SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


____________________________





FORM 10-Q/A -2




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


EXCHANGE ACT OF 1934





For the Quarter Ended February 29, 2008





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)





1313 North Monroe Street, Suite 108


(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 April 21, 2008.







Table of Contents


ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)






NOTE:   This re-filed Quarterly Report on Form 10-Q/A-2 includes the following changes:(i) The Company has determined its previous recording of $9,679,407 of Exploration License expenses and related
Commitments Payable of $9,679,407 during the year ended August 31, 2007 was not appropriate and these items have been eliminated from the attached restated financial statements. The elimination of these items as at August 31, 2007 also necessitated an elimination from the preceding version of these financial statements for the three months and six months ended November 30, 2007of an Other Income gain of $9,679,407; (ii) re-formatting and amendment of financial information regarding discontinued operations in
the Statements of Operations and Statements of Cash Flows; (iii) a re-positioning of non-cash expenditures on the Statements of Cash Flows; (iv) amendments to information in Item 4 – Controls and Procedures; and (v) detailed descriptions of allocation changes have been included as Note 9 in the Notes to Financial Statements.







Table of Contents




PagePART I. Financial InformationItem 1. Financial Statements.
1Restated Balance Sheets at February 29, 2008 (Unaudited) and August 31, 2007 (Unaudited)
1Restated Unaudited Statements of Operations and Other Comprehensive Income for three and six month periods ended February 29, 2008 and February 28, 2007 and Exploration Stage Period of August 15, 2006 to February 29, 2008
2Restated Unaudited Statements of Cash Flows for the six month periods ended February 29, 2008 and February 28, 2007 and the Exploration Stage Period of August 15, 2006 to February 29, 2008
3Restated Unaudited Supplemental Disclosure of Non-cash Investing and Financing Activities
4Notes to Unaudited Financial Statements
5Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
21Item 3. Quantitative and Qualitative Disclosures about Market Risk
38Item 4. Controls and Procedures
38PART II. Other InformationItem 1. Legal Proceedings
40Item 1A. Risk Factors
40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
45Item 3. Defaults Upon Senior Securities
45Item 4. Submission of Matters to a Vote of Security Holders
45Item 5. Other Information
45Item 6. Exhibits
46Signatures
46









Table of Contents


PART I – FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS (unaudited)




ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Restated Balance Sheets




February 29, 2008
(Unaudited)


Restated
Year ended
August 31, 2007
(Unaudited)ASSETSCURRENT ASSETSCash

$
67,845


$
326,381Prepaid expenses


6,416



-Subscription receivable


-



1,000,000Total current assets


74,261



1,326,381Total assets

$
74,261


$
1,326,381LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable

$
23,597


$
66,470Account payable - related party


-



75,000Accrued liabilities


9,679



40,000Shareholder loans (Notes 5 and 6)


184,903



237,840Total current liabilities

$
218,179


$
419,310Total liabilities

$
218,179


$
419,310COMMITMENTS AND CONTINGENCIES (Notes 4,5,6 and 8)


-



-STOCKHOLDERS’ EQUITY (DEFICIT)Common shares, 100,000,000 shares par value $0.001 authorized, 38,775,000 and 38,275,000 issued and outstanding at February 29,2008 and August 31, 2007 respectively (Note 7)


38,675



38,275Paid-in Capital (Notes 7)


22,984,442



22,584,842Accumulated deficit in the exploration stage


(22,952,858
)


(21,488,444
)Accumulated deficit


(215,105
)


(215,105
)Accumulated other comprehensive income (loss)


928



(12,497
)Total stockholders’ (deficit)


(143,918
)


907,071Total liabilities and stockholders’ equity

$
74,261


$
1,326,381




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)





Restated Statements of Operations and Other Comprehensive Income


(Unaudited)





Restated
Three Months
ended
February 29,
2008


Three Months
ended
February 28,
2007


Restated
Six Months
ended
February 29,
2008


Six Months
ended
February 28,
2007


Restated
August 15, 2006 (Exploration Stage inception ) through
February 29,
2008EXPENSES:Exploration licenses

$
400,000


$
2,000,000


$
1,200,000


$
3,000,000


$
13,372,593Exploration expenses


-



13,000



-



26,733



50,215Agent fees


30,000



30,000



30,000



30,000



1,852,500Professional and consultant fees


77,319



39,532



138,624



40,861



411,039Stock-based compensation – officers and directors


-



-



-



-



6,975,491Investor  relations


-



25,001



57,708



25,001



131,111Administrative expenses


16,909



17,620



33,403



64,242



144,788Total expenses

$
524,228


$
2,124,973


$
1,459,735


$
3,186,837


$
22,937,737Net loss from operations

$
(524,228
)

$
(2,124,973
)

$
(1,459,735
)

$
(3,186,837
)

$
(22,937,737
)Interest expense


(2,280
)


(2,390
)


(4,679
)


(4,469
)


(15,121
)Net loss from continuing operations

$
(526,508
)

$
(2,127,363
)

$
(1,464,414
)

$
(3,191,306
)

$
(22,952,858
)Discontinued Operations:- Net Loss from terminated subsidiary


-



-



-



-



(68,995
)- Net Loss from Development Stage period


-



-



-



-



(146,110
)Net Income (Loss)

$
(526,508
)

$
(2,127,363
)

$
(1,464,414
)

$
(3,191,306
)

$
(23,167,963
)Income (Loss) per common share, basic and diluted

$
(0.01
)

$
(0.07
)

$
(0.04
)

$
(0.10
)Weighted average shares outstanding basic and diluted


38,404,834



32,343,826



38,404,834



32,343,826OTHER COMPREHENSIVE INCOME (LOSS):Net Income (Loss)

$
(526,508
)

$
(2,127,363
))

$
(1,464,414
)

$
(3,161,306
)

$
(23,167,963
)Foreign currency translation adjustment


395



-



13,425



-



928Total Other Comprehensive Income (Loss)

$
(526,113
)

$
(2,127,363
)

$
(1,450,989
)

$
(3,161,306
)

$
(23,167,035
)





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)





Restated Statements of Cash Flows


(Unaudited)





Restated
Six Months
ended
February 29, 2008


Six Months
ended
February 28, 2007


Restated
August 15, 2006 (inception of Exploration Stage) through
February 29, 2008Cash flows from operating activities:Net Income (Loss) for the period

$
(1,464,414
)

$
(3,191,306
)

$
(23,167,963
)Reconciling adjustments:Adjustments to reconcile net loss to net cash used in operating activities:Accrued interest on shareholder loans


4,679



4,469



15,121Common stock issued for compensation


-



-



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


-



-



5,825,491Common stock issued for license payments


-



-



7,050,000Common stock issued for agent payments


-



-



1,762,500Accrued interest on shareholder loans related to discontinued operations


-



-



8,761Depreciation related to discontinued operations


-



-



318Common stock issued for debt conversion related to discontinued operations


-



-



10,000Net change in operating assets and liabilities:Subscription receivable


1,000,000



-



-Prepaid expenses


(6,416
)


(7,000
)


(6,416
)Accounts payable and accrued  liabilities


(148,194
)


144,684



33,276Prepaid expenses related to discontinued operations


-



-



9,500Accounts payable and accrued liabilities related to discontinued operations


-



-



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


(614,345
)


(3,049,153
)


(7,318,632
)Cash flows from investing activities:Purchase (sale) of property and equipment related to discontinued operations


-



-



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


-



-



(318
)(continued)
   
 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)

Restated Statements of Cash Flows
(Unaudited)

Restated
Six Months
ended
February 29,
2008


Six Months
ended
February 28,
2007


Restated
August 15, 2006 (inception of Exploration Stage) through
February 29, 2008Cash flows from financing activities:Common stock issued for cash


400,000



3,000,000



7,193,860Shareholder loans


(57,616
)


49,081



7,980Common stock issued for cash related to discontinued operations


-



-



31,266Shareholder loans related to discontinued operations


-



-



152,689Net cash provided by financing activities


342,384



3,049,081



7,385,795Effect of foreign currency translation


13,425



-



928Net increase (decrease) in cash


(258,536
)


(72
)


67,773Cash, beginning of period


326,381



72



72Cash, end of period

$
67,845


$
-


$
67,845


Restated Supplemental Disclosure of Non-cash Investing and Financing Activities (unaudited)
(Unaudited)

Restated
Six Months
ended
February 29,
2008


Six Months
ended
February 28,
2007


Restated
Exploration Stage August 15, 2006 through
February 29, 2008Common 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 this statement


4
 Table of Contents


ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements


(Unaudited)








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.
Effective August 15, 2006, the business of its operating subsidiary Galaxy Telnet SRL was wound-up and the subsidiary was de-registered as a corporate entity. Asian Dragon’s August 31, 2006 audited financial statements were presented to reflect the discontinuation of operation of Galaxy Telnet SRL and concurrently the date at which Asian Dragon became an Exploration Stage Company was set as August 15, 2006.





The unaudited financial statements as of February 29, 2008 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted
accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  It is suggested that these financial statements be read in conjunction with the August 31, 2007 audited financial statements and notes thereto.





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.





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 a loss from continuing operations  for the six month period ended February 29, 2008 of $(1,464,414) and has accumulated operating losses since its inception. 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.





During the quarter ended February 29, 2008, we addressed the going concern issue by completing a private placement of 500,000 common shares at $0.80 per share for aggregate proceeds of $400,000. 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 plans to attempt 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
 Table of Contents


ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)




Notes to Financial Statements


(Unaudited)




NOTE 3 – Exploration License Agreements
 
 Jinjishan Property and Concentration Plant
 
 The Jinjishan License consists of an Exploration License on a contiguous 28.3 sq km property located in the Northwest part of the Luoning County, Henan Province, China, in the Changshui community. The Jinjishan Plant is located in the same area and we note that this formerly operating plant, and other infrastructure and buildings acquired
in each of our Exploration License purchases to date entirely, and without exception, have no value from an accounting or operational perspective due to age and state of repair.
 
 Asian Dragon entered into an agreement (the “Jinjishan Rights Agreement”) with World Fortune Enterprise, Inc. (“WFEI”) effective August 29, 2007, to acquire a 70% interest in The Jinjishan License (the “Jinjishan Rights”) and a 100% interest in the Jinjishan Plant (collectively the “Jinjishan Interests”).
Under the Jinjishan Rights Agreement Asian Dragon assumed the payment responsibilities of WFEI for the Jinjishan Interests.
 
 World Fortune does not own the interests referenced in its agreement with Asian Dragon. World Fortune has an agreement with Luoyang Canadian United Mining Ltd. (“LCUML”) for those interests. LCUML owns the rights for the interests in the Xiaoquinling region of China, which were purchased from the Luoyang
Jinjishan Gold Mine Company (“Luoyang Jinjishan”). World Fortune has represented that when they eventually assign the rights to Asian Dragon, those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. World Fortune has also represented that when the option is exercised, it will have the right and authority to transfer the rights to Asian Dragon.
  It is also anticipated WFEI, in its role as Asian Dragon’s China Agent, will aid the Company in establishing a Chinese Registered Subsidiary which will be wholly owned by Asian Dragon. The mineral rights under this agreement will ultimately be transferred into this subsidiary.
 
 Asian Dragon, WFEI, LCUML, and Luoyang Jinjishan are all independent parties and are dealing at arm’s length in these arrangements.
 
 Asian Dragon is not a party to the agreement between World Fortune and LCUML, nor a party to the agreement between LCUML and Luoyang Jinjishan which previously owned the rights and may have little or no recourse on LCUML or Luoyang Jinjishan, in the event that the purchase agreement does not comply with their agreements
with each other or World Fortune. However, Asian Dragon has received an attorney’s letter from Mr. Tian Huiquing, Kunda Law Office, Hunan, China stating that the agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
  Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Jinjishan Rights Agreement.
 
 
 6
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 The Jinjishan Rights Agreement required payment of $2,500,000 for the Jinjishan License and $800,000 for the Jinjishan Plant for total consideration of $3,300,000. The Jinjishan Rights Agreement acknowledged Asian Dragon provided payments totaling US$1,792,593 to August 29, 2007 (inclusive of a payment of US$600,000 toward the Jinjishan Plant)
and required further investment by Asian Dragon as follows: (i) US$507,407 by October 1, 2007; (ii) US$500,000 by March 1, 2008; and (iii) US$500,000 by October 1, 2008.
 
 The Company did not make payment of installment one of the Jinjishan commitment to WFEI due October 1, 2007 and was in default as to $507,407toward the Jinjishan Agreement as of the end of the quarter ended November 30, 2007. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate
this default. No damages were claimed by WFEI or LCUML.
 
 On December 12, 2007, with the mutual consent of WFEI, the Jinjishan Rights Agreement was replaced with the “Jinjishan Agreement” which clarified certain terminology in the predecessor agreements but maintained the same payment terms. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments
under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Jinjishan Agreement.
 
 Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and was in default as to a total of $1,007,407 toward the Jinjishan Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI
agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
 
 Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement was replaced with the “Jinjishan (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long
term commitments payable, recorded as a total of $1,499,407 at August 31, 2007.
 
 Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and is in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement. A discussion was held with WFEI and LCUML regarding this matter
and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
 
 Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.
 
 7
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
   Loning Property
 
 The Loning License consists of an Exploration License on a 9.1 sq km property located in the Xiaoqinling Region, China, and is three km southwest of the Jinjishan License.
 
 Asian Dragon entered into an agreement (the “Loning Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 70% interest in the Loning License (the “Loning Rights”). Under the Loning Rights Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the Loning License.
  World Fortune does not own the interests referenced in its agreement with Asian Dragon. World Fortune has an agreement with Henan Yunfeng Resource of Mining Development Co. (“Yunfeng”) for those interests. However, Yunfeng does not own the rights, but has entered into a purchase agreement with the Luoyang
Longyu Jinmen Mines Limited Company (“Jinmen”) for the interests in the Xiaoquinling region of China. World Fortune has represented that when they eventually assign the rights to Asian Dragon, those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. World Fortune has also represented that when the option is exercised, it will have the right and authority to transfer the rights to Asian Dragon.
 
 It is also anticipated WFEI, in its role as Asian Dragon’s China Agent, will aid the Company in establishing a Chinese Registered Subsidiary which will be wholly owned by Asian Dragon. The mineral rights under this agreement will ultimately be transferred into this subsidiary.
 
 Asian Dragon, WFEI, Yunfeng, and Jinmen are all independent parties and are dealing at arm’s length in these arrangements.
 
 Asian Dragon is not a party to the agreement between World Fortune and Yunfeng nor a party to the agreement between Yunfeng and Jinmen which owns the rights to the interests in the Xiaoquinling region of China and may have little or no recourse on Yunfeng or Jinmen, in the event that the purchase agreement does not comply
with their agreements with each other or World Fortune. However, Asian Dragon has received an attorney’s letter from Mr. Tian Huiquing, Kunda Law Office, Hunan, China stating that the agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
 
 Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Loning Rights Agreement.
 
 The Loning Rights Agreement required total payments by Asian Dragon of $1,510,000, of which $1,000,000 was to be expended by Asian Dragon for exploration purposes. The Loning Rights Agreement acknowledged Asian Dragon has provided payments totaling US$400,000 to August 29, 2007 and required further investment by Asian Dragon as follows: (i)
US$110,000 by March 1, 2008; (ii) US$500,000 by September 30, 2008; and (iii) US$500,000 by September 30, 2009.
 
 
 8
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 On August 29, 2007 the Company made a payment of $27,454 to WFEI toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this matter and
WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Yunfeng.
 
 On December 12, 2007, with the mutual consent of WFEI, the Loning Rights Agreement was replaced with the “Loning Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under
the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments respectively under the Loning Agreement.
 
 Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Loning Agreement was replaced with the “Loning (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments
payable, recorded as a total of $1,076,822 at August 31, 2007. As of April 14, 2008, Asian Dragon was in default as to a total of $82,546 toward the Loning (Revised) Agreement.
 
 Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.
 
 Luanchuan Mozigou Molybdenum Property
 Lushi Jiashapa Vanadium Property
 Luoning Xiayu Fanggelewan Silver-Lead Property
 XWG Silver-Lead Property
 
 The MZG License consists of an Exploration License on a 14.09 sq km property located in the Jiaohe Village of Luanchuan County, Henan Province, China. The JSP License consists of an Exploration License on an 8.3 sq km property located in the area of Wenguxiang to Dashihe in Lushi County, Henan Province, China. The FGLW License consists
of a 1.75 sq km exploration license located approximately 240 km west of Zhengzhou and 80 km west of Luoyang. The XWG License consists of a 2.13 sq km exploration license located in the area of Xiayu, Henan Province, China. (Collectively, these licenses are hereafter referenced as the “Fuding Properties”).
 
 Asian Dragon entered into an agreement (the “Fuding Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 51% interest in the Fuding Properties (the “Fuding Rights”). Under the Fuding Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the various rights and interests.
 
 9
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 World Fortune does not own the interests referenced in its agreement with Asian Dragon. World Fortune has an agreement with Luoning Fuding Mining Development, Ltd. (“Fuding”) for those interests. However, Fuding does not own the rights, but has entered into purchase agreements for those rights with the following
four companies (collectively referenced herein as “the Fuding Rights Holders”): (i) in respect of the Luanchuan Mozigou Molybdenum Site: the Henan Geological Investigating Bureau of General Bureau Sino-Petrochemical Geological Mine; (ii) in respect of the Lushi Jiashapa Vanadium Site: the Lushi Geological Investigating Research Office; (iii) in respect of the Luoning Xiayu Fanggelewan Silver-Lead Site: the Luoning Xiayu Fanggelewan Mining Limited Company; and (v) in respect of the XWG Silver-Lead
Site: the Lingbao Yida Mining Company. World Fortune has represented that when they eventually assign the rights to Asian Dragon, those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. World Fortune has also represented that when the option is exercised, it will have the right and authority to transfer the rights to Asian Dragon.
 
 It is also anticipated WFEI, in its role as Asian Dragon’s China Agent, will aid the Company in establishing a Chinese Registered Subsidiary which will be wholly owned by Asian Dragon. The mineral rights under this agreement will ultimately be transferred into this subsidiary.
 
 Asian Dragon, WFEI, Fuding, and the Fuding Rights Holders are all independent parties and are dealing at arm’s length in these arrangements.
 
 Asian Dragon is not a party to the agreement between World Fortune and Fuding nor a party to the agreement between Fuding and the Fuding Rights Holders and may have little or no recourse should Fuding or the Fuding Rights Holders  not comply with their agreements with each other or World Fortune. However, Asian
Dragon has received an attorney’s letter from Mr. Tian Huiquing, Kunda Law Office, Hunan, China stating that the agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
 
 Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Fuding Rights Agreement.
 
 The Fuding Agreement required total consideration of $10,000,000. The Fuding Rights Agreement acknowledged Asian Dragon provided an initial pament of $2,730,000 and required further payments as follows: $1,270,000 on October 1, 2007; $2,000,000 before March 1, 2008; $2,000,000 on June 1, 2008; and $2,000,000 on October 1, 2008.
 
 On August 29, 2007 and September 14, 2007 the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1, 2007. As such, the Company
was in default as to $297,454 regarding the Fuding Agreement at the end of the quarter ended November 30, 2007. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding. During the quarter ended February 29, 2008, on January 14, 2008 the Company completed payment of the remaining $297,454 regarding Fuding installment one.
 
 
 10
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 On December 12, 2007, with the mutual consent of WFEI, the Fuding Rights Agreement was replaced with the “Fuding Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under
the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Fuding Agreement.
 
 During the quarter ended February 29, 2008, on January 14, 2008 the Company made a payment of $102,546 toward Fuding installment two.
 
 Subsequent to the end of the quarter ended February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and was in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend
the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding.
 
 Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Fuding Agreement was replaced with the “Fuding (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments
payable, recorded as a total of $7,103,178 at August 31, 2007. As of April 14, 2008, Asian Dragon was in default as to a total of $1,897,454 toward the Fuding (Revised) Agreement.
 
 Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.
  NOTE 4 – Commitments and Contingencies
 
 Exploration License Transfers Contingencies
 
 The Company has secured an attorney’s review of the agreements which transfer the Exploration Licenses of which it is in the process of acquiring, and to the best of its knowledge, all of these Agreements are in good standing. However, the Exploration Licenses may be subject to prior unregistered agreements or transfers and title may
be affected by undetected defects. There may be valid challenges to the title of the Company’s Exploration Licenses, once acquired, which, if successful, could impair development and/or operations. The Company cannot give any assurance that title to its Exploration Licenses will not be challenged.
 
 
 11
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 In addition the Company is relying on a series of agreements between Chinese companies and entities to ultimately transfer title of the Exploration Licenses to the Company. While the Company has relied on opinions provided by Chinese counsel and to the best of its knowledge these agreements will effectively transfer title, the agreements and
the transfer may be affected by undetected defects and the Company cannot give any assurance that the transfer of title to the Company will not be challenged.
 
 If a material defect in the transfer of any Exploration Licenses for which the Company is currently in the process of acquiring were to occur, the Company may in the future be required to record an impairment to any future capitalized amounts it had recorded relating to its Exploration Licenses or exploration activities. Such would not be
the case at present however, because the Company has not yet capitalized any amounts with respect to its exploration activities.
 
 License Issuance Contingencies
 
 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 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 and is subject to the risk of non-renewal. To date all Joint Venture business licenses have been issued to the Mining JVs formed by WFEI and its Chinese partners.
 
 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. To date, all exploration licenses which have been granted regarding properties for which Asian Dragon has entered purchase agreements have been issued at the local-level. This raises the contingency that MOLAR may deem these licenses lack validity, or require further applications be submitted to it regarding these properties.
 
 Once the Company has performed sufficient work on a property to determine that it has value it must develop and submit a Development Report to the Chinese Government. This report forms a part of the application for a mining permit. There is no assurance that any applicant will be granted a mining license and therefore this represents a contingency
risk for the Company’s future operations.
 
  12
 Table of Contents
 
 ASIAN DRAGON GROUP INC.
 (An Exploration Stage Company)
 
 Notes to Financial Statements
 (Unaudited)
 
 
 Financial Commitments
 
 Prior to cancelation, the Company’s remaining commitments under its Agreements referenced in NOTE 3 were as follows:
  PART ONE – Monetary Commitments:




Project Item

Installments Required


Payments Made


Balance Due

DeadlinesJinjishan Agreement commitments:- initial payment

$
1,792,593


$
1,792,593


$ Nil

August 29, 2007- installment one (1)


507,407



-



507,407

October 1, 2007- installment two (2)


500,000



-



500,000

March 1, 2008- installment three


500,000



-



500,000

October 1, 2008Sub-total

$
3,300,000


$
1,792,593


$
1,507,407Loning Agreement commitments:- initial payment

$
400,000


$
400,000


$ Nil

August 29, 2007- installment one (3)


110,000



27,454



82,546

March 1, 2008- installment two (4)


500,000



-



500,000

September 30, 2008- installment three (4)


500,000



-



500,000

September 30, 2009Sub-total

$
1,510,000


$
427,454


$
1,082,546Fuding Agreement commitments:- initial payment

$
2,730,000


$
2,730,000


$ Nil

August 29, 2007- installment one (5)


1,270,000



1,270,000


Nil

October 1, 2007- installment two (6)


2,000,000



102,546



1,897,454

March 1, 2008- installment three


2,000,000



-



2,000,000

June 1, 2008- installment four


2,000,000



-



2,000,000

October 1, 2008Sub –total

$
10,000,000


$
4,102,546


$
5,897,454Grand Totals





$
6,322,593


$
8,487,407





13
 Table of Contents


ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements


(Unaudited)








PART ONE – Monetary Commitments (continued):




(1)    The Company did not make payment of installment one of the Jinjishan commitment during the quarter ended November 30, 2007 and as at November 30, 2007 was in default regarding the Jinjishan Agreement as to $507,407.(2)    Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment and is currently in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement.(3)    On August 29, 2007 the Company made a payment of $27,454 toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is in default as to $82,546 toward the Loning (Revised) Agreement.(4)    The final two payments included in the Loning Agreement of $500,000 are not due to WFEI, but are instead agreed to be spent by ADG for exploration expenses to develop the Loning Property(5)    On August 29, 2007and September 14, 2007 the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1,
2007. As such, the Company was in default as to $297,454 regarding the Fuding Agreement as of the quarter ended November 30, 2007. During the quarter ended February 29, 2008, on January 14, 2008 the Company completed payment of the remaining $297,454 regarding Fuding installment one.(6)    During the quarter ended February 29, 2008, on January 14, 2008 the Company made a payment of $102,546 toward Fuding installment two. Subsequent to February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and is in default as to
$1,897,454 toward the Fuding (Revised) Agreement.





NOTE 5 – Shareholder Loan





At February 29, 2008, the Company had one shareholder loan outstanding from a related party of $189,582, which included $4,679 of accrued interest for the six month period. This loan is uncollateralized and has no fixed repayment dates. During the six months ended February 29, 2008 a repayment of $52,937 was made toward this shareholder loan.





NOTE 6 – Related Party Transactions





During the six months ended February 29, 2008 related party transactions include: (i) Note 5 shareholder loan activity; (ii) payment of $20,000 in legal fees to Karlsson Law Corporation, of which our CEO is principal; (iii) the provision of office facilities by our CEO for no charge; and (iv) the payment of a $75,000 payable to our CEO for
consulting fees recorded in fiscal 2007. Additionally, one of our independent directors visited our exploration sites in China on a geological consulting basis for which he received fees of $32,805 and reimbursement for expenses of $14,401.







14
 Table of Contents




ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)




Notes to Financial Statements


(Unaudited)








NOTE 7 – Common Stock





At August 31, 2007 a $1,000,000 subscription receivable was recorded regarding a private placement completed during fiscal 2007. This was collected in full on September 13, 2007.





On January 14, 2008, the Company completed a private placement sale of 500,000 shares of its common stock at $0.80 per share for aggregate proceeds of $400,000.





NOTE 8 – Subsequent Events





Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Jinjishan Agreement installment payments and was in default as to $1,007,407. A discussion was held with WFEI and LCUML and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or LCUML.





Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Loning Agreement installment one payment and was in default as to $82,546. A discussion was held with WFEI and Yunfeng and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or Yunfeng.





Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Fuding Agreement installment two payment and was in default as to $1,897,454. A discussion was held with WFEI and Fuding and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or Fuding.





Subsequent to the February 29, 2008 quarter end, on March 14, 2008 Mr. Daniel Hachey resigned as a member of the board of directors of the Company for personal reasons and there was no disagreement with the Company relating to its operations, policies or practices.





Subsequent to the February 29, 2008 quarter end, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement, Loning Agreement, and Fuding Agreement were replaced with the “Jinjishan (Revised) Agreement”, “Loning (Revised) Agreement”, and “Fuding (Revised) Agreement”, respectively.  In
these revised agreements, WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, which had been recorded as a total of $9,679,407 at August 31, 2007.





Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.








15
 Table of Contents





ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements








NOTE 9 – Restatement of Previously Filed Financial Statements





Financial statements corrections, re-allocation and re-formatting changes included in this 10-Q/A-2 version of these re-stated financial statements are as follows:





(i) The Company has determined its previous recording of $9,679,407 of Exploration License expenses and related Commitments Payable of $9,679,407 during the year ended August 31, 2007, was not appropriate and these items have been eliminated from the attached restated financial statements. The elimination of these items
as at August 31, 2007 also necessitated an elimination from the preceding version of these financial statements for the three months ended November 30, 2007of an Other Income gain of $9,679,407;





Balance Sheet line items affected by these corrections are as follows:





Year ended August 31, 2007

Originally
Reported


Adjustments


RestatedCommitments payable – current portion

$
7,179,407


$
(7,179,407
)

$
-Total current liabilities


7,598,717



(7,179,407
)


419,310Commitments payable – long term portion


2,500,000



(2,500,000
)


-Total long term liabilities


2,500,000



(2,500,000
)


-Total liabilities


10,098,717



(9,679,407
)


419,310Accumulated deficit in the exploration stage


(31,167,851
)


9,679,407



(21,488,444
)Total stockholders’ equity (deficit)


(8,772,336
)


9,679,407



907,071,





(ii) The financial statements included herein include a re-distribution of exploration license expenses between the three month period ended February 29, 2008 (quarter one) and the three month period ended November 30, 2007 (quarter two) based on the changes noted in (i) above. The effect of this was to move $791,999
of exploration license expenses from quarter two to quarter one. The balance of $400,000 of exploration license expenses for the six month period remains in quarter two. Total exploration license expenses of $1,200,000 also remains as recorded for the six month data as previously provided;





(iii) An amount previously recorded as ‘Net loss from discontinued operations’ in the Statements of Operations for the Exploration Stage period of August 15, 2006 through February 29,2008 has been re-allocated to line items titled: ‘Discontinued Operations:  - Net Loss from terminated subsidiary’;
and ‘Discontinued Operations – Net Loss from Development Stage Period’. This change also required a foreign exchange currency translation adjustment amount to be re-allocated from the ‘Other Comprehensive Loss’ section to the ‘Discontinued Operations – Net Loss from Development Stage Period’ line item and the addition of a sub-total line;





The table below shows the impact of these adjustments on line items in the Statement of Operations:





16
 Table of Contents





ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements




Three months ended February 29, 2008

Originally
Reported


Adjustments


RestatedExploration licenses

$
1,191,999


$
(791,999
)

$
400,000Total expenses


1,316,227



(791,999
)


524,228Net loss from operations


(1,318,507
)


791,999



(526,508
)OTHER INCOME:Cancelation of debt relating to commitments


9,679,407



(9,679,407
)


-Net Income (Loss) before recognition of discontinued operations:


8,360,900



(8,360,900
)


-Net Income (Loss)


8,360,900



(8,887,408
)


(526,508
)Earnings per common share, basic and diluted


0.22



(0.23
)


(0.01
)OTHER COMPREHENSIVE INCOME (LOSS):Net Income (Loss)


8,360,900



(8,887,408
)


(526,508
)Total Other Comprehensive Income (Loss)


8,361,295



(8,887,408
)


(526,113
)








Six months ended February 29, 2008

Originally
Reported


Adjustments


RestatedOTHER INCOME:Cancelation of debt relating to commitments

$
9,679,407


$
(9,679,407
)

$
-Net Income (Loss) before recognition of discontinued operations:


8,214,993



(8,214,993
)


-Net Income (Loss)


8,214,993



(9,679,407
)


(1,464,414
)Earnings per common share, basic and diluted


0.21



(0.25
)


(0.04
)OTHER COMPREHENSIVE INCOME (LOSS):Net Income (Loss)


8,214,993



(9,679,407
)


(1,464,414
)Total Other Comprehensive Income (Loss)


8,228,418



(9,679,407
)


(1,450,989
)








Exploration Stage August 15, 2006
through February 29, 2008

Originally
Reported


Adjustments


RestatedExploration licenses

$
23,052,000


$
(9,679,407
)

$
13,372,593Total expenses


32,617,144



(9,679,407
)


22,937,737Net from operations:


(32,617,144
)


9,679,407



(22,937,737
)Net loss from continuing operations


(32,632,265
)


9,679,407



(22,952,858
)Net loss from discontinued operations


(214,330
)


214,330



n/aOTHER INCOME:Cancelation of debt relating to commitments


9,679,407



(9,679,407
)


-Net Income (Loss) before recognition of discontinued operations


(22,952,858
)


22,952,858



-Discontinued Operations:
– Net Loss from terminated subsidiary


n/a



(68,995
)


(68,995
)– Net Loss from Development Stage Period


n/a



(146,110
)


(146,110
)








17
 Table of Contents





ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements








(iv) The Statement of Shareholders’ Equity (Deficit) has been deleted from this 10-Q/A-2 Report because it is not a quarterly filing requirement for a Smaller Reporting Company;





(v) In the Statements of Cash Flows a re-formatting and re-statement has been done to move discontinued operations cash flows from a separate section to placement within each of the Operating, Investing and Financing sections of the Statements of Cash Flows for the Exploration Stage Period of August 15, 2006 to February
29, 2008. Amounts were also moved between prepaid expenses and accounts payable and accrued liabilities from continuing operations to prepaid expenses and accrued interest on shareholder loans from continuing operations respectively. Re-allocations were also done of amounts from Shareholder Loans provided by continuing operations to Shareholder Loans provided by discontinued operations and there was a re-allocation of amounts between continuing operations and discontinued operations of accounts payable and accrued
liabilities. An addition error has also been corrected for the sub-total of Cash Provided by Financing Activities shown in the original 10-Q report (which did not affect reported net cash flow in that Report). Information has also been added to the Supplemental Disclosure of Non-cash Investing and Financing Activities table;





A summary of corrections and re-allocations of the line item changes made to the Statements of Cash Flows and Supplemental Disclosure of Non-cash Investing and Financing Activities table are as follows:





Six months ended February 29, 2008

Originally
Reported


Adjustments


RestatedNet Income (Loss) for the period

$
8,214,993


$
(9,679,407
)

$
(1,464,414
)Cancelation of debt relating to commitments


(9,679,407
)


9,679,407



-Cash flows from operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Accrued interest on shareholder loans


n/a



4,679



4,679Net changes in operating assets and liabilities:Net cash provided (used) by operating activities


(619,024
)


(4,679
)


(614,345
)Cash flows from financing activities:Shareholder loans


(48,258
)


(9,358
)


(57,616
)Net cash provided by financing activities


347,063



(4,679
)


342,384

















18
 Table of Contents





ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements








Six months ended February 28, 2007

Originally
Reported


Adjustments


RestatedAccrued interest on shareholder loans

$
n/a


$
4,469


$
4,469Net changes in operating assets and liabilities:Net cash provided (used) by operating activities


(3,053,622
)


(4,469
)


(3,049,153
)Cash flows from financing activities:Shareholder loans


53,550



(4,469
)


49,081Net cash provided by financing activities


3,053,550



(4,469
)


3,049,081








Exploration Stage
August 15, 2006 through February 29, 2008

Originally
Reported


Adjustments


RestatedNet loss for the period

$
(22,952,858
)

$
(215,105
)

$
(23,167,963
)Cancelation of debt relating to commitments


(9,679,407
)


9,679,407



-Cash flows from operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Accrued interest on shareholder loans


n/a



15,121



15,121Common stock issued for compensation


n/a



1,150,000



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


n/a



5,825,491



5,825,491Common stock issued for license payments


n/a



7,050,000



7,050,000Common stock issued for agent payments


n/a



1,762,500



1,762,500Accrued interest on shareholder loans related to discontinued operations


n/a



8,761



8,761Depreciation related to discontinued operations


n/a



318



318Common stock issued for debt conversion related to discontinued operations


n/a



10,000



10,000Net change in operating assets and liabilities:Commitments payable


9,679,407



(9,679,407
)


-Accounts payable and accrued liabilities


43,718



10,442



33,276Prepaid expenses related to discontinued operations


n/a



9,500



9,500Accounts payable and accrued liabilities related to discontinued operations


n/a



(9,220
)


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


(23,915,556
)


16,596,924



(7,318,632
)Cash flows from investing activities:Purchase (sale) of property and equipment related to discontinued operations


n/a



(318
)


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


n/a



(318
)


(318
)(continued)











19
 Table of Contents





ASIAN DRAGON GROUP INC.


(An Exploration Stage Company)





Notes to Financial Statements








Exploration Stage
August 15, 2006 through February 29, 2008

Originally
Reported


Adjustments


RestatedCash flows from financing activities:Common stock issued for compensation


1,150,000



(1,150,000
)


n/aAdditional Paid-In Capital relating to Options – compensation expense


5,825,491



(5,825,491
)


n/aCommon stock issued for license payments


7,050,000



(7,050,000
)


n/aCommon stock issued for agent payments


1,762,500



(1,762,500
)


n/aShareholder loans


12,659



(4,679
)


7,980Common stock issued for cash related to discontinued operations


n/a



31,266



31,266Shareholder loans related to discontinued operations


n/a



152,689



152,689Net cash provided by financing activities


22,994,510



(15,608,715
)


7,385,795








Supplemental Disclosure of Non-cash Investing and Financing Activities





Exploration Stage
August 15, 2006 through February 29, 2008

Originally
Reported


Adjustments


RestatedCancelation of debt relating to commitments

$
(9,679,407
)

$
9.679.407


$
-Common stock issued shareholder debt conversion related to discontinued operations


-



10,000



10,000






































20
 Table of Contents




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.





When ADG closed its Romanian operating subsidiary in 2006 it became required under generally accepted accounting principles (“GAAP”) to set 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 for the three and six month periods ended February 29, 2008 (“QII-08”), the three and six month periods ended February 28, 2007 (“QII-07”), and the period from August 15, 2006 to February 29, 2008 (the “Exploration Stage”) without the inclusion of its terminated subsidiary Galaxy Telnet SRL.





Background





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.





On August 15, 2003, ADG acquired Galaxy Telnet S.R.L. (“Galaxy Telnet”) a company incorporated under the laws of Romania which had a sole shareholder. Before the acquisition of Galaxy Telnet, we did not conduct business.





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”.





Our fiscal year end is August 31st.




21
 Table of Contents


Business Development





Asian Dragon has developed it business by using World Fortune Enterprise Inc. (“WFEI”) as its Agent. The nature of the business arrangement between Asian Dragon and WFEI is based upon: (i) WFEI acting as Asian Dragon’s Agent in China to source exploration opportunities; (ii) WFEI executing contracts with partners in China
which provide access to certain exploration opportunities based upon certain payment schedules; and (iii) WFEI entering agreements with Asian Dragon to sell to Asian Dragon, based on certain payment schedules, the exploration licenses which WFEI has contracted to acquire. Under its current agreements, Asian Dragon has no recourse on WFEI in the event that WFEI were to fail to meet its contractual obligations to flow funds WFEI receives from Asian Dragon through to WFEI’s Chinese Partners, or if WFEI were
to fail to meet any other non-monetary obligations.





At present Asian Dragon has not acquired any of the Exploration Licenses which are referenced in its agreements. Such acquisitions will occur upon Asian Dragon completing all payments under its agreements with WFEI; and WFEI fulfilling all requirements under WFEI’s agreements with it Chinese Partners.





Exploration Licenses





General





We note the Company has acquired along with certain licenses infrastructure including buildings and a formerly operating concentration mill. This entire infrastructure, without exception, has no value from an accounting or operational perspective due to its age and state of repair.





At present the Exploration Licenses described below have no carrying value for accounting purposes because Asian Dragon does not yet have full title to each. The information which follows is meant to provide the reader of this Report with full information regarding the Company’s initiatives.





Jinjishan Property and Concentration Plant





The Jinjishan License consists of an Exploration License on a contiguous 28.3 sq km property located in the Northwest part of the Luoning County, Henan Province, China, in the Changshui community. The Jinjishan Plant is located in the same area and we note that this formerly operating plant, and other infrastructure and buildings acquired
in each of our Exploration License purchases to date entirely, and without exception, have no value from an accounting or operational perspective due to age and state of repair.





Asian Dragon entered into an agreement (the “Jinjishan Rights Agreement”) with World Fortune Enterprise, Inc. (“WFEI”) effective August 29, 2007, to acquire a 70% interest in The Jinjishan License (the “Jinjishan Rights”) and a 100% interest in the Jinjishan Plant (collectively the “Jinjishan Interests”).
Under the Jinjishan Rights Agreement Asian Dragon assumed the payment responsibilities of WFEI for the Jinjishan Interests.





WFEI does not own the exploration license referenced in the Jinjishan Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoyang Canadian United Mining Ltd. (“LCUML”) for the Jinjishan Interests. LCUML owns the rights for the Jinjishan Interests and WFEI has represented, pursuant to the Jinjishan Rights Agreement,
that once WFEI has acquired clear title to the Jinjishan Interests from LCUML it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it acquires clear title to the Jinjishan Interests, it will have the right and authority to transfer those rights to Asian Dragon.




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Asian Dragon is not a party to the agreement between WFEI and LCUML. Nor is it a party to the agreement between LCUML and the party that previously owned the rights to the Jinjishan Interests and may have little or no recourse on LCUML, or the party from whom LCUML purchased the rights, in the event that the Jinjishan Rights
Agreement, or subsequent agreements between WFEI and Asian Dragon do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.





Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Jinjishan Rights Agreement.





The terms of the Jinjishan Rights Agreement required payments of $2,500,000 for the Jinjishan License and $800,000 for the Jinjishan Plant, for total consideration of $3,300,000. The Jinjishan Rights Agreement acknowledged Asian Dragon provided payments totaling US$1,792,593 to August 29, 2007 (inclusive of a payment of US$600,000 toward the
Jinjishan Plant) and required further investment by Asian Dragon as follows: (i) US$507,407 by October 1, 2007; (ii) US$500,000 by March 1, 2008; and (iii) US$500,000 by October 1, 2008.





The Company did not make payment of installment one of the Jinjishan commitment to WFEI due October 1, 2007 and was in default as to $507,407toward the Jinjishan Agreement as of the end of the quarter ended November 30, 2007. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate
this default. No damages were claimed by WFEI or LCUML.





On December 12, 2007, with the mutual consent of WFEI, the Jinjishan Rights Agreement was replaced with the “Jinjishan Agreement” which clarified certain terminology in the predecessor agreements.  WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements
and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Jinjishan Agreement.





Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and was in default as to a total of $1,007,407 toward the Jinjishan Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI
agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.





Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement was replaced with the “Jinjishan (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long
term commitments payable, recorded as a total of $1,499,407 at August 31, 2007.





Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and is in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement. A discussion was held with WFEI and LCUML regarding this matter
and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.




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Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.





Loning Property





The Loning License consists of an Exploration License on a 9.1 sq km property located in the Xiaoqinling Region, China, and is three km southwest of the Jinjishan License. Asian Dragon entered into an agreement (the “Loning Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 70% interest in the Loning License (the
“Loning Rights”). Under the Loning Rights Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the Loning License.





WFEI does not own the exploration license referenced in the Loning Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Henan Yunfeng Resource of Mining Development Co. (“Yunfeng”) for the Loning Rights. However, Yunfeng does not own the Loning License, but has entered into a purchase agreement with a third party
for the Loning License. WFEI has represented, pursuant to the Loning Rights Agreement, that once it has acquired clear title to the Loning Rights from Yunfeng, it will assign those rights to Asian Dragon and that the rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Loning Rights, it will have the right and authority to transfer those rights to Asian Dragon.





Asian Dragon is not a party to the agreement between WFEI and Yunfeng. Nor is it a party to the agreement between Yunfeng and the party that previously owned the Loning Rights and may have little or no recourse on Yunfeng or the party from whom Yunfeng purchased the rights, in the event that the Loning Rights Agreement, or subsequent agreements
between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.





Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Loning Rights Agreement.





The Loning Rights Agreement required total payments by Asian Dragon of $1,510,000, of which $1,000,000 is to be expended by Asian Dragon for exploration purposes. The Loning Rights Agreement acknowledged Asian Dragon has provided payments totaling US$400,000 to August 29, 2007 and required further investment by Asian Dragon as follows: (i)
US$110,000 by March 1, 2008; (ii) US$500,000 by September 30, 2008; and (iii) US$500,000 by September 30, 2009.





On August 29, 2007 the Company made a payment of $27,454 to WFEI toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is currently in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this
matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Yunfeng.





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On December 12, 2007, with the mutual consent of WFEI, the Loning Rights Agreement was replaced with the “Loning Agreement” which clarified certain terminology in the predecessor agreements. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has
acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments respectively under the Loning Agreement.





Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Loning Agreement was replaced with the “Loning (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications
which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $1,076,822 at August 31, 2007. As of April 14, 2008, Asian Dragon was in default as to a total of $82,546 toward the Loning (Revised) Agreement.




Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.





Luanchuan Mozigou Molybdenum Property


Lushi Jiashapa Vanadium Property


Luoning Xiayu Fanggelewan Silver-Lead Property


XWG Silver-Lead Property





The MZG License consists of an Exploration License on a 14.09 sq km property located in the Jiaohe Village of Luanchuan County, Henan Province, China. The JSP License consists of an Exploration License on an 8.3 sq km property located in the area of Wenguxiang to Dashihe in Lushi County, Henan Province, China. The FGLW License consists
of a 1.75 sq km exploration license located approximately 240 km west of Zhengzhou and 80 km west of Luoyang. The XWG License consists of a 2.13 sq km exploration license located in the area of Xiayu, Henan Province, China. (Collectively, these licenses are hereafter referenced as the “Fuding Properties”).





Asian Dragon entered into an agreement (the “Fuding Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 51% interest in the Fuding Properties (the “Fuding Rights”). Under the Fuding Agreement, Asian Dragon will assume the payment responsibilities of WFEI for the various rights and interests.





WFEI does not own the interests referenced in the Fuding Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoning Fuding Mining Development, Ltd. (“Fuding”) for those interests. However, Fuding does not own the rights, but has entered into purchase agreements for the Fuding Properties with other third parties.
WFEI has represented, pursuant to the Fuding Rights Agreement, that once it has clear title to the Fuding Rights from Fuding it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Fuding Rights, it will have the right and authority to transfer those rights to Asian Dragon.





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Asian Dragon is not a party to the agreement between WFEI and Fuding. Nor is it a party to the agreements between Fuding and the third parties who previously owned the Fuding Rights and may have little or no recourse on Fuding, or the other third parties with whom Funding has entered into purchase agreements, in the event that the Fuding Rights
Agreement, or subsequent agreements between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.





Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Fuding Rights Agreement.





The Fuding Agreement required total consideration of $10,000,000. The Fuding Rights Agreement acknowledged Asian Dragon provided an initial payment of $2,730,000 and required further payments as follows: $1,270,000 on October 1, 2007; $2,000,000 before March 1, 2008; $2,000,000 on June 1, 2008; and $2,000,000 on October 1, 2008.




On August 29, 2007 and September 14, 2007 the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1, 2007. As such, the Company
was in default as to $297,454 regarding the Fuding Agreement at the end of the quarter ended November 30, 2007. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding. During the quarter ended February 29, 2008, on January 14, 2008 the Company completed payment of the remaining $297,454 regarding Fuding installment one.





On December 12, 2007, with the mutual consent of WFEI, the Fuding Rights Agreement was replaced with the “Fuding Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under
the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Fuding Agreement.





During the quarter ended February 29, 2008, on January 14, 2008 the Company made a payment of $102,546 toward Fuding installment two.





Subsequent to the end of the quarter ended February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and was currently in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed
to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding.





Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Fuding Agreement was replaced with the “Fuding (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments
payable, recorded as a total of $7,103,178 at August 31, 2007. As of April 14, 2008, Asian Dragon was in default as to a total of $1,897,454 toward the Fuding (Revised) Agreement.




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Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.





Property Descriptions





Jinjishan Property





The Jinjishan Property is an exploration property located in the Luoning County, Henan Province, People’s Republic of China. The exploration property consists of contiguous 28.3 sq kmExploration License located in the northwest part of Luoning County.
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 Shanghai, 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 Jinjishan Property is provided on a 120 km 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 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.




Loning Property





The Loning Property consists of a 9.1 sq km Exploration License  and is located 2 km Southwest of Asian Dragon's Jinjishan Property with easy access via the paved highway that runs East/West of the North side of Luoning County.





Fuding Properties:





Luanchuan Mozigou (MZG) Molybdenum Property





The Luanchuan Mozigou Molybdenum Property (“MZG”) is located in Jiaohe Village of Luanchuan County, Henan Province, China. MZG contains an Exploration License comprised of 14.09 sq km with a 4 sq km aspect of the property running the same northwest-southeast trend as China Molybdenum, all aspects of this ore body trend which
extend over a 60 km “saddle” bordering Luanchuan and Lushi County.





Lushi Jiashapa (JSP) Vanadium Property





The Lushi Jiashapa Vanadium Property (“JSP”) is located in the area of Wenguxiang to Dashihe of Lushi County, Henan Province, China. JSP contains an Exploration License comprised of 8.3 sq km with an approximate 1 km wide by 8 km long covered east-west trend ore body which extends over a 42 km area that sometimes widens up
to 3 km.





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Luoning Xiayu Fanggelewan (FGLW) Silver-Lead Property





The Luoning Xiayu Fanggelewan Property (“FGLW”) is located in the area of Xiayu, Henan Province, China. FGLW holds an Exploration License on an area of 1.75 sq km covering a series of long veins in a northeast-southwest trend. The property is located approximately 240 km west of Zhengzhou, the provincial capital, and
80 km west of Luoyang, the Prefecture of Luoning County.





Xiaowagou (XWG) Silver-Lead Property





The Xiaowagou Silver Lead Property ("XWG") is located in the area of Xiayu, Henan Province, China. XWG holds a 2.13 sq km Exploration License. The property is located approximately 240 km west of Zhengzhou, the provincial capital, and 80 km west of Luoyang, the prefecture of Luoning County.





Information about Henan Province





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 1000 metres above sea level in its western and plain areas and 100 metres or lower in its eastern region. 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.




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 2080 metres.





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.





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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 ninth 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 throughout the province. Its telephone exchange capacity has reached 11.2 million
circuits, with 9.38 million telephone users, 3.11 million mobile phone users and 1.1 million Internet users. Telecommunications services are growing rapidly. As of March 31, 2001, there were 1.7 million subscribers for mobile phone services, ranked ninth 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 property, is large enough and with sufficient industry to have machine and repair shops capable of major repairs.




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 300-1000 metres. Because it is surrounded by loess plains, and upland areas and
mountains exceeding 4000 metres 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 through 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 a reduced risk 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 sq km 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 sq km. The provincial capital is Zhengzhou (pop. 6.3 million). Major
centres are Nanyang (pop. 10.5 million), Luoyang (pop. 6.1 million), Xinxiang (pop. 5.3 million), Jiaozuo (pop. 3.2 million) and








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Keifeng (pop. 4.6 million). 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 eastern part of the province is a major grain and cotton producer. Other agricultural products include corn, soya bean, beans, canola, 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 also abundant. 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.





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, and phyllite. Some of these rocks have
been dated at 2,820-2,160 Ma (zircon age). Most generally however, metamorphic grade ranges from lower





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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.





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.





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The 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 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 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 Ministry of Land and Resources (“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 programs.




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 sq km.





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





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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.





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 ore bodies 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.




Map of Locations

















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OPERATIONAL DEVELOPMENTS DURING QUARTER TWO





On January 14, 2008, the Company completed a private placement sale of 500,000 shares of its common stock at $0.80 per share for aggregate proceeds of $400,000.





On January 14, 2008, the Company made payments of $297,454 and $102,456 toward installments one and two respectively of its Fuding Agreement commitments for a total payment to Fuding of $400,000.





During the quarter ended February 29, 2008, the Company did not resolve its default of $507,407 on installment one of the Jinjishan Agreement and subsequently, did not meet its installment two payment toward the Jinjishan Agreement which was due March 1, 2008. The Company is now in default as to $1,007,407 toward the Jinjishan Agreement. A
discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.





Subsequent to February 29, 2008, the Company did not fulfill payment on the balance of installment one of the Loning commitment to WFEI which was due March 1, 2008 and is currently in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this matter and WFEI agreed to extend the payment schedule
to accommodate this default. No damages were claimed by WFEI or Yunfeng.





Subsequent February 29, 2008, the Company did not fulfill payment of the balance of installment two of the Fuding commitment to WFEI which was due March 1, 2008 and is currently in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding these defaults and WFEI agreed to extend the payment
schedule to accommodate this default. No damages were claimed by WFEI or Fuding.





Subsequent to February 29, 2008 on March 3, 2008, we engaged Madsen & Associates CPA’s Inc. as the Company’s new principal independent accountant and accordingly dismissed Schumacher & Associates, Inc. CPAs that same day. This information was recorded on a Current Report on Form 8-K filed March 8, 2008.





Subsequent February 29, 2008, on March 14, 2008 Mr. Daniel Hachey resigned as a member of the board of directors of the Company for personal reasons and there was no disagreement with the Company relating to its operations, policies or practices.  This information was recorded on a Current Report on Form 8-K filed March 18, 2008.





Subsequent to February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement, Loning Agreement, and Fuding Agreement were replaced with the “Jinjishan (Revised) Agreement”, “Loning (Revised) Agreement”, and “Fuding (Revised) Agreement”, respectively.  In these revised
agreements, WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, which had been recorded as a total of $9,679,407 at August 31, 2007. As of April 14, 2008, the Company had not resolved the defaults carried forward from its predecessor agreements which are noted above.




Effective December 2, 2008, the Company determined it would be unable to raise sufficient capital to meet contractual payment obligations under three exploration property purchase agreements it had entered. As such, the Board approved a resolution which authorized the Company to abandon its current exploration initiatives
in China and cancel the Agreements it had signed with World Fortune Enterprise Inc., such cancellations to be effective December 2, 2008. Additionally, the Company cancelled the FGLW-XWG Transfer Agreement (dated April 30, 2008) which had assigned some of the Company’s rights under the Fuding (Revised) Agreement to its subsidiary Asian Dragon Silver Inc., such cancellation was also effective December 2, 2008.


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RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED FEBRUARY 29, 2008 AND FEBRUARY 28, 2007





Revenues





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





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 recorded for Exploration Licenses were $400,000 and $1,200,000 respectively for the three and six month periods ended February 29, 2008 compared to $2,000,000 and $3,000,000 for the comparable periods ended February 28, 2007. For the Exploration Stage, costs for Exploration Licenses totaled $13,372,593 .
These costs included cash payments made to World Fortune Enterprises Inc. (“WFEI”), and WFEI and its nominees in the case of share based payments, toward the purchase of exploration licenses for certain properties in China described in Notes 3 and 4 of the financial statements included in this Report. We anticipate these expenses will increase over the next twelve months as we implement our business plans.





We also note that within the area of expected exploration there is infrastructure including buildings and a formerly operating concentration mill. This entire infrastructure, without exception, has no value from an accounting or operational perspective due to its age and state of repair.





Exploration Expenses





Exploration Expenses were $nil and $nil respectively for the three and six month periods ended February 29, 2008 versus $13,000 and $26,733 for the comparable periods ended February 28, 2007. Expenses for the Exploration Stage totaled $50,215. We anticipate these expenses will increase during the next twelve months.





Agent Fees





Agent Fees were $30,000 and $30,000 respectively for the three and six month periods ended February 29, 2008 versus $30,000 and $30,000 for the comparable prior year periods. Agent Fees for the Exploration Stage totaled $1,852,500, which are composed of cash payments of $90,000 and stock issuances expensed as $1,762,500. These payments were
made to WFEI for the sourcing of exploration property opportunities in China. We anticipate these expenses will increase over the next twelve months as we implement plans to acquire further exploration properties.




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Professional and Consultant Fees





Professional & Consultant Fees are comprised of consulting fees charged by our CEO and directors and fees for accounting, audit, legal and other professionals. During the three and six month periods ended February 29, 2008, these fees were $77,319 and $138,624 respectively versus $39,532 and 40,861 for the comparable prior year periods.
For the Exploration Stage, these costs totaled $411,039. We anticipate Professional & Consultant Fees will increase moderately in the upcoming twelve months as we implement our business plans.





Stock Based Compensation – officers and directors





Stock Based Compensation expenses totaled $nil and $nil for the three and six month periods ended February 29, 2008 versus $nil and $nil for the comparable prior year periods. 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 anticipate incurring
significant stock based compensation expenses during the remaining six months of fiscal 2008 regarding the appointment of new directors.





Investor Relations





Investor Relations expenses comprise costs for press releases, maintenance of the Company’s website and other investor information initiatives. During the three and six month periods ended February 29, 2008, these expenses totaled $nil and $57,708 versus $25,001 and $25,001 for the comparable prior year periods. For the Exploration Stage,
Investor Relations expenses totaled $131,111. We anticipate Investor Relations expenses will increase substantially during the next twelve months as we continue our efforts to raise further capital and keep current investors informed of Company developments.





Administrative Expenses





Administrative Expenses were $16,909 and $33,403 for the three and six month periods ended February 29, 2008 versus $17,620 and $64,242 for the comparable prior year periods. For the Exploration Stage, Administrative Expenses totaled $144,788. These expenses are composed of travel, Edgar agent filing fees, stock transfer agent fees and general
office expenses. We anticipate Administrative Expenses will increase substantially in the upcoming year as we implement our business plans.





Net Income (Loss)




We incurred net operating losses from continuing operations, before taking into account Other Income, for the three and six month periods ended February 29, 2008 of $(526,508) and $(1,464,414) versus $(2,127,363) and $(3,191,306) for the comparable
prior year periods. The Net Loss  for the Exploration Stage was $(22,952,858).  These numbers translated to earnings per share, basic and fully diluted, of $(0.01) and $(0.04) for the three and six month periods ended February 29, 2008 versus net losses per share, basic and fully diluted, of $(0.07) and $(0.10) for the comparative prior year periods.





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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 February 29, 2008, consisted of cash resources of $67,845, prepaid expenses of $6,416 and
a shareholder loan from our President. 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 $184,903 as of February 29, 2008.  Since
Exploration Stage inception through to and including February 29, 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 February 29, 2008, 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 and related public financial information are 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.





Our significant accounting policies are summarized in NOTE 2 of the financial statements included with our Report on Form 10-K for fiscal 2007. 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.




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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




Management’s Evaluation of Disclosure Controls and Procedures


At 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 effective in ensuring 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.
 
 Management’s Report on Internal Control over Financial Reporting
 
 The Company's design and operation of controls with respect to the process of preparing and reviewing the annual and interim financial statements are not effective. Material weaknesses 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
  Based on our evaluation, we have begun work to remediate the material weaknesses  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 material
weaknesses.
 
 
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 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. We have determined a more detailed review for our 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.
 
 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.
 
 Changes in Internal Control over Financial Reporting
 
 The Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Actas of the Evaluation Date and concluded that no changes
occurred in such control or in other factors during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
       
 
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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 CANNOT GIVE ASSURANCE THAT TRANSFER OF TITLE TO EXPLORATION LICENSES DOES NOT CONTAIN UNDETECTED MATERIAL DEFECTS




The Company has investigated title to all of the Exploration Licenses of which it is in the process of acquiring, and to the best of its knowledge, title to all of these Exploration Licenses are in good standing. However, the Exploration Licenses may be subject to prior unregistered agreements or transfers and title may be affected by undetected
defects. There may be valid challenges to the title of the Company’s Exploration Licenses, once acquired, which, if successful, could impair development and/or operations. The Company cannot give any assurance that title to its Exploration Licenses will not be challenged.




In addition the Company is relying on a series of agreements between Chinese companies and entities to ultimately transfer title of the Exploration Licenses to the Company. While the Company has relied on opinions provided by Chinese counsel and to the best of its knowledge these agreements will effectively transfer title, the agreements and
the transfer may be affected by undetected defects and the Company cannot give any assurance that the transfer of title to the Company will not be challenged.





If a material defect in the transfer of any Exploration Licenses for which the Company is currently in the process of acquiring were to occur, the Company may in the future be required to record an impairment to any future capitalized amounts it had recorded relating to its Exploration Licenses or exploration activities. Such would not be
the case at present however, because the Company has not yet capitalized any amounts with respect to its exploration activities.





THE COMPANY DOES NOT HAVE RECOURSE CLAUSES IN ITS EXPLORATION AGREEMENTS WITH WORLD FORTUNE ENTERPRISE INC.





In the event that WFEI were to fail to meet its payment obligations under its  Agreements with various Chinese Partners, the benefits of which flow through to Asian Dragon through the Jinjishan Agreement, the Loning Agreement, and the Fuding Agreement, , Asian Dragon would have no way to reclaim funds already transferred to WFEI.





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.





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LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.





For the six months ended February 29, 2008, the Company had an operating loss of $(1,464,414). 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" 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








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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 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.





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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.





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.





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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





On January 14, 2008, the Company accepted a subscription agreement with one entity for the purchase of 500,000 common shares of the Company at $0.80 per share for aggregate proceeds of $400,000. There were no finder’s fees or commissions paid, nor warrants issued, regarding this sale. 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 investors mentioned above have been used for exploration license installment payments.





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 February 29, 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





There is no other information to record under this Item.













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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


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: October 14, 2009





















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