SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


____________________________




FORM
10-Q/A


____________________________





x QUARTERLY REPORT UNDER
SECTION 13 OR 15(D) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
quarterly period ended November 30, 2006





 ̈ TRANSITION REPORT UNDER
SECTION 13 OR 15(D) OF THE SECURITIES


EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD


FROM
_______________ to _______________




Commission
File # 000-52268




ASIAN
DRAGON GROUP INC.


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




Nevada


(State or
other jurisdiction of incorporation or organization)




98-0418754


(IRS
Employer Identification Number)




1312
North Monroe Street, Suite 108, Spokane, Washington 99201


(Address
of principal executive offices)





(509)
252-8428


(Issuer’s
telephone number)





#202 -
1028 Hamilton Street, Vancouver, BC, Canada V6B 2R9


(Former
address, if changed since last report)




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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated file.


Large
accelerated filer o                                          Accelerated
filer o                                                        Non-accelerated
filer x




Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.   Yes o No x




The
issuer had 32,675,000 shares of common stock issued and outstanding as of
January 19, 2007.







ASIAN
DRAGON GROUP INC.


(an
Exploration Stage Company)




Table of Contents




PagePART I. Financial InformationItem 1. Financial Statements.
            1Balance Sheets at November 30, 2006 (unaudited) and August 31,
      2006 (audited)
            F-1Restated Unaudited Statements of Operations for the three
      months ended November 30, 2006 and the Exploration Stage Period of August
      15, 2006 to November 30, 2006
            F-2Restated Unaudited Statements of Cash Flows for the three
      months ended November 30, 2006 and the Exploration Stage Period of August
      15, 2006 to November 30, 2006
            F-3Notes to Unaudited Financial Statements
            F-4 to F-17Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            18Item 3. Quantitative and Qualitative Disclosures about Market
      Risk
            21Item 4. Controls and Procedures
            22PART II. Other InformationItem 1. Legal Proceedings
            23Item 1A. Risk Factors
            23Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            27Item 3. Defaults Upon Senior Securities
            27Item 4. Submission of Matters to a Vote of Security
      Holders
            27Item 5. Other Information
            27Item 6. Exhibits
            28Signatures
            29










Table of Contents




PART I – FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS (unaudited)








ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Balance Sheets





November
      30,
              2006
              (unaudited)
            
            
            August
      31,
              2006
              (Note
      1)ASSETSCURRENT
      ASSETSCash
            
            $
            -
            
            
            $
            72Accounts
      receivable (Note 3)
            
            
            2,003
            
            
            
            2,003Total current
    assets
            
            
            2,003
            
            
            
            2,075Total assets
            
            $
            2,003
            
            
            $
            2,075LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
            
            $
            70,951
            
            
            $
            15,536Shareholder
      loan (Notes 7 and 8)
            
            
            170,258
            
            
            
            161,802Total current
      liabilities
            
            
            241,209
            
            
            
            177,338COMMITMENTS
      AND CONTINGENCIES  (Notes 4 and 6)
            
            
            -
            
            
            
            -STOCKHOLDERS’
      EQUITY (DEFICIT)Common
      shares, 100,000,000 shares with par value $0.001authorized.
      32,275,000 and 32,025,000 respectively issued andoutstanding
      as of November 30, 2006 and August 31, 2006 (Note 9)
            
            
            32,275
            
            
            
            32,025Paid-in
      Capital (Note 9)
            
            
            1,008,991
            
            
            
            9,241Accumulated
      deficit in the exploration stage
            
            
            (1,065,367
            )
            
            
            (1,424
            )Accumulated
      deficit in the development stage
            
            
            (215,105
            )
            
            
            (215,105
            )Total stockholders’ equity
      (deficit)
            
            
            (239,206
            )
            
            
            (175,263
            )Total liabilities and
      stockholders’ equity (deficit)
            
            $
            2,003
            
            
            $
            2,075











F-1





The
accompanying notes to financial statements are an integral part of this
statement


1
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Statements of Operations


(Unaudited)




Restated
              Three
      Months
              Ended
              November
      30,
              2006
            
            
            Three
      Months
              Ended
              November
      30,
              2005
            
            
            Restated
              August
      15, 2006 (date of inception of Exploration Stage) to
              November
      30,
              2006EXPENSES:Exploration
      expenses
            
            $
            1,013,733
            
            
            $
            -
            
            
            $
            1,013,733Professional & consultant
      fees
            
            
            1,509
            
            
            
            -
            
            
            
            2,510Administrative
      expenses
            
            
            46,622
            
            
            
            -
            
            
            
            46,693Total expenses
            
            $
            1,061,864
            
            
            $
            -
            
            
            $
            1,062,936Net
      loss from operations
            
            $
            (1,061,864
            )
            
            $
            -
            
            
            $
            (1,062,936
            )Interest
      expense
            
            
            (2,079
            )
            
            
            -
            
            
            
            (2,431
            )Loss
      from continuing operations
            
            $
            (1,063,943
            )
            
            $
            -
            
            
            $
            (1,065,367
            )Discontinued
      Operations:-
      Net Loss from terminated subsidiary
            
            
            -
            
            
            
            (6,428
            )
            
            
            (68,995
            )-
      Net Loss from Development Stage period
            
            
            -
            
            
            
            (20,663
            )
            
            
            (146,110
            )Loss
      from Discontinued Operations
            
            
            -
            
            
            
            (27,091
            )
            
            
            (215,105
            )Net
      Loss
            
            $
            (1,063,943
            )
            
            $
            (27,091
            )
            
            $
            (1,280,472
            )Loss
      per common share, basic and diluted
            
            $
            (0.03
            )
            
            $
            NilWeighted
      average shares outstanding
            
            
            32,090,934
            
            
            
            32,090,934


























F-2





The
accompanying notes to financial statements are an integral part of this
statement


2
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Consolidated Statements of Cash Flows


(Unaudited)




Restated
              Three
      Months
              Ended
              November
      30,
              2006
            
            
            Three
      Months
              Ended
              November
      30,
              2005
            
            
            Restated
              August
      15, 2006
              (date
      of inception of Exploration Stage) to
              November
      30,
              2006Cash
      flows from operating activities:Net loss for the
      period
            
            $
            (1,063,943
            )
            
            $
            -
            
            
            $
            (1,065,367
            )Reconciling
      adjustments:Adjustments
      to reconcile net loss to netcash
      used in operating activities:Net change in operating assets
      and liabilities:Accounts
      receivable
            
            
            -
            
            
            
            -
            
            
            
            (2,003
            )Accounts payable and
      accrued liabilities
            
            
            55,433
            
            
            
            -
            
            
            
            71,303Net
      cash provided (used) by operating activities
            
            
            (1,008,510
            )
            
            
            -
            
            
            
            (996,067
            )Cash
      flows from discontinued operating activities:-
      Net loss from terminated subsidiary
            
            
            -
            
            
            
            (6,428
            )
            
            
            (68,995
            )-
      Net loss from Development Stage period
            
            
            -
            
            
            
            (20,663
            )
            
            
            (146,110
            )-
      Accrued interest on shareholder loans
            
            
            -
            
            
            
            1,104
            
            
            
            8,761-
      Depreciation
            
            
            -
            
            
            
            51
            
            
            
            318-
      Prepaid expenses
            
            
            -
            
            
            
            550
            
            
            
            9,500-
      Accounts payable and accrued liabilities
            
            
            -
            
            
            
            (263
            )
            
            
            (9,220
            )-
      Purchase (sale) of property and equipment
            
            
            -
            
            
            
            (371
            )
            
            
            (318
            )-
      Common stock issued for cash
            
            
            -
            
            
            
            -
            
            
            
            31,266-
      Common stock issued for debt conversion
            
            
            -
            
            
            
            -
            
            
            
            10,000-
      Loan by shareholder
            
            
            -
            
            
            
            27,133
            
            
            
            152,689Net
      cash provided (used) by discontinued operating activities:
            
            
            -
            
            
            
            1,113
            
            
            
            (12,109
            )Cash
      flows from financing activities:Common stock issued for
      cash
            
            
            1,000,000
            
            
            
            -
            
            
            
            1,000,000Loan by
    shareholder
            
            
            8,438
            
            
            
            -
            
            
            
            8,104Net
      cash provided by financing activities
            
            
            1,008,438
            
            
            
            -
            
            
            
            1,008,104Net
      increase (decrease) in cash
            
            
            (72
            )
            
            
            1,113
            
            
            
            (72
            )Cash,
      beginning of period
            
            
            72
            
            
            
            1,205
            
            
            
            72Cash,
      end of period
            
            $
            -
            
            
            $
            2,318
            
            
            $
            -











F-3





The
accompanying notes to financial statements are an integral part of this
statement


3
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes to Financial Statements





NOTES
TO FINANCIAL STATEMENTS (unaudited)





Note
1 – Nature of Business and Operations





Asian
Dragon Group Inc. (“Asian Dragon”, “ADG”, “We”, the “Registrant”, or the
“Company”) was incorporated in Nevada on June 11, 2003, under the name Poseidon
Casinos Inc. and changed its name to Project Romania, Inc. (“PRI”) by filing
Articles of Amendment with the Nevada Secretary of State effective October 30,
2003. On October 31, 2003, the Company acquired the outstanding stock of Galaxy
Telnet SRL (“Galaxy”, “Galaxy Telnet”, or the “Subsidiary”) in a stock exchange
transaction under a stock exchange agreement (the “Stock Exchange Agreement”)
between PRI and Galaxy. The transaction was treated as a reverse acquisition for
accounting purposes, which is a capital transaction and not a business
combination. Accordingly, the financial statements of the acquired company
(Galaxy) were presented for historical comparative purposes. Prior to the
reverse acquisition, PRI did not carry on business operations. On June 10, 2006,
the Company changed its name to Asian Dragon Group Inc. and effective August 15,
2006, the business of Galaxy was wound-up and the Subsidiary was de-registered
as a corporate entity in Romania. Asian Dragon’s August 31, 2006 audited
financial statements presented its financial statements to reflect the
discontinuation of operation of its operating Subsidiary.





Our
fiscal year end is August 31st.





Exploration
Stage Activities





The
Company has been in the exploration stage since its August 15, 2006 and has not
yet realized any revenues from its planned operations.





Note
2 – Basis of Presentation and Summary of Significant Accounting
Policies





The
financial statements included herein have been prepared by Asian Dragon without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) for reporting on interim statements. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted as allowed by such rules and regulations, and the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested these financial statements be read in conjunction with the
August 31, 2006 audited financial statements and accompanying notes included in
the Company’s annual report on Form 10-KSB filed with the SEC. While management
believes the procedures followed in preparing these financial statements are
reasonable, the accuracy of the amounts are in some respects dependent upon the
facts that will exist, and procedures that will be followed by the Company later
in the year. The results of operations for the interim periods are not
necessarily indicative of the results for the full year. In management’s opinion
all adjustments necessary for a fair presentation of the Company’s financial
statements are reflected in the interim periods included.





Amounts
shown for August 31, 2006 are based upon the audited financial statements of
that date.








F-4


4
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Going
Concern





Generally
accepted accounting principles in the United States of America contemplate the
continuation of the Company as a going concern. However, the Company has
accumulated operating losses since its inception and has limited business
operations, which raises substantial doubt about the Company’s ability to
continue as a going concern. As of November 30, 2006, the Company discontinued
its operations in Romania and its ability to continue as a going concern is
contingent upon the successful completion of additional financing arrangements
and its ability to successfully diversify into new business activities.
Management plans to raise additional funds to finance the operating and capital
requirements of the Company through a combination of equity and debt financings.
While the Company is expending its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will be
available for operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.  These financial
statements do not include any adjustments that might arise from this
uncertainty.





Summary
of Significant Accounting Policies





Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
end August 31, 2006 as contained in the Company’s annual report on Form 10-KSB,
have been omitted.





Mineral
Property Rights Acquisition and Exploration Expenditures





The
Company follows a policy of expensing exploration expenditures until a
production decision in respect of the project and the Company is reasonably
assured that it will receive regulatory approval to permit mining operations,
which may include the receipt of a legally binding project approval
certificate.





Costs of
acquiring mining properties and exploration and development costs are
capitalized upon acquisition. Mine development costs incurred either to develop
new ore deposits, expand the capacity of mines, or to develop mine areas
substantially in advance of current production are also capitalized once proven
and probably reserves exist and the property is a commercially minable property.
Costs incurred to maintain current production or to maintain assets on a standby
basis are charged to operations. Costs of abandoned projects are charged to
operations upon abandonment. The Company evaluates the carrying value of
capitalize mining costs and related property, plant and equipment costs, to
determine if these costs are in excess of their net recoverable amount whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable. The periodic evaluation of carrying value of capitalized costs
and any related property, plant and equipment costs are based upon expected
future cash flows and/or estimated salvage value in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or
Disposal of Long-lived Assets.





The
Company does not set a predetermined holding period for properties with unproven
deposits, however, properties which have not demonstrated suitable metal
concentrations at the conclusion of each phase of an exploration program are
re-evaluated to determine if future exploration is warranted, whether there has
been any impairment in value and that their carrying values are
appropriate.





If an
area of interest is abandoned or it is determined that its carrying value cannot
be supported by future production or sale, the related costs are charged
against





F-5


5
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





operations
in the year of abandonment or determination of value.  The amounts recorded
as mineral leases and claims represent costs to date and do not necessarily
reflect present or future values.





The
Company’s exploration activities and proposed mine development are subject to
various laws and regulations governing protection of the environment. These laws
are continually changing, generally becoming more restrictive. The Company has
made, and expects to make in the future, expenditures to comply with such laws
and regulations.





The
accumulated costs of properties that are developed to the stage of commercial
production will be amortized to operations through unit-of-production
depletion.





Revenue
Recognition





Revenue
from the sale of gold and co-products will be recognized when the following
conditions are met: persuasive evidence of an arrangement exists; delivery has
occurred in accordance with the terms of the arrangement; the price is fixed or
determinable and collectability is reasonably assured. Revenue for gold bullion
is recognized at the time of delivery and transfer of title to
counter-parties.





Asset
Retirement Obligations





The
Company has adopted SFAS No. 143, Accounting for Asset Retirement
Obligations which requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred. SFAS No. 143 requires a liability to be recorded for the present
value of the estimated site restoration costs with corresponding increase to the
carrying amount of the related long-lived asset. The liability will be
accreted and the asset will be depreciated over the life of the related
assets. Adjustments for changes resulting from the passage of time and
changes to either the timing or amount of the original present value estimate
underlying the obligation will be made.





The
Company has not yet undertaken mine development work and as such has not yet
estimated any site restoration costs attributable to work completed on the
mineral property in China to November 30, 2006. Under Chinese law, companies
with exploration licenses may be required to incur expenses to reclaim the
properties or to pay for disruption to properties. The obligations and amounts
with respect to a given property are subject to negotiation with the government
at the time the work on a property is completed.





Foreign
Currency Translation




The books
of record of the Company are maintained in United States dollars and this is the
Company’s functional and reporting currency. The operations of the Company’s
Joint Ventures which are located in China are to be maintained in Chinese
Renminbi Yuan. When foreign currency transactions are recorded, the
following method will be used:




Monetary
items, at the rate of exchange prevailing as at the balance sheet
date


Non-Monetary
items including equity, at the historical rate of exchange


Revenues
and expenses, at the period average in which the transaction
occurred




Translation
adjustments are recorded in Other Comprehensive Income. During the interim
period ended November 30, 2006, the Company entered into no transactions
denominated in a foreign currency.







F-6


6
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Recent
Account Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value
Measurements”. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. This Statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years and earlier application is
encouraged. The Company has adopted this Statement and this adoption did not
impact the Company's financial position, results of operations, or cash
flows.





Note
3 – Account Receivable





The
account receivable herein recorded relates to a re-imbursement owed to the
Company by a former director for an expense incurred by the Company prior the
change of control of the Company. There is no doubt as to the collectability of
this account.





Note
4 – Joint Ventures





To
November 30, 2006, the Company had entered into the following material
agreements with respect to mineral properties and exploration licenses in
China.





Jinjishan
Mine Joint Venture





On
October 31, 2006 Asian Dragon entered into a joint venture option agreement (the
“JVOA”) with World Fortune Enterprise Inc., (“WFEI”) to acquire WFEI’s rights in
a joint venture company named Luoyang Canadian United Mining Ltd. (“Luoyang”)
for development of the Jinjishan Gold Mine in the Xiaoqinling Region of
China.





The
assets, which are the property of Luoyang, a joint venture corporation formed
between WFEI and the People’s Republic of China (the “PRC”) via its agency, the
Henan Province Gold Bureau (the “Bureau”), consist of a contiguous 28.3 km 2
Exploration License and 2.8 km2 Mining Concession located in the northwest part
of the County. The mining property covers ENE trending mafic to intermediate
lava flows to which numerous gold-silver-polymetallic bearing quartz-carbonate
veins are associated (collectively the “Jinjishan Mine Claim”). Under this
agreement, WFEI has rights to acquire a 70% interest in the Jinjishan Mine Claim
(the “Rights”) and the Bureau holds a 30% interest.





The
Rights, optioned to Asian Dragon by WFEI, entitle Asian Dragon to administer the
project and hold a 70% equity interest in Luoyang in exchange for total
investment of US$2,500,000 and a grant of Asian Dragon common shares to
WFEI.  Pursuant to the JVOA, Asian Dragon has deposited with WFEI
US$1,000,000 which will be used for costs of exploration and which is required
by the PRC to be held by WFEI, as the joint venture partner, for the Joint
Venture Business License (the “JVL”) to be issued to Luoyang by the
PRC.








F-7


7
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Payment
terms for the Rights in Luoyang are: (i) deposit of US$50,000 within 14 days of
issuance of the JVL by the PRC (anticipated issuance date, January 2007); (ii)
deposit of US$250,000 within 45 days from the issuance of the JVC Business
License by the PRC; (iii) deposit of a further US$300,000 within 6 months from
the issuance Joint Venture Corporation License; and (iv) deposit of the balance
of US$1,900,000 within three years year from the initial deposit. Additionally,
in accordance with further development needs and business expansion, the parties
are entitled to make additional investments in Luoyang of up to a total of
US$12,500,000 (Rmb100,000,000). However, should Asian Dragon be the unilateral
investor of the capital input, the PRC shall always retain 15% equity of
Luoyang.





As
consideration for WFEI granting this option to Asian Dragon, Asian Dragon has
agreed to issue to WFEI 250,000 shares in the capital stock of Asian Dragon (the
“WFEI Shares”). Such WFEI Shares to be issued to WFEI upon payment of the full
amount of the final deposit (# (iv)) of US$1,900,000 by Asian Dragon to
Luoyang.





It is
intended that the deposits made by Asian Dragon to Luoyang shall be executed by
transfer of portions of the funds currently held by WFEI on behalf of Asian
Dragon.





NOTE
5 – Mineral Properties and Exploration Rights





Jinjishan
Mine Project





The
Jinjishan Project is a large mining property located in the Luoning County,
Henan Province, People’s Republic of China. The mining property consists of
contiguous 28.3 km 2 Exploration License and 2.8 km2 Mining Concession located
in the northwest part of Luoning County.





The
Jinjishan mining property is located in the east central part of China on the
Asian Continent. More precisely it is located in the west part of the
Henan Province and in the northwest part of the Luoning County and in
the Changshui community. The closest important city is Luoning. Luoning is
situated at about 1300 km WNW of Shanghaï, 1300 km SSW of Beijing, 270 km west
of Zhengzhou the provincial capital and 130 km west of Luoyang, the prefecture
of the Luoning County. Access to the Luoyang property is provided on a
120km large paved road which runs southwesterly to the city of Luoning.
From Luoning, a paved road leads southwesterly to the town of Changshui and from
that locality, a recently paved road leads northwesterly to the Jinjishan
village and then to the Jinjishan mining site. The distance from Changshui
to the property is approximately 10 km. This road also links Luoning to Lushi,
another important city to the southwest. In Chinese, Jinjishan means the Golden
Pheasant Mountain.





Topography





Henan Province
is in the transitional area between the second and third steps of China’s
fourstep terrain rising from east to west, with rolling mountains over 1000m
above sea level in its western part and plain area of 100m or lower in its east
part. Mountainous regions comprise 44.3 percent of its total area, and the
plains, 55.7 percent. The highest summit of the Henan Province is the
Laoyacha mountain (2413.8m) in Lingbao City.  The province’s
lowest point is 23.2m and is found at the point where the Huaihe River
leaves the province. Henan Province is surrounded by four mountain ranges:
the Taihang, Funiu, Tongbai and Dabie, which stand in its north, west and south
areas, leaving subsidence basins in the intermittent area. In its middle and
eastern parts there is a vast fluvial plain created by the Yellow, Huaihe and
Huo He rivers.








F-8


8
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Four
rivers run across Henan, the Yellow River, Huo He River, Weihe River and
Hanshui River, with the Huo He River valley covering up to 53 percent of
the province. The southwestern portion is part of the Yangtze River Basin
that flows to the west to the Yellow Sea. There are no significant lakes. In the
project area, the relief north of the Luo He (Blue river) basin is hilly and
shows relatively deep valleys running northwest with an elevation gradient
reaching 200m. The highest summit of the region is the Quanbao Shan culminating
at 2080m.





Infrastructure





Because
the population of Henan exceeds 92.5 million (2000 census), the province
requires good infrastructure and has strict laws concerning soil occupation
(agriculture) and urbanization extensions. Road, railway and telecommunication
networks are well developed in this area.





Major
road ways in Henan include the Kaifeng-Luoyang Expressway, the Zhengzhou-Luoyang
Expressway, the Anyang-Xinxiang Expressway, the Xuchang-Luohe Expressway, the
Luoyang-Sanmenxia Expressway and the Sanmenxia-Lingbao Expressway. This last
section is part of China’s longest expressway linking Lianyungang
(Jiangsu Province) in the east, with Horgos (Xinjiang Region) to the
northwest. This provides a connection to neighboring Shaanxi. Most of these
expressways have toll gates but the cost for traveling is reasonable. Zhengzhou
is a major rail transport centre in China, as well as the location of the main
railway manufacturers. The Beijing-Guangzhou line, the Jiaozuo-Zhicheng line and
the Beijing-Kowloon railways cross the province from north to
south.





Other
railways include the Lanzhou-Lianyungang, the Jiaozuo-Xinxiang-Heze and the
Mengmiao-Baofeng/Luohe-Fuyang lines run through Henan from west to east. The
Euro-Asia Land Bridge (Lianyungang to Rotterdam) also passes through the
city. Traffic is heavy on these railways with the circulation of numerous
passenger trains but also with considerable number of trains transporting coal
between the Henan collieries and the numerous thermal power plants. With rich
coal resources, Henan acts as a centre for thermal power generation in China. In
1999, the installed generating capacity in Henan reached 14.8MWh, ranking the
sixth in the country. Power stations have been constructed at major cities in
Zhengzhou, Kaifeng, Luoyang, Pingdingshan, Anyang, Hebi, Xinxiang, Jiaozuo and
Sanmenxia. Major river transport is also easily accessible. Henan has airports
in Zhengzhou, Luoyang and Nanyang and international flight services are
available at Zhengzhou. Chartered flights to Hong Kong and Macau are also
available.





Three of
the nation’s first-class optical cables and three microwave trunk lines run
through the province, making it possible for Henan to have automatic
long-distance transmission, digital long-distance routes and program-controlled
telephone switchboards all over the province. Its telephone exchange capacity
has reached 11.2 M circuits, with 9.38 M telephone users, 3.11 M mobile phone
users and 1.1 M Internet users. Telecommunications services are growing rapidly.
In the first quarter of 2001, there were 1.7M subscribers for mobile phone
services, ranked sixth in the country. Recently, Henan has opened a new
broadband IP network that is among the largest in China. Cellular phone
communications are available in the most remote areas of the Province. The
Jinjishan mining property is covered by the cellular phone network.





Henan has
water reserves of 4.84 Mkw, of which 3.23 Mkw can be exploited. By the end of
2000, there were 2394 reservoirs in the province and 4.6 Mha of land were
irrigated. In the Jinjishan area, water supply and sewage system, electric
service for residential and industrial use supply are presently available on
site. Manpower can easily be found in the area. Luoning, only 40 km from the
mine, is large enough and with sufficient industry to have machine and repair
shops capable of major repairs.





F-9


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 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Climate





Located
between the northern sub-tropical zone and warm temperate zone,
Henan Province has four distinctive seasons with complicated weather
conditions. Luoning is situated in the middle of a WSW trending valley in
north-central China which has an elevation of 300-1000m. Because it is
surrounded by loess plains, and upland areas and mountains exceeding 4000 m to
the south, the climate is dominated by long intervals of light winds which tend
to result in hazy and rather dry atmospheric conditions. The climate is, on
average, about 5°C warmer than Beijing and slightly drier. January is the
coldest time of year with temperatures in the city dropping to - 5°C at night
and rising only + 5°C during the day. July is the hottest month with average
temperatures of 27°C and a range of 22° -33°C during the day. Luoning receives
approximately 58 cm of precipitation per year, with July though September being
the wettest period receiving nearly 30 cm of rain during this period. The period
December through January is quite dry receiving a total of 2.3 cm of
precipitation during this period. As a result of its climate, travelers to
Luoning have little to fear of contracting malaria, cholera, Japanese
encephalitis or other diseases which may be common in coastal
regions.





Population
and Services





Henan Province
covers an area of 16 700 km2 and during the last census (2000), the population
was estimated to be 92.5 million. It has a large population with only a moderate
land area. As a consequence, the population density is relatively high, with 554
people per km2. The provincial capital is Zhengzhou (6.3M). Major centre are
Nanyang (10.5M), Luoyang (6.1M), Xinxiang (5.3M), Jiaozuo (3.2M) and Keifeng
(4.6M). The region is rich in land resources, in mineral resources, in plant and
animal resources, but much of the resources per capita are lower than China’s
average. The east part of the province is a major China grain and cotton
producer. Other agricultural products include corn, soya bean, beans, rapeseed,
potatoes and peanuts. Specialties include Lingbao dates, Huiyang day lilies and
common carp.





Major
industries include food processing, coal, metallurgy, machinery, chemicals,
petroleum refining, building materials, textiles and electronics. Zhengzhou is a
major distribution centre in central China. It is known for its array of
wholesale markets, including agricultural and a building materials wholesale
markets. There are many places of interest and historic sites in Henan so
tourism resources are rich as well. Well known tourist sites include a number of
Shang ruins in or near Zhengzhou, Yin Dynasty ruins (latter part of the Shang
era) in Anyang in the northeastern part of the province, the Shaolin Temple in
Dengfeng and the White Horse Temple in Luoyang.





Vegetation


Henan is
an important producer of the country’s wheat, corn, cotton, tobacco leaves and
oil plants. In the project region, the south of the Luohe basin, the forest is
clear and mostly composed of pine and deciduous trees.





Property





The
Jinjishanmining property covers an Exploration Permit with an area of 28.3
km2 and a 2.80 Km2 Mining Concession. Its geographical coordinates are comprised
within the following perimeter: Longitude 111°19’30” E to
111°24’00”E Latitude 34°22’00” N to 34° 25’00” N.





The
Chinese government rights registration is done at the Mining Development
Centre Zhongduan, Jefang Road, Luoyang, Henan. The Prospecting License as
well as the Mining License are owned by the Jinjishan Gold Mine of Luoning
County.





F-10


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 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





The
Jinjishan Property consists of one Exploration License Area and a Mining
Concession that are contiguous.





Regional
geology





China is
subdivided into a number of geological domains which reflects current modeling
of China’s evolution over time. The model is largely based on continental
accretion with attendant tectonism and subduction. Movement by the Siberian
Plate to the North and the Pacific-Philippines plates to the Southeast were
major factors in China’s geological evolution. Henan is located on and near the
southern boundary of the North China Domain and the Kunlun-Qinling Domain which
represents an easterly trending structural corridor to the south of which lies
the South China Domain. The early development of the Kunlun-Qinling Domain was
as a shallow elongated basin separating the stable platforms to the North and
South. The Variscan tectonic phase saw the final closure of the Qinling-Kunlun
basin and was marked by weakening and southwards migrating volcanism, but also
witnessed the most active phase of acid (granitic) intrusive activity. During
the early to middle Mesozoic, volcanism was weak and intrusive activity was
generally restricted to the structural breaks and shear zones which defined the
margins of basins lying between mountain belts. This magmatism was predominately
reflected in the emplacement of associations composed of quartz monzonite,
monzogranite, syenite, granodiorite and syenogranite. During the late Mesozoic,
volcanism increased and was intense locally as the circum-west Pacific magmatic
belt developed. Most of this is represented by a rhyolite-dacite-andesite
association together with trachyandesite-trachyte associations and alkali
basalt-basaltic andesite associations. A few alkaline basic to ultrabasic rocks
are present locally. Syenogranite, monzogranite, quartz monzonite, tonalite and
granodiorite was emplaced at this time together locally with high level
(hypabyssal) porphyries. Volcanism continued during the Cenozoic, and a few
volcanoes have been active. The Axkol volcano in southern Yutian was active
in 1951. These volcanic rocks generally comprise olivine basalt,
alkali basalt, pyroxene andesite, picritediabase, quartz monzonite,
aegirine-augite-quartz syenite and aegirine-albite granite. Gold mineralization
in the Luoning area is hosted within the Kunlun-Qinling Domain or mobile
belt.





The
Kunlun-Qinling Domain





The
parent rocks with Proterozoic sequences in the Qinling-Kunlun mobile belt
were largely calc-alkaline volcano-sedimentary rocks. Having commonly
undergone moderate to high grade metamorphism, these sequences are now
represented by 2-mica amphibole gneisses, amphibolite, granulite,
migmatite, marble, phyllite. Some of these rocks have been dated at
2,820-2,160 Ma (zircon age). Most generally however, metamorphic grade
ranges from lower greenschist to upper amphibolite facies and lower
greenschist grade metamorphism prevails in some areas, notably in the
North Qin Ling Mountains where mica schists were derived from a
thick volcano-flysch carbonate formation. The belt is therefore a highly
complex melange of juxtaposed stratigraphic units.





The
magmatic geology of the mobile belt is also complex with nine magmatic
stages and five magmatic belts. Most of the magmas generated were anatectic
melts. The earliest sets of rocks included basalt-dacite-rhyolite bimodal
associations, basalt-andesite calc-alkaline associations, basalt-rhyolite
associations and spilite-quartz keratophyre associations.





The
middle Proterozoic saw a Sibaoan magmatism culminating in
widespread tholeiitic series (basalt-andesite-dacite) volcanism and spilite
rhyolite rift volcanism accompanied by calc-alkaline granitic plutonism.
Magmatism waned during the late Proterozoic.





F-11


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 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





The most
active period of intrusive and volcanic activity was during the middle
to late Paleozoic, when the Qinling-Kunlun Ocean was closing, and thus
Caledonian rocks are well developed in the mobile belt.
Basalt-andesite-rhyolite, basalt-rhyolite, alkali
basalt-trachyte-pseudoleucite phonolite and spilitic volcanic activity
characterized most of the belt. Four granitic intrusive belts were active
at this time within which the intrusive associations included
granodiorite-monzogranite, tonaliteplagiogranite, diorite-tonalite-granodiorite,
monzogranite-syenogranite, diorite-tonalite and alkali granite-diabase and
syenite, as well as two-feldspar alaskite and Kfeldspar alaskite found locally
in the southern part of the belt.





The
tectonic history of the Qinling-Kunlun mobile belt is complex and a large part
of the reason why magmatism was so widespread and so protracted. The belt
is subdivided into four major units which developed at three different
periods of times. In addition to this, there are 20 second-order tectonic
units. The complexity of this mobile belt is partially  attributable
to the existence of an earlier fracture zone, the Jinningian Juncture Zone,
which formed during the late Proterozoic and along which the Qinling-Kunlun
mobile belt largely propagated during the late Paleozoic and the north and
south China blocks collided. The four major units of the Qinling-Kunlun
mobile belt which were active during the Proterozoic are:





1) 
the southern margin of the North China Plate;


2) 
the Qinling-Qilian mobile belt;


3) 
the Paleo-Tethys mobile belt; and,


4) 
the northern margin of the South China plate.





During
the medial Proterozoic, the southern sub-domain of the North China
Plate was the northern sub-belt of the Jinningian Juncture. At this time,
the northern subdomain of the South China plate bordered the paleo Qinling-
Kunlun ocean. The subdomains on the north and south margins were complex
structural zones undergoing protracted deformation and containing the
remnants of pre-existing paleoblocks. The sub-domains are now divided into
three second-order units on the north margin and eight second-order units
on the south which encompass areas of localized uplift as well as localized
sedimentary basins.





The
Qinling-Qilian mobile belt (subdomain) is traceable for 3,000 km along a
northwest trend, and is located in the east-central section of the
Qinling-Kunlun structural belt (Figure No 7). To the west it abuts the
Altun fracture zone and to the east it merges with the NE-trending
Tancheng-Lujiang Fracture Zone. From the late Proterozoic through the
Silurian, this belt underwent recurring extension and collision leading to
rifting and closure. The Paleo-Tethys Mobile Belt to the south of the
Qinling-Qilian mobile belt is a continental margin fold belt which contains a
sea trough system of graben and horst structures similar to the
Qinling-Qilian mobile belt.





Jinjishan
regional geology





The
Jinjishan area is underlain by a series of rocks that are of upper greenschist
to amphibolite metamorphic grade. Based on the aforementioned structural
hierarchy, it is believed that the Jinjishan area falls into the
Qilian-North Qinling Fold System. The fold system is superimposed on the
area north of the Qinling-Kunlun Juncture Zone. It is composed of a layered
metamorphic basement sequence of mobile-type sediments which, from base to
top, is composed of early Proterozoic upper greenschist to
upper







F-12


12
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





amphibolite
grade geosynclinal metasediments, medial to late Proterozoic arc-basin
formations and late Proterozoic to early Cambrian
post-orogenic epicontinental formations composed of tillite and carbonate
rocks, with localized volcanic strata as well as phosphatic and Mn-bearing
rocks. These rocks were deposited in an expanding trough which reached
culminated during the medial Ordovician. The Silurian-Devonian was the main
period of closing as NE-directed movement of the South China Block resulted
in subduction of the trough area during the Carboniferous. Final closure of the
Tethys basin occurred as a west to east scissoring at the end of the
Carboniferous.





Gold
mineralization





Gold has
been mined in China for more than 4,000 years. In the Jinjishan area,
mining probably began during the Tang Dynasty (618-907 AD). Local miners
exploited visible gold which was present on the weathering surface of veins
exposed on the mountain sides. This area was the marketing centre to which
the Emperor’s men would be sent to purchase gold from the local miners.
Historical artifacts suggest that the largest nuggets were 200-300
grams.





In
western Henan Province, Team One of the provincial MOLAR discovered
gold mineralization during the 1960’s through general geological mapping
and regional geochemical sampling. This revelation directly influenced
mineral exploration policy and activities in Henan and
Shaanxi Provinces. Although, long recognized as a source for gold, the
depletion of easily non visible gold in the Luoning area tended to
discourage further activity until the 1960’s when modern exploration
commenced with regional scale geological mapping and geochemical sampling
programmes.





The Xiao
Qinling gold province, located between Tongguan in Shaanxi and Lingbao in Henan
province is currently the second largest gold producing area in China. Annual
production is about 15 – 23 tonnes Au. The Xiao Qinling area is underlain
by gneiss, marble, quartzite, migmatite, and amphibolite
of the Late Archean Taihua Group. Indosinian alkalic porphyries and
dykes (213 –202 My) and Yanshanian granites are widespread. The Wenyu granite
intruded the central part of the gold- rich area, and is exposed over an area of
about 20 km2.





Regional
structures are dominated by the E –W-trending, north-dipping,
>60-km-long Maxundao deep fault zone (from Tongguan to Lingbao). It was
originally a compressional feature, but shows evidence for late extension. A
series of large gold deposits, with total resources of 300 – 450 t Au, occur at
intersections of second-order WNW – EW striking faults with NE and NW striking
faults to the north of the first-order Maxundao fault zone.





From west
to east in the Xiao Qinling gold province, gold deposits hosted in rocks of
the Taihua Group are concentrated in three goldfields within a 60 x15 km
corridor, 2 – 15 km north of the Maxundao fault (the Tongyu and Yanzhihe
deposits), Wenyu (the Wenyu, Dongchuang, Sifangou and Yangzhaiyu deposits
and Dahu (Dahu and Linghu deposits ) goldfields.





A series
of 4 to 20 m wide and >4 km long quartz veins lie within second-order
faults. Lesser amounts of gold occur in altered rocks along ductile –
brittle shear zones and in breccia bodies. More than 1 200 gold bearing quartz
veins have been discovered in this part of the Qinling gold province. Ores are
noted to contain pyrite, galena, sphalerite and minor magnetite,
scheelite, wolframite, molybdenite, stibnite, pyrrhotite and gold. The
gangue minerals comprise quartz,calcite, ankerite, minor rutile, barite,
siderite and fluorite. The alteration halos around quartz veins or shear zones
comprise mainly quartz, sulphide minerals, white mica and carbonate
minerals, with lesser chlorite, epidote and biotite.





F-13


13
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





A few
large gold deposits in areas of Proterozoic basement in the Xiao Qinling area,
such as Kangshan, Shanggong and Qiyugou, are controlled by a group of NE
striking faults and shear zones, which are the second-order structures to
another major E –W striking fault zone. The Shanggong(>30 t Au) and Kangshan
(>20 t Au) deposits are located in the 33km-long, NE trending
Kangshan – Qiliping ductile – brittle shear, south and parallel to the Huo He
valley.





Mineralization
is hosted in Mesoproterozoic felsic to intermediate volcanic rocks. The steeply
dipping ore bodies are 250 to 750 m long and 1 to 2.8 m wide veins filling
brittle structures, lenses in tension gashes, alteration bands along shear zones
and brecciated country rock. The ores commonly contain anomalous
Ag, Te, and Pb concentrations. Alteration halos around the
orebodies are characterized by a 1 to 3 m wide proximal sulphide –ankerite
–muscovite zone, a 1 to 20 m wide pyrite – ankerite – muscovite – chlorite
transitional zone and a 50 m wide distal chlorite-calcite zone.





The
Jinjishan Mine Property covers complexly folded and faulted Proterozoic lava
flows of intermediate composition. The volcanic rocks are metamorphosed to the
greenschist facies. Chlorite and epidote are the major alteration
minerals.





The flows
are oriented ENE and dip to the south. There is a granitic plug present in the
central portion of the property along with granitic dykes within drifts in the
F-1 vein. Faults and tension gashes are now filled with quartz, with some
brecciation, boudinage and mylonitization. Most of the veins trend in a general
E-W direction following the predominant direction of faulting. The Southeastern
most part of the property is covered by horizontal layers of Cenozoic sediments
principally made up of loess. Mineralization occurs within the quartz veins and
is associated with pyrite, galena with minor pyrrhotite or chalcopyrite and
traces of sphalerite and arsenopyrite. The gold-silver-lead-copper
mineralization is said to be associated to granitic intrusions which provided
the heat source and fluids necessary to deposit the gold. These hydrothermal
solutions circulated through faulted andesites following the fault systems.
These fault systems extend in length as well as in depth.





Note
6 – Commitments and Contingencies





(1)       The
Company’s continuing commitment under the Luoyang Joint Venture Agreement
detailed in Note 4 is as
follows:








Item
            Amount
            TimingInstallment
      four
            $1,500,000
            Prior
      to October 31, 2009








(2)       On
October 20, 2006 the Company entered into an Agency and Cooperative Agreement
with World Fortune Enterprise Inc., (“WFEI”) a Canadian firm which sources
precious metals properties for parties wishing to invest in
China.  Under the terms of this agreement, the Company has committed
to provide consideration to WFEI on a project by project basis, commencing with
the Jinjishan property as noted herein.








F-14


14
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





The
Company’s continuing commitment to WFEI arising from the Luoyang Joint Venture
Option Agreement is as follows:








Item
            Amount
            TimingIssuance
      of Common Shares
            250,000
      restricted common shares of Asian Dragon Group Inc.
            After
      full payment of Luoyang deposit (iv) under the Joint Venture
      Agreement




Note
7 – Shareholder Loans





As at
November 30, 2006, the Company had one related party shareholder loan
outstanding of $170,258, which had $2,079 of accrued interest for the period
(recorded in accrued liabilities on the balance sheet). This loan is unsecured
and has no fixed repayment dates.





Note
8 – Related Party Transactions





Related
party transactions include the shareholder loan recorded in Note 7 and also
include the provision of office facilities by John Karlsson for no charge.
Karlsson Law Corporation, of which our CEO is the principal, also provides legal
services to Asian Dragon.





Note
9 – Common Stock





On
November 7, 2006, the Company completed a private placement sale of 250,000
shares of its common stock at $4.00 per share for aggregate proceeds of
$1,000,000.





Note
10 – Income Taxes





The
Company is subject to federal income taxes in the United States and Chinese
income taxes (to the extent of its operations in China). The Company had no
income tax expenses during the reported periods due to net operating losses. The
Company’s tax asset recognized in these financial statements is $Nil as at
November 30, 2006 due to offsetting valuation allowances.





Note
11 – Restatement of Previously Filed Financial Statements





The
financial statements included herein have been restated to reflect the
re-allocation of some expenses originally reported as occurring in Quarter Four
of the year ended August 31, 2007. This error occurred as the result of the
delayed submission of some documentation from parties in China and these
expenses should have been recorded in Quarters One, Two and Three of the same
year. There has also been: a re-allocation amongst expense categories for some
expenses to more appropriately represent the substance of these costs; the
addition of income statement data to carry forward the recording of discontinued
operations; and the addition of comparative income statement data for the prior
year.





F-15


15
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements





Composite
expense totals for the year ended August 31, 2007 are not affected by these
corrections and these changes did not result in any prior period
adjustments.





The
expense line items affected by these corrections during the three month periods
ended November 30, 2006, February 28, 2007 and May 31, 2007 are as
follows:




QUARTER
      ONE 2007
              (Three
      months ended November 30, 2006)
            
            Originally
      Reported
              Three
      Months
              Ended
              November
      30, 2006
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              November
      30, 2006Exploration
      expenses
            
            $
            1,000,000
            
            
            $
            13,733
            
            
            $
            1,013,733Administrative
      expenses
            
            
            486
            
            
            
            46,136
            
            
            
            46,622Interest
      expense
            
            
            2,095
            
            
            
            (16
            )
            
            
            2,079Total
            
            $
            1,002,581
            
            
            $
            59,853
            
            
            $
            1,062,434Net
      Loss
            
            $
            (1,004,090
            )
            
            $
            (59,853
            )
            
            $
            (1,063,943
            )Loss
      per common share, basic and diluted
            
            $
            (0.03
            )
            
            $
            -
            
            
            $
            (0.03
            )








QUARTER
      TWO 2007
              (Three
      months ended February 29, 2007)
            
            Originally
      Reported
              Three
      Months
              Ended
              February
      29, 2007
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              February
      29, 2007Exploration
      expenses
            
            $
            1,969,770
            
            
            $
            43,230
            
            
            $
            2,013,000Agent
      fees
            
            
            -
            
            
            
            30,000
            
            
            
            30,000Investor
      relations
            
            
            -
            
            
            
            25,001
            
            
            
            25,001Administrative
      expenses
            
            
            25,074
            
            
            
            (7,454
            )
            
            
            17,620Interest
      expense
            
            
            2,374
            
            
            
            16
            
            
            
            2,390Total
            
            $
            1,997,218
            
            
            $
            90,793
            
            
            $
            2,088,011Net
      Loss
            
            $
            (2,036,570
            )
            
            $
            (90,793
            )
            
            $
            (2,127,363
            )Loss
      per common share, basic and diluted
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.07
            )





(continued)










F-16


16
 Table of Contents


ASIAN
DRAGON GROUP INC.


(An
Exploration Stage Company)





Notes
to Financial Statements








QUARTER
      THREE 2007
              (Three
      months ended May 31, 2007)
            
            Originally
      Reported
              Three
      Months
              Ended
              May
      31, 2007
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              May
      31, 2007Agent
      fees
            
            $
            -
            
            
            $
            15,000
            
            
            $
            15,000Professional
      and consultant fees
            
            
            61,272
            
            
            
            1,500
            
            
            
            62,772Investor
      relations
            
            
            22,769
            
            
            
            (2,248
            )
            
            
            20,521Administrative expenses
            
            
            5,794
            
            
            
            13,582
            
            
            
            19,376Interest
      expense
            
            
            2,748
            
            
            
            5
            
            
            
            2,753Total
            
            
            92,583
            
            
            
            27,839
            
            
            
            120,422Net
      Loss
            
            $
            (1,508,266
            )
            
            $
            (27,839
            )
            
            $
            (1,536,105
            )Loss
      per common share, basic and diluted
            
            $
            (0.05
            )
            
            $
            -
            
            
            $
            (0.05
            )




The
summary of the re-allocations is as follows:





Quarter
      One
              2007
            
            
            Quarter
      Two
              2007
            
            
            Quarter
      Three
              2007
            
            
            Quarter
      Four
              2007EXPENSES:Exploration
      expenses
            
            $
            13,733
            
            
            $
            43,230
            
            
            $
            -
            
            
            $
            (56,963
            )Agent
      fees
            
            
            -
            
            
            
            30,000
            
            
            
            15,000
            
            
            
            (45,000
            )Professional
      and consultant fees
            
            
            
            
            
            
            -
            
            
            
            1,500
            
            
            
            (1,500
            )Investor
      relations
            
            
            
            
            
            
            25,001
            
            
            
            (2,248
            )
            
            
            (22,753
            )Administrative
      expenses
            
            
            46,136
            
            
            
            (7,454
            )
            
            
            13,582
            
            
            
            (52,264
            )Interest
      expense
            
            
            (16
            )
            
            
            16
            
            
            
            5
            
            
            
            -Total
            
            $
            59,853
            
            
            $
            90,793
            
            
            $
            27,839
            
            
            $
            (178,480
            )

















F-17


17
 Table of Contents


ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




This
quarterly report on Form 10-Q contains "forward-looking statements" relating to
the registrant which represent the registrant's current expectations or beliefs
including, statements concerning registrant’s operations, performance, financial
condition and growth.  For this purpose, any statement contained in
this quarterly report on Form 10-Q that are not statements of historical fact
are forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "anticipation", "intend", "could", "estimate",
or "continue" or the negative or other comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, such as credit losses, dependence on
management and key personnel and variability of quarterly results, ability of
registrant to continue its growth strategy and competition, certain of which are
beyond the registrant's control. Should one or more of these risks or
uncertainties materialize or should the underlying assumptions prove incorrect,
actual outcomes and results could differ materially from those indicated in the
forward-looking statements.





COMPANY
HISTORY





The
following discussion and analysis should be read in conjunction with the
information set forth in the Company’s audited financial statements for the year
ended August 31, 2006.





When ADG
closed its Romanian operating subsidiary it became required under generally
accepted accounting principles (“GAAP”) to reset the exploration period of the
Company to a start date of August 15, 2006, the date of the dissolution of the
subsidiary. The following discussion and analysis covers material changes in the
financial condition of Asian Dragon from August 15, 2006 without the inclusion
of it terminated subsidiary Galaxy Telnet SRL.





The
following discussion and analysis covers material changes in the financial
condition of ADG during the quarter ended November 30, 2006.





Report
on Form 10-Q/A Update:





The
financial statements included herein have been restated to reflect the
re-allocation of some expenses originally reported as occurring in Quarter Four
of the year ended August 31, 2007. This error occurred as the result of the
delayed submission of some documentation from parties in China and these
expenses should have been recorded in Quarters One, Two and Three of the same
year. There has also been: a re-allocation amongst expense categories for some
expenses to more appropriately represent the substance of these costs; the
addition of income statement data to carry forward the recording of discontinued
operations; and the addition of comparative income statement data for the prior
year.





Composite
expense totals for the year ended August 31, 2007 are not affected by these
corrections and these changes did not result in any prior period
adjustments.





The
expense line items affected by these corrections during the three month periods
ended November 30, 2006, February 28, 2007 and May 31, 2007 are as
follows:










18
 Table of Contents




QUARTER
      ONE 2007
              (Three
      months ended November 30, 2006)
            
            Originally
      Reported
              Three
      Months
              Ended
              November
      30, 2006
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              November
      30, 2006Exploration
      expenses
            
            $
            1,000,000
            
            
            $
            13,733
            
            
            $
            1,013,733Administrative
      expenses
            
            
            486
            
            
            
            46,136
            
            
            
            46,622Interest
      expense
            
            
            2,095
            
            
            
            (16
            )
            
            
            2,079Total
            
            $
            1,002,581
            
            
            $
            59,853
            
            
            $
            1,062,434Net
      Loss
            
            $
            (1,004,090
            )
            
            $
            (59,853
            )
            
            $
            (1,063,943
            )Loss
      per common share, basic and diluted
            
            $
            (0.03
            )
            
            $
            -
            
            
            $
            (0.03
            )








QUARTER
      TWO 2007
              (Three
      months ended February 29, 2007)
            
            Originally
      Reported
              Three
      Months
              Ended
              February
      29, 2007
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              February
      29, 2007Exploration
      expenses
            
            $
            1,969,770
            
            
            $
            43,230
            
            
            $
            2,013,000Agent
      fees
            
            
            -
            
            
            
            30,000
            
            
            
            30,000Investor
      relations
            
            
            -
            
            
            
            25,001
            
            
            
            25,001Administrative expenses
            
            
            25,074
            
            
            
            (7,454
            )
            
            
            17,620Interest
      expense
            
            
            2,374
            
            
            
            16
            
            
            
            2,390Total
            
            $
            1,997,218
            
            
            $
            90,793
            
            
            $
            2,088,011Net
      Loss
            
            $
            (2,036,570
            )
            
            $
            (90,793
            )
            
            $
            (2,127,363
            )Loss
      per common share, basic and diluted
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.07
            )








QUARTER
      THREE 2007
              (Three
      months ended May 31, 2007)
            
            Originally
      Reported
              Three
      Months
              Ended
              May
      31, 2007
            
            
            Adjustments
            
            
            Restated
              Three
      Months
              Ended
              May
      31, 2007Agent
      fees
            
            $
            -
            
            
            $
            15,000
            
            
            $
            15,000Professional
      and consultant fees
            
            
            61,272
            
            
            
            1,500
            
            
            
            62,772Investor
      relations
            
            
            22,769
            
            
            
            (2,248
            )
            
            
            20,521Administrative expenses
            
            
            5,794
            
            
            
            13,582
            
            
            
            19,376Interest
      expense
            
            
            2,748
            
            
            
            5
            
            
            
            2,753Total
            
            
            92,583
            
            
            
            27,839
            
            
            
            120,422Net
      Loss
            
            $
            (1,508,266
            )
            
            $
            (27,839
            )
            
            $
            (1,536,105
            )Loss
      per common share, basic and diluted
            
            $
            (0.05
            )
            
            $
            -
            
            
            $
            (0.05
            )

















19
 Table of Contents




The
summary of the re-allocations is as follows:





Quarter
      One
              2007
            
            
            Quarter
      Two
              2007
            
            
            Quarter
      Three
              2007
            
            
            Quarter
      Four
              2007EXPENSES:Exploration
      expenses
            
            $
            13,733
            
            
            $
            43,230
            
            
            $
            -
            
            
            $
            (56,963
            )Agent
      fees
            
            
            -
            
            
            
            30,000
            
            
            
            15,000
            
            
            
            (45,000
            )Professional
      and consultant fees
            
            
            
            
            
            
            -
            
            
            
            1,500
            
            
            
            (1,500
            )Investor
      relations
            
            
            
            
            
            
            25,001
            
            
            
            (2,248
            )
            
            
            (22,753
            )Administrative
      expenses
            
            
            46,136
            
            
            
            (7,454
            )
            
            
            13,582
            
            
            
            (52,264
            )Interest
      expense
            
            
            (16
            )
            
            
            16
            
            
            
            5
            
            
            
            -Total
            
            $
            59,853
            
            
            $
            90,793
            
            
            $
            27,839
            
            
            $
            (178,480
            )




Results
of Operations





Revenues





ADG did
not earn revenues in the period included in the financial statements in this
report.





Expenses





Our
operating expenses are classified into three categories:





-
Exploration Expenses


-
Professional & Consultant Fees


-
Administrative Expenses





Exploration Expenses.
Exploration Expenses for the quarter ended November 30, 2006 totaled $1,013,733
and are comprised of the deposit made by the Company to World Fortune
Enterprises Inc. for installment payments toward the purchase of an interest in
the Jinjishan Mine property exploration license. For the Exploration Stage
period between August 15, 2006 and November 30, 2006, Exploration Expenses
totaled $1,013,733.





Professional & Consultant
Fees. Professional & Consultant Fees are primarily comprised of fees
for work performed by accounting, audit and legal professionals. During the
quarter ended November 30, 2006, we incurred $1,509 related to the work of a
consultant. We anticipate Professional & Consultant Fees will increase
substantially in the upcoming year as we implement our business
plans.  For the Exploration Stage period between August 15, 2006 and
November 30, 2006, Professional & Consultant Fees totaled
$2,510.





Administrative Expenses.
Administrative Expenses were $46,622 for the quarter ended November 30, 2006 and
were primarily composed of expenses incurred by our China Agent. We anticipate
Administrative Expenses will increase substantially in the upcoming year as we
implement our business plans. For the Exploration Stage period between August
15, 2006 and November 30, 2006, Administrative Expenses totaled
$46,693.





Net Loss. We incurred net
losses from continuing operations of $(1,063,943), or (0.03) per share, for the
quarter ended November 30, 2006. For the Exploration Stage period between August
15, 2006 and November 30, 2006, the Net Loss from continuing operations totaled
$1,065,367. After taking into account discontinued operations prior to August
15, 2006, the Exploration Stage loss totaled $1,280,472.







20
 Table of Contents


Liquidity
and Capital Resources





Since its
inception, the Company has financed its cash requirements from sale of common
stock and shareholder loans. Uses of funds have included activities to establish
and develop our business. The Company’s principal sources of liquidity as of
November 30, 2006, consisted of a shareholder loan from a director and principal
shareholder.





Under the
shareholder loan, loan advances to or on behalf of ADG, bear interest at 5% per
annum, calculated and compounded annually, not in advance. ADG is required to
repay the outstanding principal and interest at any time on demand. Prepayment
of all or a portion of the outstanding principal and interest may be made by ADG
at any time without notice, bonus or penalty. The amount outstanding under the
shareholder loan was $172,356 as of November 30, 2006.





From
inception through August 31, 2006, we have raised $1,042,575 through private
placements of our common shares and debt conversion.





Subsequent
to quarter end, on December 19, 2006, the Company raised additional capital of
$2,000,000 through a private placement sale of its common shares. We believe the
Company will have adequate resources to implement its strategic objectives in
upcoming quarters.





Material
Events and Uncertainties





Our
operating results are difficult to forecast. Our prospects should be evaluated
in light of the risks, expenses and difficulties commonly encountered by
comparable early stage companies in rapidly evolving markets.





There can
be no assurance that we will successfully address such risks, expenses and
difficulties.





Our
financial statements are prepared in accordance with U.S. generally accepted
accounting principles. We have expensed all development costs related to our
establishment.





Employees





As at
November 30, 2006, we had no employees and used contracted services to perform
our bookkeeping. Going forward, the Company will use consultants with specific
skills to assist with various aspects of its project evaluation, due diligence,
acquisition initiatives, corporate governance and property
management.





ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





EXCHANGE
RATE FLUCTUATION RISK





Our
reporting currency is United States Dollars (“USD”).  The Chinese Renminbi
(“RMB”) has been informally pegged to the USD.  However, China is under
international pressure to adopt a more flexible exchange rate system. If the RMB
were no longer pegged to the USD, rate fluctuations may have a material impact
on the Company’s financial reporting. In July 2005 the Renminbi was allowed
to rise 2%. As Renminbi is used for expenditures by the Company’s joint
venture partner in conducting their operations in China, the fluctuation of
exchange rates of Renminbi may have positive or negative impacts on the results
of operations of the Company.





We have
not entered into derivative contracts either to hedge existing risk or for
speculative purposes.




21
 Table of Contents


ITEM 4. CONTROLS AND PROCEDURES





Disclosure
controls and procedures





Subsequent
to the end of the period covered by this report (the “Evaluation Date”), the
Company carried out an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer (the “Certifying Officers”) of the effectiveness of the design and
operation of the Company's disclosure controls and
procedures (as defined in rules 13a-15(e) and 15d-15(e)) under the Exchange Act.Based on that
evaluation, the Certifying Officers have concluded that, as of the Evaluation
Date, the disclosure controls and procedures in place were not adequate to
ensure that information required to be disclosed by us, including our
consolidated subsidiaries, in reports that we file or submit under the Exchange Act, is recorded,
processed, summarized and reported on a timely basis in accordance with
applicable rules and regulations.





The
Company's design and operation of controls with respect to the process of
preparing and reviewing the annual and interim financial statements are
ineffective. Deficiencies identified include the inadequate segregations of
duties, lack of controls over procedures used to enter transactions into the
general ledger, and lack of appropriate review of the reconciliations and
supporting workpapers used in the financial close and reporting process. Due to
the potential pervasive effect on the financial statement account balances and
disclosures and the importance of the annual and interim financial closing and
reporting process, in the aggregate, management has concluded that there is more
than a remote likelihood that a material misstatement in our annual or interim
financial statements could occur and would not be prevented or
detected.





Remediation
Plan





We are
including information with respect to our internal control over financial
reporting for the period subsequent to May 31, 2008, in order to provide readers
with a current understanding of the identified significant deficiencies, as well
as how they have been addressed as part of our remediation plan.





Subsequent
to May 31, 2008, we have undertaken, extensive work to remediate the significant
deficiencies identified in our internal control over financial reporting
described above, including specific remediation initiatives described
below. We have begun implementing the actions described below with respect
to the identified significant deficiencies and plan to have these remedies in
place by the period ended August 31, 2008.





Insufficient
dedication of resources to administrative functions.We have focused
intensive efforts on re-aligning management duties to ensure a number of control
deficiencies related to the documentation of expenses relating to our
international activities are addressed in an effective and timely
manner.





Ineffective
Controls related to the Entering of Transactions into the General Ledger,
Preparation of Certain Account Analyses, Account Summaries, and Account
Reconciliations.As a result of the adjustments made with respect to
certain income statement accounts for the quarters ended November 30, 2006,
February 29, 2007, and May 31, 2007, we determined a more detailed review for
these accounts was necessary in connection with our quarterly and annual
financial reporting process.  The Company has developed a more
intensive financial close process to ensure a thorough review of entering
transactions into the general ledger is performed, supporting schedules are
adequately prepared and/or reviewed, and that they included adequate supporting
documentation.





Limitations
on the Effectiveness of Controls





The
Company has confidence in its revised regime of internal controls and
procedures. Nevertheless, the Company’s management (including the Chief
Executive Officer and Chief Financial Officer) believes that a control system,
no matter how well designed and operated can provide only reasonable assurance
and cannot provide absolute assurance that the objectives of the internal
control system




22
 Table of Contents


are met,
and no evaluation of internal controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected. Further, the design of an internal control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitation in all
internal control systems, no evaluation of controls can provide absolute
assurance that all control issuers and instances of fraud, if any, within the
Company have been detected.






PART II – OTHER INFORMATION





ITEM 1.LEGAL PROCEEDINGS




There is
no litigation pending or threatened by or against us.





ITEM 1A. RISK FACTORS





The
following risk factors should be considered in connection with an evaluation of
the business of the Company:





THE
COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS
PROSPECTS.





The
Company has a limited operating history upon which an evaluation of the Company,
its current business and its prospects can be based. You should consider any
purchase of the Company's shares in light of the risks, expenses and problems
frequently encountered by all companies in the early stages of its corporate
development.





LIQUIDITY
AND CAPITAL RESOURCES ARE UNCERTAIN.





For the
quarter ended November 30, 2006, the Company had a net loss of
$(1,063,943). At November 30, 2006, the Company had a working capital
deficiency of $(239,206). The Company may need to raise additional capital by
way of an offering of equity securities, an offering of debt securities, or by
obtaining financing through a bank or other entity. The Company has not
established a limit as to the amount of debt it may incur nor has it adopted a
ratio of its equity to debt allowance. If the Company needs to obtain additional
financing, there is no assurance that financing will be available from any
source, that it will be available on terms acceptable to us, or that any future
offering of securities will be successful. If additional funds are raised
through the issuance of equity securities, there may be a significant dilution
in the value of the Company’s outstanding common stock. The Company could suffer
adverse consequences if it is unable to obtain additional capital which would
cast substantial doubt on its ability to continue its operations and
growth.





THE
VALUE AND TRANSFERABILITY OF THE COMPANY'S SHARES MAY BE ADVERSELY IMPACTED BY
THE LIMITED TRADING MARKET FOR ITS SHARES AND THE PENNY STOCK
RULES.





There is
only a limited trading market for the Company's shares. The Company's common
stock is traded in the over-the-counter market and "bid" and "asked" quotations
regularly appear on the OTC Bulletin Board under the symbol "AADG". There can be
no assurance that the Company's common stock will trade at prices at or above
its present level, and an inactive or illiquid trading market may have an
adverse impact on the market price. In addition, holders of the Company's common
stock may experience substantial difficulty in selling their securities as a
result of the "penny stock rules," which restrict the ability of brokers to sell
certain securities of companies whose assets or revenues fall below the
thresholds established by those rules.







23
 Table of Contents


FUTURE
SALES OF SHARES MAY ADVERSELY IMPACT THE VALUE OF THE COMPANY'S
STOCK.





If
required, the Company may seek to raise additional capital through the sale of
common stock. Future sales of shares by the Company or its stockholders could
cause the market price of its common stock to decline.





MINERAL
EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN NATURE.





Resource
exploration and development is a speculative business, characterized by a number
of significant risks including, among other things, unprofitable efforts
resulting not only from the failure to discover mineral deposits but from
finding mineral deposits which, though present, are insufficient in quantity and
quality to return a profit from production. The marketability of minerals
acquired or discovered by the Company may be affected by numerous factors which
are beyond the control of the Company and which cannot be accurately predicted,
such as market fluctuations, the proximity and capacity of milling facilities,
mineral markets and processing equipment and such other factors as government
regulations, including regulations relating to royalties, allowable production,
importing and exporting of minerals and environmental protection, the
combination of which factors may result in the Company not receiving an adequate
return of investment capital.





Substantial
expenditures are required to establish ore reserves through drilling, to develop
metallurgical processes to extract the metal from the ore and, in the case of
new properties, to develop the mining and processing facilities and
infrastructure at any site chosen for mining. Although substantial benefits may
be derived from the discovery of a major mineralized deposit, no assurance can
be given that minerals will be discovered in sufficient quantities and grades to
justify commercial operations or that funds required for development can be
obtained on a timely basis. Estimates of reserves, mineral deposits and
production costs can also be affected by such factors as environmental
permitting regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions. In addition, the grade of ore ultimately mined may
differ from that indicated by drilling results. Short term factors relating to
reserves, such as the need for orderly development of ore bodies or the
processing of new or different grades, may also have an adverse effect on mining
operations and on the results of operations. Material changes in ore reserves,
grades, stripping ratios or recovery rates may affect the economic viability of
any project.





THE
COMPANY WILL BE SUBJECT TO OPERATING HAZARDS AND RISKS WHICH MAY ADVERSELY
AFFECT THE COMPANY'S FINANCIAL CONDITION.





Mineral
exploration involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. The Company's
operations will be subject to all the hazards and risks normally incidental to
exploration, development and production of metals, such as unusual or unexpected
formations, cave-ins or pollution, all of which could result in work stoppages,
damage to property and possible environmental damage. The Company does not have
general liability insurance covering its operations and does not presently
intend to obtain liability insurance as to such hazards and liabilities. Payment
of any liabilities as a result could have a materially adverse effect upon the
Company's financial condition.





THE
COMPANY'S ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY
REGULATIONS WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE
COMPANY.





The
Company's activities are subject to environmental regulations promulgated by
government agencies from time to time. Environmental legislation generally
provides for restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with certain mining industry
operations, such as seepage from tailing disposal areas, which would result in
environmental pollution. A breach of such legislation may result in imposition
of fines and penalties. In addition, certain types of


24
 Table of Contents


operations
require the submission and approval of environmental impact assessments.
Environmental legislation is evolving in a manner which means stricter standards
and enforcement, fines and penalties for non-compliance 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 could have an adverse effect
on the financial condition of the Company.





The
operations of the Company including exploration and development activities and
commencement of production on its properties, require permits from various
federal, state, provincial and local governmental authorities and such
operations are and will be governed by laws and regulations governing
prospecting, development, mining, production, exports, taxes, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged in the development
and operation of mines and related facilities generally experience increased
costs and delays in production and other schedules as a result of the need to
comply with applicable laws, regulations and permits.





Failure
to comply with applicable laws, regulations, and permitting requirements may
result in enforcement actions, including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of additional
equipment, or remedial actions. Parties engaged in mining operations may be
required to compensate those suffering loss or damage by reason of the mining
activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations and, in particular, environmental
laws.





THE
COMPANY IS SUBJECT TO A VARIETY OF APPROVAL REQUIREMENTS AT THE CHINESE CENTRAL,
PROVINCIAL AND LOCAL GOVERNMENT LEVELS AND, IN PRACTICE, THERE IS SOME
UNCERTAINTY SURROUNDING WHICH APPROVALS ARE ACTUALLY REQUIRED TO
CONDUCT


CERTAIN
MINING AND EXPLORATION ACTIVITIES IN VARIOUS PARTS OF CHINA





In China,
two levels of government primarily deal with the approval of the establishment
of a foreign-invested joint venture in mineral exploration and mining (“Mining
JV”): the central and the local (e.g., provincial or municipal). China’s
Ministry of Commerce (“MOFCOM”) is the central-government-level ministry in
charge of reviewing and approving the establishment of Mining JVs. 
Applications must be submitted to MOFCOM’s local-level counterparts for upward
submission to MOFCOM. However, in practice, many provincial bureaus of commerce,
such as those in Henan Province, claim final approval authority and do not
forward applications to MOFCOM.  To our knowledge, MOFCOM is aware of this
practice but has not taken any steps to intervene or take action against Mining
JVs which have been approved only at the provincial level.





Once
MOFCOM, or its authorized local counterpart has issued its approval documents,
the Chinese partners to the joint venture would then apply to China’s State
Administration of Industry and Commerce or its authorized local counterpart for
a business license. The issuance of the business license marks the legal
establishment of a Mining JV and confirms the permitted scope of the Mining JV’s
activities. The business license is subject to annual review and
renewal.





The
Ministry of Land and Resources (“MOLAR”) is the central-government-level
ministry in charge of exploration and mining licenses. Generally speaking, MOLAR
holds the final authority to issue exploration and mining licenses to Mining
JVs; however, for projects in Henan province, it has delegated this authority to
the respective provincial-level bureaus of land and resources in those
provinces, for the Company’s current purposes, the Gold Bureau in
particular.











25
 Table of Contents




COMPETITION
MAY HAVE AN IMPACT ON THE COMPANY'S ABILITY TO ACQUIRE ATTRACTIVE PRECIOUS
METALS PROPERTIES, WHICH MAY HAVE AN ADVERSE IMPACT ON THE COMPANY'S
OPERATIONS.





Significant
and increasing competition exists for the limited number of precious metals
acquisition opportunities available. As a result of this competition, some of
which is with large established mining companies with substantial capabilities
and greater financial and technical resources than the Company, the Company may
be unable to acquire attractive precious metals properties on terms it considers
acceptable. Accordingly, there can be no assurance that any exploration program
intended by the Company on properties it intends to acquire will yield any
reserves or result in any commercial mining operation.





DOWNWARD
FLUCTUATIONS IN METAL PRICES MAY SEVERELY REDUCE THE VALUE OF THE
COMPANY.





The
Company has no control over the fluctuations in the prices of the metals for
which it is exploring.  A significant decline in such prices would severely
reduce the value of the Company.





THE
COMPANY CURRENTLY RELIES ON CERTAIN KEY INDIVIDUALS AND THE LOSS OF ONE OF THESE
CERTAIN KEY INDIVIDUALS COULD HAVE AN ADVERSE EFFECT ON THE
COMPANY.





The
Company's success depends to a certain degree upon certain key members of the
management. These individuals are a significant factor in the Company's growth
and success. The loss of the service of members of the management and advisory
board could have a material adverse effect on the Company. In particular, the
success of the Company is highly dependent upon the efforts of the President
& CEO, CFO, PFO, Treasurer & Secretary, and director of the Company,
John Karlsson, the loss of whose services would have a material adverse effect
on the success and development of the Company.





THE
COMPANY DOES NOT MAINTAIN KEY MAN INSURANCE TO COMPENSATE THE COMPANY FOR THE
LOSS OF CERTAIN KEY INDIVIDUALS.





The
Company does not anticipate having key man insurance in place in respect of any
of its senior officers or personnel, although the Board has discussed and
investigated the prospect of obtaining key man insurance for John
Karlsson.





WE
ARE AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY
VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH THE COMPANY HAS,
OR MIGHT OBTAIN, AN INTEREST.





The
Company is an exploration stage company and cannot give assurance that a
commercially viable deposit, or reserve,” exists on any properties for which the
Company currently has (through an option) or may have (through potential future
joint venture agreements or acquisitions) an interest. Therefore, determination
of the existence of a reserve depends on appropriate and sufficient exploration
work and the evaluation of legal, economic, and environmental factors. If the
Company fails to find a commercially viable deposit on any of its properties,
its financial condition and results of operations will be materially adversely
affected.





WE
REQUIRE SUBSTANTIAL FUNDS MERELY TO DETERMINE WHETHER COMMERCIAL PRECIOUS METAL
DEPOSITS EXIST ON OUR PROPERTIES.





Any
potential development and production of the Company’s exploration properties
depends upon the results of exploration programs and/or feasibility




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studies
and the recommendations of duly qualified engineers and geologists. Such
programs require substantial additional funds. Any decision to further expand
the Company’s operations on these exploration properties is anticipated to
involve consideration and evaluation of several significant factors including,
but not limited to:





§
            Costs
      of bringing each property into production, including exploration work,
      preparation of production feasibility studies, and construction of
      production facilities;


§
            Availability
      and costs of financing;


§
            Ongoing
      costs of production;


§
            Market
      prices for the precious metals to be
produced;


§
            Environmental
      compliance regulations and restraints;
and


§
            Political
      climate and/or governmental regulation and
  control.





GENERAL
MINING RISKS





Factors
beyond our control may affect the marketability of any substances discovered
from any resource properties the Company may acquire. Metal prices, in
particular gold and silver prices, have fluctuated widely in recent years.
Government regulations relating to price, royalties, allowable production and
importing and exporting of precious metals can adversely affect the
Company.





There can
be no certainty that the Company will be able to obtain all necessary licenses
and permits that may be required to carry out exploration, development and
operations on any projects it may acquire and environmental concerns about
mining in general continue to be a significant challenge for all mining
companies.





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




On
November 7th, 2006,
the Company accepted a subscription agreement (the “Subscription Agreement”)
with one entity for the purchase of 250,000 common shares of the Company at a
price of $4.00 per share for total proceeds of $1,000,000. The Company believes
that such issuance is exempt from registration under Regulation S promulgated
under the Securities Act of 1933, as amended, as the securities were issued to
the entities through an offshore transaction which was negotiated and
consummated outside of the United States.





The funds
received from the investor mentioned above have been and will be used primarily
for property exploration expenses.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





The
Company has no senior securities outstanding.





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





During
the quarter ended November 30, 2006, no matters were submitted to a vote of the
Company's security holders, through the solicitation of proxies or
otherwise.





ITEM 5. OTHER INFORMATION





(1)
 As referenced in Financial Statement Notes 4 & 6, on October 31, 2006
Asian Dragon entered into a joint venture option agreement (the “JVOA”) with
World Fortune Enterprise Inc., (“WFEI”) to acquire WFEI’s rights in a joint
venture company named Luoyang Canadian United Mining Ltd. (“Luoyang”) for
development of the Jinjishan Gold Mine in the Xiaoqinling Region of
China.


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The
assets, which are the property of Luoyang, a joint venture corporation formed
between WFEI and the People’s Republic of China (the “PRC”) via its agency, the
Henan Province Gold Bureau (the “Bureau”), consist of a contiguous 28.3 km 2
Exploration License and 2.8 km2 Mining Concession located in the northwest part
of the County. The mining property covers ENE trending mafic to intermediate
lava flows to which numerous gold-silver-polymetallic bearing quartz-carbonate
veins are associated (collectively the “Jinjishan Mine Claim”). Under this
agreement, WFEI has rights to acquire a 70% interest in the Jinjishan Mine Claim
(the “Rights”) and the Bureau holds a 30% interest.





The
Rights, optioned to Asian Dragon by WFEI, entitle Asian Dragon to administer the
project and hold a 70% equity interest in Luoyang in exchange for total
investment of US$2,500,000 and a grant of Asian Dragon common shares to
WFEI.  Pursuant to the JVOA, Asian Dragon has deposited with WFEI
US$1,000,000 which will be used for costs of exploration and which is required
by the PRC to be held by WFEI, as the joint venture partner, for the Joint
Venture Business License (the “JVL”) to be issued to Luoyang by the
PRC.





Payment
terms for the Rights in Luoyang are: (i) deposit of US$50,000 within 14 days of
issuance of the JVL by the PRC (anticipated issuance date, January 2007); (ii)
deposit of US$250,000 within 45 days from the issuance of the JVC Business
License by the PRC; (iii) deposit of a further US$300,000 within 6 months from
the issuance Joint Venture Corporation License; and (iv) deposit of the balance
of US$1,900,000 within three years year from the initial deposit. Additionally,
in accordance with further development needs and business expansion, the parties
are entitled to make additional investments in Luoyang of up to a total of
US$12,500,000 (Rmb100,000,000). However, should Asian Dragon be the unilateral
investor of the capital input, the PRC shall always retain 15% equity of
Luoyang.





As
consideration for WFEI granting this option to Asian Dragon, Asian Dragon has
agreed to issue to WFEI 250,000 shares in the capital stock of Asian Dragon (the
“WFEI Shares”). Such WFEI Shares to be issued to WFEI upon payment of the full
amount of the final deposit (# (iv)) of US$1,900,000 by Asian Dragon to
Luoyang.





It is
intended that the deposits made by Asian Dragon to Luoyang shall be executed by
transfer of portions of the funds currently held by WFEI on behalf of Asian
Dragon.





(2) 
As referenced in Financial Statement Notes 6, on October 20, 2006 the Company
entered into an Agency and Cooperative Agreement with World Fortune Enterprise
Inc., (“WFEI”) a Canadian firm which sources precious metals properties for
parties wishing to invest in China.  Under the terms of this
agreement, the Company has committed to provide consideration to WFEI on a
project by project basis, commencing with the Jinjishan property as noted
herein. The Company’s continuing commitment to WFEI arising from the Luoyang
Joint Venture Option Agreement is comprised of the commitment to issue WFEI
250,000 restricted common shares of Asian Dragon Group Inc. concurrent with full
payment of Luoyang deposit (iv)under the Joint Venture Agreement referenced in this report.





ITEM 6. EXHIBITS




EXHIBIT
INDEX





Number
            
            Exhibit
      Description3.1
            
            Articles
      of Incorporation*3.2
            
            Certificate
      of Amendment of Articles of Incorporation*3.3
            
            Bylaws*






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31.1
            
            Certificate of President (chief executive officer)
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
            
            Certificate of Chief Financial Officer (principal
      financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1
            
            Certificate of President (chief executive officer)
      and Treasurer (principal financial officer) pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002





*
   Filed as an exhibit to our registration statement on Form SB-2
filed March 22, 2005 and incorporated herein by this reference






SIGNATURES




In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





ASIAN
DRAGON GROUP INC.





/s/ John
Karlsson


John
Karlsson


President
& CEO, CFO, PFO,


Secretary
& Treasurer, and Director




Dated:
October 2, 2008
































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