Quarterly Report — Form 10-Q Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10-Q Asian Dragon Group 10Q, 02.29.08 HTML 279K
2: EX-10.1 Asian Dragon Group 10Q, Jinjishan (Revised) HTML 34K
Agreement
3: EX-10.2 Asian Dragon Group 10Q, Loning (Revised) Agreement HTML 33K
4: EX-10.3 Asian Dragon Group 10Q, Fuding (Revised) Agreement HTML 43K
5: EX-31.1 Asian Dragon Group 10Q, Certification 302, CEO HTML 10K
6: EX-31.2 Asian Dragon Group 10Q, Certification 302, CFO HTML 10K
7: EX-32.1 Asian Dragon Group 10Q, Certification 906, Ceo/CFO HTML 7K
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)
#203 - 1030 Hamilton Street Vancouver, BC, Canada V6B 2R9 (Address of principal executive offices) (Zip Code)
(604) 688-8127 (Registrant’s telephone no., including area code)
1100 – 475 Howe Street, Vancouver, BC, Canada V6C 2B3
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated file.
Large accelerated filer
[ ]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[X]
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
The issuer had 38,775,000 shares of common stock issued and outstanding as of April 21, 2008.
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Commitments payable (Notes 4 and 8) – current portion
$
-
$
7,179,407
Accounts payable
23,597
66,470
Account payable - related party
-
75,000
Accrued liabilities
5,000
40,000
Shareholder loans (Notes 5 and 6)
189,582
237,840
Total current liabilities
$
218,179
$
7,598,717
LONG-TERM LIABILITIES
Commitments payable (Note 4) – long-term portion
$
-
$
2,500,000
Total long-term liabilities
$
-
$
2,500,000
Total liabilities
$
218,179
$
10,098,717
COMMITMENTS AND CONTINGENCIES (Notes 4,5,6 and 8)
-
-
STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares, 100,000,000 shares par value $0.001 authorized, 38,775,000 and 38,275,000 issued and outstanding at February 29, 2008 and August 31, 2007 respectively (Note 7)
38,675
38,275
Paid-in Capital (Notes 7)
22,984,442
22,584,842
Accumulated deficit in the exploration stage
(23,167,188)
(31,382,181)
Accumulated other comprehensive income (loss)
153
(13,272)
Total stockholders’ (deficit)
(143,918)
(8,772,336)
Total liabilities and stockholders’ equity
$
74,261
$
1,326,381
===============
===============
The accompanying notes to financial statements are an integral part of this statement
F-1
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
The accompanying notes to financial statements are an integral part of this statement
F-4
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
NOTE 1 – Nature of Business and Basis of Presentation
Asian Dragon Group Inc. (“Asian Dragon”, “ADG”, “We”, the “Registrant”, or the “Company”) was incorporated as a Nevada corporation on June 11, 2003. Asian Dragon was established to develop projects which focus on China’s growing precious and base metals reserves and markets. Effective August 15, 2006, the business of its operating subsidiary Galaxy Telnet SRL was wound-up and the subsidiary was de-registered as a corporate entity. Asian Dragon’s August 31, 2006 audited financial statements were presented to reflect the discontinuation of operation of Galaxy Telnet SRL and concurrently the date at which Asian Dragon became an Exploration Stage Company was set as August 15, 2006.
The unaudited financial statements as of February 29, 2008 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. It is suggested that these financial statements be read in conjunction with the August 31, 2007 audited financial statements and notes thereto.
Exploration Stage Activities
The Company has been in the exploration stage since August 15, 2006 and has not yet realized any revenues from its operations.
NOTE 2 – Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. However, the Company has an operating loss for the six month period ending February 29, 2008 of $(1,464,414) and has accumulated operating losses since its inception. Additionally the Company has a deficit in working capital and stockholders equity and has had limited business operations, which raises substantial doubt about the Company’s ability to continue as a going concern. The continuation of the
Company is dependent on many factors, many of which have a high degree of uncertainty.
During the quarter ended February 29, 2008, we addressed the going concern issue by completing a private placement of 500,000 common shares at $0.80 per share for aggregate proceeds of $400,000. The Company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to successfully fulfill its business plan. Management plans to attempt to raise additional funds to finance the operating and capital requirements of the Company through a combination of equity and debt financings. While the Company is making its best efforts to achieve the above plans, there is no assurance that any such
activity will generate funds that will be available for operations. The accompanying financial statements do not include any adjustments that might result from the resolution of these matters.
F-5
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
NOTE 3 – Exploration License Agreements
Jinjishan Property and Concentration Plant
The Jinjishan License consists of an Exploration License on a contiguous 28.3 sq km property located in the Northwest part of the Luoning County, Henan Province, China, in the Changshui community. The Jinjishan Plant is located in the same area and we note that this formerly operating plant, and other infrastructure and buildings acquired in each of our Exploration License purchases to date entirely, and without exception, have no value from an accounting or operational perspective due to age and state of repair.
Asian Dragon entered into an agreement (the “Jinjishan Rights Agreement”) with World Fortune Enterprise, Inc. (“WFEI”) effective August 29, 2007, to acquire a 70% interest in The Jinjishan License (the “Jinjishan Rights”) and a 100% interest in the Jinjishan Plant (collectively the “Jinjishan Interests”). Under the Jinjishan Rights Agreement Asian Dragon assumed the payment responsibilities of WFEI for the Jinjishan Interests.
WFEI does not own the exploration license referenced in the Jinjishan Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoyang Canadian United Mining Ltd. (“LCUML”) for the Jinjishan Interests. LCUML owns the rights for the Jinjishan Interests and WFEI has represented, pursuant to the Jinjishan Rights Agreement, that once WFEI has acquired clear title to the Jinjishan Interests from LCUML it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it acquires clear title to the Jinjishan Interests, it will have the right and authority to transfer those rights to Asian Dragon.
Asian Dragon is not a party to the agreement between WFEI and LCUML. Nor is it a party to the agreement between LCUML and the party that previously owned the rights to the Jinjishan Interests and may have little or no recourse on LCUML, or the party from whom LCUML purchased the rights, in the event that the Jinjishan Rights Agreement, or subsequent agreements between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Jinjishan Rights Agreement.
The Jinjishan Rights Agreement required payment of $2,500,000 for the Jinjishan License and $800,000 for the Jinjishan Plant for total consideration of $3,300,000. The Jinjishan Rights Agreement acknowledged Asian Dragon provided payments totaling US$1,792,593 to August 29, 2007 (inclusive of a payment of US$600,000 toward the Jinjishan Plant) and required further investment by Asian Dragon as follows: (i) US$507,407 by October 1, 2007; (ii) US$500,000 by March 1, 2008; and (iii) US$500,000 by October 1, 2008.
F-6
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
The Company did not make payment of installment one of the Jinjishan commitment to WFEI due October 1, 2007 and was in default as to $507,407toward the Jinjishan Agreement as of the end of the quarter ended November 30, 2007. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
On December 12, 2007, with the mutual consent of WFEI, the Jinjishan Rights Agreement was replaced with the “Jinjishan Agreement” which clarified certain terminology in the predecessor agreements but maintained the same payment terms. This agreement was filed with our Report on Form 10-K as Exhibit 10.1. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Jinjishan Agreement.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and was in default as to a total of $1,007,407 toward the Jinjishan Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement was replaced with the “Jinjishan (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $1,499,407 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.1.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and is in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
Loning Property
The Loning License consists of an Exploration License on a 9.1 sq km property located in the Xiaoqinling Region, China, and is three km southwest of the Jinjishan License.
Asian Dragon entered into an agreement (the “Loning Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 70% interest in the Loning License (the “Loning Rights”). Under the Loning Rights Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the Loning License.
WFEI does not own the exploration license referenced in the Loning Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Henan Yunfeng Resource of Mining Development Co. (“Yunfeng”) for the Loning Rights. However, Yunfeng does not own the Loning License, but has entered into a purchase agreement with a third
F-7
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
party for the Loning License. WFEI has represented, pursuant to the Loning Rights Agreement, that once it has acquired clear title to the Loning Rights from Yunfeng, it will assign those rights to Asian Dragon and that the rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Loning Rights, it will have the right and authority to transfer those rights to Asian Dragon.
Asian Dragon is not a party to the agreement between WFEI and Yunfeng. Nor is it a party to the agreement between Yunfeng and the party that previously owned the Loning Rights and may have little or no recourse on Yunfeng or the party from whom Yunfeng purchased the rights, in the event that the Loning Rights Agreement, or subsequent agreements between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Loning Rights Agreement.
The Loning Rights Agreement required total payments by Asian Dragon of $1,510,000, of which $1,000,000 was to be expended by Asian Dragon for exploration purposes. The Loning Rights Agreement acknowledged Asian Dragon has provided payments totaling US$400,000 to August 29, 2007 and required further investment by Asian Dragon as follows: (i) US$110,000 by March 1, 2008; (ii) US$500,000 by September 30, 2008; and (iii) US$500,000 by September 30, 2009.
On August 29, 2007the Company made a payment of $27,454 to WFEI toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Yunfeng.
On December 12, 2007, with the mutual consent of WFEI, the Loning Rights Agreement was replaced with the “Loning Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. This agreement was filed with our Report on Form 10-K as Exhibits 10.2. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments respectively under the Loning Agreement.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Loning Agreement was replaced with the “Loning (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $1,076,822 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.2. As of April 14, 2008, Asian Dragon was in default as to a total of $82,546 toward the Loning (Revised) Agreement.
F-8
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
The MZG License consists of an Exploration License on a 14.09 sq km property located in the Jiaohe Village of Luanchuan County, Henan Province, China. The JSP License consists of an Exploration License on an 8.3 sq km property located in the area of Wenguxiang to Dashihe in Lushi County, Henan Province, China. The FGLW License consists of a 1.75 sq km exploration license located approximately 240 km west of Zhengzhou and 80 km west of Luoyang. The XWG License consists of a 2.13 sq km exploration license located in the area of Xiayu, Henan Province, China. (Collectively, these licenses are hereafter referenced as the “Fuding Properties”).
Asian Dragon entered into an agreement (the “Fuding Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 51% interest in the Fuding Properties (the “Fuding Rights”). Under the Fuding Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the various rights and interests.
WFEI does not own the interests referenced in the Fuding Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoning Fuding Mining Development, Ltd. (“Fuding”) for those interests. However, Fuding does not own the rights, but has entered into purchase agreements for the Fuding Properties with other third parties. WFEI has represented, pursuant to the Fuding Rights Agreement that once it has clear title to the Fuding Rights from Fuding it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Fuding Rights, it will have the right and authority to transfer those rights to Asian Dragon.
Asian Dragon is not a party to the agreement between WFEI and Fuding. Nor is it a party to the agreements between Fuding and the third parties who previously owned the Fuding Rights and may have little or no recourse on Fuding, or the other third parties with whom Funding has entered into purchase agreements, in the event that the Fuding Rights Agreement, or subsequent agreements between WFEI and Asian Dragon do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Fuding Rights Agreement.
The Fuding Agreement required total consideration of $10,000,000. The Fuding Rights Agreement acknowledged Asian Dragon provided an initial payment of $2,730,000 and required further payments as follows: $1,270,000 on October 1, 2007; $2,000,000 before March 1, 2008; $2,000,000 on June 1, 2008; and $2,000,000 on October 1, 2008.
F-9
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
On August 29, 2007 and September 14, 2007the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1, 2007. As such, the Company was in default as to $297,454 regarding the Fuding Agreement at the end of the quarter ended November 30, 2007. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment
schedule to accommodate this default. No damages were claimed by WFEI or Fuding. During the quarter ended February 29, 2008, on January 14, 2008the Company completed payment of the remaining $297,454 regarding Fuding installment one.
On December 12, 2007, with the mutual consent of WFEI, the Fuding Rights Agreement was replaced with the “Fuding Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. This agreement was filed with our Report on Form 10-K as Exhibits 10.3. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Fuding Agreement.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and was in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Fuding Agreement was replaced with the “Fuding (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $7,103,178 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.3. As of April 14, 2008, Asian Dragon was in default as to a total of $1,897,454 toward the Fuding (Revised) Agreement.
NOTE 4 – Commitments and Contingencies
Exploration License Transfers Contingencies
The Company has secured an attorney’s review of the agreements which transfer the Exploration Licenses of which it is in the process of acquiring, and to the best of its knowledge, all of these Agreements are in good standing. However, the Exploration Licenses may be subject to prior unregistered agreements or transfers and title may be affected by undetected defects. There may be valid challenges to the title of the Company’s Exploration Licenses, once acquired, which, if successful, could impair development and/or operations. The Company cannot give any assurance that title to its Exploration Licenses will not be challenged.
F-10
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
In addition the Company is relying on a series of agreements between Chinese companies and entities to ultimately transfer title of the Exploration Licenses to the Company. While the Company has relied on opinions provided by Chinese counsel and to the best of its knowledge these agreements will effectively transfer title, the agreements and the transfer may be affected by undetected defects and the Company cannot give any assurance that the transfer of title to the Company will not be challenged.
If a material defect in the transfer of any Exploration Licenses for which the Company is currently in the process of acquiring were to occur, the Company may in the future be required to record an impairment to any future capitalized amounts it had recorded relating to its Exploration Licenses or exploration activities. Such would not be the case at present however, because the Company has not yet capitalized any amounts with respect to its exploration activities.
License Issuance Contingencies
In China, two levels of government primarily deal with the approval of the establishment of a foreign-invested joint venture in mineral exploration and mining (“Mining JV”): the central and the local (e.g., provincial or municipal). China’s Ministry of Commerce (“MOFCOM”) is the central-government-level ministry in charge of reviewing and approving the establishment of Mining JVs. Applications must be submitted to MOFCOM’s local-level counterparts for upward submission to MOFCOM. However, in practice, many provincial bureaus of commerce, such as those in Henan Province, claim final approval authority and do not forward applications to MOFCOM. To our knowledge, MOFCOM is aware of this practice but has not taken any steps to intervene or take action against Mining JVs which have been approved only at the provincial level.
Once MOFCOM or its authorized local counterpart has issued its approval documents, the Chinese partners to the joint venture then apply to China’s State Administration of Industry and Commerce or its authorized local counterpart for a business license. The issuance of the business license marks the legal establishment of a Mining JV and confirms the permitted scope of the Mining JV’s activities. The business license is subject to annual review and renewal and is subject to the risk of non-renewal. To date all Joint Venture business licenses have been issued to the Mining JVs formed by WFEI and its Chinese partners.
The Ministry of Land and Resources (“MOLAR”) is the central-government-level ministry in charge of exploration and mining licenses. Generally speaking, MOLAR holds the final authority to issue exploration and mining licenses to Mining JVs; however, for projects in Henan province, it has delegated this authority to the respective provincial-level bureaus of land and resources in those provinces, for the Company’s current purposes, the Gold Bureau in particular. To date, all exploration licenses which have been granted regarding properties for which Asian Dragon has entered purchase agreements have been issued at the local-level. This raises the contingency that MOLAR may deem these licenses lack validity, or require further applications be submitted to it regarding these properties.
Once the Company has performed sufficient work on a property to determine that it has value it must develop and submit a Development Report to the Chinese Government. This report forms a part of the application for a mining permit. There is no assurance that any applicant will be granted a mining license and therefore this represents a contingency risk for the Company’s future operations.
F-11
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
Financial Commitments
The Company’s remaining commitments under its Agreements referenced in NOTE 3 are as follows:
(1) The Company did not make payment of installment one of the Jinjishan commitment during the quarter ended November 30, 2007 and as at November 30, 2007 was in default regarding the Jinjishan Agreement as to $507,407.
(Continued)
F-12
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
PART ONE – Monetary Commitments (continued):
(2) Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment and is currently in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement.
(3) On August 29, 2007the Company made a payment of $27,454 toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is in default as to $82,546 toward the Loning (Revised) Agreement.
(4) The final two payments included in the Loning Agreement of $500,000 are not due to WFEI, but are instead agreed to be spent by ADG for exploration expenses to develop the Loning Property.
(5) On August 29, 2007 and September 14, 2007the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1, 2007. As such, the Company was in default as to $297,454 regarding the Fuding Agreement as of the quarter ended November 30, 2007. During the quarter ended February 29, 2008, on January
14, 2008the Company completed payment of the remaining $297,454 regarding Fuding installment one.
(6) During the quarter ended February 29, 2008, on January 14, 2008the Company made a payment of $102,546 toward Fuding installment two. Subsequent to February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and is in default as to $1,897,454 toward the Fuding (Revised) Agreement.
NOTE 5 – Shareholder Loan
At February 29, 2008, the Company had one shareholder loan outstanding from a related party of $189,582, which included $4,679 of accrued interest for the six month period. This loan is uncollateralized and has no fixed repayment dates. During the six months ending February 29, 2008 a repayment of $52,937 was made toward this shareholder loan.
NOTE 6 – Related Party Transactions
During the six months ending February 29, 2008 related party transactions include: (i) Note 5 shareholder loan activity; (ii) payment of $20,000 in legal fees to Karlsson Law Corporation, of which our CEO is principal; (iii) the provision of office facilities by our CEO for no charge; and (iv) the payment of a $75,000 payable to our CEO for consulting fees recorded in fiscal 2007. Additionally, one of our independent directors visited our exploration sites in China on a geological consulting basis for which he received fees of $32,805 and reimbursement for expenses of $14,401.
F-13
ASIAN DRAGON GROUP INC. (an Exploration Stage Company)
Notes to Financial Statements
NOTE 7 – Common Stock
At August 31, 2007 a $1,000,000 subscription receivable was recorded regarding a private placement completed during fiscal 2007. This was collected in full on September 13, 2007.
On January 14, 2008, the Company completed a private placement sale of 500,000 shares of its common stock at $0.80 per share for aggregate proceeds of $400,000.
NOTE 8 – Subsequent Events
Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Jinjishan Agreement installment payments and was in default as to $1,007,407. A discussion was held with WFEI and LCUML and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or LCUML.
Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Loning Agreement installment one payment and was in default as to $82,546. A discussion was held with WFEI and Yunfeng and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or Yunfeng.
Subsequent to the February 29, 2008 quarter end, the Company did not fulfill its Fuding Agreement installment two payment and was in default as to $1,897,454. A discussion was held with WFEI and Fuding and WFEI agreed to extend the payment schedule. No damages were claimed by WFEI or Fuding.
Subsequent to the February 29, 2008 quarter end, on March 14, 2008 Mr. Daniel Hachey resigned as a member of the board of directors of the Company for personal reasons and there was no disagreement with the Company relating to its operations, policies or practices.
Subsequent to the February 29, 2008 quarter end, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement, Loning Agreement, and Fuding Agreement were replaced with the “Jinjishan (Revised) Agreement”, “Loning (Revised) Agreement”, and “Fuding (Revised) Agreement”, respectively. In these revised agreements, WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, which had been recorded as a total of $9,679,407 at August 31, 2007.
Although the three revised contracts referenced in the paragraph above were executed subsequent to the quarter ended February 29, 2008, management elected to record the effect of the cancellation of debt relating to the commitments in these financial statements for the period ended February 29, 2008.
F-14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Certain information included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934. These sections provide that the safe harbor for forward looking statements does not apply to statements made in initial public offerings. The words, such as "may,""would,""could,""anticipate,""estimate,""plans,""potential,""projects,""continuing,""ongoing,""expects,""believe,""intend" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding intent, belief or current expectations of the
Company, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) continued development of business opportunities; (iv) market and other trends affecting our future financial condition; (v) our growth and operating strategy. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) we have incurred significant losses since our inception; (ii) any material inability to successfully develop our business plans; (iii) any adverse effect or limitations caused by government regulations; (iv) any adverse effect on our ability to obtain acceptable
financing; (v) competitive factors; and (vi) other risks including those identified in our other filings with the Securities and Exchange Commission.
General
Asian Dragon was established to develop projects which focus on China’s growing precious and base metals reserves and markets.
When ADG closed its Romanian operating subsidiary in 2006 it became required under generally accepted accounting principles (“GAAP”) to set the exploration period of the Company to a start date of August 15, 2006, the date of the dissolution of the subsidiary. The following discussion and analysis covers material changes in the financial condition of Asian Dragon for the three and six month periods ended February 29, 2008 (“QII-08”), the three and six month periods ended February 28, 2007 (“QII-07”), and the period from August 15, 2006 to February 29, 2008 (the “Exploration Stage”) without the inclusion of
its terminated subsidiary Galaxy Telnet SRL.
Background
Asian Dragon Group Inc. (“Asian Dragon”, “ADG”, “we”, the “Registrant”, or the “Company”) was incorporated in Nevada on June 11, 2003 and on August 10, 2006 filed Articles of Amendment with the Nevada Secretary of State to change its name to Asian Dragon Group Inc.
On August 15, 2003, ADG acquired Galaxy Telnet S.R.L. (“Galaxy Telnet”) a company incorporated under the laws of Romania which had a sole shareholder. Before the acquisition of Galaxy Telnet, we did not conduct business.
The Company’s common stock is traded in the NASD Over-The-Counter market under the symbol “AADG” and the Company is also listed on the Frankfurt Stock Exchange under the trading symbol “P2J1”.
Our fiscal year end is August 31st.
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Business Development
Asian Dragon has developed it business by using World Fortune Enterprise Inc. (“WFEI”) as its Agent. The nature of the business arrangement between Asian Dragon and WFEI is based upon: (i) WFEI acting as Asian Dragon’s Agent in China to source exploration opportunities; (ii) WFEI executing contracts with partners in China which provide access to certain exploration opportunities based upon certain payment schedules; and (iii) WFEI entering agreements with Asian Dragon to sell to Asian Dragon, based on certain payment schedules, the exploration licenses which WFEI has contracted to acquire. Under its current agreements, Asian Dragon has no recourse on WFEI in the event that WFEI were to fail to meet its contractual obligations to flow funds WFEI receives from Asian Dragon through to WFEI’s Chinese Partners, or if WFEI were to fail to meet any other non-monetary
obligations.
At present Asian Dragon has not acquired any of the Exploration Licenses which are referenced in its agreements. Such acquisitions will occur upon Asian Dragon completing all payments under its agreements with WFEI; and WFEI fulfilling all requirements under WFEI’s agreements with it Chinese Partners.
Exploration Licenses
General
We note the Company has acquired along with certain licenses infrastructure including buildings and a formerly operating concentration mill. This entire infrastructure, without exception, has no value from an accounting or operational perspective due to its age and state of repair.
At present the Exploration Licenses described below have no carrying value for accounting purposes because Asian Dragon does not yet have full title to each. The information which follows is meant to provide the reader of this Report with full information regarding the Company’s initiatives.
Jinjishan Property and Concentration Plant
The Jinjishan License consists of an Exploration License on a contiguous 28.3 sq km property located in the Northwest part of the Luoning County, Henan Province, China, in the Changshui community. The Jinjishan Plant is located in the same area and we note that this formerly operating plant, and other infrastructure and buildings acquired in each of our Exploration License purchases to date entirely, and without exception, have no value from an accounting or operational perspective due to age and state of repair.
Asian Dragon entered into an agreement (the “Jinjishan Rights Agreement”) with World Fortune Enterprise, Inc. (“WFEI”) effective August 29, 2007, to acquire a 70% interest in The Jinjishan License (the “Jinjishan Rights”) and a 100% interest in the Jinjishan Plant (collectively the “Jinjishan Interests”). Under the Jinjishan Rights Agreement Asian Dragon assumed the payment responsibilities of WFEI for the Jinjishan Interests.
WFEI does not own the exploration license referenced in the Jinjishan Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoyang Canadian United Mining Ltd. (“LCUML”) for the Jinjishan Interests. LCUML owns the rights for the Jinjishan Interests and WFEI has represented, pursuant to the Jinjishan Rights Agreement, that once WFEI has acquired clear title to the Jinjishan Interests from LCUML it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it acquires clear title to the Jinjishan Interests, it will have the right and authority to transfer those rights to Asian Dragon.
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Asian Dragon is not a party to the agreement between WFEI and LCUML. Nor is it a party to the agreement between LCUML and the party that previously owned the rights to the Jinjishan Interests and may have little or no recourse on LCUML, or the party from whom LCUML purchased the rights, in the event that the Jinjishan Rights Agreement, or subsequent agreements between WFEI and Asian Dragon do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Jinjishan Rights Agreement.
The terms of the Jinjishan Rights Agreement required payments of $2,500,000 for the Jinjishan License and $800,000 for the Jinjishan Plant, for total consideration of $3,300,000. The Jinjishan Rights Agreement acknowledged Asian Dragon provided payments totaling US$1,792,593 to August 29, 2007 (inclusive of a payment of US$600,000 toward the Jinjishan Plant) and required further investment by Asian Dragon as follows: (i) US$507,407 by October 1, 2007; (ii) US$500,000 by March 1, 2008; and (iii) US$500,000 by October 1, 2008.
The Company did not make payment of installment one of the Jinjishan commitment to WFEI due October 1, 2007 and was in default as to $507,407toward the Jinjishan Agreement as of the end of the quarter ended November 30, 2007. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
On December 12, 2007, with the mutual consent of WFEI, the Jinjishan Rights Agreement was replaced with the “Jinjishan Agreement” which clarified certain terminology in the predecessor agreements. This agreement was filed with our Report on Form 10-K as Exhibit 10.1. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Jinjishan Agreement.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and was in default as to a total of $1,007,407 toward the Jinjishan Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement was replaced with the “Jinjishan (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $1,499,407 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.1.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not make payment of the $500,000 installment two of the Jinjishan commitment to WFEI which was due March 1, 2008 and is in default as to a total of $1,007,407 toward the Jinjishan (Revised) Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
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Loning Property
The Loning License consists of an Exploration License on a 9.1 sq km property located in the Xiaoqinling Region, China, and is three km southwest of the Jinjishan License. Asian Dragon entered into an agreement (the “Loning Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 70% interest in the Loning License (the “Loning Rights”). Under the Loning Rights Agreement, Asian Dragon assumed the payment responsibilities of WFEI for the Loning License.
WFEI does not own the exploration license referenced in the Loning Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Henan Yunfeng Resource of Mining Development Co. (“Yunfeng”) for the Loning Rights. However, Yunfeng does not own the Loning License, but has entered into a purchase agreement with a third party for the Loning License. WFEI has represented, pursuant to the Loning Rights Agreement, that once it has acquired clear title to the Loning Rights from Yunfeng, it will assign those rights to Asian Dragon and that the rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Loning Rights, it will have the right and authority to transfer those rights
to Asian Dragon.
Asian Dragon is not a party to the agreement between WFEI and Yunfeng. Nor is it a party to the agreement between Yunfeng and the party that previously owned the Loning Rights and may have little or no recourse on Yunfeng or the party from whom Yunfeng purchased the rights, in the event that the Loning Rights Agreement, or subsequent agreements between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Loning Rights Agreement.
The Loning Rights Agreement required total payments by Asian Dragon of $1,510,000, of which $1,000,000 is to be expended by Asian Dragon for exploration purposes. The Loning Rights Agreement acknowledged Asian Dragon has provided payments totaling US$400,000 to August 29, 2007 and required further investment by Asian Dragon as follows: (i) US$110,000 by March 1, 2008; (ii) US$500,000 by September 30, 2008; and (iii) US$500,000 by September 30, 2009.
On August 29, 2007the Company made a payment of $27,454 to WFEI toward Loning commitment installment one which was due October 1, 2007. Subsequently the Company has not completed full payment of installment one and is currently in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Yunfeng.
On December 12, 2007, with the mutual consent of WFEI, the Loning Rights Agreement was replaced with the “Loning Agreement” which clarified certain terminology in the predecessor agreements. This agreement was filed with our Report on Form 10-K as Exhibits 10.2. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments respectively under the Loning Agreement.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Loning Agreement was replaced with the “Loning (Revised) Agreement” in which WFEI provided Asian Dragon
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with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $1,076,822 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.2. As of April 14, 2008, Asian Dragon was in default as to a total of $82,546 toward the Loning (Revised) Agreement.
The MZG License consists of an Exploration License on a 14.09 sq km property located in the Jiaohe Village of Luanchuan County, Henan Province, China. The JSP License consists of an Exploration License on an 8.3 sq km property located in the area of Wenguxiang to Dashihe in Lushi County, Henan Province, China. The FGLW License consists of a 1.75 sq km exploration license located approximately 240 km west of Zhengzhou and 80 km west of Luoyang. The XWG License consists of a 2.13 sq km exploration license located in the area of Xiayu, Henan Province, China. (Collectively, these licenses are hereafter referenced as the “Fuding Properties”).
Asian Dragon entered into an agreement (the “Fuding Rights Agreement”) with WFEI effective August 29, 2007, to acquire a 51% interest in the Fuding Properties (the “Fuding Rights”). Under the Fuding Agreement, Asian Dragon will assume the payment responsibilities of WFEI for the various rights and interests.
WFEI does not own the interests referenced in the Fuding Rights Agreement with Asian Dragon. Rather, WFEI has an agreement with Luoning Fuding Mining Development, Ltd. (“Fuding”) for those interests. However, Fuding does not own the rights, but has entered into purchase agreements for the Fuding Properties with other third parties. WFEI has represented, pursuant to the Fuding Rights Agreement, that once it has clear title to the Fuding Rights from Fuding it will assign the rights to Asian Dragon and that those rights will be free and clear of all transfer, assignment, liens, charges, or encumbrances of any kind. WFEI has also represented that when it has clear title to the Fuding Rights, it will have the right and authority to transfer those rights to Asian Dragon.
Asian Dragon is not a party to the agreement between WFEI and Fuding. Nor is it a party to the agreements between Fuding and the third parties who previously owned the Fuding Rights and may have little or no recourse on Fuding, or the other third parties with whom Funding has entered into purchase agreements, in the event that the Fuding Rights Agreement, or subsequent agreements between WFEI and Asian Dragon, do not comply with the agreements between these third parties. However, Asian Dragon has received an attorney’s letter stating that these third party agreements are valid. Transfer of any rights in any of the above agreements will not be complete until all payments are completed.
Asian Dragon issued 250,000 shares of its common stock to WFEI on August 29, 2007 and an additional 1,000,000 shares to WFEI nominees in regards to the Fuding Rights Agreement.
The Fuding Agreement required total consideration of $10,000,000. The Fuding Rights Agreement acknowledged Asian Dragon provided an initial payment of $2,730,000 and required further payments as follows: $1,270,000 on October 1, 2007; $2,000,000 before March 1, 2008; $2,000,000 on June 1, 2008; and $2,000,000 on October 1, 2008.
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On August 29, 2007 and September 14, 2007the Company made payments of $172,546 and $800,000 respectively toward Fuding commitment installment one which was due October 1, 2007. These payments totaled $972,546 and were not sufficient to meet the full amount of Fuding commitment installment one prior to October 1, 2007. As such, the Company was in default as to $297,454 regarding the Fuding Agreement at the end of the quarter ended November 30, 2007. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment
schedule to accommodate this default. No damages were claimed by WFEI or Fuding. During the quarter ended February 29, 2008, on January 14, 2008the Company completed payment of the remaining $297,454 regarding Fuding installment one.
On December 12, 2007, with the mutual consent of WFEI, the Fuding Rights Agreement was replaced with the “Fuding Agreement” which clarified certain terminology in the predecessor agreements, but maintained the same payment terms. This agreement was filed with our Report on Form 10-K as Exhibits 10.3. WFEI provided Asian Dragon with an undertaking that it extinguished all rights to any payments under the predecessor agreements and has acknowledged that it recorded all cash and share payments made under the predecessor agreements as payments under the Fuding Agreement.
Subsequent to the end of the quarter ended February 29, 2008, the Company did not complete full payment of installment two of the Fuding commitment prior to the deadline on March 1, 2008 and was currently in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding.
Subsequent to the end of the quarter ended February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Fuding Agreement was replaced with the “Fuding (Revised) Agreement” in which WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, recorded as a total of $7,103,178 at August 31, 2007. This agreement is attached to this Form 10-Q as Exhibit 10.3. As of April 14, 2008, Asian Dragon was in default as to a total of $1,897,454 toward the Fuding (Revised) Agreement.
Property Descriptions
Jinjishan Property
The Jinjishan Property is an exploration property located in the Luoning County, Henan Province, People’s Republic of China. The exploration property consists of contiguous 28.3 sq kmExploration License located in the northwest part of Luoning County. More precisely it is located in the west part of the Henan Province and in the northwest part of the Luoning County and in the Changshui community. The closest important city is Luoning. Luoning is situated at about 1300 km WNW of Shanghai, 1300 km SSW of Beijing, 270 km west of Zhengzhou the provincial capital and 130 km west of Luoyang, the Prefecture of the Luoning County. Access to the Jinjishan Property is provided on a 120 km large paved road which runs southwesterly to the city of Luoning. From Luoning, a paved road leads southwesterly to the town of Changshui and from that locality a recently paved road leads northwesterly to the Jinjishan village and then to the Jinjishan site. The distance from
Changshui to the property is approximately 10 km. This road also links Luoning to Lushi, another important city to the southwest. In Chinese, Jinjishan means the Golden Pheasant Mountain.
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Loning Property
The Loning Property consists of a 9.1 sq km Exploration License and is located 2 km Southwest of Asian Dragon's Jinjishan Property with easy access via the paved highway that runs East/West of the North side of Luoning County.
Fuding Properties:
Luanchuan Mozigou (MZG) Molybdenum Property
The Luanchuan Mozigou Molybdenum Property (“MZG”) is located in Jiaohe Village of Luanchuan County, Henan Province, China. MZG contains an Exploration License comprised of 14.09 sq km with a 4 sq km aspect of the property running the same northwest-southeast trend as China Molybdenum, all aspects of this ore body trend which extend over a 60 km “saddle” bordering Luanchuan and Lushi County.
Lushi Jiashapa (JSP) Vanadium Property
The Lushi Jiashapa Vanadium Property (“JSP”) is located in the area of Wenguxiang to Dashihe of Lushi County, Henan Province, China. JSP contains an Exploration License comprised of 8.3 sq km with an approximate 1 km wide by 8 km long covered east-west trend ore body which extends over a 42 km area that sometimes widens up to 3 km.
The Luoning Xiayu Fanggelewan Property (“FGLW”) is located in the area of Xiayu, Henan Province, China. FGLW holds an Exploration License on an area of 1.75 sq km covering a series of long veins in a northeast-southwest trend. The property is located approximately 240 km west of Zhengzhou, the provincial capital, and 80 km west of Luoyang, the Prefecture of Luoning County.
Xiaowagou (XWG) Silver-Lead Property
The Xiaowagou Silver Lead Property ("XWG") is located in the area of Xiayu, Henan Province, China. XWG holds a 2.13 sq km Exploration License. The property is located approximately 240 km west of Zhengzhou, the provincial capital, and 80 km west of Luoyang, the prefecture of Luoning County.
Information about Henan Province
Topography
Henan Province is in the transitional area between the second and third steps of China’s fourstep terrain rising from east to west, with rolling mountains over 1000 metres above sea level in its western and plain areas and 100 metres or lower in its eastern region. Mountainous regions comprise 44.3 percent of its total area, and the plains, 55.7 percent. The highest summit of the Henan Province is the Laoyacha mountain (2413.8m) in Lingbao City. The province’s lowest point is 23.2m and is found at the point where the Huaihe River leaves the province. Henan Province is surrounded by four mountain ranges: the Taihang, Funiu, Tongbai and Dabie, which stand in its north, west and south areas, leaving subsidence basins in the intermittent area. In its middle and eastern parts there is a vast fluvial plain created by the Yellow, Huaihe and Huo He rivers.
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Four rivers run across Henan, the Yellow River, Huo He River, Weihe River and Hanshui River, with the Huo He River valley covering up to 53 percent of the province. The southwestern portion is part of the Yangtze River Basin that flows to the west to the Yellow Sea. There are no significant lakes. In the project area, the relief north of the Luo He (Blue river) basin is hilly and shows relatively deep valleys running northwest with an elevation gradient reaching 200m. The highest summit of the region is the Quanbao Shan culminating at 2080 metres.
Infrastructure
Because the population of Henan exceeds 92.5 million (2000 census), the province requires good infrastructure and has strict laws concerning soil occupation (agriculture) and urbanization extensions. Road, railway and telecommunication networks are well developed in this area.
Major road ways in Henan include the Kaifeng-Luoyang Expressway, the Zhengzhou-Luoyang Expressway, the Anyang-Xinxiang Expressway, the Xuchang-Luohe Expressway, the Luoyang-Sanmenxia Expressway and the Sanmenxia-Lingbao Expressway. This last section is part of China’s longest expressway linking Lianyungang (Jiangsu Province) in the east, with Horgos (Xinjiang Region) to the northwest. This provides a connection to neighboring Shaanxi. Most of these expressways have toll gates but the cost for traveling is reasonable. Zhengzhou is a major rail transport centre in China, as well as the location of the main railway manufacturers. The Beijing-Guangzhou line, the Jiaozuo-Zhicheng line and the Beijing-Kowloon railways cross the province from north to south.
Other railways include the Lanzhou-Lianyungang, the Jiaozuo-Xinxiang-Heze and the Mengmiao-Baofeng/Luohe-Fuyang lines run through Henan from west to east. The Euro-Asia Land Bridge (Lianyungang to Rotterdam) also passes through the city. Traffic is heavy on these railways with the circulation of numerous passenger trains but also with considerable number of trains transporting coal between the Henan collieries and the numerous thermal power plants. With rich coal resources, Henan acts as a centre for thermal power generation in China. In 1999, the installed generating capacity in Henan reached 14.8MWh, ranking the ninth in the country. Power stations have been constructed at major cities in Zhengzhou, Kaifeng, Luoyang, Pingdingshan, Anyang, Hebi, Xinxiang, Jiaozuo and Sanmenxia. Major river transport is also easily accessible. Henan has airports in Zhengzhou, Luoyang and Nanyang and international flight services are available at Zhengzhou. Chartered flights to Hong
Kong and Macau are also available.
Three of the nation’s first-class optical cables and three microwave trunk lines run through the province, making it possible for Henan to have automatic long-distance transmission, digital long-distance routes and program-controlled telephone switchboards throughout the province. Its telephone exchange capacity has reached 11.2 million circuits, with 9.38 million telephone users, 3.11 million mobile phone users and 1.1 million Internet users. Telecommunications services are growing rapidly. As of March 31, 2001, there were 1.7 million subscribers for mobile phone services, ranked ninth in the country. Recently, Henan has opened a new broadband IP network that is among the largest in China. Cellular phone communications are available in the most remote areas of the Province. The Jinjishan mining property is covered by the cellular phone network.
Henan has water reserves of 4.84 Mkw, of which 3.23 Mkw can be exploited. By the end of 2000, there were 2394 reservoirs in the province and 4.6 Mha of land were irrigated. In the Jinjishan area, water supply and sewage system, electric service for residential and industrial use supply are presently available on site. Manpower can easily be found in the area. Luoning, only 40 km from the property, is large enough and with sufficient industry to have machine and repair shops capable of major repairs.
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Climate
Located between the northern sub-tropical zone and warm temperate zone, Henan Province has four distinctive seasons with complicated weather conditions. Luoning is situated in the middle of a WSW trending valley in north-central China which has an elevation of 300-1000 metres. Because it is surrounded by loess plains, and upland areas and mountains exceeding 4000 metres to the south, the climate is dominated by long intervals of light winds which tend to result in hazy and rather dry atmospheric conditions. The climate is, on average, about 5°C warmer than Beijing and slightly drier. January is the coldest time of year with temperatures in the city dropping to - 5°C at night and rising only + 5°C during the day. July is the hottest month with average temperatures of 27°C and a range of 22° -33°C during the day. Luoning receives approximately 58 cm of precipitation per year, with July through September being the wettest period receiving nearly 30 cm of rain during
this period. The period December through January is quite dry receiving a total of 2.3 cm of precipitation during this period. As a result of its climate, travelers to Luoning have a reduced risk of contracting malaria, cholera, Japanese encephalitis or other diseases which may be common in coastal regions.
Population and Services
Henan Province covers an area of 16,700 sq km and during the last census (2000), the population was estimated to be 92.5 million. It has a large population with only a moderate land area. As a consequence, the population density is relatively high, with 554 people per sq km. The provincial capital is Zhengzhou (pop. 6.3 million). Major centres are Nanyang (pop. 10.5 million), Luoyang (pop. 6.1 million), Xinxiang (pop. 5.3 million), Jiaozuo (pop. 3.2 million) and Keifeng (pop. 4.6 million). The region is rich in land resources, in mineral resources, in plant and animal resources, but much of the resources per capita are lower than China’s average. The eastern part of the province is a major grain and cotton producer. Other agricultural products include corn, soya bean, beans, canola, potatoes and peanuts. Specialties include Lingbao dates, Huiyang day lilies and common carp.
Major industries include food processing, coal, metallurgy, machinery, chemicals, petroleum refining, building materials, textiles and electronics. Zhengzhou is a major distribution centre in central China. It is known for its array of wholesale markets, including agricultural and a building materials wholesale markets. There are many places of interest and historic sites in Henan so tourism resources are also abundant. Well known tourist sites include a number of Shang ruins in or near Zhengzhou, Yin Dynasty ruins (latter part of the Shang era) in Anyang in the northeastern part of the province, the Shaolin Temple in Dengfeng and the White Horse Temple in Luoyang.
Vegetation
Henan is an important producer of the country’s wheat, corn, cotton, tobacco leaves and oil plants. In the project region, the south of the Luohe basin, the forest is clear and mostly composed of pine and deciduous trees.
Regional geology
China is subdivided into a number of geological domains which reflects current modeling of China’s evolution over time. The model is largely based on continental accretion with attendant tectonism and subduction. Movement by the Siberian Plate to the North and the Pacific-Philippines plates to the Southeast were major factors in China’s geological evolution. Henan is located on and near the southern boundary of the North China Domain and the Kunlun-Qinling Domain which represents an easterly trending structural corridor to the south of which lies the South China Domain. The early development of the Kunlun-Qinling Domain was as a shallow elongated basin separating the stable platforms to the North and South. The Variscan tectonic phase saw the final closure of the Qinling-Kunlun basin and was marked
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by weakening and southwards migrating volcanism, but also witnessed the most active phase of acid (granitic) intrusive activity. During the early to middle Mesozoic, volcanism was weak and intrusive activity was generally restricted to the structural breaks and shear zones which defined the margins of basins lying between mountain belts. This magmatism was predominately reflected in the emplacement of associations composed of quartz monzonite, monzogranite, syenite, granodiorite and syenogranite. During the late Mesozoic, volcanism increased and was intense locally as the circum-west Pacific magmatic belt developed. Most of this is represented by a rhyolite-dacite-andesite association together with trachyandesite-trachyte associations and alkali basalt-basaltic andesite associations. A few alkaline basic to ultrabasic rocks are present locally. Syenogranite, monzogranite, quartz monzonite, tonalite and granodiorite was emplaced at this time together locally with high
level (hypabyssal) porphyries. Volcanism continued during the Cenozoic, and a few volcanoes have been active. The Axkol volcano in southern Yutian was active in 1951. These volcanic rocks generally comprise olivine basalt, alkali basalt, pyroxene andesite, picritediabase, quartz monzonite, aegirine-augite-quartz syenite and aegirine-albite granite. Gold mineralization in the Luoning area is hosted within the Kunlun-Qinling Domain or mobile belt.
The Kunlun-Qinling Domain
The parent rocks with Proterozoic sequences in the Qinling-Kunlun mobile belt were largely calc-alkaline volcano-sedimentary rocks. Having commonly undergone moderate to high grade metamorphism, these sequences are now represented by 2-mica amphibole gneisses, amphibolite, granulite, migmatite, marble, and phyllite. Some of these rocks have been dated at 2,820-2,160 Ma (zircon age). Most generally however, metamorphic grade ranges from lower greenschist to upper amphibolite facies and lower greenschist grade metamorphism prevails in some areas, notably in the North Qin Ling Mountains where mica schists were derived from a thick volcano-flysch carbonate formation. The belt is therefore a highly complex melange of juxtaposed stratigraphic units.
The magmatic geology of the mobile belt is also complex with nine magmatic stages and five magmatic belts. Most of the magmas generated were anatectic melts. The earliest sets of rocks included basalt-dacite-rhyolite bimodal associations, basalt-andesite calc-alkaline associations, basalt-rhyolite associations and spilite-quartz keratophyre associations. The middle Proterozoic saw a Sibaoan magmatism culminating in widespread tholeiitic series (basalt-andesite-dacite) volcanism and spilite rhyolite rift volcanism accompanied by calc-alkaline granitic plutonism. Magmatism waned during the late Proterozoic.
The most active period of intrusive and volcanic activity was during the middle to late Paleozoic, when the Qinling-Kunlun Ocean was closing, and thus Caledonian rocks are well developed in the mobile belt. Basalt-andesite-rhyolite, basalt-rhyolite, alkali basalt-trachyte-pseudoleucite phonolite and spilitic volcanic activity characterized most of the belt. Four granitic intrusive belts were active at this time within which the intrusive associations included granodiorite-monzogranite, tonaliteplagiogranite, diorite-tonalite-granodiorite, monzogranite-syenogranite, diorite-tonalite and alkali granite-diabase and syenite, as well as two-feldspar alaskite and Kfeldspar alaskite found locally in the southern part of the belt.
The tectonic history of the Qinling-Kunlun mobile belt is complex and a large part of the reason why magmatism was so widespread and so protracted. The belt is subdivided into four major units which developed at three different periods of times. In addition to this, there are 20 second-order tectonic units. The complexity of this mobile belt is partially attributable to the existence of an earlier fracture zone, the Jinningian Juncture Zone, which formed during the late Proterozoic and along which the Qinling-Kunlun mobile belt
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largely propagated during the late Paleozoic and the north and south China blocks collided. The four major units of the Qinling-Kunlun mobile belt which were active during the Proterozoic are:
1) the southern margin of the North China Plate;
2) the Qinling-Qilian mobile belt;
3) the Paleo-Tethys mobile belt; and,
4) the northern margin of the South China plate.
During the medial Proterozoic, the southern sub-domain of the North China Plate was the northern sub-belt of the Jinningian Juncture. At this time, the northern subdomain of the South China plate bordered the paleo Qinling- Kunlun ocean. The subdomains on the north and south margins were complex structural zones undergoing protracted deformation and containing the remnants of pre-existing paleoblocks.
The sub-domains are now divided into three second-order units on the north margin and eight second-order units on the south which encompass areas of localized uplift as well as localized sedimentary basins.
The Qinling-Qilian mobile belt (subdomain) is traceable for 3,000 km along a northwest trend, and is located in the east-central section of the Qinling-Kunlun structural belt (Figure No 7). To the west it abuts the Altun fracture zone and to the east it merges with the NE-trending Tancheng-Lujiang Fracture Zone. From the late Proterozoic through the Silurian, this belt underwent recurring extension and collision leading to rifting and closure. The Paleo-Tethys Mobile Belt to the south of the Qinling-Qilian mobile belt is a continental margin fold belt which contains a sea trough system of graben and horst structures similar to the Qinling-Qilian mobile belt.
The area is underlain by a series of rocks that are of upper greenschist to amphibolite metamorphic grade. Based on the aforementioned structural hierarchy, it is believed that the Jinjishan area falls into the Qilian-North Qinling Fold System. The fold system is superimposed on the area north of the Qinling-Kunlun Juncture Zone. It is composed of a layered metamorphic basement sequence of mobile-type sediments which, from base to top, is composed of early Proterozoic upper greenschist to upper amphibolite grade geosynclinal metasediments, medial to late Proterozoic arc-basin formations and late Proterozoic to early Cambrian post-orogenic epicontinental formations composed of tillite and carbonate rocks, with localized volcanic strata as well as phosphatic and Mn-bearing rocks. These rocks were deposited in an expanding trough which reached culminated during the medial Ordovician.
The Silurian-Devonian was the main period of closing as NE-directed movement of the South China Block resulted in subduction of the trough area during the Carboniferous. Final closure of the Tethys basin occurred as a west to east scissoring at the end of the Carboniferous.
Gold mineralization
Gold has been mined in China for more than 4,000 years. In the area, mining probably began during the Tang Dynasty (618-907 AD). Local miners exploited visible gold which was present on the weathering surface of veins exposed on the mountain sides. This area was the marketing centre to which the Emperor’s men would be sent to purchase gold from the local miners. Historical artifacts suggest that the largest nuggets were 200-300 grams.
In western Henan Province, Team One of the provincial Ministry of Land and Resources (“MOLAR”) discovered gold mineralization during the 1960’s through general geological mapping and regional geochemical sampling. This revelation directly influenced mineral exploration policy and activities in Henan and Shaanxi Provinces. Although, long recognized as a source for gold, the depletion of easily non visible gold in the Luoning area tended to discourage further activity until the 1960’s when modern exploration commenced with regional scale geological mapping and geochemical sampling programs.
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The Xiao Qinling gold province, located between Tongguan in Shaanxi and Lingbao in Henan province is currently the second largest gold producing area in China. Annual production is about 15 – 23 tonnes Au. The Xiao Qinling area is underlain by gneiss, marble, quartzite, migmatite, and amphibolite of the Late Archean Taihua Group. Indosinian alkalic porphyries and dykes (213 –202 My) and Yanshanian granites are widespread. The Wenyu granite intruded the central part of the gold- rich area, and is exposed over an area of about 20 sq km.
Regional structures are dominated by the E –W-trending, north-dipping, >60-km-long Maxundao deep fault zone (from Tongguan to Lingbao). It was originally a compressional feature, but shows evidence for late extension. A series of large gold deposits, with total resources of 300 – 450 t Au, occur at intersections of second-order WNW – EW striking faults with NE and NW striking faults to the north of the first-order Maxundao fault zone.
From west to east in the Xiao Qinling gold province, gold deposits hosted in rocks of the Taihua Group are concentrated in three goldfields within a 60 x15 km corridor, 2 – 15 km north of the Maxundao fault (the Tongyu and Yanzhihe deposits), Wenyu (the Wenyu, Dongchuang, Sifangou and Yangzhaiyu deposits and Dahu (Dahu and Linghu deposits ) goldfields.
A series of 4 to 20 m wide and >4 km long quartz veins lie within second-order faults. Lesser amounts of gold occur in altered rocks along ductile – brittle shear zones and in breccia bodies. More than 1,200 gold bearing quartz veins have been discovered in this part of the Qinling gold province. Ores are noted to contain pyrite, galena, sphalerite and minor magnetite, scheelite, wolframite, molybdenite, stibnite, pyrrhotite and gold. The gangue minerals comprise quartz, calcite, ankerite, minor rutile, barite, siderite and fluorite. The alteration halos around quartz veins or shear zones comprise mainly quartz, sulphide minerals, white mica and carbonate minerals, with lesser chlorite, epidote and biotite.
A few large gold deposits in areas of Proterozoic basement in the Xiao Qinling area, such as Kangshan, Shanggong and Qiyugou, are controlled by a group of NE striking faults and shear zones, which are the second-order structures to another major E –W striking fault zone. The Shanggong(>30 t Au) and Kangshan (>20 t Au) deposits are located in the 33km-long, NE trending Kangshan – Qiliping ductile – brittle shear, south and parallel to the Huo He valley.
Mineralization is hosted in Mesoproterozoic felsic to intermediate volcanic rocks. The steeply dipping ore bodies are 250 to 750 m long and 1 to 2.8 m wide veins filling brittle structures, lenses in tension gashes, alteration bands along shear zones and brecciated country rock. The ores commonly contain anomalous Ag, Te, and Pb concentrations. Alteration halos around the ore bodies are characterized by a 1 to 3 m wide proximal sulphide –ankerite –muscovite zone, a 1 to 20 m wide pyrite – ankerite – muscovite – chlorite transitional zone and a 50 m wide distal chlorite-calcite zone.
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Map of Locations
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OPERATIONAL DEVELOPMENTS DURING QUARTER TWO
On January 14, 2008, the Company completed a private placement sale of 500,000 shares of its common stock at $0.80 per share for aggregate proceeds of $400,000.
On January 14, 2008, the Company made payments of $297,454 and $102,456 toward installments one and two respectively of its Fuding Agreement commitments for a total payment to Fuding of $400,000.
During the quarter ended February 29, 2008, the Company did not resolve its default of $507,407 on installment one of the Jinjishan Agreement and subsequently, did not meet its installment two payment toward the Jinjishan Agreement which was due March 1, 2008. The Company is now in default as to $1,007,407 toward the Jinjishan Agreement. A discussion was held with WFEI and LCUML regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or LCUML.
Subsequent to February 29, 2008, the Company did not fulfill payment on the balance of installment one of the Loning commitment to WFEI which was due March 1, 2008 and is currently in default as to $82,546 toward the Loning Agreement. A discussion was held with WFEI and Yunfeng regarding this matter and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Yunfeng.
Subsequent February 29, 2008, the Company did not fulfill payment of the balance of installment two of the Fuding commitment to WFEI which was due March 1, 2008 and is currently in default as to $1,897,454 toward the Fuding Agreement. A discussion was held with WFEI and Fuding regarding these defaults and WFEI agreed to extend the payment schedule to accommodate this default. No damages were claimed by WFEI or Fuding.
Subsequent to February 29, 2008 on March 3, 2008, we engaged Madsen & Associates CPA’s Inc. as the Company’s new principal independent accountant and accordingly dismissed Schumacher & Associates, Inc. CPAs that same day. This information was recorded on a Current Report on Form 8-K filed March 8, 2008.
Subsequent February 29, 2008, on March 14, 2008 Mr. Daniel Hachey resigned as a member of the board of directors of the Company for personal reasons and there was no disagreement with the Company relating to its operations, policies or practices. This information was recorded on a Current Report on Form 8-K filed March 18, 2008.
Subsequent to February 29, 2008, on April 14, 2008 with the mutual consent of WFEI, the Jinjishan Agreement, Loning Agreement, and Fuding Agreement were replaced with the “Jinjishan (Revised) Agreement”, “Loning (Revised) Agreement”, and “Fuding (Revised) Agreement”, respectively. In these revised agreements, WFEI provided Asian Dragon with certain indemnifications which allowed a reclassification to $nil of certain short term and long term commitments payable, which had been recorded as a total of $9,679,407 at August 31, 2007. As of April 14, 2008, the Company had not resolved the defaults carried forward from its predecessor agreements which are noted above.
ADG did not earn revenues during the periods included in the financial statements in this report.
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Expenses
Our operating expenses are classified into seven categories:
- Exploration Licenses
- Exploration Expenses
- Agent Fees
- Professional and Consultant Fees
- Stock Based Compensation – officers and directors
- Investor Relations
- Administrative Expenses
Exploration Licenses
Expenditures recorded for Exploration Licenses were $400,000 and $1,200,000 respectively for the three and six month periods ended February 29, 2008 compared to $2,000,000 and $3,000,000 for the comparable periods ending February 28, 2007. For the Exploration Stage, costs for Exploration Licenses totaled $21,860,001. These costs included cash payments made to World Fortune Enterprises Inc. (“WFEI”), and WFEI and its nominees in the case of share based payments, toward the purchase of exploration licenses for certain properties in China described in Notes 3 and 4 of the financial statements included in this Report. We anticipate these expenses will increase over the next twelve months as we implement our business plans.
We also note that within the area of expected exploration there is infrastructure including buildings and a formerly operating concentration mill. This entire infrastructure, without exception, has no value from an accounting or operational perspective due to its age and state of repair.
Exploration Expenses
Exploration Expenses were $nil and $nil respectively for the three and six month periods ended February 29, 2008 versus $13,000 and $26,733 for the comparable periods ended February 28, 2007. Expenses for the Exploration Stage totaled $50,215. We anticipate these expenses will increase during the next twelve months.
Agent Fees
Agent Fees were $30,000 and $30,000 respectively for the three and six month periods ended February 29, 2008 versus $30,000 and $30,000 for the comparable prior year periods. Agent Fees for the Exploration Stage totaled $1,852,500, which are composed of cash payments of $90,000 and stock issuances expensed as $1,762,500. These payments were made to WFEI for the sourcing of exploration property opportunities in China. We anticipate these expenses will increase over the next twelve months as we implement plans to acquire further exploration properties.
Professional and Consultant Fees
Professional & Consultant Fees are comprised of consulting fees charged by our CEO and directors and fees for accounting, audit, legal and other professionals. During the three and six month periods ended February 29, 2008, these fees were $77,319 and $138,624 respectively versus $39,532 and 40,861 for the comparable prior year periods. For the Exploration Stage, these costs totaled $411,038. We anticipate Professional & Consultant Fees will increase moderately in the upcoming twelve months as we implement our business plans.
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Stock Based Compensation – officers and directors
Stock Based Compensation expenses totaled $nil and $nil for the three and six month periods ended February 29, 2008 versus $nil and $nil for the comparable prior year periods. During the Exploration Stage these costs totaled $6,975,491. Past expenses have related to stock and option issuances to our officers and directors. We anticipate incurring significant stock based compensation expenses during the remaining six months of fiscal 2008 regarding the appointment of new directors.
Investor Relations
Investor Relations expenses comprise costs for press releases, maintenance of the Company’s website and other investor information initiatives. During the three and six month periods ended February 29, 2008, these expenses totaled $nil and $57,708 versus $25,001 and $25,001 for the comparable prior year periods. For the Exploration Stage, Investor Relations expenses totaled $131,111. We anticipate Investor Relations expenses will increase substantially during the next twelve months as we continue our efforts to raise further capital and keep current investors informed of Company developments.
Administrative Expenses
Administrative Expenses were $16,909 and $33,403 for the three and six month periods ended February 29, 2008 versus $17,620 and $64,243 for the comparable prior year periods. For the Exploration Stage, Administrative Expenses totaled $144,789. These expenses are composed of travel, Edgar agent filing fees, stock transfer agent fees and general office expenses. We anticipate Administrative Expenses will increase substantially in the upcoming year as we implement our business plans.
Net Income (Loss)
We incurred net operating losses from continuing operations, before taking into account Other Income, for the three and six month periods ended February 29, 2008 of $(526,508) and $(1,464,414) versus $(2,127,347) and $(3,191,307) for the comparable prior year periods. The Net Loss from continuing operations for the Exploration Stage, before taking into account Other Income, was $(32,632,266).
After taking into account Other Income generated by the cancellation of debt relating to commitments, we recorded Net Income for the three and six month periods ended February 29, 2008 of $9,152,899 and $8,214,993 and recorded a Net Loss for the Exploration Stage of $(23,167,188). These adjusted numbers translated to earnings per share, basic and fully diluted, of $0.24 and $0.21 for the three and six month periods ended February 29, 2008 versus net losses per share, basic and fully diluted, of $(0.07) and $(0.10) for the comparative prior year periods.
Liquidity and Capital Resources
Since its inception, the Company has financed its cash requirements from sale of common stock and shareholder loans. Uses of funds have included activities to establish and develop our business. The Company’s principal sources of liquidity as of February 29, 2008, consisted of cash resources of $67,845, prepaid expenses of $6,416 and a shareholder loan from our President. Under the shareholder loan, loan advances to or on behalf of ADG, bear interest at 5% per annum, calculated and compounded annually, not in advance. ADG is required to repay the outstanding principal and interest at any time on demand. Prepayment of all or a portion of the outstanding principal and interest may be made by ADG at any time without notice, bonus or penalty. The
amount outstanding under the shareholder loan was $189,582 including accrued interest as of February 29, 2008. Since Exploration Stage inception through to and including February 29, 2008, we have executed cash sales of our common shares totaling $7,193,860 through private placements.
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Material Events and Uncertainties
Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in rapidly evolving markets. There can be no assurance that we will successfully address such risks, expenses and difficulties.
Employees
As of February 29, 2008, we had no employees and used contracted services to perform geological work, legal services and our bookkeeping. Additionally our CEO was engaged on a consulting basis. Going forward, the Company will use consultants with specific skills to assist with various aspects of its project evaluation, due diligence, acquisition initiatives, corporate governance and property management.
Critical Accounting Policies
Asian Dragon’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates
made during the preparation of our financial statements.
Our significant accounting policies are summarized in NOTE 2 of the financial statements included with our Report on Form 10-K for fiscal 2007. While all these significant accounting policies impact its financial condition and results of operations, Asian Dragon views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on Asian Dragon’s financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. We have expensed all development costs related to our establishment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EXCHANGE RATE FLUCTUATION RISK
Our reporting currency is United States Dollars (“USD”). Our transactions in China use the Chinese Renminbi (“RMB”) which has been informally pegged to the USD. However, China is under international pressure to adopt a more flexible exchange rate system. If the RMB were no longer pegged to the USD, rate fluctuations may have a material impact on the Company’s financial reporting. The fluctuation of exchange rates of Renminbi may have positive or negative impacts on the results of operations of the Company.
We have not entered into derivative contracts either to hedge existing risk or for speculative purposes.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of the Evaluation Date, the disclosure controls and procedures in place were adequate to ensure that information required to be disclosed by us, including our consolidated subsidiaries,
in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations.
Internal control over financial reporting
The Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Act as of the Evaluation Date and concluded that no changes occurred in such control or in other factors during the quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against us.
ITEM 1A. RISK FACTORS
The following risk factors should be considered in connection with an evaluation of our business:
THE COMPANY CANNOT GIVE ASSURANCE THAT TRANSFER OF TITLE TO EXPLORATION LICENSES DOES NOT CONTAIN UNDETECTED MATERIAL DEFECTS
The Company has investigated title to all of the Exploration Licenses of which it is in the process of acquiring, and to the best of its knowledge, title to all of these Exploration Licenses are in good standing. However, the Exploration Licenses may be subject to prior unregistered agreements or transfers and title may be affected by undetected defects. There may be valid challenges to the title of the Company’s Exploration Licenses, once acquired, which, if successful, could impair development and/or operations. The Company cannot give any assurance that title to its Exploration Licenses will not be challenged.
In addition the Company is relying on a series of agreements between Chinese companies and entities to ultimately transfer title of the Exploration Licenses to the Company. While the Company has relied on opinions provided by Chinese
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counsel and to the best of its knowledge these agreements will effectively transfer title, the agreements and the transfer may be affected by undetected defects and the Company cannot give any assurance that the transfer of title to the Company will not be challenged.
If a material defect in the transfer of any Exploration Licenses for which the Company is currently in the process of acquiring were to occur, the Company may in the future be required to record an impairment to any future capitalized amounts it had recorded relating to its Exploration Licenses or exploration activities. Such would not be the case at present however, because the Company has not yet capitalized any amounts with respect to its exploration activities.
THE COMPANY DOES NOT HAVE RECOURSE CLAUSES IN ITS EXPLORATION AGREEMENTS WITH WORLD FORTUNE ENTERPRISE INC.
In the event that WFEI were to fail to meet its payment obligations under its Agreements with various Chinese Partners, the benefits of which flow through to Asian Dragon through the Jinjishan Agreement, the Loning Agreement, and the Fuding Agreement, , Asian Dragon would have no way to reclaim funds already transferred to WFEI.
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS PROSPECTS.
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. You should consider any purchase of the Company's shares in light of the risks, expenses and problems frequently encountered by all companies in the early stages of its corporate development.
LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
For the six months ended February 29, 2008, the Company had an operating loss of $(272,415). 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.
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FUTURE SALES OF SHARES MAY ADVERSELY IMPACT THE VALUE OF THE COMPANY'S STOCK.
If required, the Company may seek to raise additional capital through the sale of common stock. Future sales of shares by the Company or its stockholders could cause the market price of its common stock to decline.
MINERAL EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN NATURE.
Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and
exporting of minerals and environmental protection, the combination of which factors may result in the Company not receiving an adequate return of investment capital.
Substantial expenditures are required to establish ore reserves through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities and grades to justify commercial operations or that funds required for development can be obtained on a timely basis. Estimates of reserves, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short
term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project.
THE COMPANY WILL BE SUBJECT TO OPERATING HAZARDS AND RISKS WHICH MAY ADVERSELY AFFECT THE COMPANY'S FINANCIAL CONDITION.
Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The Company's operations will be subject to all the hazards and risks normally incidental to exploration, development and production of metals, such as unusual or unexpected formations, cave-ins or pollution, all of which could result in work stoppages, damage to property and possible environmental damage. The Company does not have general liability insurance covering its operations and does not presently intend to obtain liability insurance as to such hazards and liabilities. Payment of any liabilities as a result could have a materially adverse effect upon the Company's
financial condition
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THE COMPANY'S ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY REGULATIONS WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE COMPANY.
The Company's activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which would result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers
and employees. The cost of compliance with changes in governmental regulations could have an adverse effect on the financial condition of the Company.
The operations of the Company include exploration and development activities and commencement of production on its properties, require permits from various federal, state, provincial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
THE COMPANY IS SUBJECT TO A VARIETY OF APPROVAL REQUIREMENTS AT THE CHINESE CENTRAL, PROVINCIAL AND LOCAL GOVERNMENT LEVELS AND, IN PRACTICE, THERE IS SOME UNCERTAINTY SURROUNDING WHICH APPROVALS ARE ACTUALLY REQUIRED TO CONDUCT CERTAIN MINING AND EXPLORATION ACTIVITIES IN VARIOUS PARTS OF CHINA
In China, two levels of government primarily deal with the approval of the establishment of a foreign-invested joint venture in mineral exploration and mining (“Mining JV”): the central and the local (e.g., provincial or municipal). China’s Ministry of Commerce (“MOFCOM”) is the central-government-level ministry in charge of reviewing and approving the establishment of Mining JVs. Applications must be submitted to MOFCOM’s local-level counterparts for upward submission to MOFCOM. However, in practice, many provincial bureaus of commerce, such as those in Henan Province, claim final approval authority and do not forward applications to MOFCOM. To our knowledge, MOFCOM is aware of this practice but has not taken any steps to intervene or take action against Mining JVs which have been approved only at the provincial level.
Once MOFCOM, or its authorized local counterpart has issued its approval documents, the Chinese partners to the joint venture would then apply to China’s State Administration of Industry and Commerce or its authorized local counterpart for a business license. The issuance of the business license marks the legal establishment of a Mining JV and confirms the permitted scope of the Mining JV’s activities. The business license is subject to annual review and renewal.
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The Ministry of Land and Resources (“MOLAR”) is the central-government-level ministry in charge of exploration and mining licenses. Generally speaking, MOLAR holds the final authority to issue exploration and mining licenses to Mining JVs; however, for projects in Henan province, it has delegated this authority to the respective provincial-level bureaus of land and resources in those provinces, for the Company’s current purposes, the Gold Bureau in particular.
COMPETITION MAY HAVE AN IMPACT ON THE COMPANY'S ABILITY TO ACQUIRE ATTRACTIVE PRECIOUS METALS PROPERTIES, WHICH MAY HAVE AN ADVERSE IMPACT ON THE COMPANY'S OPERATIONS.
Significant and increasing competition exists for the limited number of precious metals acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than the Company, the Company may be unable to acquire attractive precious metals properties on terms it considers acceptable. Accordingly, there can be no assurance that any exploration program intended by the Company on properties it intends to acquire will yield any reserves or result in any commercial mining operation.
DOWNWARD FLUCTUATIONS IN METAL PRICES MAY SEVERELY REDUCE THE VALUE OF THE COMPANY.
The Company has no control over the fluctuations in the prices of the metals for which it is exploring. A significant decline in such prices would severely reduce the value of the Company.
THE COMPANY CURRENTLY RELIES ON CERTAIN KEY INDIVIDUALS AND THE LOSS OF ONE OF THESE CERTAIN KEY INDIVIDUALS COULD HAVE AN ADVERSE EFFECT ON THE COMPANY.
The Company's success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in the Company's growth and success. The loss of the service of members of the management and advisory board could have a material adverse effect on the Company. In particular, the success of the Company is highly dependent upon the efforts of the President & CEO, CFO, PAO, Treasurer & Secretary, Chair & Director of the Company, John
Karlsson, the loss of whose services would have a material adverse effect on the success and development of the Company.
THE COMPANY DOES NOT MAINTAIN KEY MAN INSURANCE TO COMPENSATE THE COMPANY FOR THE LOSS OF CERTAIN KEY INDIVIDUALS.
The Company does not anticipate having key man insurance in place in respect of its senior officers or personnel, although the Board has discussed and investigated the prospect of obtaining key man insurance for John Karlsson.
WE ARE AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH THE COMPANY HAS, OR MIGHT OBTAIN, AN INTEREST.
The Company is an exploration stage company and cannot give assurance that a commercially viable deposit, or “reserve,” exists on any properties for which the Company currently has (through an option) or may have (through potential future joint venture agreements or acquisitions) an interest. Therefore, determination of the existence of a reserve depends on appropriate and sufficient exploration work and the evaluation of legal, economic, and environmental factors. If the Company fails to find a commercially viable deposit on any of its properties, its financial condition and results of operations will be materially adversely affected.
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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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 14, 2008, the Company accepted a subscription agreement with one entity for the purchase of 500,000 common shares of the Company at $0.80 per share for aggregate proceeds of $400,000. There were no finder’s fees or commissions paid, nor warrants issued, regarding this sale. The Company believes that such issuance is exempt from registration under Regulation S promulgated under the Securities Act of 1933, as amended, as the securities were issued to the entities through an offshore transaction which was negotiated and consummated outside of the United States.
The funds received from the investors mentioned above have been used for exploration license installment payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended February 29, 2008, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.
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ITEM 5. OTHER INFORMATION
There is no other information to record under this Item.
ITEM 6. EXHIBITS
Number
Exhibit Description
10.1
Jinjishan (Revised) Agreement
10.2
Loning (Revised) Agreement
10.3
Fuding (Revised) Agreement
31.1
Certificate of President (chief executive officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certificate of Chief Financial Officer (principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certificate of President (chief executive officer) and Treasurer (principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
ASIAN DRAGON GROUP INC.
/s/ John Karlsson John Karlsson
President and CEO, CFO,
Principal Accounting Officer,
Secretary and Treasurer,
Director and Board Chair
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
