SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


____________________________





FORM 10-Q





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


EXCHANGE ACT OF 1934




For the Quarter Ended November 30, 2009




OR




o TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)





Nevada


(State or other jurisdiction of incorporation or organization)





98-0418754


(IRS Employer Identification Number)




#108 - 1312 North Monroe Street


Spokane, Washington 99201


(Address of principal executive offices) (Zip Code)





(509) 252-8428


(Registrant’s telephone no., including area code)






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
oNon-accelerated filer
o
Smaller reporting company
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 38,775,000 shares of common stock issued and outstanding as of December 22, 2009.











ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)






Table of Contents




PagePART I. Financial InformationItem 1. Financial Statements.Consolidated Balance Sheets at November 30, 2009 (unaudited) and August 31, 2008 (audited)
1Unaudited Consolidated Statements of Operations for the three month periods ended November 30, 2009 and November 30, 2008 and the Exploration Stage Period of August 15, 2006 to November 30, 2009
2Unaudited Consolidated Statements of Cash Flows for the three month periods ended November 30, 2009 and November 30, 2008 and the Exploration Stage Period of August 15, 2006 to November 30, 2009
3Unaudited Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities for the three month periods ended November 30, 2009 and November 30, 2008 and the Exploration Stage Period of August 15, 2006 to November 30, 2009
4Notes to Consolidated Unaudited Financial Statements
5Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7Item 3. Quantitative and Qualitative Disclosures about Market Risk
10Item 4. Controls and Procedures
10PART II. Other Information
12Item 1. Legal Proceedings
12Item 1A. Risk Factors
12Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
16Item 3. Defaults Upon Senior Securities
16Item 4. Submission of Matters to a Vote of Security Holders
16Item 5. Other Information
16Item 6. Exhibits
16Signatures
17






























Table of Contents


PART I– FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS (unaudited)








ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Consolidated Balance Sheets





November 30,
2009
(Unaudited)


August 31,
2008
(Note 1)ASSETSCURRENT ASSETSCash

$
332


$
3,829Prepaid expenses


14,800



502Total current assets


15,132



4,331Total assets

$
15,132


$
4,331LIABILITIES AND STOCKHOLDERS’ (DEFICIT)CURRENT LIABILITIESAccounts payable


25,529



25,185Note payable (Note 3)


25,441



25,125Shareholder loans (Note 3 and 4)


307,377



284,185Total current liabilities

$
358,347


$
334,495Total liabilities

$
358,347


$
334,495COMMITMENTS AND CONTINGENCIES


-



-STOCKHOLDERS’ EQUITY (DEFICIT)Common shares, 100,000,000 shares par value $0.001authorized, 38,775,000outstanding


38,775



38,775Paid-in Capital


22,984,342



22,984,342Accumulated deficit in the exploration stage


(23,151,227
)


(23,138,176
)Accumulated deficit


(215,105
)


(215,105
)Total stockholders’ (deficit)


(343,215
)


(330,164
)Total liabilities and stockholders’ equity

$
15,132


$
4,331

















The accompanying notes to financial statements are an integral part of these financial statements


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ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Consolidated Statements of Operations





Three Months
ended
November 30,
2009


Three Months
ended
November 30,
2008


August 15,
2006
(inception)
through
November 30,
2009EXPENSES:Exploration licenses

$
-


$
-


$
13,372,593Exploration expenses


-



-



72,850Agent fees


-



-



1,852,500Professional and consultant fees


5,500



29,002



509,475Stock-based compensation – officers and directors


-



-



6,975,491Investor  relations


-



-



137,956Administrative expenses


3,660



7,249



193,288Total expenses

$
9,160


$
36,251


$
23,114,153Net loss from operations

$
(9,160
)

$
(36,251
)

$
(23,114,153
)Interest expense


(3,891
)


(2,731
)


(37,074
)Net Income (Loss) from continuing operations:


(13,051
)


(38,982
)


(23,151,227
)Net loss from discontinued operations :– terminated subsidiary


-



-



(68,995
)– change from Development to Exploration Stage


-



-



(146,110
)Net loss from discontinued operations


-



-



(215,105
)Net Income (Loss)

$
(13,051
)

$
(38,982
)

$
(23,366,332
)Earnings (Loss) per common share, basic and diluted:

$
Nil


$
NilWeighted average shares outstanding , basic and diluted


38,775,000



38,775,000





























The accompanying notes to financial statements are an integral part of these financial statements


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ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Consolidated Statements of Cash Flows





Three Months
ended
November 30,
2009


Three Months
ended
November 30,
2008


August 15,
2006
(inception)
through
November 30,
2009Cash flows from operating activities:Net Income (Loss) for period

$
(13,051
)

$
(38,982
)

$
(23,366,332
)Reconciling adjustments:Adjustments to reconcile net loss to net cashused in operating activities:Accrued interest on shareholder loans


3,575



2,429



35,230Accrued interest on Note payable


316



302



1,844Common stock issued for compensation


-



-



1,150,000Additional Paid-In Capital relating to Options –compensation expense


-



-



5,825,491Common stock issued for license fee payments


-



-



7,050,000Common stock issued for agent fee payments


-



-



1,762,500Accrued interest on shareholder loans related todiscontinued operations


-



-



8,761Depreciation related to discontinued operations


-



-



318Common stock issued for shareholder debt conversion related to discontinued operations


-



-



10,000Change in operating assets and liabilities:Subscription receivable


-



-



-Prepaid expenses


(14,298
)


466



(14,800
)Accounts payable


344



27,343



25,529Prepaid expenses related to discontinuedoperations


-



-



9,500Accounts payable and accrued  liabilitiesrelated to discontinued operations


-



-



(9,220
)Net cash provided (used) by operating activities


(23,114
)


(8,442
)


(7,511,179
)Cash flows from investing activities:Purchase (sale) of property and equipment relatedto discontinued operations


-



-



(318
)Net Cash provided (used) by investing activities


-



-



(318
)





(continued)

















The accompanying notes to financial statements are an integral part of these financial statements


3
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ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Consolidated Statements of Cash Flows





Three Months
ended
November 30,
2009


Three Months
ended
November 30,
2008


August 15,
2006
(inception)
through
November 30,
2009(continued)Cash flows from financing activities:Common stock issued for cash


-



-



7,193,860Loans by stockholders


19,617



4,040



110,345Note payable


-



-



23,597Common stock issued for cash related todiscontinued operations


-



-



31,266Shareholder loans related to discontinuedoperations


-



-



152,689Net cash provided by financing activities


19,617



4,040



7,511,757Net increase (decrease) in cash


(3,497
)


(4,402
)


260Cash, beginning of period


3,829



4,423



72Cash, end of period

$
332


$
21


$
332








Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities





Three Months
ended
November 30,
2009


Three Months
ended
November 30,
2008


August 15,
2006
(inception)
through
November 30,
2009Common stock issued for compensation


-



-



1,150,000Additional Paid-In Capital relating to Options


-



-



5,825,491Common stock issued for license fee payments


-



-



7,050,000Common stock issued for agent fee payments


-



-



1,762,500Common stock issued shareholder debt conversion related to discontinued operations


-



-



10,000























The accompanying notes to financial statements are an integral part of these financial statements


4
 Table of Contents


ASIAN DRAGONGROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Notes to Consolidated Financial Statements






NOTE 1 – Nature of Business and Basis of Presentation




Asian Dragon Group Inc. (“Asian Dragon”, “ADG”, “We”, the “Registrant”, or the “Company”) was incorporated as a Nevada corporation on June 11, 2003. Asian Dragon was established to develop projects which focus on China’s growing precious and base metals reserves and markets.





On April 10, 2008 the Company incorporated a British Columbia company named Asian Dragon Silver Inc. (“ADSI”) as a wholly owned subsidiary. The financial statements of the Company are presented on a consolidated basis and include all accounts of both the Company and its subsidiary.





The Company is currently evaluating new opportunities and plans to develop a strategic plan based in the mineral exploration industry.





Our fiscal year end is August 31st.





Exploration Stage Activities





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





Reclassifications





Certain account balances have been reclassified to conform to current period presentation.






NOTE 2 – 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 an operating loss from continuing operations for the three month period ending November 30, 2009 of $(13,051) and has accumulated net losses since its inception in the amount of $(23,366,332).
Additionally the Company has a deficit in working capital and stockholders equity and has had limited business operations, which raises substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company is dependent on many factors, many of which have a high degree of uncertainty.





The Company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to successfully fulfill its business plan. Management is attempting 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 making 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. The accompanying financial statements do not include any adjustments that might result from the resolution of these matters.











5
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ASIAN DRAGON GROUP INC. AND SUBSIDIARY


(An Exploration Stage Company)





Notes to Consolidated Financial Statements








NOTE 3 – Shareholder Loan and Note Payable





At November 30, 2009, the Company had a shareholder loan outstanding from a related party totaling $307,377 which included $35,230 of accrued interest. This loan is uncollateralized and has no fixed repayment dates.





At November 30, 2009, the Company had one Note Payable outstanding of $25,441, which included $1,844 of accrued interest. This loan is uncollateralized, has no fixed repayment date and is callable at any time.








NOTE 4 – Related Party Transactions





During the three months ending November 30, 2009 related party transactions included the shareholder loan activity recorded in Note 3.













































































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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS





Certain information included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934. These sections provide that the safe harbor for forward looking statements does not apply to statements made in
initial public offerings. The words, such as "may," "would," "could," "anticipate," "estimate," "plans," "potential," "projects," "continuing," "ongoing," "expects," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding intent, belief or current expectations of the Company, our directors or our officers,
with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) continued development of business opportunities; (iv) market and other trends affecting our future financial condition; (v) our growth and operating strategy. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected
in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) we have incurred significant losses since our inception; (ii) any material inability to successfully develop our business plans; (iii) any adverse effect or limitations caused by government regulations; (iv) any adverse effect on our ability to obtain acceptable financing; (v) competitive factors; and (vi) other risks including those identified in our other
filings with the Securities and Exchange Commission.





General





Asian Dragon was established to develop projects which focus on China’s growing precious and base metals reserves and markets.





Asian Dragon Group Inc. (“Asian Dragon”, “ADG”, “we”, the “Registrant”, or the “Company”) was incorporated in Nevada on June 11, 2003 and on August 10, 2006 filed Articles of Amendment with the Nevada Secretary of State to change its name to Asian Dragon Group Inc. Our fiscal year
end is August 31st.





On April 10, 2008 the Company incorporated a British Columbia company named Asian Dragon Silver Inc. (“ADSI”) as a wholly owned subsidiary. The financial statements of the Company are presented on a consolidated basis and include all accounts of both the Company and its subsidiary.





The Company’s common stock is traded in the NASD Over-The-Counter market under the symbol “AADG” and the Company is also listed on the Frankfurt Stock Exchange under the trading symbol “P2J1”.





RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 2009 AND NOVEMBER 30, 2008 AND THE EXPLORATION STAGE PERIOD FROM AUGUST 15, 2006 TO NOVEMBER 30, 2009





Revenues





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








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Expenses





Our operating expenses are classified into seven categories:





- Exploration Licenses


- Exploration Expenses


- Agent Fees


- Professional and Consultant Fees


- Stock Based Compensation – officers and directors


- Investor Relations


- Administrative Expenses





Exploration Licenses





Expenditures for Exploration Licenses were $nil and $nil respectively for the three month periods ended November 30, 2009 versus November 30, 2008. For the period of August 15, 2006 (inception) to November 30, 2009 (the “Exploration Stage”) costs for Exploration Licenses totaled $13,372,593. We anticipate these expenses may increase
over the next twelve months as we develop new business plans.





Exploration Expenses





Exploration Expenses were $nil and $nil respectively for the three month periods ended November 30, 2009 versus November 30, 2008. Expenses for the Exploration Stage totaled $72,850. We anticipate these expenses may increase during the next twelve months.





Agent Fees





Agent Fees were $nil and $nil for the three month periods ended November 30, 2009 versus November 30, 2008. Agent Fees for the Exploration Stage totaled $1,852,500. We do not anticipate we will incur further expenses in this area over the next twelve months.




Professional and Consultant Fees





Professional & Consultant Fees are comprised of fees audit, accounting, legal and other professionals. During the three month periods ended November 30, 2009 versus November 30, 2008, these fees were $5,500 versus $29,002 respectively. For the Exploration Stage, these costs totaled $509,475. We anticipate Professional & Consultant
Fees will remain at current levels in the upcoming twelve months.





Stock Based Compensation – officers and directors





Stock Based Compensation expenses totaled $nil and $nil for the three month periods ended November 30, 2009 versus November 30, 2008. During the Exploration Stage these costs totaled $6,975,491. Past expenses have related to stock and option issuances to our officers and directors. We do not anticipate incurring stock based compensation expenses
during fiscal 2009.





Investor Relations





Investor Relations expenses comprise costs for press releases, maintenance of the Company’s website and other investor information initiatives. During the three month periods ended November 30, 2009 versus November 30, 2008, these expenses totaled $nil and $nil respectively. For the Exploration Stage, Investor Relations expenses totaled
$137,956. We anticipate Investor Relations expenses may increase during the next twelve months as we continue our efforts to raise further capital and keep current investors informed of Company developments.





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Administrative Expenses





Administrative Expenses were $3,660 versus $7,249 for the three month periods ended November 30, 2009 versus November 30, 2008. For the Exploration Stage, Administrative Expenses totaled $193,288. These expenses are composed of travel, Edgar agent filing fees, stock transfer agent fees and general office expenses. We anticipate Administrative
Expenses may increase moderately in the upcoming year as we implement our business plans.





Net Income (Loss)





We incurred net losses for the three month periods ended November 30, 2009 and November 30, 2008of $(13,051) versus $(38,982) respectively. The Net Loss for the Exploration Stage was $(23,366,332).





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, 2009, consisted of cash resources of $332, prepaid expenses of $14,800 and shareholder
loans from a related party. Under the shareholder loans, loan advances to or on behalf of ADG or ADSI, bear interest at 5% per annum, calculated and compounded annually, not in advance. ADG or ADSI are 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 or ADSI at any time without notice, bonus or penalty. The amount outstanding under the shareholder loan was $307,377 including accrued interest
as of November 30, 2009.  Since Exploration Stage inception through to and including May 31, 2008, we have executed cash sales of our common shares totaling $7,193,860 through private placements.





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.





Employees





As of November 30, 2009, we had no employees and used contracted services to perform geological work, legal services and our bookkeeping. Additionally our CEO was engaged on a consulting basis. 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.





Critical Accounting Policies





Asian Dragon’s financial statements are prepared on a consolidated basis which includes the accounts of both the Company and its subsidiary and include related public financial information based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates;
assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.




9
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Our significant accounting policies are summarized in NOTE 2 of the financial statements included with our Report on Form 10-K for fiscal 2008. While all these significant accounting policies impact its financial condition and results of operations, Asian Dragon views certain of these policies as critical. Policies determined to be critical
are those policies that have the most significant impact on Asian Dragon’s financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. We have expensed all development costs related to our establishment.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





EXCHANGE RATE FLUCTUATION RISK





Our reporting currency is United States Dollars (“USD”). Our transactions in China use the Chinese Renminbi (“RMB”) which 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. 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.




ITEM 4.CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company's desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company's certifying officer has concluded that the Company's disclosure controls and procedures are not effective in reaching that level of assurance.





As of the end of the period being reported upon, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.





Management's Report on Internal Control over Financial Reporting





Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CFO to provide reasonable








10
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assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets
that could have a material effect on the financial statements.





As of November 30, 2009, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the criteria established by COSO
management concluded that the Company's internal control over financial reporting was not effective as of November 30, 2009, as a result of the identification of the material weaknesses described below.





A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.





Specifically, management identified the following control deficiencies. (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not
believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.





Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that
current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.




Changes in Internal Control over Financial Reporting




During the quarter ended November 30, 2009, no material changes were made to the Company’s internal control over financial reporting





Remediation Plan




Addition of staff


We have identified that additional staff will be required to properly segment the accounting duties of the Company. However, we do not currently have resources to fulfill this part of our plan and will be addressing this matter once sufficient resources are available.





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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 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 our business:





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 three months ended November 30, 2009, the Company had a Net Loss of $(13,051). 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.








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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" and the Company is also listed on the Frankfurt Stock Exchange under the trading symbol “P2J1”.
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.





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.








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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 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 include 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.





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.





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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, PAO, Treasurer & Secretary, Chair & 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 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 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.











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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, and 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




There have been no unregistered sales of equity securities during the three months ended November 30, 2009.




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, 2008, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.




ITEM 5.OTHER INFORMATION




None.




ITEM 6. EXHIBITS




Number
Exhibit Description31.1
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





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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.





ASIAN DRAGON GROUP INC.





/s/ John Karlsson


John Karlsson


President and CEO, CFO, Principal Accounting Officer, Secretary and Treasurer, Director


and Board Chair





Dated: December 22, 2009
























































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