten to thirty years, depending on the
magnitude or size of the mining project. A mining license owner may extend the term of a mining license with an application 30 days prior to expiration of the term. The annual use fee for a mining license is RMB 1,000 per square kilometre per year.

A mining license owner has the rights, among others, to: (i) conduct mining activities during the term and within the mining area prescribed by the mining license, (ii) sell mineral products (except for mineral products that the State Council has
identified for unified purchase by designated units), (iii) construct production and living facilities within the mine area, and (iv) use the land necessary for production and construction, in accordance with applicable laws.

A mining license owner is required to, among other things: (i) conduct mine construction or mining activities within a defined time period, (ii) conduct efficient production, rational mining and comprehensive use of the mineral resources, (iii) pay
resources tax and mineral resources compensation (royalties) pursuant to applicable laws, (iv) comply with State laws and regulations regarding labour safety, water and soil conservation, land reclamation and environmental protection, (v) be subject
to the supervision and management by the departments in charge of geology and mineral resources, and (vi) complete and present mineral reserves forms and mineral resource development and use statistics reports, in accordance with applicable law.

Transfer of Exploration and Mining Rights

A mining company may transfer its exploration or mining licenses to others, subject to the approval of MLR.

An exploration license may only be transferred if the transferor has: (i) held the exploration license for two years after the date that the license was issued, or discovered minerals in the exploration block, which are able to be explored or mined
further, (ii) a valid and subsisting exploration license, (iii) completed the stipulated minimum exploration expenditures, (iv) paid the user fees and the price for exploration rights pursuant to the relevant regulations, and (v) obtained the
necessary approval from the authorized department in charge of the minerals.

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Mining rights may only be transferred if the transferor needs to change the ownership of such mining rights because it is: (i) engaging in a merger or split, (ii) entering into equity or cooperative joint ventures with others, (iii) selling its
enterprise assets, or (iv) engaging in a similar transaction that will result in an alteration of the property ownership of the enterprise.

Additionally, when state-owned assets or state funds are involved in a transfer of exploration licenses and mining licenses, the related state-owned assets rules and regulations apply and a proper evaluation report must be completed and filed with
the MLR.

Speculation in exploration and mining rights is prohibited. The penalties for speculation are that the rights of the speculator may be revoked, illegal income from speculation confiscated and a fine levied.

Environmental Laws

In the past ten years, Chinese laws and policies regarding environmental protection have moved towards stricter compliance standards and stronger enforcement. In accordance with the Environmental Protection Law of the PRC adopted by the Standing
Committee of the PRC National People's Congress on 26 December 1989, the General Administration of Environmental Protection Bureau under the State Council sets national environmental protection standards. The various local environmental protection
bureaus may set stricter local standards for environmental protection. CJVs are required to comply with the stricter of the two standards.

The basic laws in China governing environmental protection in the mineral industry sector of the economy are the Environmental Protection Law and the Mineral Resources Law. Applicants for mining licenses must submit environmental impact assessments,
and those projects that fail to meet environmental protection standards will not be granted licenses. In addition, after the exploration, a licensee must take further actions for environmental protection, such as performing water and soil
maintenance. After the mining licenses have expired or a licensee stops mining during the license period and the mineral resources have not been fully developed, the licensee shall perform other obligations such as water and soil maintenance, land
recovery and environmental protection in compliance with the original development scheme, or must pay the costs of land recovery and environmental protection. After closing the mine, the mining enterprise must perform water and soil maintenance,
land recovery and environmental protection in compliance with mine closure approval reports, or must pay certain costs, which include the costs of land recovery and environmental protection.

Land and Construction

The holder of an exploration license or mining license should apply for land use right with MLR to conduct exploration or mining activities on the land covered by the exploration license or mining license. The license holder should file an
application to MLR for the land use right with its exploration license or mining license. If the application is approved by the competent government authority, the MLR would issue an approval to the land use right applicant. Then, the local MLR
would enter into a land use right contract with the license holder. The license holder should pay relevant price and fees in accordance with the contract and then obtain a land use right certificate from MLR. In practice, instead of obtaining a
long-term land use right, an exploration license holder may apply for a temporary land use right, which would normally be valid for 2 years and may be renewed upon application.

The company should also apply for other zoning and construction permits to conduct construction on the land. PRC laws require a company to obtain the land zoning permit and construction zoning permit with the local zoning authorities under the
Ministry of Construction (''MOCON''). Then, the company is required to enter into a construction contract with a qualified constructor and file the construction contract to the local construction authorities under the MOCON and obtain a construction
permit. After the construction is completed, the company should apply for the construction authorities and related environmental and fire departments for the check and acceptance of the construction. Upon the pass of check and acceptance, the
company should apply with local housing authorities to register the constructed buildings in its own name and obtain a housing ownership certificate.

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Environmental Law

We are responsible for providing a safe working environment, not disrupting archaeological sites, and conducting our activities to prevent unnecessary damage to the area in which our mineral claim is located. At this time, we do not believe that the
cost of compliance at the federal, state and local levels will be significant.

We intend to secure all necessary permits required for exploration. We anticipate no discharge of water into active streams, creeks, rivers, lakes or other bodies of water regulated by environmental law or regulation. We also anticipate that no
endangered species will be disturbed. Restoration of the disturbed land will be completed according to law, and all holes, pits and shafts will be sealed upon abandonment of the mineral claims.
During the exploration phase that we are in now, compliance costs are nil or
nominal. It is difficult to estimate the cost of compliance with
the environmental laws, because the full nature and extent of our proposed activities cannot be determined until we start our operations.

We believe we are in compliance with the environment laws, and that we will continue to be able to comply with such laws in the future.

Employees and Employment Agreements

We currently have 3 employees in Mexico. We pay them a total of approximately $12,000 per month for their services.

In China we have one employee serving as administrative staff member in our Beijing legal representative office and one consultant and director. We pay both the employee and the consultant $9,000 per month in total.

In our head office in Toronto we have 1 employee and 3 consultants. Our only employee is Marc Hazout, our Chief Executive Officer, President and Director. The three consultants working in our head office in Toronto include an office administrator
and manger, an information and technology and investor relations manager and a Controller, being paid collectively a total of $10,000 per month.

On November 15, 2005, we entered into an Employment Agreement with Marc Hazout. The Employment Agreement provides that Mr. Hazout shall be employed by us for a term of five years, and is entitled to a base salary of $288,000 per year. In the
event we terminate the Employment Agreement without cause, he will be entitled to severance equal to 100% of his remaining base salary under the Employment Agreement, plus an amount equal to 100% 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 us or soliciting customers or employees from us for a period of one year following the termination of his employment.

Strategic Advisory Board

The Company has formed a Strategic Advisory Board (SAB) which will be comprised of well-known and experienced executives in the financial and mining industries who will act as advisors to the Board of Directors. The SAB currently
consists of two members - Robert A. Fung as Chairman and Michael J H Brown. At this time, the SAB will assist with the application for listing on a Canadian stock exchange. On listing, Mr. Fung will become Chairman of the Board of Directors, and
will assist in enlisting directors with the skills necessary to transition the Company into a significant global silver explorer and producer. Additional members will be appointed to bring further depth and experience to the SAB. The mandate of the
SAB is to assist the Company to formulate its strategic plans and to use their extensive contacts to assist in building the Company.

Intellectual Property

We have no patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts that management believes have any value.

Risk Factors

You should consider each of the following risk factors and any other information set forth in this Form 10-K 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.

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Risks Relating To Our Operations

None of the properties in which we have an interest or the right to earn an interest has any known reserves.

None of the properties in which we have an interest or the right to earn an interest has any reserves. To date, we have engaged in only limited preliminary exploration activities on the properties. Accordingly, in which we do not have sufficient
information upon which to assess the ultimate success of our exploration efforts. If we do not establish reserves, we may be required to curtail or suspend our operations, in which case the market value of our common stock may decline, and you may
lose all or a portion of your investment.

Our current cash will not be sufficient to fund our business as currently planned for
the next 12 months. We will need additional funding, either through equity or debt financings or partnering arrangements, that could negatively affect us and our stock price.

We will need significant additional funds to continue operations, which we may not be able to obtain. We estimate that we must raise approximately $3.5 million over the next 12 months to fund our anticipated capital requirements and our
obligations both in Mexico and our corporate office.

We invested approximately a total of $893,398 into Sino-Top as of December 31, 2009 ($2,618,243 in 2008) and intend to invest funds to support approximately 40% of all of Sino-Tops expenses in 2010 with the focus on further exploration
and bringing the Erbaohuo silver mine and the Dadi mine into production in 2011, conducting advanced stage exploration on Laopandao and conducting further early stage exploration on 4 properties (Zuanxinhu, Aobaotugonao, Shididonggou and Yuanlinzi).

We have historically satisfied our working capital requirements through the private issuances of equity securities. We will continue to seek additional funds through such channels and from collaboration and other arrangements with corporate
partners. However, we may not be able to obtain adequate funds when needed or funding that is on terms acceptable to us. If we fail to obtain sufficient funds, we may need to delay, scale back or terminate some or all of our mining exploration
programs.

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We are an exploration stage company, and based on our negative cash flows from operating activities there is uncertainty as to our ability to continue as a going concern.

From inception, we have generated limited revenues and have experienced negative cash flows from operating losses. We anticipate continuing to incur such operating losses and negative cash flows for the foreseeable future, and to accumulate
increasing deficits as we increase our expenditures for exploration and mining of minerals, infrastructure, research and development and general corporate purposes. Any increases in our operating expenses will require us to achieve significant
revenue before we can attain profitability. Our history of operating losses and negative cash flows from operating activities will result in our continued dependence on external financing arrangements. In the event that we are unable to achieve or
sustain profitability or are otherwise unable to secure additional external financing, we may not be able to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to
continue as a going concern may result in our security holders losing their entire investment. There is no guaranty that we will generate revenues or secure additional external financing. Our financial statements, which have been prepared in
accordance with the United States Generally Accepted Accounting Principles (''GAAP''), contemplate that we will continue as a going concern and do not contain any adjustments that might result if we were unable to continue as a going concern.
Changes in our operating plans, our existing and anticipated working capital needs, the acceleration or modification of our expansion plans, lower than anticipated revenues, increased expenses, potential acquisitions or other events will all affect
our ability to continue as a going concern. See "Management's Plan of Operations".

The reports of independent auditors of our consolidated financial statements included in this annual report contain explanatory paragraphs which note our recurring operating losses since inception, our lack of capital and lack of long term contracts
related to our business plans, and that these conditions give rise to substantial doubt about our ability to continue as a going concern. In the event that we are unable to successfully achieve future profitable operations and obtain additional
sources of financing to sustain our operations, we may be unable to continue as a going concern. See "Management's Plan of Operation" and our consolidated financial statements and notes thereto included in this annual report.

We have a history of operating losses and we anticipate future losses.

Since we changed our business focus to silver exploration, we have generated no revenues. We incurred losses of approximately $3,862,649 and $3,969,299 respectively, for the fiscal years ended December 31, 2009 and 2008. We have accumulated
losses since inception of approximately $30,311,561. We anticipate that losses will continue until such time when revenue from operations is sufficient to offset our operating costs, if ever. If we are unable to increase our revenues or to
increase them significantly enough to cover our costs, our financial condition will worsen and you could lose some or all of your investment.

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Because we do not have much capital, we may have to limit our exploration activity, which may result in a loss of your investment.

Because we are small and do not have much capital, we must limit our exploration activity. As such, we may not be able to complete an exploration program that is as thorough as the one that we currently anticipate on conducting. In that event, an
existing ore body may go undiscovered. Without an ore body, we cannot generate revenues, in which case, you will lose your investment.

Pursuant to Section 404 Of The Sarbanes-Oxley Act Of 2002 ("Section 404"), we will be required, beginning with our annual report on Form 10-KSB for the fiscal year ending December 31, 2007, to include in our annual reports on Form 10-KSB, our
management's report on internal control over financial reporting and for the fiscal year ending December 31, 2008, the registered public accounting firm's attestation report on our management's assessment of our internal control over financial
reporting.

We have not prepared an internal plan of action for compliance with the requirements of Section 404. As a result, we cannot guarantee that we will not have any "significant deficiencies" or "material weaknesses" reported by our independent
registered public accounting firm. Compliance with the requirements of Section 404 is expected to be expensive and time-consuming. If we fail to complete this evaluation in a timely manner, or if our independent registered public accounting firm
cannot timely attest to our evaluation, we could be subject to regulatory scrutiny and a loss of public confidence in our internal control over financial reporting. In addition, any failure to establish an effective system of disclosure controls and
procedures could cause our current and potential shareholders and customers to lose confidence in our financial reporting and disclosure required under the Securities and Exchange Act of 1934, which could adversely affect our business.

Because our interests are in Mexico and China, our business is subject to
additional risks associated with doing business outside the United States.

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We expect that a portion of our revenues, if any, may be derived from sales of
our products in foreign markets. Accordingly, we will be subject to all risks
associated with foreign trade. These risks include:

- shipping delays,
- increased credit risks,
- trade restrictions,
- export duties and tariffs,
- fluctuations in foreign currency, and
- Uncertainties in international, political, regulatory and economic developments.

In addition, we anticipate that our foreign operations will require us to devote significant resources to system installation, training and service, areas in which we have limited experience.

It is possible that third parties will challenge our title for the properties in which we have an interest.

We have not obtained title insurance for our properties. It is possible that the title to the properties in which we have our interest will be challenged or impugned. If such claims are successful, we may lose our interest in such properties.

Because all of our assets, our officers and our directors are located outside the United States of America, it may be difficult for an investor to enforce within the United States any judgments obtained against us, our officer or our director.

All of our assets are located outside of the United States, the individuals serving our officers and directors are nationals and/or residents of a country or countries other than the United States, and all or a substantial portion of such
persons assets are located outside the United States. As a result, it may be difficult for an investor to effect service of process or enforce within the United States any judgments obtained against us or our officers and directors, including
judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts of Canada and other jurisdictions would recognize or enforce such
judgments rendered by the courts of the United States. There is also uncertainty as to whether the courts of Canada or other jurisdictions would be competent to hear original actions brought in Canada or other jurisdictions against us or our
officers and directors predicated upon the securities laws of the United States or any state thereof.

Our President - Chief Executive Officer controls a significant percentage of our common stock.

As of March 28, 2010, Marc Hazout, our President and Chief Executive Officer, owned beneficially approximately 19.9% of our outstanding common stock. Mr. Hazout is able to influence all matters requiring stockholder approval, including election of
directors and approval of significant corporate transactions. This concentration of ownership, which is not subject to any voting restrictions, could limit the price that investors might be willing to pay for our common stock. In addition, Mr.
Hazout is in a position to impede transactions that may be desirable for other shareholders. He could, for example, make it more difficult for anyone to take control of us.

Risks Relating To The Industry In General

Planned exploration, and if warranted, development and mining activities involve a high degree of risk.

We cannot assure you of the success of our planned operations. Exploration costs are not fixed, and resources cannot be reliably identified until substantial development has taken place, which entails high exploration and development costs. The
costs of mining, processing, development and exploitation activities are subject to numerous variables which could result in substantial cost overruns. Mining for silver and other base or precious metals may involve unprofitable efforts, not only
from dry properties, but from properties that are productive but do not produce sufficient net revenues to return a profit after accounting for mining, operating and other costs.

Our operations may be curtailed, delayed or cancelled as a result of numerous factors, many of which are beyond our control, including economic conditions, mechanical problems, title problems, weather conditions, compliance with governmental
requirements and shortages or delays of equipment and services. If our drilling activities are not successful, we will experience a material adverse effect on our future results of operations and financial condition.

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In addition to the substantial risk that the properties that we drill will not
eventually be productive or may decline in productivity over time. Such hazards include
unusual or unexpected geologic formations, pressures, downhole fires, mechanical failures, blowouts, cratering, explosions, uncontrollable flows of well fluids, pollution and other physical and environmental risks. These hazards could result in
substantial losses to us due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. We do not fully insure against all risks associated with our business because insurance is either unavailable or its cost of coverage is prohibitive. The occurrence of an event
that is not fully covered or covered at all by insurance could have a material adverse effect on our financial condition and results of operations.

The impact of governmental regulation could adversely affect our business.

Our business is subject to applicable domestic and foreign laws and regulations, including laws and regulations on taxation, the exploration, and environmental and safety matters. Many
laws and regulations require drilling permits and govern the spacing of mines, rates of production, prevention of waste and other matters. These laws and regulations may increase the costs and timing of planning, designing, drilling, installing,
operating and abandoning our silver mines and other facilities. In addition, our operations are subject to complex environmental laws and regulations adopted by domestic and foreign jurisdictions where we operate. We could incur liability to
governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remedial costs.

In addition, the submission and approval of environmental impact assessments may be required.

Environmental legislation is evolving in a manner which means stricter standards; enforcement, fines and penalties for noncompliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for
companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

Because the requirements imposed by these laws and regulations frequently change, we cannot assure you that laws and regulations enacted in the future, including changes to existing laws and regulations, will not adversely affect our business. In
addition, because we acquire interests in properties that have been operated in the past by others, we may be liable for environmental damage caused by former operators. In Mexico, changes in government leadership and/or the unionization of workers
could adversely affect our operations. In China, political instability and unexpected state intervention could adversely affect our assets.

Decline in silver prices may make it commercially infeasible for us to develop our property and may cause our stock price to decline.

The value and price of our common shares and warrants, our financial results, and our exploration, development and mining activities may be significantly adversely affected by declines in the price of silver and other precious metals. Silver prices
fluctuate widely and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and
demand, and the political and economic conditions of silver-producing countries throughout the world. The price of silver fluctuates in response to many factors, which are beyond anyone's prediction abilities. The prices used in making the estimates
in our plans differ from daily prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated mineralized material quantities, which are affected by a number of additional factors. Because
mining occurs over a number of years, it may be prudent to continue mining for some periods during which cash flows are temporarily negative for a variety of reasons. Such reasons include a belief that the low price is temporary, and/or the expense
incurred is greater when permanently closing a mine.

Declines in the price of silver may cause our stock price to decline, which could cause you to lose money while making it difficult for us to raise capital on terms acceptable to us.

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Weather interruptions in China may affect and delay our proposed exploration operations.

Our proposed exploration work in China can only be performed approximately six to seven months out of the year. The cold, rain and snow make the roads leading to our claims impassible every year during certain times from November to March. When the
roads are impassible, we are unable to conduct exploration operations on the mineral claim.

We may not have access to all of the supplies and materials we need to begin exploration, which could cause us to delay or suspend operations.

Competition and unforeseen limited sources of supplies in the industry could result in occasional spot shortages of supplies such as dynamite as well as certain equipment like bulldozers and excavators that we might need to conduct exploration. If
we cannot obtain the necessary supplies, we will have to suspend our exploration plans until we do obtain such supplies.

Risks Relating To The Market For Our Securities

Because the public market for shares of our common stock is limited, investors may be unable to resell their shares of common stock.

Currently there is only a limited public market for our common stock on the Over-The-Counter Bulletin Board in the United States. Thus investors may be unable to resell their shares of our common stock. The development of an active public trading
market depends upon the existence of willing buyers and sellers who are able to sell their shares as well as market makers willing to create a market in such shares. Under these circumstances, the market bid and ask prices for the shares may be
significantly influenced by the decisions of the market makers to buy or sell the shares for their own account. Such decisions of the market makers may be critical for the establishment and maintenance of a liquid public market in our common stock.
Market makers are not required to maintain a continuous two-sided market and are free to withdraw firm quotations at any time. We cannot give you any assurance that an active public trading market for the shares will develop or be sustained.

A significant number of shares of our common stock are eligible for sale in the United States, which could have an adverse effect on the market price for our common stock and could adversely affect our ability to raise needed capital.

As of March 28, 2010 the number of shares in the public float on the Over-The-Counter Bulletin Board in the U.S. is approximately 93,111,257. The market price for our common stock could decrease significantly and our ability to raise capital could
be adversely affected by the availability of a large number of shares.

The price of our common stock is volatile, which may cause investment losses for our shareholders.

The market for our common stock is highly volatile, having ranged in the last twelve months from a low of $0.06 to a high of $0.49 on the Over-The-Counter Bulletin Board. The trading price of our common stock on the Over-The-Counter Bulletin
Board is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings
estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause
investment losses for our shareholders. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. If securities class action litigation is
brought against us, such litigation could result in substantial costs while diverting management's attention and resources.

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Our common stock is considered to be a "penny stock," which may make it more difficult for investors to sell their shares.

Our common stock is considered to be a "penny stock." The SEC has adopted rules
that regulate broker-dealer practices in connection with transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on some national securities exchanges or
quoted on NASDAQ, provided that current price and volume information with
respect to transactions in these securities is provided by the exchange or
system). Prior to a transaction in a penny stock, a broker-dealer is required
to:

- deliver a standardized risk disclosure document prepared by the Securities and
Exchange Commission that provides information about penny stocks and the nature
and level of risks in the penny stock market;
- provide the customer with current bid and offer quotations for the penny stock;
- explain the compensation of the broker-dealer and its salesperson in the
transaction;
- provide monthly account statements showing the market value of each penny stock
held in the customer's account; and
- make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction.

These requirements may have the effect of reducing the level of trading activity in the secondary market for our stock, and investors may find it more difficult to sell their shares.

ITEM 2. DESCRIPTION OF PROPERTY

Erbaohuo

PROPERTY LOCATION AND DESCRIPTION

Erbaohuo is located at the common boundary of Keshiketeng county and Wenniute county in Inner Mongolia, within the Maoshandong village of Wenniute county. The property is about 13.85 km2. Access to the property is 110km via paved highway from
Chifeng City to the village of Maoshandong and then west 10 km by unsealed road to the property. The mine is an underground mine. A 10kv electricity power net passes through the concession and the electrical power is adequate for mining purposes.



AGREEMENTS

On March 16, 2006, we entered into an agreement to acquire certain mining and exploration rights to the Erbaohuo Silver Project by purchasing a 60% interest in Sino-Top from Sino Silver. Sino-Top was an equity joint venture company originally
created under the Joint Venture Agreement dated April 14, 2005 between Sino Silver and certain other parties. Pursuant to the Asset Purchase Agreement, we acquired a 60% interest in Sino-Top and became a party to the Joint Venture Agreement.
Sino-Top holds the exploration and mining rights to nine properties in the Erbaohuo Silver District in Northern China ("Erbaohuo Projects"). The total purchase price was $650,000 plus 4,000,000 shares of our restricted common stock, all of which
had been delivered to Sino Silver following receipt of the requisite approvals to the transfer by the local Provincial Department of Commerce in China. In March 2007 we increased our interest from 60% to 90% in exchange for 2 million restricted
common shares of the company. On May 9, 2007 we received approval from the Ministry of Commerce to change the equity joint venture to a contractual joint venture. On June 10, 2008 we signed a letter of  intent with our stateowned Chinese Joint
venture partner Exploration Unit of North China Nonferrous Geological Exploration Bureau, also known as Huaguan Industrial Corp. (``HIC'') to sell 50% equity interest in Sanhe Sino-Top Resources & Technologies Ltd. (``Sino-Top''), not including
the Erbahuo mine, from Silver Dragon in exchange for US$4.5 million. With respect to the Erbahuo mine, the ninth exploration property controlled by Sino-Top, it would be 70% owned by Silver Dragon and 30% by HIC. On November 20, 2008 Gansu
Shengda Group Ltd. (Shengda), a private Chinese conglomerate, agreed to acquire 52% of the equity interests in Sanhe Sino-Top Resources & Technologies, Ltd. (``Sino-Top'') from Huaguan Industrial Corp. (``HIC''), Silver Dragon's state-owned
Chinese joint venture partner. On January 21, 2010 Sino-Top sold the Saihanaobao and Liangdi Properties to Chinese State-owned Entities for approximately USD$4.2 Million.

Prior to entering into the Asset Purchase Agreement described above, on April 14, 2005 we entered into a Venture Agreement with Sino Silver to acquire 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 the Aobaotugounao property located in the Erbaohuo Silver District. Consideration for the interest included cash payments of $350,000 over a two year period and the issuance
of 500,000 shares of our common stock. On closing, we paid $150,000 cash and issued 250,000 restricted common shares. In addition, 4,500,000 restricted common shares were issued to parties who assisted in the transaction. Three million of these
shares were subsequently returned to us and cancelled. The Venture Agreement was superseded by the Asset Purchase Agreement described above.

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HISTORY

Silver was discovered in Erbaohuo following analysis by the Comprehensive Gross Exploration Department from 1989 to 1992, when exploration was carried out for the purpose of finding the necessary silver reserves projected to be required to satisfy
China's growing industrial demands. A geological survey at scales of 1:10,000 and 1:2,000 has been completed. In 1992, the department committed the Nonferrous Metal Metallurgy Institute in Beijing to complete the primary metallurgical trial. In
1997, the department completed detailed geological survey work. From 1998 to 2002, exploration was carried out leading to the eventual mining of approximately 30,000 tons of ore with an average grade of 248.02 gpt silver at a cut-off
grade of 200 gpt Ag.

We invested approximately a total of $893,398 into Sino-Top as of December 31, 2009 ($2,618,243 in 2008) and intend to invest funds to support approximately 40% of all of Sino-Tops expenses in 2010 with the focus on further exploration
and bringing the Erbaohuo silver mine and the Dadi mine into production in 2011, conducting advanced stage exploration on Laopandao and conducting further early stage exploration on 4 properties (Zuanxinhu, Aobaotugonao, Shididonggou and Yuanlinzi).

MINERALIZATION

The main metallic minerals include the following: pyrolusite, psilomelane, limonite, pyrite, galena, sphalerite, chalcopyrite, and other silver related minerals.

Cerro las Minitas

PROPERTY LOCATION AND DESCRIPTION

The Cerro Las Minitas property is located in the Minitas Mining District, approximately seven kilometers north of the town of Guadalupe Victoria, Durango and 70 km northeast of the City of Durango,Ciudad Durango, the capital of the state of Durango,
and six kilometers northwest of the town of Guadalupe Victoria, in the municipality of Guadalupe Victoria, Durango (Figure 6.1). The property can be reached from Ciudad Durango via Interstate Highway 40 (Toll Road) and Highway 40 (Free Access), the
road from Francisco I. Madera to Cuencame. From Guadalupe Victoria, a graded dirt road leads north to the property. About half of the property is located north of Interstate Highway 40 (a limited access freeway) and an overpass over the highway
affords access to the northern part of the property. The claims are located in the Minitas Mining District in the Mining Region of Guadalupe Victoria. The property consists of 16 mining concessions encompassing 1,423 hectares.

The nearby towns of Guadalupe Victoria and Ignacio Ramirez are serviced by the commercial electrical grid and a regional transmission line of the Comisión Federal de Electricidad (CFE) follows Interstate Highway 40. A 33,000 Kva power drop
has been extended from the CFE line to the Mina Piña shaft and is serviceable, but in need of minor repair. Improvements on the property consist of a network of graded dirt roads and various mine buildings in a poor state of repair located in
the Puro Corozon  Santo Nino and Mina Pina  La Bocona mining areas.



AGREEMENTS

In a news release dated December 13, 2005, Silver Dragon Resources, Inc. (the "Company") announced that it had entered into agreements to purchase a 100% interest in the Cerro Las Minitas Property. In March, 2006, Silver Dragon consolidated
landholdings in the district and claims are now held by Silver Dragon Mining de Mexico S.A. De C.V, a wholly owned Mexican subsidiary of Silver Dragon Resources Inc, by virtue of "Agreements to Purchase" 15 of the mining concessions.

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Under the terms of the Purchase Agreement with Sr. Jaime Muguiro Peña, the Company has earned 100% interest in ten mining concessions by payment of $450,000, plus 450,000 restricted common shares. All payments to Sr. Muguiro have been
made.

Under the terms of the Purchase Agreement with Sr. & Sra. Ramon Davila Flores, the Company has earned 100% interest in five mining concessions by payment of $245,000. All payments to Sr. and Sra. Flores have been made.

The surface access to the property is controlled by the Guadalupe Victoria and Ignacio Ramirez Ejidos. Silver Dragon Mining de Mexico, S.A. de C.V. has a surface agreement to cover the common ground of the Guadalupe Victoria Ejido that lies within
the Cerro Las Minitas concessions. Agreements with individual Ejido landowners are negotiated as needed to cover deeded lands.

The minimum annual work requirement for these mining concessions is approximately $19,500. According to the Mining Law and Ruling, there is an obligation to submit the evidence of the work expenditures to the authorities for properties larger
than 1,000 hectares. It is therefore recommended that the required information for the previous reporting year be submitted annually each May.

PROPERTY HISTORY

There is little documentation regarding the history  at Cerro Las Minitas, but local legend has it that Spaniards from the city of Victoria de Durango (now Durango City) discovered the silver mineralization at Cerro Las Minitas
originally. The historical information presented herein has been gleaned from discussions with local miners and operators and the few previous evaluative reports concerning the property that do exist.

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The only two areas with significant exploitation in the district are the Santo Niño-Puro Corazón and La Bocona-Mina Piña areas.

Sr. Carlos Villaseñor discovered Ag-Pb-Zn-Cu mineralization in the Santo Niño-Puro Corazón area in 1960. He explored the deposits there and did minor exploitation of them until 1971, when he built a small mill in the
Velardeña district. When the mill became operational, mining was stepped up and ores were shipped to the Velardeña mill to be processed. After attention was drawn to the area by the Villaseñor operations, exploration by others
discovered the deposits in the La Bocona-Mina Piña area to the east.

The majority of the mining at Cerro Las Minitas is reported to have been done during the period 1970  1981, but has continued intermittently until the present. The mines were idle from 1997 - 2002 due to problems with mine water and the drop
in metal prices. Intermittent, small-scale exploitation of the deposits in the Puro Corazón - Santo Niño area continued until 2005 and operations in the Mina Piña  La Bocona area continued to late 2006.

The Consejo de Recursos Minerales (''CRM'') has been giving support to the miners in the area since 1977. In 1979, CRM completed 834.55m of diamond drilling in seven holes on the Mina Piña area, which belonged at that time to Mr. Santiago
Valdez. Mr. Valdez exploited the mine until 1997, when he suspended operations due to the drop in metal prices. CRM discovered additional mineralization in their drilling, but no further exploration or development of those discoveries has been done.
CRM delivered drill and assay data to the operators in the district without interpretation. Silver Dragon's exploration staff is in the process of compiling and analyzing that data.

In 1981, CRM continued its support of the development of the district, completing 77m of shaft and 80m of crosscut to cut the upper, oxidized portion of the La Bocona deposit. Following that work, Sr. Jaime Muguiro deepened the Mina Piña
shaft another 59 meters to reach the 210 level. A 140-meter crosscut was driven, encountering a number of thin mineralized horizons and the Huisache mineralized chimney. Sr. Muguiro then suspended operations due to problems with water inflow.

In 1995, Minas de Bacis (Minas de Bacis, 1995) completed a 30-day evaluation of Cerro Las Minitas which consisted of analysis of previous data, inspection of accessible workings and analysis of surficial geology. Minas de Bacis began negotiations to
acquire the Concessions in the district. Those negotiations were unsuccessful and Minas de Bacis withdrew. A summary report of Minas de Bacis findings has been located, but much of the data used as the basis for the conclusions in the report has
not.

From 1999 to 2000, Minerales Noranda, SA de CV (''Noranda'') optioned the properties and completed an exploration program including 861 soil and rock samples, an aeromagnetic survey covering the entire district, and seven widely-spaced diamond drill
holes (3886 meters total) within the Cerro Las Minitas Dome. Results were encouraging but not up to Noranda's expectations and they abandoned the property. Unfortunately, the original Noranda data has not been found and all that has been located is
fragmentary data presented in a summary report by Proyectos Minerales y Topografia, S.A. de C.V. (2001). Most of the core from Noranda's drilling has been located and a partial reexamination of that core has been made to confirm data used in
estimating the inferred mineral resource reported herein. Continued re-examination of that core is ongoing, as Noranda's drill logs have not been recovered.

Minera Real Victoria (''MRV'') acquired leases on concessions in the Puro Corazón - Santo Niño area in 2005 and began a program of exploration  in the area. In May 2005, MRV began driving a 2.5m X 2.5m decline into the
old Puro Corazón - Santo Niño workings to develop resources believed to be present there. MRV drove 170 meters of workings to connect with level 2 of the Puro Corazon workings and to make a preliminary exploration of the near surface
portion of the La Chive mineralized zone. That work was halted in November, 2005 when MRV entered negotiations with Silver Dragon Resources, Inc to acquire the property. The sampling and resource assessment started by MRV was not completed, but
fragmentary data from that work has been recovered.

Silver Dragon Mining de Mexico, S.A. de C.V. signed agreements to acquire a 100% interest in the properties that now constitute the Company's holdings in the district in March, 2006. At that time geologists began compiling and analyzing existing
data for the property. Examination of that data showed that it was inadequate to guide further exploration operations and a program of rehabilitation, mapping and sampling existing workings on the property began. A combined reverse-circulation and
diamond drilling program to test continuity of mineralization at depth commenced in May of 2006. Eleven holes were drilled for 2915 meters. Nine of the eleven holes have been sampled, logged and assayed. Analysis of the two remaining holes will be
completed when geotechnical personnel are available. The mine is an underground mine. On October 28, 2008 the company acquired a mill at a price of US$245,000, including approximately US$20,000 for delivery and assembly.

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MINERALIZATION AND ROCK FORMATION

Cerro Las Minitas is located within the geomorphic province of the Mesa Central (Altiplano) of Mexico, northwest of the Sierra Madre Occidental in the State of Durango. In Durango, the Mesa Central is a broad plain at about 2000 meters elevation
traversed by NW trending mountain ranges separated by broad NW-trending valleys. Within this province, Cerro Las Minitas lies within a belt of prolific Au, Ag, Pb, Zn and Cu deposits that stretches from the highly productive vein deposits of
Fresnillo in Zacatecas to the south, to the massive manto deposits of Santa Eulalia in Chihuahua to the north. This belt includes the productive replacement deposits of San Martin, Santa Eulalia, Santa Barbara and Naica as well as the rich vein
deposits of Fresnillo, El Bote, San Jose and various others.

The basement rocks of Mexico are now known to be composed of an assemblage of tectono-stratigraphic terranes derived from the Paleozoic Appalachian orogen and the Mesozoic of the Atlantic and Gulf of Mexico combined with basement rocks of the North
American Cordillera. The assemblage includes deformed Pre-Cambrian intrusives and sediments, deformed Lower to Middle Paleozoic sediments and Lower Mesozoic sediments which are all covered with a thick succession of Mesozoic sedimentary and volcanic
strata. Those are covered by a thick succession of Tertiary sediments and volcanics and cut by numerous Tertiary intrusives.

Cerro Las Minitas is located within the Parral tectono-stratigraphic terrane near the regional fault that marks the contact between the Parral terrane and the Sierra Madre Occidental terrane. The Parral terrane is characterized by a thick Late
Mesozoic, miogeoclinal marine sequence deposited on a basement of Lower Mesozoic, eugeosynclinal sedimentary and volcanic strata. The Parral terrane is host to some of Mexico's larger Au, Ag, Pb, Zn and Cu replacement deposits, such as Santa
Eulalia, Naica, Villardeña, San Martin and Santa Barbara.

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ITEM 3. LEGAL PROCEEDINGS

On or about December 27, 2007, Alpha Capital Anstalt ("Alpha
Capital") served an Order to Show Cause and Complaint on Silver Dragon. The
Order to Show Cause sought a preliminary injunction (i) directing Silver Dragon
to deliver 333,333 shares of its common stock to Alpha Capital and (ii)
declaring that the exercise price of Silver Dragon Class A and B warrants
purchased by Alpha Capital should be reduced to $0.60 per share. The hearing on
the Order to Show Cause was scheduled for January 9, 2008 in the United States
District Court for the Southern District of New York. On or about January 14,
2008, an Order Granting Preliminary Injunction By Default was entered against
Silver Dragon (i) directing Silver Dragon to deliver 333,333 shares of its
common stock to Alpha Capital and (ii) declaring that the exercise price of
Silver Dragon Class A and B warrants purchased by Alpha Capital was thereby
reduced to $0.60 per share (the "January 14thOrder"). A second
Order, restraining the issuance of any shares of Silver Dragon stock pending
compliance with the Courts January 14thOrder, was entered on
default against Silver Dragon on or about January 25, 2008. Silver Dragon filed
a Motion to Set Aside Default Judgments and also filed an Answer to the
Complaint on February 5, 2008. Silver Dragon subsequently withdrew its Motion to
Set Aside Default Judgments and complied with the Courts January 14, 2008
Order. The parties have settled and the company is no longer involved in any
legal proceeding.

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 ended December 31, 2009, 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

Our common stock is quoted on the Over-the-Counter Bulletin
Board under the symbol "SDRG." The following table shows the quarterly high and
low trade prices on the Over-the-Counter Bulletin Board. The prices reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not represent actual transactions.

The first trades of our shares on the Over-The-Counter Bulletin
Board started January 1, 2001, and trading has been very limited since then;
there can be no assurance that a viable and active trading market will develop.
There can be no assurance that even if a market were developed for our shares,
there will be a sufficient market so that holders of common stock will be able
to sell their shares, or with respect to any price at which holders may be able
to sell their shares. Future trading prices of our common stock will depend on
many factors, including, among others, our operating results and the market for
similar securities.

The following sets forth information relating to the trading of
our common stock on the Over-The-Counter Bulletin Board.

|                                          |   | Sales Price on the Over-The-Counter Bulletin
      Board ($) | 
|----------------------------------------- | - | ------------------------------------------------------------ | 
|                                         
|                                          |   | High                                                         | 
|Fiscal Year Ended December 31,
      2008 |   |                                                              | 
|First Quarter                             | $ | 0.51                                                         | 
|Second Quarter                            | $ | 0.261                                                        | 
|Third Quarter                             | $ | 0.17                                                         | 
|Fourth Quarter                            | $ | 0.12                                                         | 
|                                          |   |                                                              | 
|Fiscal Year Ended December 31, 2009       |   |                                                              | 
|First Quarter                             | $ | 0.12                                                         | 
|Second Quarter                            | $ | 0.145                                                        | 
|Third Quarter                             | $ | 0.30                                                         | 
|Fourth Quarter                            | $ | 0.49                                                         | 

21

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On March 28, 2010, the closing trade price of our common stock as reported on the Bulletin Board was $0.28 per share. On that date, there were approximately 381 shareholders of record of our common stock.

Information concerning the Company's equity compensation plan is set forth in the attached audited financial statements.

We have never paid and do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings for reinvestment in our business. Any future determination to pay cash dividends will be
at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and other relevant factors.

Descriptions of sales of unregistered securities during 2009, not previously reported on the Company's 10-Q

On November 1, 2009, the Company issued warrants, to two Strategic Advisory Board members and a consulting group, to purchase 5,100,000 shares of the Companys stock for a period of five years from the date of issuance. The warrants allow for
600,000 shares to be purchased at a per share purchase price of $0.25 and 4,500,000 shares to be purchased at a per share purchase price of $0.50. The warrants were issued pursuant to two appointments to the Strategic Advisory Board of the
Company on October 13, 2009.

On November 3, 2009, the Company closed a private placement totaling 40,000 units at $0.25 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a two
year period from the date of the closing of the private placement.

On November 16, 2009, the Company issued 550,000 shares of the Companys restricted stock to an individual, pursuant to an agreement to purchase further mining concessions. As at December 31, 2009, the agreement had not been finalized and the
Company continues to hold possession of the shares until final terms of the agreement have been reached.

Between November and December 2009, the Company closed private placements totaling 3,728,484 units at $0.28 per unit for gross proceeds of $1,043,976. Each unit consists of one common share and one $0.50 per share purchase warrant
exercisable within a one year period from the date of the closing of the respective private placements.

On December 21, 2009, an individual exercised 100,000 options to purchase shares of the Companys stock at a per share price of $0.115 for gross proceeds of $11,500.

On December 21, 2009, the Company issued warrants, to two individuals, to purchase 2,500 shares of the Companys stock at a per share purchase price of $0.50, exercisable for a period of one year from the date of issuance.

On December 31, 2009, the Company cancelled 800,000 restricted shares of the Companys stock, that were initially issued on November 14, 2008, due to non-performance of contract terms.

The forgoing transactions were made in accordance with section 4(2) and/or Rule 506 of Regulation D under the 1933 Act.

ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You should read the following management's plan of operation together with our financial statements and related notes appearing elsewhere in this report. This management's plan of operation contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this
annual report.

22

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Plan of Operation

Overview.

Our primary objective is to explore for silver minerals and, if warranted, to develop those existing mineral properties. Our secondary objective is to locate, evaluate, and acquire other mineral properties, and to finance our exploration  through equity financing, by way of joint venture or option agreements or through a combination of both.

Plans for the Year 2010.

Geologic mapping, trenching and drilling work is underway for seven properties in China. Our mining and exploration activities in Mexico are in the exploration stage. We are in the process of exploring the concessions through drilling, trenching and
drifting. Our objective is to find new ore bodies and expand the resource of the existing ore bodies. There are currently four mining shafts, which were used to extract underground ore in the past. We built a ramp directly to one of the main ore
bodies. Based on our initital findings, we have concluded that the exploration done by Silver Dragon Mexico indicates that the potential resources inferred there justify the cost of further exploration.

We intend to begin an exploration program of detailed geologic mapping, surface geochemical sampling and ground magnetic sampling to collect the basic geotechnical information that will be necessary to support an effective exploration  program at Cerro Las Minitas. The program will include geologic mapping of the entire outcropping portion of the Cerro Las Minitas Dome at a scale of 1:2000, with more detailed mapping in areas of special interest, and definition of
project stratigraphy in detail from examination of exposures and drill core. Additionally, the program will include reconnaissance geochemical soil and rock sampling and ground magnetic surveying to cover the entire property. This first phase
program will include drilling 30 diamond drill holes from surface (5,000 meters) to develop oxide resources identified on the property and an additional six diamond drill holes (1,200 meters) drilled from underground to further develop discoveries
of sulfide mineralization made during the 2009 exploration program. The goals of this program are:

| | 1. | To compile a basic database of geotechnical information to support effective exploration at Cerro Las Minitas. All existing data will be incorporated into the database and recorded on maps, data sheets and reports on the various
categories of geotechnical information. This geotechnical data will bear heavily on every phase of the Cerro Las Minitas exploration project.                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | To define, by analysis of geotechnical data collected, the sites on the property that offer the best potential for near-term discovery of near-surface oxide ore. Those discoveries are anticipated to extend downwards into
unoxidized sulfide ores. Definition of the most favorable sites for further exploration expenditure will enhance the effectiveness of the Project and hasten its development.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                           
| | 3. | To define and develop the inferred oxide resources that have been identified on the property, including drilling, trenching and preliminary metallurgical tests. Oxide resources already identified on the property offer the best
potential for near-term, low- cost production from the project and justify this expenditure.                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4. | To define and further develop the carbonate replacement Ag-Pb-Zn mineralization that was discovered west of the Puro Corazón mine in 2006. The exploration model suggests that carbonate replacement deposits at Cerro Las
Minitas may offer the greatest long-term production potential on the property and justifies this investigation.                                                                

Cash Requirements.

The Companys current cash will not be sufficient to fund our business as currently planned for 12 months. We will need significant additional funds to continue operations, which we may not be able to obtain. We estimate that we must raise approximately
$3.5 million over the next 12 months to fund our anticipated capital requirements in Mexico as well as the costs of administration.

We have historically satisfied our working capital requirements through the private issuances of equity securities. We will continue to seek additional funds through such channels and from collaborative and other arrangements with corporate
partners. In particular, we will need $3.5 million in additional funding to continue our operations for the next 12 months. If we fail to obtain sufficient funds, we may need to delay, scale back or terminate some or all of our mining
exploration programs.

23

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
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 periods. These estimates are based on management's best knowledge of current events
and actions the Company may undertake in the future. Significant areas requiring the use of estimates relate to mineral rights, equity investment, plant and equipment, and stock-based compensation. Actual results could differ from these and other
estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the respective period.

We have identified below certain accounting policies that we believe are most important for the portrayal of our current financial condition and results of operations.  Our significant accounting policies are disclosed in Note 3 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K/A.

Mineral Rights

We record our interest in mineral rights at cost. Exploration costs are expensed. Costs associated with acquisition 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 value.

Investments in unproved properties and major exploration 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. We presently have no proven reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management
assesses whether the 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.

Equity Investment

Equity investments are entities over which we exercise significant influence but do not exercise control. These are accounted for using the equity method of accounting in accordance with APB 18 and are initially recognized at cost net of any
accumulated impairment loss. Our share of these entities’ profits or losses after acquisition of our interest is recognized in the statement of operations and cumulative post-acquisition movements are adjusted against the carrying amount of
the investment. When our share of losses on these investments equals or exceeds the carrying amount of the investment, we only recognize further losses where we have incurred obligations or made payments on behalf of the affiliate. Off Balance Sheet Arrangements

We do 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 our financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources that have not been disclosed in our financial statements.

Results of Operation for the Years Ended December 31, 2009 and 2008.

Revenues and Losses

During the years ended December 31, 2009 and 2008, we did not have any revenues.

During the years ended December 31, 2009 and 2008, we incurred operating expenses of $3,387,164 and $5,417,333 respectively. Decreases were mainly due to:

- Lower consulting and management fees as the Company reduced the number of consultants at head office.
- Far less shares issued for services.
- Less advertising and promotion initiatives as the Company aimed to preserve funds.

During the years ended December 31, 2009 and 2008, we reported a net loss of $3,862,649 and $3,969,299 respectively. The reason for the decrease in 2009 is due to factors discussed above.

Liquidity and Capital Resources

As of December 31, 2009, we had $137,448 in cash and $162,824 in other receivables (which represented VAT refunds receivable). In addition, we had accounts payable and accrued liabilities totaling of $1,401,001 for a working capital
deficit of ($934,226) compared to working capital of $32,909 in 2008. During 2009, we have been dependent on the issuance of common stock and loans to satisfy expenses.

Going Concern

Our consolidated financial statements have been presented on the basis that we are 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 consolidated financial statements, we incurred a large net operating loss in the year ended December 31, 2009, and had significant unpaid accounts payable and accrued liabilities. These factors create an uncertainty
about our ability to continue as a going concern. Our management has provided operating capital to us and has developed a plan to raise additional capital. Our ability to continue as a going concern is dependent on the success of this plan. The
consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

Liquidity and Capital Resources

We will need additional capital in order to finance our obligations and the acquired properties in Cerro Las Minitas, Mexico, as well as to continue our attempt to acquire viable businesses and properties and to finance the administrative costs
including but not limited to legal and accounting fees. Our management is seeking additional capital. However, there is no assurance that this needed capital can be raised on terms acceptable to us.

24

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Going Concern

As of December 31, 2009, we had an accumulated deficit of $30,311,561. Our continuation as a going concern is uncertain and dependent on successfully achieving future profitable operations and obtaining additional sources of financing to sustain
our operations. In the event we cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel
our exploration programs. We plan to pursue additional financing; however there can be no assurance that
we will be able to secure financing when needed or obtain such on terms satisfactory to us, if at all.

The consolidated 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 our possible
inability to continue as a going concern.

ITEM 7. FINANCIAL STATEMENTS

The financial statements are attached hereto as Exhibit A.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

Termination of Prior Independent Accountants

By resolution adopted on January 24, 2006, our board of directors elected to change independent accountants. The independent accounting firm of Moore Stephens Cooper Molyneux LLP notified us on January 24, 2006 that they were terminating their
registration with the Public Company Accounting Oversight Board and therefore, were resigning as our 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 our ability to continue as a going concern.
In connection with the audits of our 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, our board of directors engaged SF Partnership LLP, 4950 Yonge Street, 4th Floor, Toronto, Ontario, M2N 6K1 as our new independent auditors (the "new" accounting firm) to audit our financial statements. During the two
most recent fiscal years and the subsequent interim periods prior to the engagement of the new accounting firm, we 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).

25

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ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, an evaluation was carried out under the supervision of, and with the participation of, the Companys management, including the President and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a  15(e) and Rule 15d  15(e)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that as of the end of the period covered by this report, the Companys disclosure controls and procedures were not effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits
to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in applicable rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Management is taking steps to improve our disclosure controls and procedures in order to
ensure that we are alerted to such material information in a timely fashion.

Managements Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the 1934 Act. Management has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2009 through a series of dicussions among management. As a result of this assessment, management concluded that, as of December 31, 2009, our internal control over financial reporting was not effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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

Except as discussed above, there has been no change in the Company's internal control over financial reporting during the Company's fourth fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

None.

26

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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors, Executive Officers and Significant Employees

The following sets forth information concerning our current
directors, executive officers and significant employees. Each director has been
elected to serve until our next annual meeting of shareholders and until his
successor has been elected and qualified. Each executive officer serves at the
discretion of our board of directors.

Name
    Age
    PositionMarc Hazout
    45
    Chief Executive Officer,
      President and DirectorManuel Chan
    53
    DirectorGuoqiang Hao
    
    DirectorR.Glen MacMullin
    38
    Director


Marc Hazout has been our President, Chief Executive Officer and
a director since June 1, 2002. Mr. Hazout attended The Canadian Securities
Institute from 1998-2000 and in 1999 worked as an equity trader at Swift Trade
Securities Inc. in Toronto. In 1998, Mr. Hazout founded and has been President
and CEO of Travellers International Inc., a private investment 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. Mr.
Hazout is also the President and Chief Executive officer, and a director of
CommandCredit Corp.

Manuel Chan joined our board of directors on August 29, 2007.
Mr. Chan is also a member of the Board of Directors of Sanhe Sino-Top Resources
& Technologies Ltd. ("Sino-Top'') of which Silver Dragon owns a 40% equity
interest. Mr. Chan possesses more than 20 years of experience in the real estate
sector and holds a Bachelor of Commerce degree in Management Information Systems
and Accounting from the University of British Columbia, Canada.

R. Glen MacMullin has been a director of the company since
December, 2007. Mr. MacMullin is currently a Vice President of Finance with
Minto Group, Inc. a fully integrated real estate development, construction and
management company with operations in Ottawa, Toronto and Florida. Prior to
joining Minto Group, Inc. in 2008, Mr. MacMullin was a Managing Director and
Chief Operating Officer with Xavier Sussex, LLC; a New York based private equity
firm he co-founded in 2004. In 2001, Mr. MacMullin was appointed Director and
Chief Operating Officer with DB Advisors, LLC; a $6 billion hedge fund group
based in New York and a wholly owned subsidiary of Deutsche Bank AG. He has also
held several senior management positions with Deutsche Bank Offshore in the
Cayman Islands from 1998 through 2001, including Head of Investment Funds. He
began his career in 1993 as a public accountant with Coopers & Lybrand in
Ottawa, Canada and KPMG in the Cayman Islands. Mr. MacMullin received a Bachelor
of Business Administration degree from Saint Francis Xavier University in 1993
and is a member of the Canadian Institute of Chartered Accountants. Mr.
MacMullin also serves on the Board of Directors of Nayarit Gold, Inc.

Guoqiang Hao has been a director of the company since June,
2008. Mr. Hao is currently head of Exploration Unit of North China Geological
Exploration Bureau, a.k.a. Huaguan Industrial Corp.(HIC), a Chinese state-owned
entity that operates in many diversified fields such as mining, engineering,
manufacturing, chemical analysis and real estate. Mr. Hao has served with HIC
for over 30 years, first as a geologist, then as a manager, and has witnessed
its development from a geological exploration team to a conglomerate that boasts
a staff of over 700 and over 10 subsidiaries. Under the leadership of Mr. Hao,
HIC is also in the process of acquiring mining properties in northern Africa and
central Asia.

Mr. Hao is also a member of the Board of the Directors of Sanhe
Sino-Top Resources & Technologies Ltd., a joint venture between Silver
Dragon and HIC. Having a dual capacity of corporate executive and government
officer, Mr. Hao has extensive connections with Chinas mining and industrial
circles and the Chinese government.

27

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Donald J. Robinson, Ph.D 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.

Legal Proceedings

None

Section 16(a) Beneficial Ownership Reporting
Compliance

Based upon a review of the copies of Forms 3, 4, and 5, as
applicable, and amendments thereto, provided to the Company and the written
representations of its directors, executive officers and 10% stockholders, the
Company believes that, during the fiscal year 2009, its directors, executive
officers and 10% stockholders complied with all Section 16(a) filing
requirements.

Code of Ethics and Policy Regarding Consideration of
Director Candidates Recommended by Stockholders

The Company has not adopted a Code of Ethics that applies its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions as the Company
feels that its current corporate governance policies and procedures in place are
sufficient for this purpose.

Audit Committee

The Company does not have an audit committee.

ITEM 10.
EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning the
compensation for services in all capacities for the fiscal years ended December
31, 2009 and 2008 of the executive officers.

|                        |  |      |  |  |         |  |  |       |  |  |        |  |  |        |  |  |                  |  |  |                  |  |  |                  |  |  |         | 
|----------------------- |  | ---- |  |  | ------- |  |  | ----- |  |  | ------ |  |  | ------ |  |  | ---------------- |  |  | ---------------- |  |  | ---------------- |  |  | ------- | 
|                        |  |      |  |  |         |  |  |       |  |  |        |  |  |        |  |  | Non-Equity       |  |  | Nonqualifie      |  |  |                  |  |  |         | 
|                        |  |      |  |  |         |  |  |       |  |  |        |  |  |        |  |  | Incentive        |  |  | Deferred         |  |  |                  |  |  |         | 
|Name and                |  |      |  |  |         |  |  |       |  |  | Stock  |  |  | Option |  |  | Plan             |  |  | **Compensation** |  |  | All Other        |  |  |         | 
|Principal               |  | Year |  |  | Salary  |  |  | Bonus |  |  | Awards |  |  | Awards |  |  | **Compensation** |  |  | Earnings         |  |  | **Compensation** |  |  | Total   | 
|Position                |  |      |  |  | ($)     |  |  | ($)   |  |  | ($)    |  |  | ($)    |  |  | ($)              |  |  | ($)              |  |  | ($)              |  |  | ($)     | 
|Marc Hazout,            |  | 2009 |  |  | 288,000 |  |  | -     |  |  |        |  |  |        |  |  |                  |  |  |                  |  |  | None             |  |  | 288,000 | 
|Director, President and |  |      |  |  |         |  |  |       |  |  |        |  |  |        |  |  |                  |  |  |                  |  |  |                  |  |  |         | 
|Chief Executive Officer |  | 2008 |  |  | 288,000 |  |  | -     |  |  |        |  |  |        |  |  |                  |  |  |                  |  |  | None             |  |  | 288,000 | 

28

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|DIRECTOR COMPENSATION | 
|--------------------- | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|Name                  | 
|Manuel Chan           | 
|2009                  | 
|2008                  | 
|R. Glen MacMullin     | 
|2009                  | 
|2008                  | 

We do not have a Long-Term Incentive Plan.

Equity Compensation Plan Information

The Company had no equity compensation plan in 2009.

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. 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 100% 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

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.

29

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth the common stock beneficially
owned by (1) our directors and named executive officers, (2) persons known by us
to beneficially own, individually, or as a group, more than 5% of our
outstanding common stock as of March 27, 2008 and (3) all of our current
directors and executive officers as a group. For the purposes of the information
provided below, beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, and, for each person, includes shares
that person has the right to acquire within 60 days following April 13, 2007
subject to options, warrants, or similar instruments. Except as indicated in the
footnotes to this table, and as affected by applicable community property laws,
all persons listed have sole voting and investment power for all shares shown as
beneficially owned by them.

|Name and Address of Beneficial Owner                          |  | Number of Shares |     |  | % Shares | (1)
|------------------------------------------------------------- |  | ---------------- | --- |  | -------- | ---
|Marc Hazout (2)                                               |  |                  |     |  |          |    
|Suite 803, 5160 Yonge Street, Toronto,
      Ontario, M2N 6L9 |  | 18,255,206       | (2) |  | 19.9%    |    
|Manuel Chan                                                   |  |                  |     |  |          |    
|5515 Elizabeth Street, Vancouver, B.C.,
      V5Y 3K1         |  | 500,000          |     |  | 0.55%    |    
|Glen MacMullin                                                |  |                  |     |  |          |    
|89 Third Avenue, Ottawa, Ontario, K1S
      2J7               |  | 0                |     |  | 0%       |    
|Guoqiang Hao                                                  |  |                  |     |  |          |    
|                                                              |  | 250,000          |     |  | 0.27%    |    
|Officers and Directors as a group                             |  | 19,005,206       |     |  | 20.72%   |    

(2) Owned by Travellers International Inc. solely
owned by Mr. Hazout. Mr. Hazout is the President and CEO of Travellers.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

On March 1, 2006 we issued Travellers 1,000,000 restricted
common shares in consideration for its assistance to the Company in the
acquisition of the mining rights in Cerro las Minitas, Mexico.

On August 17, 2007, we issued 500,000 shares of our common
stock and options to purchase 500,000 shares of our common stock to Colin
Sutherland pursuant to his appointment as our Chief Financial Officer and
Director.

On October 10, 2007, we issued 500,000 share purchase warrants
to Manuel Chan pursuant to his appointment as a Director.

On November 2, 2007, we issued 500,000 share purchase warrants
to Terry Christopher pursuant to his appointment as a Director. On December 5,
2007, we issued 250,000 share purchase warrants to Glen MacMullin pursuant to
his appointment as a Director. On October 13, 2009, the Company issued 250,000
share purchase warrants to Glen MacMullin.

30

---

ITEM 13. EXHIBITS

(a) The financial statements filed as part of this report are
listed separately in the Index to Financial Statements.

|Exhibit No. | Name of Exhibit                                                                                                                                                                          
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | Articles of Incorporation (1)                                                                                                                                                            
|3.2         | Amendment to Articles of Incorporation (2)                                                                                                                                               
|3.3         | Bylaws (1)                                                                                                                                                                               
|4.1         | Form of Subscription Agreement dated March 23, 2006
      between Silver Dragon Resources Inc. and Heller Capital Investments LLC
      (3)                                              
|4.2         | Form of Class A Common Stock Purchase Warrant issued to
      Heller Capital Investments LLC (4)                                                                                         
|4.3         | Form of Class B Common Stock Purchase Warrant issued to
      Heller Capital Investments LLC (4)                                                                                         
|4.4         | Subscription Agreement dated November 9, 2006 between
      Silver Dragon Resources, Inc. and Alpha Capital                                                                              
|4.5         | Form of Class A Common Stock Purchase Warrant issued to
      Alpha Capital Anstalt (5)                                                                                                  
|4.6         | Form of Class B Common Stock Purchase Warrant issued to
      Alpha Capital Anstalt (5)                                                                                                  
|4.7         | Form of Class C Common Stock Purchase Warrant issued to
      Alpha Capital Anstalt (5)                                                                                                  
|10.1        | Assignment of Rights of Mining Concessions Agreement
      between Silver Dragon Mining De Mexico, S.A. de C.V. and Jamie Mugurio
      Pena (6)                                         
|10.2        | Assets Bailment Agreement dated March 2, 2006 by and
      between Silver Dragon Mining De Mexico, S.A. de C.V. and Jaime Mugurio
      Pena (6)                                         
|10.3        | Assets Purchase Agreement dated March 2, 2006 by and
      between Silver Dragon Mining De Mexico, S.A. de C.V. and Ramon Tomas
      Davila Flores (6)                                  
|10.4        | Asset Purchase Agreement between Silver Dragon Mining De
      Mexico, S.A., de C.V. and Ramon Tomas Davila                                                                              
|10.5        | Assignment of Rights of Mining Concessions Agreement
      dated March 8, 2006 by and between Silver Dragon Mining De Mexico, S.A. de
      C.V. and Minera Real Victoria S.A. de C.V.(6)
|10.6        | Addendum to the Mining Exploration and Exploitation
      Agreement dated March 9, 2006 by and between Silver Dragon Mining de
      Mexico , S.A. de C.V. and Silvia Villasenor Haro (6)
|10.7        | Asset Purchase Agreement dated as of March 16, 2006 among
      Silver Dragon Resources, Inc., Sino Silver Corp. and Sanhe Sino-Top
      Resources and Technologies, Ltd. (7)           
|10.8        | Strategic Cooperation Agreement dated July 26, 2006,
      between Silver Dragon Resources, Inc. and Tianjin North China Exploration
      Bureau (4)                                    
|10.9        | Employment Agreement dated November 15, 2005 between
      Silver Dragon Resources, Inc. and Marc Hazout (management contract) (4)                                                       
|11          | Statement re: computation of per share earnings (8)                                                                                                                                      
|16.1        | Letters from Moore Stephens Cooper Modyneux LLP on change
      in certifying accountants (9)                                                                                            
|21          | Subsidiaries of the Company (10)                                                                                                                                                         
|23.1        | Consent of SF Partnership, LLP, Chartered Accountants                                                                                                                                    
|31.1        | Rule 13a-14(a)/15d-14(a)
      Certification by the Chief Executive Officer                                                                                                              
|32.1        | Certification by the Chief Executive
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section906 of the Sarbanes-Oxley Act of 2002                         



|(1)  | Incorporated by reference to Form 10-SB filed on February
      23, 2000.
|---- | -------------------------------------------------------------------------
|(2)  | Incorporated by reference to Form 10-SB/A filed on July
      17, 2003.  
|(3)  | Incorporated by reference to Form 8-K/A filed December
      14, 2006.   
|(4)  | Incorporated by reference to Form SB-2/A filed March 21,
      2007.     
|(5)  | Incorporated by reference to Form 8-K filed December 5,
      2006.      
|(6)  | Incorporated by reference to Form 8-K filed on March 20,
      2006.     
|(7)  | Incorporated by reference to Form 8-K filed March 24,
      2006.        
|(8)  | Included within financial statements attached hereto as
      Exhibit A. 
|(9)  | Incorporated by reference to Form 8-K filed January 27,
      2006.      
|(10) | Previously filed.                                                        

31

---

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed for professional services rendered by SF Partnership LLP, the principal accountant, was $136,950 for 2008 and $76,690 for 2009.

Audit-Related Fees were $83,000 for 2008 and $36,000 for 2009.

Tax Fees were nil for 2008 and 2009.

All Other Fees were nil for 2008 and 2009.

32

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Amendment
No. 1 to Annual Report on Form 10-K/A to be signed on its behalf by the
undersigned, thereunto authorized.

SILVER DRAGON RESOURCES INC.

By: /s/ Marc M. HazoutMarc M. Hazout President and Chief Executive Officer

Dated:  November 22, 2010

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant, in the capacities and on the dates indicated.

|Signature                | Title                                        | Date             
|------------------------ | -------------------------------------------- | -----------------
|                         |                                              |                  
|/s/ Marc M.
      Hazout | President and Chief Executive Officer, and   | November 22, 2010
|Marc M. Hazout           | Director                                     |                  
|                         |                                              |                  
|/s/ Jeffrey D. Sherman   | Chief Financial Officer (Principal Financial | November 22, 2010
|Jeffrey D. Sherman       | and Principal Accounting Officer)            |                  
|                         |                                              |                  
|                         |                                              |                  
|/s/ Manuel
      Chan    | Director                                     | November 22, 2010
|Manuel Chan              |                                              |                  
|                         |                                              |                  
|/s/ Glen
      MacMullin | Director                                     | November 22, 2010
|Glen MacMullin           |                                              |                  
|                         |                                              |                  
|/s/ Guoqiang Hao         | Director                                     | November 22, 2010
|Guoqiang Hao             |                                              |                  
|                         |                                              |                  
|/s/ Charles McAlpine     | Director                                     | November 22, 2010
|Charles McAlpine         |                                              |                  
|                         |                                              |                  

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2009, and 2008

(EXPRESSED IN UNITED STATES DOLLARS)

CONTENTS

|Report of Independent Registered
      Public Accounting Firm                                                                                                                                                                     | 1    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|Consolidated Balance Sheets as of December 31, 2009,
      and 2008                                                                                                                                                               | 2    
|Consolidated Statements of Operations and
      Comprehensive Loss for the Years Ended December 31, 2009 and 2008, and
      Cumulative for the Period from June 15, 1996, [Date of Inception] Through
      to December 31, 2009 | 3-4  
|Consolidated Statements of Stockholders' Equity, Cumulative
      for the Period from June 15, 1996, [Date of Inception] Through December
      31, 2009                                                                          | 5-10 
|Consolidated Statements of Cash Flows for
      the Years Ended December 31, 2009, and 2008, and Cumulative for the Period
      from June 15, 1996, [Date of Inception] Through December 31, 2009                                | 11-12
|Notes to the Consolidated Financial Statements                                                                                                                                                                                    | 13-24



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Silver Dragon Resources Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Silver Dragon Resources Inc. and Subsidiaries (a Delaware corporation in the exploration stage) as of December 31, 2009 and 2008, and the  consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2009, and cumulative from inception (June 15, 1996) through to December 31, 2009, 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 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 financial
statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that 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, 2009 and 2008, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2009 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 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.

|Toronto, Canada | SF Partnership, LLP  
|--------------- | ---------------------
|March 28, 2010  | CHARTERED ACCOUNTANTS

- 1 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Balance Sheets (Expressed in
United States Dollars)

|                                                                                                                                                          |   | December 31 |   |  | December 31 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ----------- | -
|                                                                                                                                                          |   | 2009        |   |  | 2008        |  
|ASSETS                                                                                                                                                    |   |             |   |  | (Restated)  |  
|Current Assets                                                                                                                                            |   |             |   |  |             |  
|Cash and cash equivalents                                                                                                                                 | $ | 137,448     |   |  | 1,207,227   |  
|Current portion of deferred expenses                                                                                                                      |   | 329,327     |   |  | 544,662     |  
|Total Current
      Assets                                                                                                                                |   | 466,775     |   |  | 1,751,889   |  
|Deferred Expenses                                                                                                                                         |   | 13,125      |   |  | 160,458     |  
|Plant and Equipment,
      net(note 8)                                                                                                                    |   | 370,825     |   |  | 457,455     |  
|Mineral Rights(note 9)                                                                                                                                    |   | 3,045,745   |   |  | 3,045,745   |  
|Equity Investment(note 10)                                                                                                                                |   | 4,804,963   |   |  | 4,575,006   |  
|Total Assets                                                                                                                                              | $ | 8,701,433   |   |  | 9,990,553   |  
|LIABILITIES                                                                                                                                               |   |             |   |  |             |  
|Current Liabilities                                                                                                                                       |   |             |   |  |             |  
|Accounts payable                                                                                                                                          | $ | 1,095,243   |   |  | 1,202,442   |  
|Accrued liabilities                                                                                                                                       |   | 305,758     |   |  | 492,041     |  
|Due to related parties (note 11)                                                                                                                          |   | -           |   |  | 24,497      |  
|Total Liabilities                                                                                                                                         |   | 1,401,001   |   |  | 1,718,980   |  
|Commitments and
      Contingencies(note 16)                                                                                                              |   |             |   |  |             |  
|STOCKHOLDERS' EQUITY                                                                                                                                      |   |             |   |  |             |  
|Capital Stock(note 12)                                                                                                                                    |   |             |   |  |             |  
|Preferred stock, $0.0001
      par value, 20,000,000 shares authorized, none issued and outstanding                                                       |   | -           |   |  | -           |  
|Common stock, $0.0001 par
      value, 150,000,000 shares authorized, 91,597,686 shares issued and outstanding (2008  84,753,488 issued and outstanding) |   | 9,160       |   |  | 8,475       |  
|Additional Paid-in Capital(note
      12)                                                                                                                 |   | 37,771,329  |   |  | 34,771,264  |  
|Stock
      Subscriptions                                                                                                                                 |   | (209,000    | ) |  | (117,500    | )
|Deficit Accumulated During the
      Exploration Stage                                                                                                    |   | (30,311,561 | ) |  | (26,448,912 | )
|Accumulated
      Comprehensive Income                                                                                                                    |   | 40,504      |   |  | 58,246      |  
|Stockholders' Equity                                                                                                                                      |   | 7,300,432   |   |  | 8,271,573   |  
|Total Liabilities
      and Stockholders' Equity                                                                                                          | $ | 8,701,433   |   |  | 9,990,553   |  

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

- 2 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Operations and
Comprehensive Loss For the Years Ended December 31, 2009 and 2008, and
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Expressed in United States Dollars)

|                                                                    |   | December 31
    2009 |   |   | December 31
    2008
    (Restated) |   |   | For the period
    
    from June 15, 1996 [date of inception] through 
    December
      31, 2009 
    (Restated) |  
|------------------------------------------------------------------- | - | -------------------- | - | - | ----------------------------------- | - | - | ------------------------------------------------------------------------------------------------------------------- | -
|Revenues                                                            | $ | -                    |   | $ | -                                   |   | $ | 64,888                                                                                                              |  
|Cost of Revenues                                                    |   | -                    |   |   | -                                   |   |   | 74,482                                                                                                              |  
|Gross Loss                                                          |   | -                    |   |   | -                                   |   |   | (9,594                                                                                                              | )
|Operating Expenses                                                  |   |                      |   |   |                                     |   |   |                                                                                                                     |  
|General and administrative                                          |   | 3,324,408            |   |   | 3,758,966                           |   |   | 23,422,150                                                                                                          |  
|Exploration                                                         |   | 62,756               |   |   | 1,658,367                           |   |   | 6,960,800                                                                                                           |  
|Development (non-mining)                                            |   | -                    |   |   | -                                   |   |   | 60,000                                                                                                              |  
|Total Operating Expenses                                            |   | 3,387,164            |   |   | 5,417,333                           |   |   | 30,442,950                                                                                                          |  
|Loss From Continuing
      Operations                               |   | (3,387,164           | ) |   | (5,417,333                          | ) |   | (30,452,544                                                                                                         | )
|Other Income (Expenses)                                             |   |                      |   |   |                                     |   |   |                                                                                                                     |  
|Gain on sale of controlling
      interest in subsidiary            |   | -                    |   |   | 1,816,733                           |   |   | 1,816,733                                                                                                           |  
|Interest expense                                                    |   | -                    |   |   | -                                   |   |   | (36,517                                                                                                             | )
|Interest income  related parties                                   |   | -                    |   |   | -                                   |   |   | 15,905                                                                                                              |  
|Interest expense - related parties                                  |   | -                    |   |   | (32,500                             | ) |   | (56,846                                                                                                             | )
|Settlement with Cyper Entertainment, Inc.                           |   | -                    |   |   | -                                   |   |   | (80,000                                                                                                             | )
|Loss on disposal of asset                                           |   | -                    |   |   | -                                   |   |   | (15,371                                                                                                             | )
|Gain (Loss) on recognition of
      an embedded derivative (note 6) |   | 144,000              |   |   | (238,500                            | ) |   | (261,000                                                                                                            | )
|Loss on investment                                                  |   | -                    |   |   | -                                   |   |   | (158,939                                                                                                            | )
|Net loss on equity investment                                       |   | (663,442             | ) |   | (97,699                             | ) |   | (663,442                                                                                                            | )
|Loss on sale of marketable securities                               |   | -                    |   |   | -                                   |   |   | (389,365                                                                                                            | )
|Forgiveness of debt                                                 |   | 38,871               |   |   | -                                   |   |   | 38,871                                                                                                              |  
|Other - Non operating                                               |   | 5,086                |   |   | -                                   |   |   | (19,312                                                                                                             | )
|Total Other Income (Expenses)                                       |   | (475,485             | ) |   | 1,448,034                           |   |   | 190,717                                                                                                             |  
|Net Loss Before Income Tax (carried forward)                        | $ | (3,862,649           | ) | $ | (3,969,299                          | ) | $ | (30,261,827                                                                                                         | )

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

- 3 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Operations and
Comprehensive Loss For the Years Ended December 31, 2009 and 2008, and
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Expressed in United States Dollars)

|                                                                               |   |             |   |   |             |   |   | For the period from |  
|------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ------------------- | -
|                                                                               |   |             |   |   |             |   |   | June 15, 1996       |  
|                                                                               |   |             |   |   |             |   |   | [date of inception] |  
|                                                                               |   | December 31 |   |   | December 31 |   |   | through December 31 |  
|                                                                               |   | 2009        |   |   | 2008        |   |   | 2009                |  
|Net Loss Before Income Tax(brought forward)                                    | $ | (3,862,649  | ) | $ | (3,969,299  | ) | $ | (30,261,827         | )
|Provision for Income Taxes                                                     |   |             |   |   |             |   |   |                     |  
|Current                                                                        |   | -           |   |   | -           |   |   | -                   |  
|Deferred                                                                       |   | -           |   |   | -           |   |   | -                   |  
|Net Loss From Continuing
      Operations, After Tax                           |   | (3,862,649  | ) |   | (3,969,299  | ) |   | (30,261,827         | )
|Minority Interest                                                              |   | -           |   |   | -           |   |   | 253,021             |  
|Loss from discontinued
      operations (net of tax)                           |   | -           |   |   | -           |   |   | (302,755            | )
|Net Loss                                                                       |   | (3,862,649  | ) |   | (3,969,299  | ) |   | (30,311,561         | )
|Foreign exchange adjustment                                                    |   | (17,742     | ) |   | 77,949      |   |   | 40,504              |  
|Comprehensive Loss                                                             | $ | (3,880,391  | ) | $ | (3,891,350  | ) | $ | (30,271,057         | )
|Net loss per common share 
      basic and diluted                            | $ | (0.04       | ) | $ | (0.05       | ) |   |                     |  
|Net loss on continuing operations per
      common share  basic and diluted   | $ | (0.04       | ) | $ | (0.05       | ) |   |                     |  
|Weighted average number of
      common shares outstanding  basic and diluted |   | 86,988,100  |   |   | 76,644,797  |   |   |                     |  

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

- 4 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009(Expressed in United States Dollars)

|                                             |  |              |  |  |        |  |  |             |  |  | Deficit     |   |  |              |   |  |          |  |  |               |  |  |               |      
|-------------------------------------------- |  | ------------ |  |  | ------ |  |  | ----------- |  |  | ----------- | - |  | ------------ | - |  | -------- |  |  | ------------- |  |  | ------------- | -----
|                                             |  | Common Stock |  |  |        |  |  | Accumulated |  |  |             |   |  |              |   |  |          |  |  |               | 
|                                             |  |              |  |  |        |  |  | Additional  |  |  | During the  |   |  |              |   |  |          |  |  | Accumulated   |  |  | Total         |      
|                                             |  | Number of    |  |  |        |  |  | Paid in     |  |  | Exploration |   |  | Stock        |   |  | Treasury |  |  | Comprehensive |  |  | Stockholders' |      
|                                             |  | Shares       |  |  | Amount |  |  | Capital     |  |  | Stage       |   |  | Subscription |   |  | Stock    |  |  | Income (Loss) |  |  | Equity        |      
|                                             |  |              |  |  | $      |  |  | $           |  |  | $           |   |  | $            |   |  | $        |  |  | $             |  |  | $             |      
|Shares issued to founder for
      cash      |  | 333,334      |  |  | 33     |  |  | 967         |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 1,000         |      
|Shares issued to founders for services       |  | 55,000       |  |  | 6      |  |  | 159         |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 165           |      
|Shares issued for investment
      in CECK   |  | 50,000       |  |  | 5      |  |  | 37,495      |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 37,500        |      
|Shares issued to purchase subsidiary         |  | 350,000      |  |  | 35     |  |  | 70          |  |  | (1,060      | ) |  | -            |   |  | -        |  |  | -             |  |  | (955          | )    
|Shares issued for cash                       |  | 13,333       |  |  | 1      |  |  | 9,999       |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 10,000        |      
|Net Loss, 1996                               |  | -            |  |  | -      |  |  | -           |  |  | (14,198     | ) |  | -            |   |  | -        |  |  | -             |  |  | (14,198       | )    
|Balance, December 31,
      1996 (unaudited) |  | 801,667      |  |  | 80     |  |  | 48,690      |  |  | (15,258     | ) |  | -            |   |  | -        |  |  | -             |  |  | 33,512        |      
|Shares issued for cash                       |  | 37,333       |  |  | 4      |  |  | 28,896      |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 28,900        |      
|Shares issued for services                   |  | 46,333       |  |  | 5      |  |  | 34,745      |  |  |             |   |  | -            |   |  | -        |  |  |               |  |  | 34,750        |      
|Shares issued for vehicle                    |  | 33,333       |  |  | 3      |  |  | 24,997      |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 25,000        |      
|Net Loss, 1997                               |  | -            |  |  | -      |  |  | -           |  |  | (142,622    | ) |  | -            |   |  | -        |  |  | -             |  |  | (142,622      | )    
|Balance, December 31, 1997
      (unaudited) |  | 918,666      |  |  | 92     |  |  | 137,328     |  |  | (157,880    | ) |  | -            |   |  | -        |  |  | -             |  |  | **(20,460**   | )    
|Shares issued for cash                       |  | 58,667       |  |  | 6      |  |  | 49,995      |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 50,001        |      
|Shares issued for vehicle                    |  | 10,667       |  |  | 1      |  |  | 7,999       |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 8,000         |      
|Net loss, 1998                               |  | -            |  |  | -      |  |  | -           |  |  | (54,404     | ) |  | -            |   |  | -        |  |  | -             |  |  | (54,404       | )    
|Balance, December 31, 1998
      (unaudited) |  | 988,000      |  |  | 99     |  |  | 195,322     |  |  | (212,284    | ) |  | -            |   |  | -        |  |  | -             |  |  | **(16,863**   | **)**
|Shares issued for cash                       |  | 151,918      |  |  | 15     |  |  | 56,759      |  |  | -           |   |  | (4,000       | ) |  | -        |  |  | -             |  |  | 52,774        |      
|Shares issued for settlement of debt         |  | 16,000       |  |  | 2      |  |  | 8,773       |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 8,775         |      
|Shares issued for
      services             |  | 36,000       |  |  | 3      |  |  | 126,467     |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 126,470       |      
|Forgiveness of debt of related party         |  | -            |  |  | -      |  |  | 23,000      |  |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 23,000        |      
|Net loss, 1999                               |  | -            |  |  | -      |  |  | -           |  |  | (181,898    | ) |  | -            |   |  | -        |  |  | -             |  |  | (181,898      | )    
|Balance, December 31, 1999
      (unaudited) |  | 1,191,918    |  |  | 119    |  |  | 410,321     |  |  | (394,182    | ) |  | (4,000       | ) |  | -        |  |  | -             |  |  | 12,258        |      

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

- 5 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Contd) (Expressed in United States Dollars)

|                                                   |  |              |   |  |        |   |  |             |   |  | Deficit     |   |  |              |   |  |          |  |  |               |  |  |               |  
|-------------------------------------------------- |  | ------------ | - |  | ------ | - |  | ----------- | - |  | ----------- | - |  | ------------ | - |  | -------- |  |  | ------------- |  |  | ------------- | -
|                                                   |  | Common Stock |   |  |        |   |  | Accumulated |   |  |             |   |  |              |   |  |          |  |  |               | 
|                                                   |  |              |   |  |        |   |  | Additional  |   |  | During the  |   |  |              |   |  |          |  |  | Accumulated   |  |  | Total         |  
|                                                   |  | Number of    |   |  |        |   |  | Paid in     |   |  | Exploration |   |  | Stock        |   |  | Treasury |  |  | Comprehensive |  |  | Stockholders' |  
|                                                   |  | Shares       |   |  | Amount |   |  | Capital     |   |  | Stage       |   |  | Subscription |   |  | Stock    |  |  | Income (Loss) |  |  | Equity        |  
|                                                   |  |              |   |  | $      |   |  | $           |   |  | $           |   |  | $            |   |  | $        |  |  | $             |  |  | $             |  
|Balance, December 31,
      1999 (carried forward) |  | 1,191,918    |   |  | 119    |   |  | 410,321     |   |  | (394,182    | ) |  | (4,000       | ) |  | -        |  |  | -             |  |  | 12,258        |  
|Shares issued for cash                             |  | 4,296,666    |   |  | 430    |   |  | 667,070     |   |  | -           |   |  | (278,539     | ) |  | -        |  |  | -             |  |  | 388,961       |  
|Shares cancelled for non-
      payment            |  | (442,433     | ) |  | (44    | ) |  | (165,868    | ) |  | -           |   |  | 153,791      |   |  | -        |  |  | -             |  |  | (12,121       | )
|Shares issued for services                         |  | 653,667      |   |  | 65     |   |  | 28,365      |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 28,430        |  
|Shares returned for
      subscription receivable  |  | (10,667      | ) |  | (1     | ) |  | (3,999      | ) |  | -           |   |  | 4,000        |   |  | -        |  |  | -             |  |  | -             |  
|Forgiveness of debt reclassification               |  | -            |   |  | -      |   |  | (23,000     | ) |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | (23,000       | )
|Net loss, 2000                                     |  | -            |   |  | -      |   |  | -           |   |  | (419,296    | ) |  | -            |   |  | -        |  |  | -             |  |  | (419,296      | )
|Balance, December 31, 2000
      (unaudited)       |  | 5,689,151    |   |  | 569    |   |  | 912,889     |   |  | (813,478    | ) |  | (124,748     | ) |  | -        |  |  | -             |  |  | (24,768       | )
|Shares issued for
      services                   |  | 879,415      |   |  | 88     |   |  | 59,814      |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 59,902        |  
|Shares issued for consulting agreement             |  | 300,000      |   |  | 30     |   |  | 29,970      |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 30,000        |  
|Cash received for subscription
      receivable    |  | -            |   |  | -      |   |  | -           |   |  | -           |   |  | 124,748      |   |  | -        |  |  | -             |  |  | 124,748       |  
|Other adjustment                                   |  | -            |   |  | -      |   |  | -           |   |  | 1           |   |  | -            |   |  | -        |  |  | -             |  |  | 1             |  
|Net loss, 2001                                     |  | -            |   |  | -      |   |  | -           |   |  | (339,546    | ) |  | -            |   |  | -        |  |  | -             |  |  | (339,546      | )
|Balance, December 31, 2001
      (unaudited)       |  | 6,868,566    |   |  | 687    |   |  | 1,002,673   |   |  | (1,153,023  | ) |  | -            |   |  | -        |  |  | -             |  |  | (149,663      | )

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

- 6 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Contd) (Expressed in United States Dollars)

|                                                                                  |  |              |   |  |        |   |  |             |  |  | Deficit     |   |  |              |  |  |          |  |  |               |  |  |               |  
|--------------------------------------------------------------------------------- |  | ------------ | - |  | ------ | - |  | ----------- |  |  | ----------- | - |  | ------------ |  |  | -------- |  |  | ------------- |  |  | ------------- | -
|                                                                                  |  | Common Stock |   |  |        |   |  | Accumulated |  |  |             |   |  |              |  |  |          |  |  |               | 
|                                                                                  |  |              |   |  |        |   |  | Additional  |  |  | During the  |   |  |              |  |  |          |  |  | Accumulated   |  |  | Total         |  
|                                                                                  |  | Number of    |   |  |        |   |  | Paid in     |  |  | Exploration |   |  | Stock        |  |  | Treasury |  |  | Comprehensive |  |  | Stockholders' |  
|                                                                                  |  | Shares       |   |  | Amount |   |  | Capital     |  |  | Stage       |   |  | Subscription |  |  | Stock    |  |  | Income (Loss) |  |  | Equity        |  
|                                                                                  |  |              |   |  | $      |   |  | $           |  |  | $           |   |  | $            |  |  | $        |  |  | $             |  |  | $             |  
|Balance, December 31,
      2001 (carried forward)                                |  | 6,868,566    |   |  | 687    |   |  | 1,002,673   |  |  | (1,153,023  | ) |  | -            |  |  | -        |  |  | -             |  |  | (149,663      | )
|Shares issued for cash                                                            |  | 400,000      |   |  | 40     |   |  | 17,960      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 18,000        |  
|Shares issued for services -
      related party                                  |  | 1,100,833    |   |  | 110    |   |  | 32,390      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 32,500        |  
|Shares issued for the settlement of related
      party advances                  |  | 370,000      |   |  | 37     |   |  | 66,619      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 66,656        |  
|Shares issued for the
      settlement of related party advances                  |  | 116,118      |   |  | 12     |   |  | 23,212      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 23,224        |  
|Shares issued for the settlement of related
      party advances                  |  | 2,233,333    |   |  | 223    |   |  | 46,777      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 47,000        |  
|Shares issued for the reverse
      acquisition of Cyper                          |  | 20,000,000   |   |  | 2,000  |   |  | -           |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 2,000         |  
|Shares issued in relation to the reverse
      acquisition of Cyper               |  | 4,000,000    |   |  | 400    |   |  | 119,600     |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 120,000       |  
|Shares rescinded for the
      cancellation of the reverse acquisition of Cyper   |  | (20,000,000  | ) |  | (2,000 | ) |  | -           |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | (2,000        | )
|Shares issued for settlement of cancellation
      of Cyper reverse acquisition   |  | 250,000      |   |  | 25     |   |  | 17,475      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 17,500        |  
|Shares issued for settlement
      of advances made for the Cyper settlement      |  | 1,388,889    |   |  | 139    |   |  | 62,361      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 62,500        |  
|Shares cancelled in lieu of issuance of
      warrants for past services rendered |  | (1,912,748   | ) |  | (191   | ) |  | -           |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | (191          | )
|Stock warrants issued for
      services  related party                          |  | -            |   |  | -      |   |  | 31,000      |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 31,000        |  
|Stock warrants exercised by management                                            |  | 3,255,880    |   |  | 326    |   |  | -           |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | 326           |  
|Cancellation of shares issued
      in prior years                                |  | (65,467      | ) |  | (7     | ) |  | 7           |  |  | -           |   |  | -            |  |  | -        |  |  | -             |  |  | -             |  
|Net loss, 2002                                                                    |  | -            |   |  | -      |   |  | -           |  |  | (570,874    | ) |  | -            |  |  | -        |  |  | -             |  |  | (570,874      | )
|Balance, December 31,
      2002 (unaudited)                                      |  | 18,005,404   |   |  | 1,801  |   |  | 1,420,074   |  |  | (1,723,897  | ) |  | -            |  |  | -        |  |  | -             |  |  | (302,022      | )

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

- 7 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Contd) (Expressed in United States Dollars)

|                                                                                                   |  |              |   |  |        |   |  |             |   |  | Deficit     |   |  |              |   |  |          |  |  |               |  |  |               |  
|-------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------ | - |  | ----------- | - |  | ----------- | - |  | ------------ | - |  | -------- |  |  | ------------- |  |  | ------------- | -
|                                                                                                   |  | Common Stock |   |  |        |   |  | Accumulated |   |  |             |   |  |              |   |  |          |  |  |               | 
|                                                                                                   |  |              |   |  |        |   |  | Additional  |   |  | During the  |   |  |              |   |  |          |  |  | Accumulated   |  |  | Total         |  
|                                                                                                   |  | Number of    |   |  |        |   |  | Paid in     |   |  | Exploration |   |  | Stock        |   |  | Treasury |  |  | Comprehensive |  |  | Stockholders' |  
|                                                                                                   |  | Shares       |   |  | Amount |   |  | Capital     |   |  | Stage       |   |  | Subscription |   |  | Stock    |  |  | Income (Loss) |  |  | Equity        |  
|                                                                                                   |  |              |   |  | $      |   |  | $           |   |  | $           |   |  | $            |   |  | $        |  |  | $             |  |  | $             |  
|Balance, December 31,
      2002 (carried forward)                                                 |  | 18,005,404   |   |  | 1,801  |   |  | 1,420,074   |   |  | (1,723,897  | ) |  | -            |   |  | -        |  |  | -             |  |  | (302,022      | )
|Shares issued for the settlement of related
      party advances                                   |  | 4,861,111    |   |  | 486    |   |  | 149,514     |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 150,000       |  
|Shares issued for the
      settlement of accounts payable for services performed                  |  | 66,300       |   |  | 7      |   |  | 1,319       |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 1,326         |  
|Shares returned as a result of clerical error
      in a prior year                                |  | (66,300      | ) |  | (7     | ) |  | (1,319      | ) |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | (1,326        | )
|Net loss, 2003                                                                                     |  | -            |   |  | -      |   |  | -           |   |  | (414,601    | ) |  | -            |   |  | -        |  |  | -             |  |  | (414,601      | )
|Balance, December 31, 2003
      (unaudited)                                                       |  | 22,866,515   |   |  | 2,287  |   |  | 1,569,588   |   |  | (2,138,498  | ) |  | -            |   |  | -        |  |  | -             |  |  | (566,623      | )
|Shares issued for the
      settlement of related party advances                                   |  | 575,000      |   |  | 58     |   |  | 24,942      |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 25,000        |  
|Short swing profits of shareholder                                                                 |  | -            |   |  | -      |   |  | 50,496      |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 50,496        |  
|Net loss, 2004                                                                                     |  | -            |   |  | -      |   |  | -           |   |  | (399,028    | ) |  | -            |   |  | -        |  |  | -             |  |  | (399,028      | )
|Balance, December 31, 2004                                                                         |  | 23,441,515   |   |  | 2,345  |   |  | 1,645,026   |   |  | (2,537,526  | ) |  | -            |   |  | -        |  |  | -             |  |  | (890,155      | )
|Shares issued for cash                                                                             |  | 7,175,000    |   |  | 717    |   |  | 596,783     |   |  | -           |   |  | (9,500       | ) |  | -        |  |  | -             |  |  | 588,000       |  
|Shares issued for services                                                                         |  | 3,950,000    |   |  | 395    |   |  | 814,105     |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 814,500       |  
|Shares issued for property
      acquisition                                                       |  | 13,500,000   |   |  | 135    |   |  | 388,365     |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 388,500       |  
|Shares issued for the settlement of accounts
      payable to related party for services performed |  | 3,254,018    |   |  | 325    |   |  | 813,180     |   |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | 813,505       |  
|Cancelled stock returned to
      company                                                          |  | (3,500,000   | ) |  | (350   | ) |  | (724,650    | ) |  | -           |   |  | -            |   |  | -        |  |  | -             |  |  | (725,000      | )
|Net loss, 2005                                                                                     |  | -            |   |  | -      |   |  | -           |   |  | (584,879    | ) |  | -            |   |  | -        |  |  | -             |  |  | (584,879      | )
|Balance, December
      31, 2005                                                                   |  | 35,670,533   |   |  | 3,567  |   |  | 3,532,809   |   |  | (3,122,405  | ) |  | (9,500       | ) |  | -        |  |  | -             |  |  | 404,471       |  

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

- 8 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Contd) (Expressed in United States Dollars)

|                                                                                                   |  |                    |   |  |        |   |  |                 |   |  | Deficit     |   |  |              |   |  |          |   |  |               |   |  |               |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | - |  | ------ | - |  | --------------- | - |  | ----------- | - |  | ------------ | - |  | -------- | - |  | ------------- | - |  | ------------- | -
|                                                                                                   |  | Common
      Stock |   |  |        |   |  | Accumulated     |   |  |             |   |  |              |   |  |          |   |  |               |  
|                                                                                                   |  |                    |   |  |        |   |  |                 |   |  | During the  |   |  |              |   |  |          |   |  | Accumulated   |   |  | Total         |  
|                                                                                                   |  | Number of          |   |  |        |   |  | Additional Paid |   |  | Exploration |   |  | Stock        |   |  | Treasury |   |  | Comprehensive |   |  | Stockholders' |  
|                                                                                                   |  | Shares             |   |  | Amount |   |  | in Capital      |   |  | Stage       |   |  | Subscription |   |  | Stock    |   |  | Income (Loss) |   |  | Equity        |  
|                                                                                                   |  |                    |   |  | $      |   |  | $               |   |  | $           |   |  | $            |   |  | $        |   |  | $             |   |  | $             |  
|Balance, December 31,
      2005 (Carried Forward)                                                 |  | 35,670,533         |   |  | 3,567  |   |  | 3,532,809       |   |  | (3,122,405  | ) |  | (9,500       | ) |  | -        |   |  | -             |   |  | 404,471       |  
|Shares issued for cash                                                                             |  | 13,050,000         |   |  | 1,305  |   |  | 5,155,164       |   |  | -           |   |  | 458,500      |   |  | -        |   |  | -             |   |  | 5,614,969     |  
|Shares issued for
      services                                                                   |  | 4,180,000          |   |  | 418    |   |  | 2,763,952       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 2,764,370     |  
|Shares issued for property acquisition                                                             |  | 6,560,000          |   |  | 656    |   |  | 4,728,089       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 4,728,745     |  
|Shares issued for the
      settlement of accounts payable to related party for services performed |  | 2,000,000          |   |  | 200    |   |  | 1,302,780       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 1,302,980     |  
|Warrants issued for cash                                                                           |  | -                  |   |  | -      |   |  | 4,734,031       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 4,734,031     |  
|Warrants issued for services                                                                       |  | -                  |   |  | -      |   |  | 207,005         |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 207,005       |  
|Share issuance costs                                                                               |  | -                  |   |  | -      |   |  | (63,237         | ) |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | (63,237       | )
|Treasury stock                                                                                     |  | -                  |   |  | -      |   |  |                 |   |  | -           |   |  | -            |   |  | (392,830 | ) |  | -             |   |  | (392,830      | )
|Other comprehensive loss                                                                           |  | -                  |   |  | -      |   |  | -               |   |  | -           |   |  | -            |   |  | -        |   |  | (1,562        | ) |  | (1,562        | )
|Net loss, 2006                                                                                     |  | -                  |   |  | -      |   |  | -               |   |  | (8,692,208  | ) |  | -            |   |  | -        |   |  | -             |   |  | (8,692,208    | )
|Balance, December 31, 2006
      (restated)                                                        |  | 61,460,533         |   |  | 6,146  |   |  | 22,360,593      |   |  | (11,814,613 | ) |  | 449,000      |   |  | (392,830 | ) |  | (1,562        | ) |  | 10,606,734    |  
|Shares issued for cash                                                                             |  | 2,989,000          |   |  | 299    |   |  | 1,448,681       |   |  | -           |   |  | (499,000     | ) |  | -        |   |  | -             |   |  | 949,980       |  
|Shares issued for related party debt
      settlement                                              |  | 500,000            |   |  | 50     |   |  | 424,950         |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 425,000       |  
|Shares issued for
      services                                                                   |  | 2,868,000          |   |  | 286    |   |  | 2,741,764       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 2,742,050     |  
|Shares issued for property acquisition                                                             |  | 2,000,000          |   |  | 200    |   |  | 2,659,800       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 2,660,000     |  
|Shares issued for cash
      pursuant to exercise of share purchase warrants                       |  | 5,000              |   |  | 1      |   |  | 3,999           |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 4,000         |  
|Shares issued for settlement of preliminary
      injunction                                       |  | -                  |   |  | -      |   |  | (165,000        | ) |  | -           |   |  | 165,000      |   |  | -        |   |  | -             |   |  | -             |  
|Treasury stock                                                                                     |  | (276,545           | ) |  | (27    | ) |  | (392,803        | ) |  | -           |   |  | -            |   |  | 392,830  |   |  | -             |   |  | -             |  
|Warrants issued for cash                                                                           |  | -                  |   |  | -      |   |  | 1,540,020       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 1,540,020     |  
|Warrants issued for related
      party debt settlement of preliminary injunction                  |  | -                  |   |  | -      |   |  | 75,000          |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 75,000        |  
|Warrants issued for services                                                                       |  | -                  |   |  | -      |   |  | 1,102,000       |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 1,102,000     |  
|Options issued                                                                                     |  | -                  |   |  | -      |   |  | 459,959         |   |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | 459,959       |  
|Share issuance costs                                                                               |  | -                  |   |  | -      |   |  | (75,000         | ) |  | -           |   |  | -            |   |  | -        |   |  | -             |   |  | (75,000       | )
|Other comprehensive
      loss                                                                     |  | -                  |   |  | -      |   |  | -               |   |  | -           |   |  | -            |   |  | -        |   |  | (18,141       | ) |  | (18,141       | )
|Net loss, 2007 (restated)                                                                          |  | -                  |   |  | -      |   |  | -               |   |  | (10,665,000 | ) |  | -            |   |  | -        |   |  | -             |   |  | (10,665,000   | )
|Balance, December 31,
      2007 (restated)                                                        |  | 69,545,988         |   |  | 6,955  |   |  | 32,183,963      |   |  | (22,479,613 | ) |  | 115,000      |   |  | -        |   |  | (19,703       | ) |  | 9,806,602     |  

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

- 9 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Stockholders Equity
Cumulative for the Period from June 15, 1996 [date of inception] Through
to December 31, 2009 (Contd) (Expressed in United States Dollars)

| |  |                    |  |  |        |  |  |                 |  |  | Deficit     |  |  |              |  |  |          |  |  |               |  |  |               | 
| |  | ------------------ |  |  | ------ |  |  | --------------- |  |  | ----------- |  |  | ------------ |  |  | -------- |  |  | ------------- |  |  | ------------- | 
| |  | Common
      Stock |  |  |        |  |  | Accumulated     |  |  |             |  |  |              |  |  |          |  |  |               | 
| |  |                    |  |  |        |  |  |                 |  |  | During the  |  |  |              |  |  |          |  |  | Accumulated   |  |  | Total         | 
| |  | Number of          |  |  |        |  |  | Additional Paid |  |  | Exploration |  |  | Stock        |  |  | Treasury |  |  | Comprehensive |  |  | Stockholders' | 
| |  | Shares             |  |  | Amount |  |  | in Capital      |  |  | Stage       |  |  | Subscription |  |  | Stock    |  |  | Income (Loss) |  |  | Equity        | 

|                                                               |  |            |   | $ |       |   |  | $          |   | $ |             |   |  | $        |   | $ |   |  | $ |         |   |  | $          |  
|-------------------------------------------------------------- |  | ---------- | - | - | ----- | - |  | ---------- | - | - | ----------- | - |  | -------- | - | - | - |  | - | ------- | - |  | ---------- | -
|Balance,
      December 31, 2007 (Carried Forward)             |  | 69,545,988 |   |   | 6,955 |   |  | 32,183,963 |   |   | (22,479,613 | ) |  | 115,000  |   |   | - |  |   | (19,703 | ) |  | 9,806,602  |  
|Shares issued for cash                                         |  | 8,349,167  |   |   | 835   |   |  | 1,141,023  |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 1,141,858  |  
|Shares issued for settlement                                   |  | 2,833,333  |   |   | 283   |   |  | 398,050    |   |   | -           |   |  | (165,000 | ) |   |   |  |   | -       |   |  | 233,333    |  
|Shares issued for
      services                               |  | 1,450,000  |   |   | 145   |   |  | 156,855    |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 157,000    |  
|Shares issued
      for compensation                           |  | 875,000    |   |   | 87    |   |  | 135,663    |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 135,750    |  
|Shares issued for settlement of due to related parties         |  | 1,200,000  |   |   | 120   |   |  | 107,880    |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 108,000    |  
|Shares issued
      for cash pursuant to exercise of warrants  |  | 500,000    |   |   | 50    |   |  | 74,950     |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 75,000     |  
|Warrants issued for cash                                       |  | -          |   |   | -     |   |  | 260,642    |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 260,642    |  
|Warrants issued
      for settlement of due to related parties |  | -          |   |   | -     |   |  | 192,000    |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 192,000    |  
|Warrants issued for
      services                             |  | -          |   |   | -     |   |  | 44,600     |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 44,600     |  
|Options issued for services                                    |  | -          |   |   | -     |   |  | 82,200     |   |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | 82,200     |  
|Share issuance costs                                           |  | -          |   |   | -     |   |  | (6,562     | ) |   | -           |   |  | -        |   |   |   |  |   | -       |   |  | (6,562     | )
|Shares to be returned                                          |  | -          |   |   | -     |   |  | -          |   |   | -           |   |  | (67,500  | ) |   |   |  |   | -       |   |  | (67,500    | )
|Other comprehensive loss                                       |  | -          |   |   | -     |   |  | -          |   |   | -           |   |  |          |   |   |   |  |   | 77,949  |   |  | 77,949     |  
|Net loss,
      2008 (restated)                                |  | -          |   |   | -     |   |  | -          |   |   | (3,969,299  | ) |  | -        |   |   |   |  |   | -       |   |  | (3,969,299 | )
|Balance, December 31,
      2008 (restated)                    |  | 84,753,488 |   |   | 8,475 |   |  | 34,771,264 |   |   | (26,448,912 | ) |  | (117,500 | ) |   | - |  |   | 58,246  |   |  | 8,271,573  |  
|Shares
      issued for cash                                   |  | 4,729,198  |   |   | 473   |   |  | 506,969    |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 507,442    |  
|Shares issued for
      services                               |  | 2,490,000  |   |   | 249   |   |  | 347,909    |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 348,158    |  
|Shares issued
      for compensation                           |  | 175,000    |   |   | 18    |   |  | 14,857     |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 14,875     |  
|Shares issued in lieu of agreement                             |  | 550,000    |   |   | 55    |   |  | 208,945    |   |   | -           |   |  | (209,000 | ) |   | - |  |   | -       |   |  | -          |  
|Warrants
      issued for cash                                 |  | -          |   |   | -     |   |  | 711,034    |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 711,034    |  
|Warrants issued for
      services                             |  | -          |   |   | -     |   |  | 1,442,484  |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 1,442,484  |  
|Options
      issued for services                              |  | -          |   |   | -     |   |  | 24,134     |   |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | 24,134     |  
|Share issuance costs                                           |  | -          |   |   | -     |   |  | (54,877    | ) |   | -           |   |  | -        |   |   | - |  |   | -       |   |  | (54,877    | )
|Shares
      returned                                          |  | (1,100,000 | ) |   | (110  | ) |  | (201,390   | ) |   | -           |   |  | 117,500  |   |   | - |  |   | -       |   |  | (84,000    | )
|Accumulated comprehensive loss                                 |  | -          |   |   | -     |   |  | -          |   |   | -           |   |  | -        |   |   | - |  |   | (17,742 | ) |  | (17,742    | )
|Net loss,
      2009                                           |  | -          |   |   | -     |   |  | -          |   |   | (3,862,649  | ) |  | -        |   |   | - |  |   | -       |   |  | (3,862,649 | )
|Balance December 31,
      2009                                |  | 91,597,686 |   |   | 9,160 |   |  | 37,771,329 |   |   | (30,311,561 | ) |  | (209,000 | ) |   | - |  |   | 40,504  |   |  | 7,300,432  |  

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

- 10 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Cash Flows For the
Years Ended December 31, 2009 and 2008, and Cumulative for the Period from
June 15, 1996 [Date of Inception] through December 31, 2009 (Expressed
in United States Dollars)

|                                                         |   |            |   |   |            |   |   | Cumulative                 |  
|-------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | -------------------------- | -
|                                                         |   |            |   |   |            |   |   | For the Period             |  
|                                                         |   |            |   |   |            |   |   | from June 15, 1996         |  
|                                                         |   |            |   |   |            |   |   | [Date of Inception]        |  
|                                                         |   |            |   |   |            |   |   | through December
      31, |  
|                                                         |   | 2009       |   |   | 2008       |   |   | 2009                       |  
|                                                         |   |            |   |   | (Restated) |   |   | (Restated)                 |  
|Cash Flows from
      Operating Activities               |   |            |   |   |            |   |   |                            |  
|Net loss from continuing operations                      | $ | (3,862,649 | ) | $ | (3,969,299 | ) | $ | (30,311,561                | )
|Net loss from discontinued operations                    |   | -          |   |   | -          |   |   | 302,755                    |  
|Net loss                                                 |   | (3,862,649 | ) |   | (3,969,299 | ) |   | (30,008,806                | )
|Adjustments for:                                         |   |            |   |   |            |   |   |                            |  
|Depreciation                                             |   | 99,248     |   |   | 161,003    |   |   | 432,153                    |  
|Gain on sale of controlling
      interest in subsidiary |   | -          |   |   | (1,816,733 | ) |   | (1,816,733                 | )
|Net loss from equity investment                          |   | 663,441    |   |   | 97,699     |   |   | 761,140                    |  
|(Gain) Loss on recognition of
      embedded derivative  |   | (144,000   | ) |   | 238,500    |   |   | 261,000                    |  
|Shares issued in settlement to Alpha Capital             |   | -          |   |   | 233,333    |   |   | 214,281                    |  
|Warrants issued in settlement
      to Alpha Capital     |   | -          |   |   | 64,250     |   |   | 64,250                     |  
|Shares issued for services                               |   | 279,033    |   |   | 1,593,686  |   |   | 7,682,736                  |  
|Warrants and options issued for services                 |   | 1,466,618  |   |   | 126,800    |   |   | 3,334,145                  |  
|Minority interest                                        |   | -          |   |   | -          |   |   | (253,021                   | )
|Settlement with Cyper Entertainment Inc.                 |   | -          |   |   | -          |   |   | 80,000                     |  
|Writeoff of deferred offering costs                      |   | -          |   |   | 25,219     |   |   | -                          |  
|Write-down of assets                                     |   | -          |   |   | -          |   |   | 42,253                     |  
|Write-down of inventory                                  |   | -          |   |   | -          |   |   | 19,169                     |  
|Loss on investment                                       |   | -          |   |   | -          |   |   | 61,240                     |  
|                                                         |   |            |   |   |            |   |   |                            |  
|Changes in non-cash working capital:                     |   |            |   |   |            |   |   |                            |  
|Other receivables                                        |   | -          |   |   | 104,217    |   |   | (15,389                    | )
|Deferred expenses                                        |   | 362,668    |   |   | 3,381      |   |   | 239,637                    |  
|Accounts payable                                         |   | (107,199   | ) |   | 1,052,549  |   |   | 2,297,743                  |  
|Accrued liabilities                                      |   | (42,283    | ) |   | (157,380   | ) |   | 13,923                     |  
|Accrued officer compensation                             |   | -          |   |   | -          |   |   | 709,500                    |  
|Inventories                                              |   | -          |   |   | -          |   |   | (28,510                    | )
|Net Cash Used in
      Operating Activities              | $ | (1,285,123 | ) | $ | (2,242,775 | ) | $ | (15,909,289                | )

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

- 11 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Consolidated Statements of Cash Flows For the
Years Ended December 31, 2009 and 2008, and Cumulative for the Period from
June 15, 1996 [Date of Inception] through December 31, 2009 (Expressed
in United States Dollars)

|                                                               |   |            |   |   |            |   |   | Cumulative                 |  
|-------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | -------------------------- | -
|                                                               |   |            |   |   |            |   |   | For the Period             |  
|                                                               |   |            |   |   |            |   |   | from June 15, 1996         |  
|                                                               |   |            |   |   |            |   |   | [Date of Inception]        |  
|                                                               |   |            |   |   |            |   |   | through December
      31, |  
|                                                               |   | 2009       |   |   | 2008       |   |   | 2009                       |  
|                                                               |   |            |   |   | (Restated) |   |   | (Restated)                 |  
|Cash Flows from
      Investing Activities                     |   |            |   |   |            |   |   |                            |  
|Investments in mineral rights                                  | $ | -          |   | $ | -          |   | $ | (1,554,877                 | )
|Proceeds from sale of controlling interest in
      subsidiary |   | -          |   |   | 4,384,811  |   |   | 4,384,811                  |  
|Additional contribution to Sino-Top                            |   | (893,398   | ) |   | (2,618,242 | ) |   | (3,511,640                 | )
|Acquisition of plant and equipment                             |   | -          |   |   | (9,458     | ) |   | (981,486                   | )
|Investment in other                                            |   | -          |   |   | -          |   |   | (21,221                    | )
|Proceeds from sale of equipment                                |   | -          |   |   | -          |   |   | 500                        |  
|Net Cash Used in Investing
      Activities                    |   | (893,398   | ) |   | 1,757,111  |   |   | (1,683,913                 | )
|Cash Flows from
      Financing Activities                     |   |            |   |   |            |   |   |                            |  
|Proceeds from issuance of common stock and warrants            |   | 1,218,476  |   |   | 1,477,500  |   |   | 17,164,492                 |  
|Share issuance costs                                           |   | (54,877    | ) |   | (6,562     | ) |   | (171,439                   | )
|Purchase of treasury shares                                    |   | -          |   |   | -          |   |   | (392,830                   | )
|Related party advances                                         |   | 10,000     |   |   | 441,855    |   |   | 932,666                    |  
|Deferred offering costs                                        |   | -          |   |   | -          |   |   | -                          |  
|Repayments of related party advances                           |   | (34,497    | ) |   | (288,983   | ) |   | (462,557                   | )
|Loans received                                                 |   | -          |   |   | 10,000     |   |   | 260,000                    |  
|Repayments of loans payable                                    |   | -          |   |   | (260,000   | ) |   | (260,000                   | )
|Security deposits received                                     |   | -          |   |   | -          |   |   | -                          |  
|Restricted cash                                                |   | -          |   |   | -          |   |   | (41,217                    | )
|Minority interest                                              |   | -          |   |   | -          |   |   | 253,021                    |  
|Payment of notes payable                                       |   | -          |   |   | -          |   |   | 3,581                      |  
|Proceeds from issuance of notes payable                        |   | -          |   |   | -          |   |   | (21,507                    | )
|Advances payable related party                                 |   | -          |   |   | -          |   |   | 245,649                    |  
|Bank indebtedness                                              |   | -          |   |   | -          |   |   | 460                        |  
|Proceeds from stock subscriptions                              |   | -          |   |   | -          |   |   | 124,748                    |  
|Net Cash Provided by Financing
      Activities                |   | 1,139,102  |   |   | 1,373,810  |   |   | 17,635,067                 |  
|Effect of Change in
      Foreign Exchange                     |   | (30,360    | ) |   | 125,943    |   |   | 95,583                     |  
|Change in Cash and Cash
      Equivalents                      |   | (1,069,779 | ) |   | 1,014,089  |   |   | 137,448                    |  
|Cash and Cash
      Equivalents - beginning of period          |   | 1,207,227  |   |   | 193,138    |   |   | -                          |  
|Cash and Cash Equivalents - end of
      period                | $ | 137,448    |   | $ | 1,207,227  |   | $ | 137,448                    |  
|Represented by:                                                |   |            |   |   |            |   |   |                            |  
|Cash                                                           | $ | 137,448    |   | $ | 1,207,227  |   | $ | 137,448                    |  

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

- 12 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

1.

Nature of Business and Basis of Presentation

Silver Dragon Resources Inc. ("SDR"), a
Delaware corporation, was incorporated on May 9, 1996. SDR is headquartered in
Ontario, Canada and operates primarily in Mexico and China. 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.

SDR and its subsidiaries (the
"Company") are in the exploration stage as defined by Financial Accounting
Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS")
No.7. "Accounting and Reporting For Development Stage Enterprises." As of
December 31, 2009, 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.

Going Concern and Exploration Stage
Activities

These consolidated 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 $3,862,649 for the year ended
December 31, 2009 (2008  $3,969,299) and has accumulated losses since inception
of $30,311,561. The Company's continuation as a going concern is uncertain and
dependant on successfully bringing its product 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 exploration of its
products and services. The Company is currently in discussions with several
parties in an attempt to raise debt and/or equity and is considering monetizing
certain assets to increase general working capital, finance existing
obligations, and fund future exploration programs. Although the Company intends
to phase its Mexican operations into some light production by the end of 2010,
there is no assurance that it will be able to develop a sufficient customer base
to maintain profitable operations. The Company was able to raise approximately
$1.22 Million through the private equity financing throughout the year. The
Company intends to raise additional funds through private equity financing,
which will help fund the required capital outlays related to bringing the
Mexican property into production. It will also fund the monthly expenditures at
Silver Dragons head office until mid- to late 2010 when the Company plans to
list on a major Canadian stock exchange and raise significant funds through an
IPO. There can be no assurance the Company can successfully raise monies, and
these matters raise some doubt about the Company's ability to continue as a
going concern.

The consolidated 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.

Summary of Significant Accounting
Policies

a)         Principles of Consolidation

The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, CEAC, and
Silver Dragon Mining De Mexico S.A. de C.V ( "Silver Dragon Mexico"). All
significant inter-company balances and transactions have been eliminated on
consolidation.

b)         Use of Estimates

The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and 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 periods. These estimates
are based on management's best knowledge of current events and actions the
Company may undertake in the future. Significant areas requiring the use of
estimates relate to the estimated useful lives of plant and equipment, valuation
of mineral rights, and stock-based compensation. Actual results could differ
from these 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

The Company considers cash deposits
held in financial institutions and all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash and cash
equivalents.

d)         Mineral Rights

The Company records its interest in
mineral rights at cost. Accordingly, all costs associated with acquisition 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 value.

All capitalized costs of mineral
properties subject to amortization and the estimated future costs to develop
proven 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 the 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.

- 13 -

---

SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

3.

Summary of Significant Accounting
Policies (contd)

e)         Equity Investment

Equity investments are entities over
which the Company exercises significant influence but does not exercise control.
These are accounted for using the equity method of accounting in accordance with
APB 18 and are initially recognized at cost net of any accumulated impairment
loss. The Companys share of these entities profits or losses after acquisition
of its interest is recognized in the statement of operations and cumulative
post-acquisition movements are adjusted against the carrying amount of the
investment. When the Companys share of losses of these investments equals or
exceeds the carrying amount of the investment, the Company only recognizes
further losses where it has incurred obligations or made payments on behalf of
the affiliate.

f)         Deferred Expenses

Deferred expenses consists of those
expenses which will derive benefit for the Company in the future and are
deferred until such time as the benefit is realized.

g)         Revenue Recognition

The Company has not earned revenues
from its planned principal operations. Revenues incidental to the planned
principal operations have been recognized as follows: Revenues from the
provision of mine exploration services are recognized when the services are
performed and collection is reasonably assured.

Revenues from the sale of silver are
recognized when the product is shipped.

h)         Deferred Offering Costs

The Company defers as other assets the
direct incremental costs of raising capital until such time as the offering is
completed. At the time of the completion of the offering, the costs are charged
against the capital raised. Should the offering be terminated, deferred offering
costs are charged to operations during the period in which the offering is
terminated.

i)         Income Taxes

The Company accounts for income taxes
in accordance with FASB Accounting Standard Codification (ASC) 740, Income
Taxes. Deferred tax assets and liabilities are recorded for differences between
the consolidated financial statements 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.

j)         Plant and Equipment

Plant and equipment are stated at cost.
Depreciation is based on the estimated useful life of the asset and depreciated
annually as follows:

| | Category               |  | Rate    |  |  | Method            | 
| | ---------------------- |  | ------- |  |  | ----------------- | 
| | Computer hardware      |  | 30%     |  |  | declining balance | 
| | Computer software      |  | 30%     |  |  | declining balance | 
| | Vehicles               |  | 20%     |  |  | declining balance | 
| | Office equipment       |  | 20%     |  |  | declining balance | 
| | Mine equipment         |  | 20%     |  |  | declining balance | 
| | Leasehold improvements |  | 5 years |  |  | straight line     | 

Equipment awaiting installation on site
is not depreciated until it is commissioned.

k)         Earnings (Loss) per Share

The Company accounts for earnings
(loss) per share pursuant to ASC 260, "Earnings per Share", which requires
disclosure on the consolidated financial statements of "basic" and "diluted"
earnings (loss) per share. Basic earnings (loss) per share are 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. The
computation of diluted earnings (loss) per share has not been presented as its
effect would be anti-dilutive.

l)         Comprehensive Income (Loss)

The Company accounts for comprehensive
income (loss) in accordance with ASC 220, Comprehensive Income. ASC 220
establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of financial statements. Comprehensive
income (loss) is presented in the statements of stockholders' equity, and
consists of net earnings (loss) and unrealized gains (losses); and foreign
currency translation adjustments.

- 14 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

3.

Summary of Significant Accounting
Policies (contd)

m)         Impairment of Long Lived Assets

In accordance with ASC 360, "Property,
Plant and Equipment", 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 carrying amounts 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.

n)         Stock-based Compensation

In accordance with ASC 718
Compensation Stock compensation costs related to share-based payment
transactions, including employee stock options, are to be recognized in the
financial statements. In addition, the Company adheres to the guidance set forth
within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No.
107 ("SAB 107"), which provides the Staff's views regarding the interaction
between ASC 718 and certain SEC rules and regulations, and provides
interpretations with respect to the valuation of share-based payments for public
companies.

For non-employee stock-based
compensation, the Company uses the fair value method in accordance with ASC 718
and ASC 505, "Equity-Based Payments to Non-Employees".

o)         Foreign Currency Translation

The Company accounts for foreign
currency translation pursuant to ASC 830, "Foreign Currency Matters". The
Company's functional currency is United States dollars ("USD"). In foreign
operations, the local currency is the functional currency, in China it's the
Yuan ("RMB") and in Mexico it's the Nuevo Peso ("MXN"). 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.

4.

Recent Accounting Pronouncements

In April 2009, FASB issued FSP SFAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly (FSP SFAS 157-4),which provides guidance for making fair
value measurements more consistent with the principles presented in SFAS 157.
FSP SFAS 157-4 provides additional authoritative guidance in determining whether
a market is active or inactive, and whether a transaction is distressed. It is
applicable to all assets and liabilities (e.g. financial and nonfinancial) and
will require enhanced disclosures. It is effective for interim and annual
reporting periods ending after June 15, 2009. The guidance does not have an
effect on the Companys consolidated financial statements.

In April 2009, FASB issued FSP SFAS
115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, (FSP SFAS 115-2 and SFAS 124-2) which provides additional
guidance to provide greater clarity about the credit and noncredit component of
any other-than-temporary impairment event related to debt securities and to more
effectively communicate when an other-than-temporary impairment event has
occurred. It is effective for interim and annual reporting periods ending after
June 15, 2009. The guidance does not have an effect on the Companys
consolidated financial statements.

In April 2009, FASB issued FSP SFAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, (FSP SFAS 107-1 and APB 28-1) which amends SFAS 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments in interim as well as in annual
financial statements. FSP SFAS 107-1 and APB 28-1 also amends APB Opinion 28,
Interim Financial Reporting, to require those disclosures in all interim
financial statements. It is effective for interim periods ending after June 15,
2009. The amendment does not have an effect on the Companys consolidated
financial statements.

In April 2009, FASB issued FSP SFAS
141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, (FSP SFAS141(R)-1), which amends
and clarifies SFAS 141 (revised 2007), Business Combinations, to address
application issues raised by preparers, auditors, and members of the legal
profession on initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. It is effective for assets and liabilities arising
from contingencies in business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The amendment does not have an effect on the Companys
consolidated financial statements.

In April 2009, the SEC released Staff
Accounting Bulletin No. 11, Other Than Temporary Impairment of Certain
Investments in Equity Securities (SAB 111), which amends SAB Topic 5-M,
Other Than Temporary Impairment of Certain Investments in Debt and Equity
Securities. SAB 111 notes that FSP SFAS 115-2 and SFAS 124-2 were scoped to
debt securities only, and the FSP referred readers to SEC SAB Topic 5-M for
factors to consider with respect to other-than-temporary impairments for equity
securities. With the amendments in SAB 111, debt securities are excluded from
the scope of Topic 5-M, but the SEC staffs views on equity securities are still
included within the topic. The Company currently does not have any financial
assets that are other-than-temporary impaired.

In May 2009, FASB issued SFAS 165
Subsequent Events, (SFAS 165) , which establishes general standards for
accounting for and disclosure of events that occur after the balance sheet date
but before financial statement are issued or available to be issued. In
particular, SFAS 165 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.

It is effective for interim and annual
periods ending after June 15, 2009. The adoption of this statement did not have
a material impact on the Companys consolidated financial statements.

- 15 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

4.

Recent Accounting
Pronouncements (contd)

In June 2009, the FASB issued SFAS 166
"Accounting for Transfers of Financial Assetsan amendment of FASB Statement No.
140." This standard eliminates the concept of a qualifying special purpose
entity ("QSPE") and modifies the derecognition provisions in SFAS 140. This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15, 2009.
The Company is currently reviewing the effect, if any; the proposed guidance
will have on its consolidated financial statements. The statement does not have
an effect on the Companys consolidated financial statements.

In June 2009, the FASB issued SFAS 167
"Amendments to FASB Interpretation No. 46(R)." This statement amends the
consolidation guidance applicable to variable interest entities and is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2009. The Company is currently reviewing the effect, if any; the proposed
guidance will have on its consolidated financial statements. The amendment does
not have an effect on the Companys consolidated financial statements.

In June 2009, the FASB issued SFAS 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles  a replacement of FASB Statement No. 162 (SFAS
168). SFAS 168 provides for the FASB Accounting Standards Codification (ASC)
to become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (GAAP). The ASC did not change GAAP but
reorganizes the literature. SFAS 168 was effective for interim and annual
periods ending after September 15, 2009. The adoption of this statement did not
have a material impact on the Companys consolidated financial statements.

In August 2009, the FASB issued
Accounting Standards Update (ASU) 2009-05, Measuring Liabilities at Fair
Value (ASU 2009-05), which clarifies, among other things, that when a quoted
price in an active market for the identical liability is not available, an
entity must measure fair value using one or more specified techniques. ASU
2009-05 was effective for the first reporting period, including interim periods,
beginning after issuance. The Company adopted the update effective 2009 with no
impact on its consolidated financial statements.

In October 2009, the FASB issued ASU
2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU
2009-13 applies to revenue arrangements currently in the scope of FASB ASC
Subtopic 605-25, Multiple Element Arrangements, and provides principles and
application guidance on whether arrangements with multiple deliverables exist,
how the deliverables should be separated, and the consideration allocated to the
deliverables. ASU 2009-13 is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010. The statement is not expected to have an effect on the Companys
consolidated financial statements.

In December 2009, the FASB issued ASU
2009-17 which codifies SFAS No. 167, Amendments to FASB Interpretations No.
46(R) issued in June 2009. ASU 2009-17 requires a qualitative approach to
indentifying a controlling financial interest in a variable interest entity
(VIE), and requires ongoing assessment of whether an entity is a VIE and
whether an interest in a VIE makes the holder the primary beneficiary of the
VIE. ASU 2009-17 is effective for annual reporting periods beginning after
November 15, 2009. The adoption of ASU 2009-17 is not expected to have a
material impact on the Companys consolidated financial statements.

In January 2010, the FASB issued ASU
2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-6).
The standard amends ASC Topic 820, Fair Value Measurements and Disclosures to
require additional disclosures related to transfers between levels in the
hierarchy of fair value measurements. ASU 2010-6 is effective for interim and
annual fiscal years beginning after December 15, 2009. The standard does not
change how fair values are measured, accordingly the standard will not have an
impact on the Company.

The FASB issues ASUs to amend the
authoritative literature in ASC. There have been a number of ASUs to date that
amend the original text of ASC. Except for the ASUs listed above, those issued
to date either (i) provide supplemental guidance, (ii) are technical
corrections, (iii) are not applicable to the Company or (iv) are not expected to
have a significant impact on the Company.

5.

Fair Value Measurements

The Company adopted ASC 820, Fair
Value Measurements and Disclosure as of January 1, 2008. ASC 820 defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date, not adjusted for transaction costs. ASC 820 also establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels giving the highest priority to quoted
prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 - Observable inputs that
reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.

Level 2 - Include other inputs that are
directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are
supported by little or no market activity.

The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.

Cash and cash equivalents (level 1),
other receivables, accounts payable, accrued liabilities, and due to related
parties (level 2) are reflected in the consolidated balance sheets at carrying
value, which approximates fair value due to the short-term nature of these
instruments.

6.

Prior Period Restatement

As at December 31, 2009, a liability of
$261,000 (2008 - $405,000) was recorded pursuant to an agreement entered into by
the Company in 2006 which included an embedded derivative. The embedded
derivative is a financial guarantee that requires a net-cash settlement in the
event that the Companys stock price is below $1.00 per common share at the time
of settlement. Since the financial guarantee provides for a potential net-cash
settlement, a liability should be measured at fair value at each period end,
with changes in the fair value reported in earnings. Prior period figures have
been restated to reflect the recognition of a liability and a charge to earnings
during the periods ended subsequent to the signing of the agreement.

- 16 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

7.

Other Receivables

Other receivables are $162,824 (2008 -
$189,883) gross and are net of an allowance for doubtful accounts of $162,824
(2008 - $189,883). The allowance for doubtful accounts was determined based on
managements best estimate of the collectability of the receivables.

8.

Plant and Equipment, net

| |                        |   |         |  |   | Accumulated  |  |   | December 31, 2009 |  |   | December 31, 2008 | 
| | ---------------------- | - | ------- |  | - | ------------ |  | - | ----------------- |  | - | ----------------- | 
| |                        |   | Cost    |  |   | Depreciation |  |   | Net book value    |  |   | Net book value    | 
| | Computer hardware      | $ | 54,516  |  | $ | 33,245       |  | $ | 21,271            |  | $ | 30,080            | 
| | Computer software      |   | 45,122  |  |   | -            |  |   | 45,122            |  |   | 45,122            | 
| | Vehicles               |   | 20,342  |  |   | 10,239       |  |   | 10,103            |  |   | 11,926            | 
| | Office equipment       |   | 61,804  |  |   | 27959        |  |   | 33,845            |  |   | 41,831            | 
| | Mine equipment         |   | 279,236 |  |   | 119,186      |  |   | 160,050           |  |   | 188,929           | 
| | Leasehold improvements |   | 195,667 |  |   | 95,233       |  |   | 100,434           |  |   | 139,567           | 
| |                        | $ | 656,687 |  | $ | 285,862      |  | $ | 370,825           |  | $ | 457,455           | 

The Company did not claim any
depreciation on the computer software as it has not been placed in service.

9.

Mineral Rights

| |                                      |   | Cerro Las | 
| | ------------------------------------ | - | --------- | 
| |                                      |   | Minitas   | 
| |                                      |   | Mexico    | 
| | Balance, December 31,
      2008     | $ | 3,045,745 | 
| | Expenditures during the period       |   | -         | 
| | Divestitures during the
      period |   | -         | 
| | Balance, December 31, 2009           | $ | 3,045,745 | 

Cerros Las Minitas, Mexico

On March 1, 2006, the Company's
wholly-owned subsidiary, Silver Dragon Mexico entered into an agreement with
Jaime Muguiro Pena wherein Mr. Pena assigned to Silver Dragon Mexico the mining
and exploration rights to ten mining concessions in Guadalupe, Durango, Mexico
in consideration for the payment to Mr. Pena of $450,000 and issuance of 450,000
restricted common stock of the Company valued at $456,750.

On March 2, 2006, Silver Dragon Mexico
entered into an agreement with Ramon Tomas Davila Flores wherein Mr. Flores
assigned to Silver Dragon Mexico the mining and exploration rights to five
mining concessions in Guadalupe, Durango, Mexico in consideration for the
payment to Mr. Flores of $245,000 and issuance of 110,000 restricted common
stock of the Company valued at $71,995.

On March 8, 2006, Silver Dragon Mexico
entered into an agreement with Minera Real Victoria, S.A. De C.V. ("Minera") for
the assignment to Silver Dragon Mexico the mining and exploration rights to a
mining concession known as "Puro Corazon" in Guadalupe, Durango, Mexico. On
March 9, 2006, Silver Dragon Mexico obtained the consent of the owner of the
concession, Silvia Villasenor Haro, for the assumption of mining and exploration
rights from Minera.

The consideration payable to Minera
Real Victoria, S.A. De C.V. ("Minera") for the assignment of mining and
exploration rights consisted of $400,000 and the issuance of 2,000,000
restricted common stock of the Company valued at $1,372,000. In accordance with
the terms of the agreement with Minera $200,000 was paid in 2006; $100,000 was
due and paid in March 2007; and the final installment of $100,000 was due for
payment on March 8, 2008. As of December 31, 2009, the amount due for payment
remained outstanding. On March 13, 2010 the Company settled the outstanding debt
of $100,000 through the issuance of 360,000 shares of the Companys restricted
stock.

The consideration paid by Silver Dragon
Mexico to Silvia Villasenor Haro, for consenting to the assignment of rights
from Minera, was $50,000. In addition, the exploration rights agreement was
amended as follows:

i) The consideration to be paid to the
owner for granting the exploration rights shall be $1.50 per ton of economic ore
that is extracted from the mine, due and payable monthly, effective six months
from the date of execution of the agreement, at a guaranteed minimum of $3,500
per month regardless of ore extraction.

The Company is currently in
negotiations with Silvia Villasenor Haro to purchase the Puro Corazon concession
and is no longer committed to pay any guaranteed payments since the last payment
made to the above.

ii) Silver Dragon Mexico has the option
to purchase the Puro Corazon concession and the price shall be $2,000,000 if
exercised within three years, or $3,000,000 if exercised within five years, from
March 2, 2006, the date of execution of the agreement of consent to assignment
of rights.

- 17 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

10.

Equity Investment

Sanhe Sino-Top Resources &
Technologies Ltd., China

On December 12, 2008, the Exploration
Unit of North China Nonferrous Geological Exploration Bureau, also known as
Huaguan Industrial Corp. (HIC), acquired 50%, in addition to its previous 10%,
of the Companys equity interest in Sino-Top, not including the Erbahuo
property, from the Company in exchange for Chinese Yuan (RMB) 30 million
(approximately USD$4.4 million). HIC and the Company hold equity interest of 60%
and 40%, respectively, in Sino-Top, whose assets now mainly consist of eight
exploration properties. With respect to Erbahuo, the ninth exploration property
controlled by Sino-Top, it will be 70% owned by the Company and 30% by HIC,
subject to regulatory approval. The proceeds will be used to further develop the
Companys properties in China and Mexico. All proceeds and expenses from the new
venture will be shared between HIC and the Company proportionate to their
respective equity interests.

| |                                                                   |   | December 31, 2009 |  
| | ----------------------------------------------------------------- | - | ----------------- | -
| | Carrying value of investment at
      December 31, 2008           | $ | 4,575,006         |  
| | Additional investment                                             |   | 893,398           |  
| | 40% share of net loss for the year
      ending December 31, 2009 |   | (663,441          | )
| | Carrying value of investment at December 31, 2009                 | $ | 4,804,963         |  

Total assets and
    liabilities associated with the Companys equity investment in Sino-Top are
    as follows:

| |                   |   | December 31, 2009 | 
| | ----------------- | - | ----------------- | 
| | Total Assets      | $ | 3,876,104         | 
| | Total Liabilities | $ | 6,197,299         | 

11.

Related Party Transactions and
Balances

Due to related parties consists of the
following:

| |                     |   | December 31, 2009 |  |   | December 31, 2008 | 
| | ------------------- | - | ----------------- |  | - | ----------------- | 
| | Unpaid Remuneration | $ | -                 |  | $ | 24,497            | 

During the year ended December 31,
2009, the Company paid $Nil (2008 - $ 32,500) in interest to a company
controlled by a director of the Company, in relation to a loan that was secured
by the aforementioned party on behalf of the Company.

During the year ended December 31,
2009, the Company incurred $288,000 (2008 - $279,000) in management fees payable
to a company controlled by a director for services rendered other than in his
capacity as director.

During the year ended December 31,
2009, the Company incurred $Nil (2008  $50,000) in fees payable to a director
for services rendered other than in their capacity as director. All outstanding
fees have been paid to the director.

12.

Capital Stock

On January 18, 2008 the Company engaged
the services of a consultant for a term of twelve months and issued 100,000
options, for a fair value of $43,000, to purchase one common share per option of
the Company at an exercise price of $0.62 at any time within three years from
the date of the agreement.

On February 26, 2008 the Company issued
30,000 share purchase warrants to an individual for services rendered in
connection with a private placement, for a fair value of $9,000. The warrants
are exercisable at any time during a two year period from February 26, 2008 to
purchase 30,000 shares of restricted common stock at $0.60 per share.

On February 27, 2008 the Company closed
a private placement totaling 120,000 units at $0.50 per unit for gross proceeds
of $60,000. Each unit consists of one common share and one one-half $0.60 per
share purchase warrant exercisable within a two year period from the date of the
closing of the private placement.

On February 28, 2008 the Company issued
333,333 shares of the Company's restricted common stock to a company in
settlement of a Preliminary Injunction. As part of the settlement, the per share
purchase price of each of the 250,000 Class A and 250,000 Class B warrants held
by the company were reduced to $0.15, on July 10, 2008, from $2.00 and $5.00,
respectively.

In April 2008 the Company closed
private placements totaling 900,000 units at $0.25 per unit for gross proceeds
of $225,000. Each unit consists of one common share and one $0.50 per share
purchase warrant exercisable within a two year period from the date of the
closing of the private placement.

- 18 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

12.

Capital Stock (cont'd)

On April 1, 2008 the Company requested
that 250,000 shares of the Companys restricted common stock, that were
initially issued on August 17, 2007, be returned and cancelled due to
non-performance of contract terms.

On April 18, 2008, the Company issued
1,200,000 units of the capital of the Company to a company controlled by a
director as consideration for the conversion of loans payable in the amount of
$300,000. Each $0.25 unit consists of one common share and one $0.50 per share
purchase warrant exercisable within a two year period from April 18, 2008.

On April 29, 2008 the Company closed a
private placement totaling 166,667 units at $0.15 per unit for gross proceeds of
$25,000. Each unit consists of one common share and one $0.40 per share purchase
warrant and one $0.50 per share purchase warrant exercisable within a one and
two year period, respectively, from the date of the closing of the private
placement.

On May 1, 2008 the Company issued
25,000 of the Company's restricted common stock to an individual, pursuant to a
one-year accounting services contract for fair value of $5,000.

On May 6, 2008 the Company closed a
private placement totaling 250,000 units at $0.20 per unit for gross proceeds of
$50,000. Each unit consists of one common share and one $0.50 per share purchase
warrant exercisable within a two year period from the date of the closing of the
private placement.

In May 2008 the Company closed further
private placements totaling 112,500 units at $0.20 per unit for gross proceeds
of $22,500. Each unit consists of one common share and one $0.40 per share
purchase warrant and one $0.50 per share purchase warrant exercisable within a
one and two year period, respectively, from the date of the closing of the
private placement.

On June 2, 2008 the Company closed a
private placement totaling 133,333 units at $0.15 per unit for gross proceeds of
$20,000. Each unit consists of one common share and one $0.50 per share purchase
warrant exercisable within a two year period from the date of the closing of the
private placement.

On June 2, 2008 the Company issued
150,000 shares of the Companys restricted common stock to a company, pursuant
to a consulting services contract dated June 2, 2008, for fair value of $30,000.
The shares were subsequently cancelled on July 16, 2008 due to non-performance
of contract terms.

On June 19, 2008 the Company issued
50,000 shares of the Companys restricted common stock to an individual,
pursuant to an administrative services contract dated June 1, 2008, for fair
value of $10,000.

On July 10, 2008, Alpha Capital Anstalt
(Alpha) and the Company entered into a Settlement Agreement and Release (the
"Settlement Agreement") whereby all claims and disputes between the parties
relating to the pending litigation were resolved and all agreements between the
parties are to terminate - in accordance with the terms of the Settlement
Agreement. Additionally, in accordance with the terms of the Settlement
Agreement, the Company issued 2,946,734 free trading (shares which include the
exercise of the 250,000 Class A and 250,000 Class B warrants at $0.15 per
warrant) and 53,266 restricted shares of the Companys common stock and paid
$100,000 of Alphas legal fees.

On July 23, 2008 the Company issued
200,000 restricted shares of the Companys common stock to a director of the
Company for services performed as director. The director also received 500,000
options to purchase shares of the Companys restricted common stock at a per
share purchase price of $0.23, exercisable for a period of two years from June
18, 2008.

On July 23, 2008 the Company issued
share purchase warrants to an employee of a subsidiary of the Company to
purchase 20,000 shares of the Companys restricted common stock at a per share
purchase price of $0.25, exercisable for a period of two years.

On July 29, 2008 the Company closed a
private placement totaling 6,666,667 shares of the Companys restricted common
stock at $0.15 per share for gross proceeds of $1,000,000.

On September 1, 2008 the Company issued
150,000 shares of the Companys restricted common stock to an individual,
pursuant to a consulting agreement dated September 1, 2008 to provide investor
relations and information technology services, for fair value of $23,250.

On September 1, 2008 the Company issued
500,000 shares of the Companys restricted common stock to an individual,
pursuant to a consulting agreement dated September 1, 2008, for fair value of
$77,500.

On November 14, 2008 the Company issued
1,400,000 shares of the Companys restricted common stock to a company, pursuant
to an investor relations agreement dated November 14, 2008, for fair value of
$147,000.

On January 20, 2009, the Company issued
600,000 shares of the Companys restricted common stock to a company, pursuant
to an investor relations agreement dated January 20, 2009, for fair value of
$57,000.

On January 21, 2009, the Company issued
650,000 shares of the Companys restricted common stock to a company, pursuant
to an investor relations agreement dated January 15, 2009, for fair value of
$61,750.

On January 23, 2009, the Company
cancelled 250,000 shares of the Companys restricted common stock, which were
initially issued on August 17, 2007 and requested to be returned and cancelled
due to non-performance of contract terms.

On February 4, 2009, the Company issued
100,000 shares of the Companys restricted common stock to an employee of the
Company, in relation to the facilitation of the mill purchase, for fair value of
$10,000.

- 19 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

12.

Capital Stock (cont'd)

On February 6, 2009, the Company issued
300,000 options, to an individual, to purchase shares of the Companys
restricted common stock at a per share purchase price of $0.10, exercisable for
a period of three years from contract date. The options were issued pursuant to
a management consulting agreement dated February 6, 2009.

On February 12, 2009, the Company
issued 40,000 shares of the Companys restricted common stock to an individual,
in relation to investor relations services provided, for fair value of $3,608.

On May 1, 2009, the Company issued
175,000 of the Company's restricted common stock to an individual, pursuant to a
one-year accounting services contract for fair value of $14,875.

On May 15, 2009, the Company cancelled
50,000 shares of the Companys restricted common stock, which were initially
issued on April 2, 2007, and subsequently returned and cancelled due to
non-payment of $50,000.

On June 18, 2009, the Company issued
500,000 of the Companys restricted common stock to an individual in lieu of
payment owed relating to services provided in a prior year, for fair value of
$55,000.

On June 22, 2009, an individual
forfeited warrants originally exercisable at any time during a five year period
from March 1, 2007, to purchase 100,000 shares of restricted common stock at
$2.50 per share and 100,000 shares of restricted common stock at $3.00 per
share. New warrants were issued to the individual pursuant to an extension to
their respective service contract, originally signed March 1, 2007. The new
warrants were issued to purchase 100,000 shares of restricted common stock at
$0.12 per share and 100,000 shares at $0.24 per share expiring on March 1,
2012.

On July 16, 2009, the Company closed a
private placement totaling 200,000 units at $0.10 per unit for gross proceeds of
$20,000. Each unit consists of one common share and one $0.25 per share purchase
warrant exercisable within a two year period from the date of the closing of the
private placement.

On September 25, 2009, the Company
issued 600,000 shares of the Companys restricted common stock to a company,
pursuant to an investor relations agreement dated September 25, 2009, for fair
value of $160,800.

On September 30, 2009, the Company
closed a private placement totaling 250,000 units at $0.20 per unit for gross
proceeds of $50,000. Each unit consists of one common share and one $0.50 per
share purchase warrant exercisable within a two year period from the date of the
closing of the private placement.

In October 2009, the Company closed
private placements totaling 400,000 units at $0.20 per unit for gross proceeds
of $80,000. Each unit consists of one common share and one $0.50 per share
purchase warrant exercisable within a two year period from the date of the
closing of the respective private placements.

On October 13, 2009, the Company issued
warrants, to a board member, to purchase 250,000 shares of the Companys
restricted common stock at a per share purchase price of $0.25, exercisable for
a period of two years from the date of issuance.

On October 14, 2009, the Company issued
warrants, to an individual, to purchase 30,000 shares of the Companys
restricted common stock at a per share purchase price of $0.25, exercisable for
a period of two years from contract date. The warrants were issued pursuant to a
management consulting agreement dated October 14, 2009.

On November 1, 2009, the Company issued
warrants, to two Strategic Advisory Board members and a consulting group, to
purchase 5,100,000 shares of the Companys restricted common stock for a period
of five years from the date of issuance. The warrants allow for 600,000 shares
to be purchased at a per share purchase price of $0.25 and 4,500,000 shares to
be purchased at a per share purchase price of $0.50. The warrants were issued
pursuant to two appointments to the Strategic Advisory Board of the Company on
October 13, 2009.

On November 3, 2009, the Company closed
a private placement totaling 40,000 units at $0.25 per unit for gross proceeds
of $10,000. Each unit consists of one common share and one $0.50 per share
purchase warrant exercisable within a two year period from the date of the
closing of the private placement.

On November 16, 2009, the Company
issued 550,000 shares of the Companys restricted common stock to an individual,
pursuant to an agreement to purchase further mining concessions. As at December
31, 2009, the agreement had not been finalized and the Company continues to hold
possession of the shares until final terms of the agreement have been reached.

Between November and December 2009, the
Company closed private placements totaling 3,728,484 units at $0.28 per unit for
gross proceeds of $1,043,976. Each unit consists of one common share and one
$0.50 per share purchase warrant exercisable within a one year period from the
date of the closing of the respective private placements.

On December 21, 2009, an individual
exercised 100,000 options to purchase shares of the Companys restricted common
stock at a per share price of $0.115 for gross proceeds of $11,500.

On December 21, 2009, the Company
issued warrants, to two individuals, to purchase 2,500 shares of the Companys
restricted common stock at a per share purchase price of $0.50, exercisable for
a period of one year from the date of issuance.

On December 31, 2009, the Company
cancelled 800,000 restricted shares of the Companys stock, that were initially
issued on November 14, 2008, due to non-performance of contract terms.

- 20 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

12.

Capital Stock (cont'd)

Warrants

As at December 31, 2009, 15,814,198
warrants were outstanding, having an exercise price of between $0.12 and $5.00
per share with an average remaining contractual life of 2.46 years.

| |                                  |  |            |   |   | Weighted         | 
| | -------------------------------- |  | ---------- | - | - | ---------------- | 
| |                                  |  | Number of  |   |   | average exercise | 
| |                                  |  | warrants   |   |   | price            | 
| | Balance, December
      31, 2008 |  | 8,570,667  |   | $ | 1.49             | 
| | Issued during the year           |  | 10,211,698 |   |   | 0.47             | 
| | Exercised during the
      year  |  | -          |   |   | -                | 
| | Forfeitures during the year      |  | (200,000   | ) |   | 2.75             | 
| | Expired during the year          |  | (2,768,167 | ) |   | 2.78             | 
| | Balance, December 31, 2009       |  | 15,814,198 |   | $ | 0.58             | 

As at December 31, 2009 the range of
exercise prices of the outstanding warrants were as follows:

| |                          |  |            |  |  |                   |  |   | Weighted         | 
| | ------------------------ |  | ---------- |  |  | ----------------- |  | - | ---------------- | 
| |                          |  | Number of  |  |  | Average remaining |  |   | average exercise | 
| | Range of exercise prices |  | warrants   |  |  | contractual life  |  |   | price            | 
| | $0.12 - $1.00            |  | 14,579,198 |  |  | 2.43 years        |  | $ | 0.50             | 
| | $1.01 - $2.00            |  | 1,017,500  |  |  | 2.93 years        |  | $ | 1.26             | 
| | $2.01 - $5.00            |  | 217,500    |  |  | 2.14 years        |  | $ | 2.93             | 
| |                          |  | 15,814,198 |  |  |                   |  |   |                  | 

Warrants were valued using the
Black-Scholes model, using the weighted average key assumptions of volatility of
121.20% - 123.64%, a risk-free interest rate of 0.26% - 1.44%, a term equivalent
to the life of the warrant, and reinvestment of all dividends in the Company of
zero percent.

Options

As of December 31, 2009, 1,300,000
options were outstanding, having an exercise price between $0.10 and $0.95 per
share with an average remaining contractual life of 1.67 years.

| |                             |  |           |  |   | Weighted         | 
| | --------------------------- |  | --------- |  | - | ---------------- | 
| |                             |  | Number of |  |   | average exercise | 
| |                             |  | options   |  |   | price            | 
| | Balance, December 31, 2008  |  | 1,152,000 |  | $ | 0.68             | 
| | Issued during the year      |  | 300,000   |  |   | 0.10             | 
| | Exercised during the year   |  | 100,000   |  |   | 0.115            | 
| | Forfeitures during the year |  | -         |  |   | -                | 
| | Expired during the year     |  | 52,000    |  |   | 2.50             | 
| | Balance, December 31, 2009  |  | 1,300,000 |  | $ | 0.48             | 

As of December 31, 2009 the range of
exercise prices of the outstanding options were as follows:

| |                                |  |                   |  |  |                   |  |   | Weighted         | 
| | ------------------------------ |  | ----------------- |  |  | ----------------- |  | - | ---------------- | 
| |                                |  |                   |  |  | Average remaining |  |   | average exercise | 
| | Range of
      exercise prices |  | Number of options |  |  | contractual life  |  |   | price            | 
| | $0.20 - $1.00                  |  | 1,300,000         |  |  | 1.67 years        |  | $ | 0.48             | 

During the year ended December 31,
2009, 300,000 stock options, exercisable at a price of $0.10 within a three year
period their grant date were issued to a consultant of the Company. These
options were valued at $21,559 using the Black-Scholes model, using key
assumptions of a volatility of 122.81%, a risk-free interest rate of 1.44%, a
term life of three years, and reinvestment of all dividends in the Company of
zero percent.

- 21 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

13.

Consolidated Statements of Cash
Flows Supplemental Disclosures

For the year ended December 31, 2009,
stock-based compensation and the current portion of deferred expenses amounted
to $2,074,978 (2008 - $2,138,348). These amounts are included in the
consolidated financial statements as follows:

| |                                                                   |   | December 31, 2009 |  |   | December 31, 2008 | 
| | ----------------------------------------------------------------- | - | ----------------- |  | - | ----------------- | 
| | Balance Sheet
    (current portion of deferred expenses)          | $ | 329,327           |  | $ | 544,662           | 
| | Statement of operations (stock-based
      compensation expensed) |   | 1,745,651         |  |   | 1,593,686         | 
| |                                                                   | $ | 2,074,978         |  | $ | 2,138,328         | 

For the year ended December 31, 2009
there were no cash payments for income taxes (2008 - $ Nil). Cash payments for
interest expense amounted to $Nil (2008 - $32,500).

14.

Litigation

The Company is not aware of any pending
actions or litigation arising from current or past environmental practices that
are likely to have a material adverse impact on its financial position. 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 that they
will have a material effect on the Company's business or financial condition or
results of operations.

15.

Income Taxes

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

| |                                                                                                                |   | 2009       |   |   | 2008       |  
| | -------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| | Loss before income taxes                                                                                       | $ | (3,862,649 | ) | $ | (3,969,299 | )
| | Deferred: Expected income tax recovery at the combined
      average statutory rates of 33.68% (2008  27.98%) |   | (1,300,421 | ) |   | (1,124,961 | )
| | Losses not available to carryforward                                                                           |   | 12,880     |   |   | 475,945    |  
| | Change in valuation allowance                                                                                  |   | 1,287,540  |   |   | 649,016    |  
| | Provision for income taxes                                                                                     | $ | -          |   | $ | -          |  
| |                                                                                                                |   |            |   |   |            |  
| | The following summarizes the principal temporary
      differences and related future tax effect:              |   |            |   |   |            |  
| |                                                                                                                |   | 2009       |   |   | 2008       |  
| | Losses carried forward                                                                                         | $ | 7,860,890  |   | $ | 6,573,349  |  
| | Valuation allowance                                                                                            |   | (7,860,890 | ) |   | (6,573,349 | )
| | Deferred income tax asset                                                                                      | $ | -          |   | $ | -          |  

Potential benefits of income tax losses
are not recognized in the accounts until realization is more likely than not.
The Company has adopted SFAS No. 109 and ASC 740 as of their inception. Pursuant
to ASC 740 the Company is required to compute tax asset benefits for net
operating losses carried forward.

Potential benefits of net operating
losses have not been recognized in these consolidated financial statements
because the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years.

The Company has accumulated
approximately $23,100,000 of taxable losses, which may be used to offset future
federal taxable income. The utilization of the losses expires in years 2017 to
2029.

The Company's tax returns have not yet
been filed and are subject to audit and potential reassessment by taxation
authorities. The outcome of audits cannot be reasonably determined and the
potential impact on the financial statements is not determinable.

The Tax Reform Act of 1986
(Internal Revenue Code) imposed substantial restrictions on the utilization of
net operating losses and tax credits in the event of an "ownership change", as
defined by theInternal 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.

- 22 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

16.

Commitments and Contingencies

a)         On April 1, 2007, the Company
entered into a five year lease agreement for office space with an option to
renew for an additional five years. The future minimum commitment under the
lease obligations for office premises are as follows:

| | 2010 | $ | 53,720  | 
| | ---- | - | ------- | 
| | 2011 |   | 53,720  | 
| | 2012 |   | 13,430  | 
| |      | $ | 120,870 | 

In addition, the Company is required to
pay its proportionate share of realty taxes and certain other occupancy costs
under the terms of the lease.

b)         Under the terms of the agreement
with Jaime Muguiro Pena, the Company purchased 100% interest in 10 mining
concessions in consideration for $450,000 and the issuance of 450,000 restricted
common stock of the Company. The agreement also stipulates that the 450,000
common shares issued under the purchase agreement have a minimum value of
$450,000 ($1.00 per share issued), which therefore obligates the Company to
compensate for any shortfall in the share price on disposition.

c)         Under the terms of the Equity
Transfer Agreement with HIC, the Company had committed to provide capital
contributions to cover all expenses proportionate to its equity interest in
Sino-Top.

17.

Subsequent Events

On January 22, 2010, the Company issued
warrants, to an organization, to purchase 200,000 shares of the Companys
restricted common stock at a per share purchase price of $0.50, exercisable for
a period of three years from the contract date. The warrants were issued
pursuant to a consulting agreement dated January 22, 2010.

On January 25, 2010, the Company issued
200,000 shares of the Companys restricted common stock to a company, pursuant
to a consulting agreement dated January 25, 2010, for fair value of $63,200.

On February 1, 2010, the Company issued
25,000 shares of the Companys restricted common stock to a company, pursuant to
an investor relations agreement dated February 1, 2010, for fair value of
$7,500. The Company also issued warrants to purchase 150,000 shares of the
Companys restricted common stock at a per share purchase price of $0.30,
exercisable for a period of one year from the contract date.

On February 1, 2010, an individual
exercised 100,000 options to purchase shares of the Companys restricted common
stock at a per share price of $0.10 for gross proceeds of $10,000.

On February 3, 2010, the Company closed
a private placement totaling 803,571 units at $0.28 per unit for gross proceeds
of $225,000. Each unit consists of one common share and one $0.50 per share
purchase warrant exercisable within a one year period from the date of the
closing of the private placement.

On March 1, 2010, the Company issued
25,000 shares of the Companys restricted stock pursuant to the investor
relations agreement dated February 1, 2010.

On March 13, 2010 the Company settled
the outstanding debt of $100,000 to Minera through the issuance of 360,000
shares of the Companys restricted common stock.

18.

Financial Instruments

Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from the financial instruments.

The carrying amount of cash and cash
equivalents, other receivables, accounts payable, accrued liabilities, and due
to related parties, as applicable, approximates fair value due to the short term
nature of these items and/or the current interest rates payable in relation to
current market conditions.

Financial risk is the risk that the
Company's earnings are subject to fluctuations in interest risk or currency risk
and are fully dependent upon the volatility of these rates. The Company does not
use derivative instruments to moderate its exposure to financial risk, if any.

Concentration of Credit
Risk

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.

Currency Risk

While the reporting currency is the US
Dollar (USD), 17% and 2% of consolidated costs and expenses for the year ended
December 31, 2009 are denominated in the RMB and Mexican Peso (MXN),
respectively. As at December 31, 2009, 5% of the assets and 49% of the
liabilities are denominated in MXN. The Company is exposed to foreign exchange
risk as the results of operations may be affected by fluctuations in the
exchange rates between the USD and the MXN.

The Company has not entered into any
hedging transactions in an effort to reduce the exposure to currency risk.

- 23 -

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SILVER DRAGON RESOURCES INC. AND SUBSIDIARIES (AN
EXPLORATION STAGE COMPANY) Notes to the Consolidated Financial Statements
December 31, 2009 and 2008 (Expressed in United States Dollars)

19.

Segmented Information

As at December 31, 2009
    
    Corporate
    
    
    China
    
    
    Mexico
    
    
    TotalMineral Rights
    $
    -
    
    $
    -
    
    $
    3,045,745
    
    $
    3,045,745Equity Investment
    $
    4,804,963
    
    $
    --
    
    $
    -
    
    $
    4,804,963Total Assets
    $
    5,445,501
    
    $
    --
    
    $
    3,255,932
    
    $
    8,701,433Year Ended December 31, 2009
    
    Corporate
    
    
    China
    
    
    Mexico
    
    
    TotalRevenues
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Depreciation
    $
    53,358
    
    $
    -
    
    $
    48,890
    
    $
    99,248Net Loss Before Income
      Tax
    $
    (3,786,885
    )
    $
    -
    
    $
    (75,763
    )
    $
    (3,862,648
    )As at December 31, 2008
    
    Corporate
    
    
    China
    
    
    Mexico
    
    
    TotalMineral Rights
    $
    -
    
    $
    -
    
    $
    3,045,745
    
    $
    3,045,745Equity Investment
    $
    4,575,006
    
    $
    --
    
    $
    -
    
    $
    4,575,006Total Assets
    $
    6,701,705
    
    $
    --
    
    $
    3,288,848
    
    $
    9,990,553Year Ended December 31, 2008
    
    Corporate
    
    
    China
    
    
    Mexico
    
    
    TotalRevenues
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Depreciation
    $
    2,402
    
    $
    4,154
    
    $
    54,447
    
    $
    161,003Net Loss Before Income
      Tax (Restated)
    $
    (1,908,870
    )
    $
    (1,570,899
    )
    $
    (489,530
    )
    $
    (3,969,299
    )


- 24 -

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