SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended August 31, 2009

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)

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

(Address of principal executive offices) (Zip Code)

(509) 252-8428

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: Yes x No o

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer	o	Accelerated filer	o

Non-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 Act): Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal quarter:

Based on the closing price on December 11, 2009 of $0.10, the aggregate market value of the 33,325,000 common shares held by non-affiliates was $3,332,500.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 38,775,000 Common shares were outstanding as of December 11, 2009.

Documents incorporated by reference: None

ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

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PART I
ITEM 1.	Description of Business		1
ITEM 1A.	Risk Factors		2
ITEM 1B.	Unresolved Staff Comments		5
ITEM 2.	Properties		6
ITEM 3.	Legal Proceedings		6
ITEM 4.	Submission of Matters to Vote of Security Holders		6
PART II
ITEM 5.	Market for Company’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities		6
ITEM 6.	Selected Financial Data		7
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		9
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		12
ITEM 8.	Financial Statements and Supplementary Data:		12
		Reports of Independent Registered Public Accounting Firms	13
		Consolidated Balance Sheets at August 31, 2009 and August 31, 2008	14
		Consolidated Statements of Operations for the years ended August 31, 2009 and August 31, 2008 and the Exploration Stage Period of August 15, 2006 to August 31, 2009	15
		Consolidated Statement of Stockholders’ Equity	16
		Consolidated Statements of Cash Flows for the years ended August 31, 2009 and August 31, 2008 and the Exploration Stage Period of August 15, 2006 to August 31, 2009	17
		Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities	19
		Notes to Financial Statements	20
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		34
ITEM 9A.	Controls and Procedures		34
ITEM 9B.	Other Information		36
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance		36
ITEM 11.	Executive Compensation		39
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		40
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence		41
ITEM 14.	Principal Accounting Fees and Services		41
PART IV
ITEM 15.	Exhibits, Financial Statements Schedules		43

SIGNATURES			43

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

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

Investors should be aware there is no assurance that a commercially viable mineral deposit exists on any of the properties for which we are purchasing exploration licenses, and that further exploration

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

Background

Asian Dragon Group Inc. 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 April 10, 2008 the Company incorporated a British Columbia company named Asian Dragon Silver Inc. (“ADSI”) as a wholly owned subsidiary. The financial statements of the Company are presented on a consolidated basis and include all accounts of both the Company and its subsidiary. (Hereinafter the combined company may be collectively referred to: “Asian Dragon”, “ADG”, “we”, the “Registrant”, or the “Company”)

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.

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ITEM 1A. RISK FACTORS

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

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

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

LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.

For the year ended August 31, 2009, the Company had a Net Loss from Operations of $(106,316). 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.

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MINERAL EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN NATURE.

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

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

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legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations could have an adverse effect on the financial condition of the Company.

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

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

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

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

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

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

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

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

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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.

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 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

The Company does not presently have any material property investments.

Office Premises

Asian Dragon’s office is located at suite 108 – 1312 North Monroe Street, Spokane, Washington 99201 and is rented on a monthly basis.

ITEM 3. LEGAL PROCEEDINGS

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

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

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is currently quoted on the NASD OTC Bulletin Board (“OTCBB”). The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current "bids" and "asks", as well as volume information. Our shares are quoted on the OTCBB under the symbol “AADG”. Our shares are also listed on the Frankfurt Stock Exchange under the trading symbol “P2J1”.

The following table sets forth the range of high and low bid quotations for our common stock as reported by the OTCBB for each of the periods indicated. The market for our shares is limited, volatile and sporadic. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Quarter Ended	High Trade		Low Trade		Closing Trade

May 31, 2006	$	0.40	$	0.00	$	0.40
August 31, 2006		1.55	$	1.01	$	1.01

November 30, 2006	$	4.75	$	0.51	$	4.24
February 28, 2007		7.00		3.00		4.95
May 31, 2007		6.25		2.50		3.40
August 31, 2008		4.95		1.70		2.13

November 30, 2008	$	1.24	$	1.24	$	1.24
February 28, 2009		0.77		0.70		0.70
May 31, 2009		0.33		0.33		0.33
August 31, 2009		0.12		0.12		0.12

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Shareholders

On August 31, 2009, there were 2 shareholders of record of our common stock.

Dividends

We intend to retain future earnings to support our growth. Any payment of cash dividends in the future will be dependent upon: the amount of funds legally available therefore; our earnings; financial condition; capital requirements; and other factors which our Board of Directors deems relevant.

Section 15(g) of the Securities Exchange Act of 1934

The Company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, which imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by this Section 15(g), the broker/dealer must make a special suitability determination for the purchase and must have received the purchaser's written agreement to the transaction prior to the sale. Consequently, Section 15(g) may affect the ability of broker/dealers to sell the Company’s securities and also may affect your ability to sell your shares in the secondary market.

Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and the secondary market; terms important to an understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customer’s rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.

Recent Sales of Unregistered Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

	Fiscal 2009			Fiscal 2008			Fiscal 2007			Fiscal 2006			Fiscal 2005
	$			$			$			$			$
Operating Revenue:
Quarter I - Three Months to November 30		-			-			-			n/a			n/a
Quarter II - Three Months to February 28		-			-			-			n/a			n/a
Quarter III- Three Months to May 31		-			-						n/a			n/a
Full Year – Twelve Months to August 31		-			-			-			-			n/a

Income/(Loss) from continuing operations:
Quarter I - Three Months to November 30		(38,922	)		(937,906	)		(1,063,943	)		n/a			n/a
Quarter II - Three Months to February 28		(15,926	)		(526,508	)		(2,127,363	)		n/a			n/a
Quarter III- Three Months to May 31		(40,611	)		(45,247	)		(1,536,105	)		n/a			n/a
Full Year – Twelve Months to August 31		(106,316	)		(1,530,919	)		(21,499,517	)		(1,424	)		n/a

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	Fiscal 2009			Fiscal 2008			Fiscal 2007			Fiscal 2006			Fiscal 2005
	$			$			$			$			$
(Loss) per share - continuing operations:
Quarter I - Three Months to November 30		0.00			0.00			(0.03	)		n/a			n/a
Quarter II - Three Months to February 28		0.00			(0.01	)		(0.07	)		n/a			n/a
Quarter III- Three Months to May 31		0.00			0.00			(0.05	)		n/a			n/a
Full Year – Twelve Months to August 31		0.00			(0.04	)		(0.65	)		0.00			n/a

(Loss) from discontinued operations:
Quarter I - Three Months to November 30		n/a			n/a			n/a			(27,091	)		(15,943	)
Quarter II - Three Months to February 28		n/a			n/a			n/a			(16,449	)		(23,197	)
Quarter III- Three Months to May 31		n/a			n/a			n/a			(16,050	)		(21,150	)
Full Year – Twelve Months to August 31		n/a			n/a			n/a			(91,735	)		(83,651	)

(Loss) per share – discontinued operations:
Quarter I - Three Months to November 30		n/a			n/a			n/a			0.00			0.00
Quarter II - Three Months to February 28		n/a			n/a			n/a			0.00			0.00
Quarter III- Three Months to May 31		n/a			n/a			n/a			0.00			0.00
Full Year – Twelve Months to August 31		n/a			n/a			n/a			0.00			0.00

Cash:
Quarter I - Three Months to November 30		21			161,722			-			2,318			7,316
Quarter II - Three Months to February 28		251			67,845			-			1,139			6,226
Quarter III- Three Months to May 31		14,253			12,617			12,971			418			6,233
Full Year – Twelve Months to August 31		3,829			4,423			326,381			72			1,205

Total assets:
Quarter I - Three Months to November 30		3,877			179,027			2,003			4,231			13,485
Quarter II - Three Months to February 28		3,867			74,261			9,003			2,678			8,813
Quarter III- Three Months to May 31		18,378			34,012			24,067			1,418			8,315
Full Year – Twelve Months to August 31		4,331			8,745			1,326,381			2,075			4,012

Total stockholders’ equity (deficit):
Quarter I - Three Months to November 30		(262,829	)		(17,805	)		(239,206	)		(109,195	)		(15,097	)
Quarter II - Three Months to February 28		(278,763	)		(143,918	)		(366,569	)		(125,743	)		(44,090	)
Quarter III- Three Months to May 31		(319,380	)		(189,667	)		(402,523	)		(142,020	)		(59,103	)
Full Year – Twelve Months to August 31		(330,164	)		(223,848	)		907,071			(175,263	)		(82,104	)

Total liabilities and stockholders’ equity/(deficit):
Quarter I - Three Months to November 30		3,877			179,027			2,003			4,231			13,485
Quarter II - Three Months to February 28		3,867			74,261			9,003			2,678			8,813
Quarter III- Three Months to May 31		18,378			34,012			24,067			1,418			8,315
Full Year – Twelve Months to August 31		4,331			8,745			1,326,381			2,075			4,012

Cash dividends per share:
Quarter I - Three Months to November 30		-			-			-			-			-
Quarter II - Three Months to February 28		-			-			-			-			-
Quarter III- Three Months to May 31		-			-			-			-			-
Full Year – Twelve Months to August 31		-			-			-			-			-

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ITEM 7. 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-K 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.

RESULTS OF OPERATIONS

The following discussion and analysis covers material changes in the consolidated financial condition of Asian Dragon Group Inc. and Subsidiary (“ADG”) during the years ended August 31, 2009 and August 31, 2008 and the Exploration Stage Period of August 15, 2006 to August 31, 2009 (the “Exploration Stage”).

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

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Exploration Licenses

Costs for Exploration Licenses for the year ended August 31, 2009 totaled $nil compared with $1,200,000 for the year ended August 31, 2008. For the Exploration Stage, costs for Exploration Licenses totaled $13,372,593. We cannot currently project the level of these expenses for fiscal 2009, but expect them to be minimal.

Exploration Expenses

Exploration Expenses for the year ended August 31, 2009 totaled $22,635 compared to $Nil for the year ended August 31, 2008. Expenses for the Exploration Stage totaled $72,850. These expenses were comprised of costs for geological services. We cannot currently project the level of these expenses for fiscal 2009, but expect them to be minimal.

Agent Fees

Agent Fees for the year ended August 31, 2009 totaled $Nil compared to $30,000 for the year ended August 31, 2008. Agent Fees totaled $1,852,500 for the Exploration Stage. We cannot currently project the level of these expenses for fiscal 2009, but expect them to be minimal.

Professional and Consultant Fees

Professional & Consultant Fees are comprised of fees for work performed by accounting, audit and legal professionals. During the year ended August 31, 2009 these fees totaled $51,520 compared with $180,041 for the year ended August 31, 2008. For the Exploration Stage, these costs totaled $503,975. We anticipate Professional & Consultant Fees will remain at current levels in the upcoming year.

Stock Based Compensation – officers and directors

Stock Based Compensation expense totaled $Nil for the year ended August 31, 2009 compared with $Nil for the year ended August 31, 2008. For the Exploration Stage, Stock Based Compensation totaled $6,975,491. We project stock based compensation expenses will be $Nil in the coming year.

Investor Relations

Investor Relations expenses comprise costs for press releases, maintenance of the Company’s website and other investor information initiatives. During the year ended August 31, 2009 these expenses totaled $3,017 versus $61,536 for the year ended August 31, 2008. For the Exploration Stage, Investor Relations expenses totaled $137,956. We anticipate Investor Relations expenses will decrease substantially in the upcoming year.

Administrative Expenses

Administrative Expenses were $16,070 for the year ended August 31, 2009 compared with $49,675 during the year ended August 31, 2008. For the Exploration Stage, Administrative Expenses totaled $189,628. These expenses are composed of Edgar agent filing fees, Sedar agent filing fees, Canadian Regulatory fees, stock transfer agent fees and general office expenses. We anticipate Administrative Expenses will remain at current levels in the upcoming year.

Net Income (Loss)

We incurred net losses of $(106,316), or $0.00 per share, for the year ended August 31, 2009 compared to $(1,530,919), or $(0.04) per share, for the year ended August 31, 2008. The Net Loss for the Exploration Stage was $(23,353,281).

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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 August 31, 2009, consisted of cash resources of $3,829, a vendor prepaid expense of $502, 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 $284,185 including accrued interest as of August 31, 2009.

Since Exploration Stage inception through to and including August 31, 2009, we have executed cash sales of our common shares totaling $7,193,860 through private placements.

Contractual Obligations

None.

Material Events and Uncertainties

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

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

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

Employees

As of August 31, 2009, we had no employees and used contracted services to perform geological work, legal services and our bookkeeping. Going forward, the Company will use consultants with specific skills to assist with various aspects of its project evaluation, due diligence, acquisition initiatives, corporate governance and property management.

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.

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Our significant accounting policies are summarized in NOTE 2 of our financial statements. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements, together with the report of auditors, are as follows:

INDEX TO FINANCIAL STATEMENTS

	Page

Reports of Independent Registered Public Accounting Firms	13

Financial Statements for the years ended August 31, 2009 and August 31, 2008 and for the Exploration Stage of August 15, 2006 to August 31, 2009:

Consolidated Balance Sheets	14

Consolidated Statements of Operations	15

Consolidated Statement of Stockholders’ Equity (Deficit)	16

Consolidated Statements of Cash Flows	17

Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities	19

Notes to Financial Statements	20

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Report of Independent Registered Public Accounting Firm

To Board of Directors and Stockholders of

Asian Dragon Group Inc. and Subsidiary (An Exploration Stage Company)

We have audited the accompanying consolidated balance sheet of Asian Dragon Group Inc. and subsidiary (an exploration stage company) as of August 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended August 31, 2009. Asian Dragon Group Inc. and subsidiary’s (an exploration stage company) management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Asian Dragon Group Inc. and subsidiary (an exploration stage company) as of August 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended August 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that Asian Dragon Group Inc. and subsidiary (an exploration stage company) will continue as a going concern. As disclosed in the consolidated financial statements and notes to the consolidated financial statements, Asian Dragon Group Inc. and subsidiary (an exploration stage company) will need additional working capital for its planned activity and to service its debt. This raises substantial doubt about Asian Dragon Group Inc and subsidiary’s (an exploration stage company) ability to continue as a going concern. Management’s plans in regard to these matters are described in the notes to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result for the outcome of this uncertainty.

/s/ Madsen & Associates CPAs, Inc.

Madsen & Associates CPAs, Inc.

December 10, 2009

Salt Lake City, Utah

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Balance Sheets

	Year ended August 31, 2009			Year ended August 31, 2008
ASSETS

CURRENT ASSETS
Cash (Note 2)	$	3,829		$	4,423
Prepaid expenses		502			4,322
Accounts receivable		-			-
Total current assets		4,331			8,745

Total assets	$	4,331		$	8,745

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	25,185		$	3,675
Accrued liabilities		-			10,750
Note payable (Note 4)		25,125			23,925
Shareholder loans (Notes 4 and 5)		284,185			194,243
Total current liabilities	$	334,495		$	232,593
Total liabilities	$	334,495		$	232,593

COMMITMENTS AND CONTINGENCIES (Notes 2 to 9)		-			-

STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares, 100,000,000 shares par value $0.001 authorized, 38,775,000 issued and outstanding at August 31, 2009 and August 31, 2008 respectively (Notes 2 and 6).		38,775			38,775
Paid-in Capital (Notes 6 and 7)		22,984,342			22,984,342
Accumulated deficit in the exploration stage		(23,138,176	)		(23,031,860	)
Accumulated deficit		(215,105	)		(215,105	)
Total stockholders’ (deficit)		(330,164	)		(223,848	)

Total liabilities and stockholders’ equity	$	4,331		$	8,745

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Operations

	Year ended August 31, 2009			Year ended August 31, 2008			August 15, 2006 (inception) through August 31, 2009

EXPENSES:
Exploration licenses	$	-		$	1,200,000		$	13,372,593
Exploration expenses		22,635			-			72,850
Agent fees		-			30,000			1,852,500
Professional and consultant fees		51,520			180,041			503,975
Stock-based compensation – officers and directors		-			-			6,975,491
Investor relations		3,017			61,536			137,956
Administrative expenses		16,070			49,675			189,628
Total expenses	$	93,242		$	1,521,252		$	23,104,993

Net loss from operations	$	(93,242	)	$	(1,521,252	)	$	(23,104,993	)
Interest expense		(13,074	)		(9,667	)		(33,183	)
Net Income (Loss) from continuing operations:		(106,316	)		(1,530,919	)		(23,138,176	)

Net loss from discontinued operations (Note 10) :
– terminated subsidiary		-			-			(68,995	)
– change from Development to Exploration Stage		-			-			(146,110	)
Net loss from discontinued operations		-			-			(215,105	)
Net (Loss)	$	(106,316	)	$	(1,530,919	)	$	(23,353,281	)

Loss per common share (Note 2), basic and diluted from discontinued operations:	$	n/a		$	n/a
Earnings (Loss) per common share (Note 2), basic and diluted from continuing operations:	$	0.00		$	(0.04	)
Weighted average shares outstanding , basic and diluted (Notes 2 and 8)		38,775,000			38,591,438

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

	Common Shares			Common Stock		Discount on Common Stock			Paid-in Capital			Accumulated Deficit			Deficit Accumulated during Exploration Stage			Total Stockholders’ Equity (Deficit)
Opening Stock balance		19,315,000		$	19,315	$	(7,309	)	$	29,260		$	—		$	—		$	—
To give effect to 4 for 1 stock dividend May 25, 2006		77,260,000		$	—	$	—		$	—		$	—		$	—		$	—
Balance, August 31, 2004		96,575,000		$	19,315	$	(7,309	)	$	29,260		$	(39,719	)	$			$	1,547
Net loss relating to discontinued operations: - terminated subsidiary		—		$	—	$	—		$	—		$	(26,583	)	$	—		$	(26,583	)
- change from Development Stage to Exploration Stage		—		$	—	$	—		$	—		$	(57,068	)	$	—		$	(57,068	)
Balance, August 31, 2005		96,575,000		$	32,025	$	—		$	9,241		$	(123,370	)	$	—		$	(82,104	)
Cancellation of common shares August 8, 2006		(64,550,000	)	$	12,710	$	7,309		$	(20,019	)	$	—		$	—		$	—
Net loss relating to discontinued operations: - terminated subsidiary		—		$	—	$	—		$	—		$	(24,720	)	$	—		$	(24,720	)
- change from Development Stage to Exploration Stage		—		$	—	$	—		$	—		$	(67,015	)	$	—		$	(68,857	)
Net loss Exploration Stage		—		$	—	$	—		$	—			—		$	(1,424	)	$	(1,424	)
Balance, August 31, 2006		32,025,000		$	32,025	$	—		$	9,241		$	(215,105	)	$	(1,424	)	$	(175,263	)
Common shares issued for cash at $4.00 per share November 6, 2006		250,000		$	250	$	—		$	999,750		$	—		$	—		$	1,000,000
Common shares issued for cash at $5.00 per share December 18, 2006		400,000		$	400	$	—		$	1,999,600		$	—		$	—		$	2,000,000
Common shares issued for cash at $5.00 per share April 2, 2007		300,000		$	300	$	—		$	1,499,700		$	—		$	—		$	1,500,000
Common shares issued as compensation and expensed at $2.30 per share June 15, 2007		500,000		$	500	$	—		$	1,149,500		$	—		$	—		$	1,150,000
Common shares issued for cash at $2.22 per share June 18, 2007		450,000		$	450	$	—		$	998,550		$	—		$	—		$	999,000
Common shares issued as Agent fees and expensed at $2.35 per share August 29, 2007		3,750,000		$	3,750	$	—		$	8,808,750		$	—		$	—		$	8,812,500
Additional Paid-In Capital relating to options expensed at $2.13 per share August 31, 2007		—		$	—	$	—		$	5,825,491		$	—		$	—		$	5,825,491
Common shares issued for cash at $2.1581 per share August 31, 2007		600,000		$	600	$	—		$	1,294,260		$	—		$	—		$	1,294,860
Net loss for year ended August 31, 2007		—		$	—	$	—		$	—		$	—		$	(21,499,517	)	$	(21,499,517	)
Balance, August 31, 2007		38,275,000		$	38,275	$	—		$	22,584,842		$	(215,105	)	$	(21,500,941	)	$	907,071

(continued)

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

(continued)	Common Shares		Common Stock		Discount on Common Stock		Paid-in Capital		Accumulated Deficit			Deficit Accumulated during Exploration Stage			Total Stockholders’ Equity (Deficit)
Common shares issued for cash at $080 per share January 14, 2008		500,000	$	500	$	—	$	399,500	$	—		$	—		$	400,000
Net loss for year ended August 31, 2008		—	$	—	$	—	$	—	$	—		$	(1,530,919	)	$	(1,530,919	)
Balance, August 31, 2008		38,775,000	$	38,775	$	—	$	22,984,342	$	(215,105	)	$	(23,031,860	)	$	(223,848	)
Net loss for year ended August 31, 2009		—	$	—	$	—	$	—	$	—		$	(106,316	)	$	(106,316	)
Balance, August 31, 2009		38,775,000	$	38,775	$	—	$	22,984,342	$	(215,105	)	$	(23,138,176	)	$	(330,164	)

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

	Year ended August 31, 2009			Year ended August 31, 2008			August 15, 2006 (inception) through August 31, 2009
Cash flows from operating activities:
Net Income (Loss) for period	$	(106,316	)	$	(1,530,919	)	$	(23,353,281	)
Reconciling adjustments:
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued interest on shareholder loans		11,874			9,339			31,655
Accrued interest on Note payable		1,200			328			1,528
Common stock issued for compensation		-			-			1,150,000
Additional Paid-In Capital relating to Options		-			-			5,825,491
Common stock issued for license fee payments		-			-			7,050,000
Common stock issued for agent fee payments		-			-			1,762,500
Accrued interest on shareholder loans related to discontinued operations		-			-			8,761
Depreciation related to discontinued operations		-			-			318
Common stock issued shareholder debt conversion related to discontinued operations		-			-			10,000
Net change in operating assets and liabilities:
Prepaid expenses		3,820			(4,322	)		(502	)
Note payable		-			23,597			23,597
Accounts payable and accrued liabilities		10,760			(167,045	)		25,185
Prepaid expenses related to discontinued Operations		-			-			9,500
Accounts payable and accrued liabilities related to discontinued operations		-			-			(9,220	)
Net cash provided (used) by operating activities		(78,662	)		(1,669,022	)		(7,464,468	)
(continued)

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

	Year ended August 31, 2009			Year ended August 31, 2008			August 15, 2006 (inception) through August 31, 2009
Cash flows from investing activities:
Purchase (sale) of property and equipment related to discontinued operations		-			-			(318	)
Net cash provided (used) by investing activities		-			-			(318	)

Cash flows from financing activities:
Common stock issued for cash		-			400,000			7,193,860
Stock subscription receivable		-			1,000,000			-
Loans by stockholders		78,068			(52,936	)		90,728
Common stock issued for cash related to discontinued operations		-			-			31,266
Shareholder loans related to discontinued operations		-			-			152,689
Net cash provided by financing activities		78,068			1,347,064			7,468,543

Net increase (decrease) in cash		(594	)		(321,958	)		3,757

Cash, beginning of period		4,423			326,381			72

Cash, end of period	$	3,829		$	4,423		$	3,829

Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities

	Year ended August 31, 2009		Year ended August 31, 2008		August 15, 2006 (inception) through August 31, 2009

Common stock issued shareholder debt conversion related to discontinued operations		-		-		10,000

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

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

NOTE 1 – Nature of Business and Operations

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.

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

Our fiscal year end is August 31st.

Exploration Stage Activities

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

NOTE 2 – Summary of Significant Accounting Policies

This summary of significant accounting policies is presented to assist in understanding Asian Dragon’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.

The financial statements reflect the following significant accounting policies:

Exploration Stage Company

The Company is an exploration stage company as defined by SEC Industry Guide 7, and follows the Financial Accounting Standards Board (“FASB”) Statements of Financial Accounting Standards (“SFAS”) No. 7, where applicable. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Exploration Costs and Mineral Property Right Acquisitions

Exploration rights and mineral property rights acquisitions include acquired interests in production, development and exploration stage properties (“Acquired Interests”). As required by FASB EITF 04-2, Acquired Interests are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination. Acquired Interests are only capitalized when the Company has fully acquired legal title to the Acquired Interests and has attained the legal right to initiate exploration activities or begin mining. In situations (such as exist under the Jinjishan Agreement, the Loning Agreement, and the Fuding Agreement) where the Company has not acquired full legal title to Acquired Interests, the Company follows a policy of expensing payments made toward acquisition of exploration licenses. (This method for the treatment of exploration license payments for the three named agreements is used because the Company is not in a position to treat exploration license payments as assets until such time as it has fulfilled its purchase agreements and has attained full legal title to the underlying exploration licenses. Because there is no legal title, the underlying licenses do not qualify as mineral rights as defined by EITF 04-2 because no ‘acquisition’ has taken place and the Company does not legally own the licenses).

Until the Company has established the existence of proven or probable mineral reserves, as defined by Industry Guide 7, costs for exploration, including the building of infrastructure, will be expensed and recorded as ‘Exploration Costs’. At such time that the Company has established the existence of proven or probable reserves, mine development costs incurred either to develop new ore deposits, expand the capacity of mines, build the infrastructure necessary to extract resources, or to develop mine areas substantially in advance of current production will be capitalized and recorded as ‘Development Costs’.

Management periodically reviews the carrying value of its investments in exploration licenses with internal and external mining related professionals. A decision to abandon, reduce or expand a specific project is based upon many factors including general and specific assessments of mineral deposits, anticipated future mineral prices, anticipated future costs of exploring, developing and operating a production mine, the expiration term and ongoing expenses of maintaining exploration licenses and the general likelihood that the Company will continue exploration on such project. The Company does not set a predetermined holding period for exploration licenses with unproven deposits, however, exploration licenses which have not demonstrated suitable metal concentrations at the conclusion of each phase of an exploration program are to be re-evaluated to determine if future exploration is warranted. Additionally, at such time as the Company has capitalized properties, it will periodically undertake to determine whether there has been any impairment in value; and that the carrying values of the properties are appropriate. All long-lived assets will be reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable.

At such time as it has capitalized properties, the Company will evaluate the carrying value of capitalized mining costs and related property, plant and equipment costs, to determine if these costs are in excess of their net recoverable amount whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-lived Assets.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

If an area of interest is abandoned or it is determined that its carrying value cannot be supported by future production or sale, the related costs will be charged against operations in the year of abandonment or determination of value. The amounts recorded for exploration expenses represent costs to date and do not necessarily reflect present or future values.

The Company’s exploration activities and are subject to various laws and regulations governing protection of the environment. These laws are continually changing, generally becoming more restrictive. The Company expects in the future to make expenditures to comply with such laws and regulations. At such time as the Company has capitalized properties, the accumulated costs of properties that are developed to the stage of commercial production will be amortized to operations through unit-of-production depletion.

Consolidation of Financial Statements

The financial statements include the accounts of the Company and show its former subsidiary Galaxy Telnet as a discontinued operation. All previous inter-company accounts have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Earnings or (Loss) per Share

Earnings or (loss) per share is computed in accordance with SFAS No. 128, “Earnings per Share”. Basic loss per share is calculated by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. The denominator in this calculation is adjusted to reflect any stock splits or stock dividends. On May 25, 2006, the Board of Directors authorized a 4 for 1 stock dividend and on August 21, 2004, the Board of Directors authorized a 4-for-1 stock split. All references to stock issued and stock outstanding have been retroactively adjusted as if the stock split and stock dividend had taken place at the earliest date shown. Additionally, on August 8, 2006, the Board of Directors authorized the cancellation of 64,550,000 shares of its common stock which were submitted for cancellation by a former director. This cancellation resulted in the revaluation of share capital as follows: (i) Common Stock was revalued from $19,315 to $32,025, based on par value of $0.001 times the residual float of 32,025,000 common shares; (ii) the previously recorded Discount on Common Stock of $(7,309) was eliminated; and (iii) Paid In Capital was adjusted from $29,260 to $9,241. All references to this stock cancellation have been retroactively adjusted as if the stock cancellation had taken place at the earliest date shown.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Diluted loss per share is calculated using the treasury method which requires the calculation of diluted loss per share by assuming that outstanding stock options with an average market price that exceeds the average exercise prices of the options for the year, are exercised and the assumed proceeds are used to repurchase shares of the Company at the average market price of the common shares for the year. An incremental per share effect is then calculated for each option. The denominator of the diluted loss per share formulae is the number common shares outstanding at balance sheet date plus the incremental shares assumed to be issued from treasury for option exercises, less the number of shares assumed to be repurchased, weighted by the period they are assumed to be outstanding. This dilution calculation resulted in zero effect to the weighted average shares outstanding in fiscal 2008.

Stock Based Compensation

In accordance with SFAS No. 123 (Revised 2004), “Accounting for Stock-Based Compensation”, the Company applies the fair value method of accounting for all stock and stock option awards. Under this method the Company measures the compensation expense for stock and stock option grants based on the fair value of the common stock on the date of grant and amortizes this cost over the vesting period. In cases where vesting is immediate, the full cost of the grant is recorded on grant date.

The expense for all stock option grants awarded since August 8, 2007, the inception date of the 2007 Employee Stock Option Plan, are calculated using the fair value of the options determined by a Black-Scholes option pricing model and are credited to Additional Paid-In Capital.

The expense for the issuance of 500,000 shares to directors was expensed at $2.30 per share, which was the closing price of the stock on the date of issuance. This resulted in a stock based compensation expense of $1,150,000.00.

Estimated Fair Value of Financial Instruments

The carrying value of accounts payable, and other financial instruments reflected in the financial statements approximates fair value due to the short-term maturity of the instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Comprehensive Income

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS 130 requires that the components and total amounts of comprehensive income be displayed in the financial statements beginning in 1998. Comprehensive income includes net income and all changes in equity during a period that arises from non-owner sources, such as foreign currency items and unrealized gains and losses on certain investments in equity securities. Comprehensive loss for the periods shown equals the net loss for the period less the effect of foreign currency translation.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Income Taxes

The Company follows the provisions of SFAS No. 109, “Accounting for Income Taxes”, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted rates in effect in the years during which the differences are expected to reverse and upon the possible realization of net operating loss carry-forwards.

The Company also follows the provisions of FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 includes the provisions that interest penalties recognized in accordance with FASB Interpretation 48 may be classified in the financial statements as either income taxes or interest expense. The Company’s policy is to recognize such items as interest expenses.

Valuation of Long-Lived Assets

The Company will periodically analyze its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows on a basis consistent with accounting principles generally accepted in the United States of America.

Start-up Costs

The Company has adopted Statement of Position No. 98-5 ("SOP 98-5"), "Reporting the Costs of Start-Up Activities." SOP 98-5 requires that all non-governmental entities expense the cost of start-up activities, including organizational costs as those costs are incurred.

Foreign Currency

The books of the Company are maintained in United States dollars and this is the Company’s functional and reporting currency. Transactions denominated in other than the United States dollar are translated as follows with the related transaction gains and losses being recorded in the Statements of Operations:

(i)

Monetary items are recorded at the rate of exchange prevailing as at the balance sheet date;

(ii)

Non-Monetary items including equity are recorded at the historical rate of exchange; and

(iii)

Revenues and expenses are recorded at the period average in which the transaction occurred

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Cash and Cash Equivalents

The Company considers cash and cash equivalents to consist of cash on hand and demand deposits in banks with an initial maturity of 90 days or less.

Risks and Uncertainties

The Company is subject to substantial business risks and uncertainties inherent in starting a new business. There is no assurance the Company will be able to generate sufficient revenues or obtain sufficient funds necessary for launching a new business venture.

Revenue Recognition

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

Capital Assets

Capital assets will be recorded at cost. Depreciation will be recorded based on estimated useful lives of assets at time of acquisition. At present the Company has no depreciable assets.

Asset Retirement Obligations

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

Recent Accounting Pronouncements

Various accounting pronouncements have been issued during 2009 and 2008, none of which are expected to have any material effect on the financial statements of the Company.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Other

The Company paid no dividends during the periods presented.

The Company consists of one reportable business segment. The Company has no revenue to report from any customers.

Advertising is expensed as it is incurred.

Certain comparative figures in these statements have been reclassified to conform to current year classifications.

We did not have any off-balance sheet arrangements as at August 31, 2009 or August 31, 2008.

NOTE 3 – Basis of Presentation and 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 incurred a net loss in the current year of $(106,316). Additionally it has accumulated an operating losses since its inception, 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 year ended August 31, 2009, we addressed the going concern issue by raising cash of $78,068 through shareholder loans from our President. 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.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

NOTE 4 – Shareholder Loan and Note Payable

At August 31, 2009, the Company had one shareholder loan outstanding from a related party of $284,185, which included $11,874 of accrued interest for the year ended August 31, 2009. This loan is uncollateralized and has no fixed repayment date and is callable at any time. During the twelve months ended August 31, 2009 this shareholder loan increased by $89,942.

At August 31, 2009, the Company had one Note Payable outstanding of $25,125, which included $1,200 of accrued interest for the year ended August 31, 2009. This loan is uncollateralized, has no fixed repayment date and is callable at any time.

NOTE 5 – Related Party Transactions

During the year ending August 31, 2009 related party transactions included the shareholder loan activity recorded in Note 4.

NOTE 6 – Common Stock

On May 25, 2006, the Board of Directors authorized a 4 for 1 stock dividend and on August 21, 2004, the Board of Directors authorized a 4-for-1 stock split. All references to stock issued and stock outstanding have been retroactively adjusted as if the stock split and stock dividend had taken place at the earliest date shown.

On August 8, 2006, the Board of Directors authorized the cancellation of 64,550,000 shares of its common stock which were submitted for cancellation by a former director (see Note 12 below for further detail). This cancellation of these 64, 550,000 required a special accounting treatment because these particular shares had previously been revalued when they were part of a reverse merger transaction in 2003. This previous revaluation had been necessitated because the 64,550,000 shares had been issued to the former director prior to the issuing company (the ‘target company’) being acquired in a reverse takeover on October 31, 2003. When the reverse takeover took place, the total par value of the acquired shares of the target company was higher than the book value of the new combined company. As a result a recapitalization of share capital was required and a ‘Discount on Common Stock’ of $(7,309) arose. Subsequently in 2006 when these particular shares were submitted for cancellation by the former director, another revaluation was required to eliminate the Discount on Common Stock. This cancellation resulted in the revaluation of share capital as follows: (i) Common Stock was revalued from $19,315 to $32,025, based on par value of $0.001 times the residual float of 32,025,000 common shares; (ii) the previously recorded Discount on Common Stock of $(7,309) was eliminated; and (iii) Paid In Capital was adjusted from $29,260 to $9,241.

On October 31, 2003, the Company issued 30,000,000 shares of its common stock in exchange for all issued and outstanding shares of Galaxy Telnet.

On November 1, 2003, the Company issued 30,000,000 shares of its common stock at $0.0002 for a total of $6,000.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

During the fiscal year ending August 31, 2004, the Company issued 26,750,000 shares of its common stock in a private offering at $0.001 for a total of $26,575.

On August 20, 2004, the Company issued 10,000,000 shares of common stock at $0.001 in exchange for conversion of shareholder loans to the Company of $10,000.

On November 6, 2006, the Company completed a private placement sale of 250,000 shares of its common stock at $4.00 per share for aggregate proceeds of $1,000,000.

On December 18, 2006, the Company completed a private placement sale of 400,000 shares of its common stock at $5.00 per share for aggregate proceeds of $2,000,000.

On April 2, 2007, the Company completed a private placement sale of 300,000 shares of its common stock at $5.00 per share for aggregate proceeds of $1,500,000.

On June 15, 2007, the Company issued two of its directors 250,000 shares each of its common stock for a total issuance of 500,000 shares. This stock was valued at $2.30 per share, which was the closing price of the stock on the date of issuance. This resulted in a stock based compensation expense of $1,150,000.00.

On June 18, 2007, the Company completed a private placement sale of 450,000 shares of its common stock at $2.22 per share for aggregate proceeds of $999,000.

On August 29, 2007, the Board approved issuance of 750,000 restricted common shares to WFEI and 3,000,000 to WFEI or its nominees regarding exploration agreements. This stock was expensed at $2.35 per share, which was the closing price of the stock on that date.

On August 31, 2007, the Company completed a private placement sale of 600,000 shares of its common stock at $2.1581 per share for aggregate proceeds of $1,294,860. At August 31, 2008 a $1,000,000 subscription receivable was recorded regarding this sale and was collected subsequent to year end 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.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

NOTE 7 – Stock Options

On August 8, 2007 the board approved creation of the Company’s 2007 Employee Stock Option Plan (the “2007 Plan”). The 2007 Plan allows for the issuance of up to 6,905,000 options on 6,905,000 shares of the Company’s common stock, with a maximum exercise period of ten years, to be granted to directors, officers, employees and consultants. During fiscal 2007 the Company granted 3,000,000 stock options to purchase 3,000,000 restricted common shares of Asian Dragon. These options vested immediately and are exercisable at a price of $2.13 per option, expire in 2017, and were recorded as a compensation expense at fair value for the year ended August 31, 2008 at a total cost of $5,825,491. The fair value of the options granted were calculated on the date of grant using a Black Scholes option pricing model with the following assumptions: (i) a risk-free interest rate of 3.74% (based on the US 30-day T-Bill rate on grant date); (ii) a dividend yield of zero: (iii) a volatility factor of 167% (based on the 12 month standard deviation of ADG’s daily stock closing price); an exercise price of $2.13 (which was fixed as the closing stock price on grant date); and an expected life of the options of four years (which is the time during which the Company estimates the options will be exercised). As per FASB SFAS 123R, the fair value method requires the cost of options to be expensed over the period in which they vest, which in the case of all 2007 option grants was immediately as of grant date. Additionally as required by FASB SFAS 123R, the value of the underlying shares issuances has been credited to Additional Paid-In Capital on the Balance Sheet.

A summary of changes in outstanding stock options for the year ended August 31, 2009 is as follows:

	Options Outstanding		Weighted Average Exercise Price

Balance at September 1, 2006	Nil			-
Granted		3,000,000	$	2.13
Exercised	Nil			-
Cancelled/expired	Nil			-

Balance at August 31, 2007		3,000,000	$	2.13

(continued)

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

	Options Outstanding			Weighted Average Exercise Price

Granted	Nil				-
Exercised	Nil				-
Cancelled/expired		(500,000	)	$	2.13

Balance at August 31, 2008		2,500,000		$	2.13


Granted	Nil				-
Exercised	Nil				-
Cancelled/expired	Nil				-

Balance at August 31, 2009		2,500,000		$	2.13

The following table summarizes information about the options outstanding at August 31, 2009:

		Options Outstanding						Options Exercisable
Exercise Prices		Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)

$	2.13		2,500,000	$	2.13		8.0		2,500,000	$	2.13		8.0

Totals			2,500,000	$	2.13		8.0		2,500,000	$	2.13		8.0

NOTE 8 – Concentration Risks

The Company’s bank accounts are held in a Canadian Bank. The Canadian Deposit Security Corporation, which insures bank deposits in Canada, does not insure US Dollar deposits and the insurable limit of Canadian Dollar deposits is Cdn$100,000. At August 31, 2009, the Company held uninsured cash deposits of US$3,720.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

NOTE 9 – Income Taxes

The Company is subject to federal income taxes in the United States. The Company had no income taxes payable during the reported periods due to net operating losses.

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company's deferred tax assets consist entirely of the benefit from net operating loss carry-forwards. The Company's deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operating loss carry-forwards. Net operating loss carry-forwards may be further limited by a change in company ownership and other provisions of the tax laws.

Income taxes at the statutory rate are reconciled to the Company’s actual income taxes as follows:

Income tax benefit at statutory rate resulting from net operating Loss carryforward	(35	%)
Deferred income tax valuation allowance	35	%
Actual tax rate	0	%

The Company's deferred tax assets, valuation allowance, and change in valuation allowance are as follows (“NOL” denotes Net Operating Loss):

Year Ending	Estimated NOL Carry-forward			NOL Expires		Estimated Tax Benefit from NOL		Valuation Allowance			Net Tax Benefit

2004	$	(39,413	)		2024	$	13,795	$	(13,795	)	$	—
2005	$	(83,651	)		2025	$	29,278	$	(29,278	)	$	—
2006	$	(93,465	)		2026	$	32,713	$	(32,713	)	$	—
2007	$	(21,499,517	)		2027	$	7,524,831	$	(7,524,831	)	$	—
2008	$	(1,530,919	)		2028	$	535,822	$	(535,822	)	$	—
2009	$	(106,316	)		2029	$	37,211	$	(37,211	)	$	—
	$	(23,353,281	)			$	8,173,650	$	(8,173,650	)	$	—

The total valuation allowance for the year ended August 31, 2009 is $(8,173,650) which increased by $(37,211) for the reported period.

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

NOTE 10 – Discontinued Operations

(i) TERMINATION OF GALAXY TELNET SRL:

Due to general economic conditions and other factors, the Company’s subsidiary Galaxy Telnet SRL (“Galaxy”) did not achieve its planned operational objectives in Romania. In April 2006, the Board determined the Company should abandon its VoIP business model and seek other business opportunities. During May 2006, the Company: disposed of all Galaxy’s property and equipment to the Company’s former CEO for the un-depreciated value of the assets (which gave rise to no gain or loss for Galaxy); terminated Galaxy’s client service contracts; terminated agreements with persons employed on contract by Galaxy; terminated Galaxy’s office lease and all vendor contracts and ceased all operations in Romania. On June 28, 2006 the former CEO submitted his resignation as a director of the Company and in August 2006 the Company completed all prescribed filings required to de-register Galaxy as a corporate entity and a Romanian administrative judge recorded that Galaxy was extinguished. The losses and cash flows of Galaxy have been presented as discontinued operations in the accompanying statements of Asian Dragon’s operations and statements of cash flows. Prior year’s Statements of Operations, Equity and Cash Flows have been adjusted to reflect the effect of the discontinued operations.

The components of the Galaxy discontinued operations are:

	Period from September 1, 2005 to August 15, 2006			Year Ended August 31, 2005			June 11, 2003 (inception) through August 15, 2006
REVENUES:
Sales of iBox packages	$	3,720		$	4,809		$	24,925
Cost of Goods Sold		595			1,096			11,089
GROSS MARGIN	$	3,125		$	3,713		$	13,836
EXPENSES:
Salaries & related taxes	$	-		$	8,634			14,333
Professional & consultant Fees		4,791			2,680			11,673
Administrative expenses		20,537			6,937			40,520
Sales & marketing Expenses		716			5,812			8,361
Advertising		-			4,574			5,542
Total expenses	$	26,044		$	28,637		$	80,429
Net (loss) from operations	$	(22,919	)	$	(24,924	)	$	(66,593	)
Interest income		3			5			12
Interest expense		(177	)		(383	)		(1,287	)
Recognition of foreign currency translation adjustments		(1,627	)		(1,281	)		(1,127	)
Net (loss)	$	(24,720	)	$	(26,583	)		(68,995	)

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ASIAN DRAGON GROUP INC. AND SUBSIDIARY

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

(i) CHANGE FROM DEVELOPMENT STAGE COMPANY TO EXPLORATION STAGE COMPANY:

On August 15, 2006 as the result of the Company changing its business purpose, its status changed from being a Development Stage Company to being an Exploration Stage Company. This is reflected in these financial statements by treating all activities of the Company prior to the change to Exploration Stage status as being a discontinued operation.

The losses and cash flows of the Company during its Development Stage period (June 11, 2003 to August 15, 2006) have been presented as discontinued operations in the accompanying Statements of Asian Dragon’s Operations, Equity and Cash Flows. Prior year’s Statements of Operations, Equity and Cash Flows have been adjusted to reflect the effect of the discontinued operations.

The components of the Development Stage period discontinued operations are:

	Period from September 1, 2005 to August 15, 2006			Year Ended August 31, 2005			June 11, 2003 (inception) through August 15, 2006

EXPENSES:
Professional & consultant Fees		51,427			44,566			110,205
Administrative expenses		9,740			10,280			27,657
Total expenses	$	61,167		$	54,846		$	137,862
Net (loss) from operations	$	(61,167	)	$	(54,846	)	$	(137,862	)
Interest expense		(5,535	)		(1,753	)		(7,473	)
Recognition of foreign currency translation adjustments		(313	)		(469	)		(775	)
Discontinued Operations Net (loss) due to Exploration Stage status change, excluding Galaxy Telnet SRL	$	(67,015	)	$	(57,068	)	$	(146,110	)
Net (loss) from discontinued operations – terminated subsidiary		(24,720	)		(26,583	)		(68,995	)
Net (loss) from consolidated discontinued operations	$	(91,735	)	$	(83,651	)		(215,105	)

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with our accountants regarding accounting and financial disclosure matters.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company's desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company's certifying officer has concluded that the Company's disclosure controls and procedures are ineffective in reaching that level of assurance.

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

Management's Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

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As of August 31, 2009, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the criteria established by COSO management concluded that the Company's internal control over financial reporting was not effective as of August 31, 2009, as a result of the identification of the material weaknesses described below.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, management identified the following control deficiencies: (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.

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

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

Changes in Internal Control over Financial Reporting

During the last quarter of the Company’s fiscal year ended August 31, 2009, the Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Act as 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. Deficiencies identified include the inadequate segregations of duties, lack of controls over procedures used to enter transactions into the general ledger, and lack of appropriate review of the reconciliations and supporting workpapers used in the financial close and reporting process. Due to the potential pervasive effect on the financial statement account balances and disclosures and the importance of the annual and interim financial closing and reporting process, in the aggregate, management concluded that there was 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

Addition of staff

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

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Limitations on the Effectiveness of Controls

The Company has confidence in its revised regime of internal controls and procedures. Nevertheless, the Company’s management (including the Chief Executive Officer and Chief Financial Officer) believes that a control system, no matter how well designed and operated can provide only reasonable assurance and cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitation in all internal control systems, no evaluation of controls can provide absolute assurance that all control issuers and instances of fraud, if any, within the Company have been detected.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Our directors and officers, as of August 31, 2009, were as set forth below. The directors hold office for their respective term and until their successors are duly elected and qualified. Vacancies in the Board are filled by a majority vote of the remaining directors. The officers serve at the will of the Board of Directors. The term of the directors listed below is each one year.

Name	Age	Positions and Offices Held

John Karlsson	37	President & Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer, Director and Board Chair

Jacques Trottier	46	Director

Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

John Karlsson

Mr. Karlsson is President and CEO, CFO, Principal Accounting Officer, Secretary and Treasurer, Director and Board Chair of Asian Dragon Group Inc. In this capacity, Mr. Karlsson is responsible for all overall management the Company. His current term as a Director of ADG commenced on June 8, 2006 and runs until the next annual meeting of the stockholders unless earlier terminated. Mr. Karlsson’s business experience during the past eight years has consisted of running a boutique corporate finance related practice in British Columbia, Canada. Mr. Karlsson is an attorney and has practiced law in British Columbia, Canada since 2003. Mr. Karlsson holds Bachelor of Arts and Law degrees from the University of Victoria and University of Manitoba, respectively. He is currently a member of the Law Society of British Columbia.

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Jacques Trottier

Dr. Jacques Trottier joined the Board on June 6, 2007. He has a Bachelor's Degree in Geology, a Master's Degree in Geochemistry from the University of Quebec in Montreal (UQAM) and obtained a Doctorate at the Ecole Polytechnique in Montreal. Since obtaining his Doctorate, Dr. Trottier dedicated his career primarily to managing junior exploration companies, having first joined the Morisco Mining Group as Vice President of Research and Development from 1987 to 1993, thereafter followed by President of Coleraine Mining Resources from 1993 to 1996. During this period, he was in charge of the geological evaluation for the development and start-up of the Donalda gold mine located in Abitibi, and the Nugget Pond gold mine in Newfoundland. From February 1996 to December 2006, he has been a director of Sulliden Exploration Inc. During this time he spearheaded the company's initiatives in Peru with considerable success. Among them, the discovery of two copper-gold porphyry systems (Cementerio and San Antonio) on the Huaquillas property in northern Peru, as well as the discovery of a polymetallic high grade zinc-lead-silver massive sulfide zone (known as P8unaPuna), located in central Peru. This last discovery led to his recognition in the year 2000 as Prospector of the year in Peru, conferred by the Honorary Mining Merit committee composed of 15 members representing seven professional mining related organizations, including the National Society of Mining, Petroleum and Energy; the Geological Society of Peru; and the Ministry of Energy and Mines. Between 2002 and 2006, he has developed the Shahuindo gold-silver project, also located in Peru, that is now recognized as a multi-million-ounce world-class deposit. Since January 2007, Dr. Trottier has been the President and owner of Trotco Exploration Inc., a private consulting company that provides services to international mining exploration companies.

Family Relationships

There are no family relationships between or among any of our officers or directors.

Involvement in Certain Legal Proceedings

To our knowledge, during the past five years, no present or former director or executive officer of the Company: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of illegal business practice; (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws; (4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment in subsequently reversed, suspended or vacate; (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.

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Audit Committee Financial Expert

In 2006 the Board delegated responsibilities of the Audit Committee to the full Board. Due to the fact that the Company is in its exploration stage, it has not yet been able to recruit and compensate a financial expert for the Audit Committee.

Compliance With Section 16(a) of the Exchange Act - Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act as amended requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities (the "10% Stockholders"), to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Officers, directors and 10% Stockholders of the Company are required by Commission regulation to furnish the Company with copies of all Section 16(a) forms so filed.

Based solely upon a review of filings made and other information available to it, the Company believes that each of the Company's present Section 16 reporting persons filed all forms required of them by Section 16(a) during the year 2008.

Based solely upon a review of the Forms 3, 4, and 5 furnished to us for the fiscal year ended August 31, 2009, we have determined that our directors, officers, and greater than 10% beneficial owners complied with all applicable Section 16 filing requirements.

Code of Ethics and Conduct

The Board approved a code of ethics and conduct which was filed with our Form 10-K for the year ended August 31, 2007 and is incorporated here by reference.

Director Compensation

During the year ended August 31, 2009, there were no cash payments, nor stock or option grants made to any directors.

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ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth information regarding the salaries and other compensation paid to our executive officer in our most recent fiscal year ended August 31, 2009 and since inception:

SUMMARY COMPENSATION TABLE

Name and Principal

Position

Year

Salary

($)

Bonus ($)

Other Annual Compensation

($)

Restricted Stock Awards or SRAs ($) (1)

Securities Underlying Options or

SARs (#)

LTIP Payouts

($) (2)

All Other Compensation

($)

John Karlsson President & CEO, CFO, PAO, Secretary and Treasurer

Fiscal

2009

Nil

John Karlsson President & CEO, CFO, PAO, Secretary and Treasurer

Fiscal

2008

Nil

John Karlsson President & CEO, CFO, PAO, Secretary and Treasurer

Fiscal

2007

Nil

100,000

Nil

2,000,000

Nil

John Karlsson President & CEO, CFO, PAO, Secretary and Treasurer

Fiscal

2006

Nil

(1) SARs are “Stock Appreciation Rights”

(2) LTIP’s are “Long-Term Incentive Plans”

Option/SAR Grants in Last Fiscal Year

Name

Number of

Securities Underlying

Options or SAR’s

(#)

Percentage of

Total Options or SARs Granted to Employee in Fiscal Year

Exercise

Price ($/share)

Expiration Date

Grant Date

Value ($)

(no grants made)

Nil

Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Table

Name

Acquired on

Exercise

(#)

Value

Realized

($)

Number of Securities

Underlying Unexercised

Options/SARs at FY-end

(#)

Value of Unexercised

In-the-Money Options/SARs

at FY-End

($)

Exercisable

Unexercisable

Exercisable

Unexercisable

John Karlsson

Nil

2,000,000

Nil

Zero

Nil

Jacques Trottier

Nil

500,000

Nil

Zero

Nil

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No retirement, pension, profit sharing, or insurance programs or other similar programs have been adopted by us for the benefit of our employees.

The Company has not yet established a Compensation Committee of the Board and plans to do so in the near future.

The Company does not have an employment agreement with its President & CEO, nor its independent director and there is no policy in place which creates a relationship between corporate performance and executive or director compensation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Under the rules of the Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.

The following table sets forth each person known by us to be the beneficial owner of five percent or more of the Company’s Common Stock and all such persons as a group. Each person has sole voting and investment power with respect to the shares shown.

Security Ownership of Certain Beneficial Owners

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner (1)		Percent of Class (2)

Common Stock	John Karlsson Suite 108 – 1312 North Monroe Street, Spokane, Washington 99201		7,450,000		18.3	%

Common Stock	All Included Persons as a Group		7,450,000		18.3	%

(1) The beneficial shares owned by Mr. Karlsson include 5,450,000 presently issued and 2,000,000 which could be issued upon exercise of stock options.
(2) The denominator for this calculation is based on the 38,775,000 presently issued shares of the Company plus 2,000,000 shares which might be issued if Mr. Karlsson were to exercise all his stock options.

The following table sets the beneficial ownership of the Company’s Common Stock by all directors and officers individually and all directors and officers of the Company as a group. Each person has sole voting and investment power with respect to the shares shown.

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Security Ownership of Certain Beneficial Owners

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner			Percent of Class (3)

Common Stock	John Karlsson President & CEO, CFO, PAO, Secretary & Treasurer, Director and Board Chair Suite 108 – 1312 North Monroe Street, Spokane, Washington 99201		7,450,000	(1)		18.0	%

Common Stock	Jacques Trottier - Director 1155 Rue University, Suite 508 Montreal, PQ, Canada H3B 3A7		750,000	(2)		1.8	%

Common Stock	All Directors & Officers as a Group		8,200,000			19.8	%

(1) The beneficial shares owned by Mr. Karlsson include 5,450,000 presently issued and 2,000,000 which could be issued upon exercise of stock options
(2) The beneficial shares owned by Mr. Trottier include 250,000 presently issued and 500,000 which could be issued upon exercise of stock options
(3) The denominator for this calculation is based on the 38,775,000 presently issued shares of the Company plus 2,500,000 shares which might be issued if all of Messrs. Karlsson and Trottier were to exercise all their stock options

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Management and Others

During the year ending August 31, 2009 there were no related party transactions which exceeded $60,000 in value.

Certain Business Relationships

None.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

In its capacity as the Audit Committee, the Board of Directors pre-approves all audit (including audit-related) and permitted non-audit services to be performed by the independent auditors. The Board of Directors annually approves the scope and fee estimates for the year-end audit to be performed by the Corporation’s independent auditors for the fiscal year. With respect to other permitted services, the Board of Directors pre-approves specific engagements, projects and categories of services on a fiscal year basis, subject to individual project and annual maximums. To date, the Company has not engaged its auditors to perform any non-audit related services.

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Audit Fees

The aggregate fees billed for the last three fiscal years for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements on Form 10-K and review of financial statements included in the Company’s Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory engagements for those fiscal years was:

2009 – $18,250 – Madsen & Associates CPAs Inc.

2008 – $48,250 – Madsen & Associates CPAs Inc.

2007 – $76,500 – Schumacher & Associates Inc.

Audit - Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported in the preceding paragraph:

2009 – $Nil – Madsen & Associates CPAs Inc.

2008 – $Nil – Madsen & Associates CPAs Inc.

2007 – $Nil – Schumacher & Associates Inc.

Tax Fees

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:

2009 – $Nil – Madsen & Associates CPAs Inc.

2008 – $Nil – Madsen & Associates CPAs Inc.

2007 – $Nil – Schumacher & Associates Inc.

All Other Fees

The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:

2009 – $Nil – Madsen & Associates CPAs Inc.

2008 – $Nil – Madsen & Associates CPAs Inc.

2007 – $Nil – Schumacher & Associates Inc.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

No.		Exhibit Description

3.1		Articles of Incorporation*
3.2		Certificate of Amendment of Articles of Incorporation*
3.2		Bylaws*
14.1		Code of Ethics**
31.1		Certificate of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

** Filed as an exhibit to a Form 10-K filed December 14, 2007 and incorporated here by reference

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 Chief Executive Officer, Chief Financial Officer,

Principal Accounting Officer, Secretary and Treasurer, Director

and Board Chair

/s/ Jacques Trottier

Jacques Trottier

Director

Dated: December 14, 2009

ASIAN DRAGON GROUP INC. 10-K