UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2011
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ____________
Commission File Number: 000-52268
ASIAN DRAGON GROUP INC.
(Name of registrant as specified in its charter)
| Nevada | | 98-0418754 |
| (State of incorporation) | | (I.R.S. Employer Identification No.) |
#108 - 1312 North Monroe Street
Spokane, WA 99201
(Address of principal executive offices)
(509) 252-8428
(Registrant’s telephone number)
with a copy to:
Carrillo, Huettel & Zouvas, LLP
3033 Fifth Ave. Suite 400
San Diego, CA 92103
Telephone (619) 546-6100
Facsimile: (619) 546-6060
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No (Not required)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | o | Accelerated Filer | o |
| Non-Accelerated Filer | o | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of July 19, 2011, there were 38,775,000 shares of the Registrant’s common stock issued and outstanding.
ASIAN DRAGON GROUP INC.**
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Asian Dragon Group, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
**Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "Asian Dragon" refers to Asian Dragon Group, Inc.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASIAN DRAGON GROUP INC.
(An Exploration Stage Company)
Consolidated Financial Statements
May 31, 2011
(expressed in U.S. dollars)
(unaudited)
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. dollars)
| | | May 31, 2011 $ | | | August 31, 2010 $ | |
| | | (unaudited) | | | | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets | | | | | | |
| | | | | | | |
| Cash | | | 670 | | | | 25 | |
| Prepaid expenses and deposits | | | 281 | | | | 570 | |
| | | | | | | | | |
| Total Assets | | | 951 | | | | 595 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| | | | | | | | | |
| Accounts payable | | | 33,009 | | | | 23,523 | |
| Loans payable (Note 3) | | | 27,315 | | | | 26,382 | |
| Due to related party (Note 4) | | | 374,482 | | | | 344,643 | |
| | | | | | | | | |
| Total Liabilities | | | 434,806 | | | | 394,548 | |
| | | | | | | | | |
| Nature of Operations and Continuance of Business (Note 1) | | | | | | | | |
| | | | | | | | | |
| Stockholders’ Deficit | | | | | | | | |
| | | | | | | | | |
Common stock, 100,000,000 shares authorized, $0.001 par value 38,775,000 shares issued and outstanding | | | 38,775 | | | | 38,775 | |
| Additional paid-in capital | | | 22,984,342 | | | | 22,984,342 | |
| Accumulated deficit | | | (215,105 | ) | | | (215,105 | ) |
| Deficit accumulated during the exploration stage | | | (23,241,867 | ) | | | (23,201,965 | ) |
| | | | | | | | | |
| Total Stockholders’ Deficit | | | (433,855 | ) | | | (393,953 | ) |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Deficit | | | 951 | | | | 595 | |
(The accompanying notes are an integral part of these consolidated financial statements)
F-1
(An Exploration Stage Company)
Consolidated Statements of Operations
(Expressed in U.S. dollars)
(unaudited)
| | | Three Months Ended May 31, 2011 $ | | | Three Months Ended May 31, 2010 $ | | | Nine Months Ended May 31, 2011 $ | | | Nine Months Ended May 31, 2010 $ | | | Accumulated from August 15, 2006 (Date of Inception) to May 31, 2011 $ | |
| | | | | | | | | | | | | | | | |
| Revenue | | | – | | | | – | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| General and administrative | | | 4,115 | | | | 3,898 | | | | 26,292 | | | | 38,042 | | | | 9,732,533 | |
| Mineral exploration costs | | | – | | | | – | | | | – | | | | – | | | | 72,850 | |
| Mineral property costs | | | – | | | | – | | | | – | | | | – | | | | 13,372,593 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Expenses | | | 4,115 | | | | 3,898 | | | | 26,292 | | | | 38,042 | | | | 23,177,976 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss Before Other Expense | | | (4,115 | ) | | | (3,898 | ) | | | (26,292 | ) | | | (38,042 | ) | | | (23,177,976 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other Expense | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (4,698 | ) | | | (4,461 | ) | | | (13,610 | ) | | | (12,640 | ) | | | (63,891 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Loss From Continuing Operations | | | (8,813 | ) | | | (8,359 | ) | | | (39,902 | ) | | | (50,682 | ) | | | (23,241,867 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Discontinued operations | | | – | | | | – | | | | – | | | | – | | | | (215,105 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | (8,813 | ) | | | (8,359 | ) | | | (39,902 | ) | | | (50,682 | ) | | | (23,456,972 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Loss Per Share, Basic and Diluted | | | – | | | | – | | | | – | | | | – | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Shares Outstanding | | | 38,775,000 | | | | 38,775,000 | | | | 38,775,000 | | | | 38,775,000 | | | | | |
(The accompanying notes are an integral part of these consolidated financial statements)
F-2
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(unaudited)
| | | | | | | | | Accumulated from | |
| | | Nine Months | | | Nine Months | | | August 15, 2006 | |
| | | Ended | | | Ended | | | (Date of Inception) to | |
| | | May 31, | | | May 31, | | | May 31, | |
| | | 2011 | | | 2010 | | | 2011 | |
| | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | |
| Operating Activities | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net loss from continuing operations | | | (39,902 | ) | | | (50,682 | ) | | | (23,241,867 | ) |
| | | | | | | | | | | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Shares issued for mineral property licenses | | | – | | | | – | | | | 8,812,500 | |
| Stock-based compensation | | | – | | | | – | | | | 6,975,491 | |
| | | | | | | | | | | | | |
| Changes in operating assets and liabilities | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Prepaid expenses and deposits | | | 289 | | | | (7,345 | ) | | | (281 | ) |
| Accounts payable | | | 9,486 | | | | (2,162 | ) | | | 33,009 | |
| Accrued interest on note payable | | | 933 | | | | 943 | | | | 3,718 | |
| Due to related party | | | 29,839 | | | | 11,697 | | | | 96,096 | |
| | | | | | | | | | | | | |
| Net Cash Used In Operating Activities | | | 645 | | | | (47,549 | ) | | | (7,321,334 | ) |
| | | | | | | | | | | | | |
| Financing Activities | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Proceeds from loans payable | | | – | | | | – | | | | 23,597 | |
| Advances from related party | | | – | | | | 44,617 | | | | 288,034 | |
| Proceeds from common stock issued | | | – | | | | – | | | | 7,225,126 | |
| | | | | | | | | | | | | |
| Net Cash Provided by Financing Activities | | | – | | | | 44,617 | | | | 7,536,757 | |
| | | | | | | | | | | | | |
| Discontinued Operations | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating activities | | | – | | | | – | | | | (214,507 | ) |
| Investing activities | | | – | | | | – | | | | (318 | ) |
| Financing activities | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | |
| Net Cash Provided by Discontinued Operations | | | – | | | | – | | | | (214,825 | ) |
| | | | | | | | | | | | | |
| Decrease in Cash | | | 645 | | | | (2,932 | ) | | | 598 | |
| | | | | | | | | | | | | |
| Cash, Beginning of Period | | | 25 | | | | 3,829 | | | | 72 | |
| | | | | | | | | | | | | |
| Cash, End of Period | | | 670 | | | | 897 | | | | 670 | |
| | | | | | | | | | | | | |
| Non-cash Investing and Financing Activities | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Shares issued to settle related party debt | | | – | | | | – | | | | 10,000 | |
| | | | | | | | | | | | | |
| Supplemental Disclosures | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest paid | | | – | | | | – | | | | – | |
| Income taxes paid | | | – | | | | – | | | | – | |
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
ASIAN DRAGON GROUP INC.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2011
(Expressed in U.S. dollars)
(unaudited)
The accompanying consolidated financial statements of Asian Dragon Group Inc.(the “Company”) should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2010. In the opinion of management, the accompanying financial statements reflect all adjustments, which are only of a normal recurring nature, considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception of the exploration stage and is unlikely generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at May 31, 2011, the Company has a working capital deficiency of $433,855 and has accumulated losses of $23,456,972 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 2. | Summary of Significant Accounting Policies |
| | a) | Recent Accounting Pronouncements |
In January 2010, the FASB issued an amendment to ASC 820, “Fair Value Measurements and Disclosures”, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of the applicable standard on September 1, 2010 did not have a material effect on the Company’s consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Certain comparative figures have been reclassified to conform to the current year's presentation.
As at May 31, 2011, the Company owes $27,315 (August 31, 2010 – $26,382) to a non-related party which bears interest at 5% per annum, is unsecured, and due on demand. Included in this balance is $3,718 (August 31, 2010 - $2,785) in accrued interest payable.
| 4. | Related Party Transactions |
As at May 31, 2011, the Company owes $374,482 (August 31, 2010 - $344,643) to the President of the Company which bears interest at 5% per annum, is unsecured, and due on demand. Included in this balance is $28,518 (August 31, 2010 - $15,841) in accrued interest payable.
ASIAN DRAGON GROUP INC.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2011
(Expressed in U.S. dollars)
(unaudited)
A summary of the Company’s stock option activity is as follows:
| | | Number of Options | | | Weighted Average Exercise Price $ | | | Weighted Average Remaining Contractual Life (years) | | | Aggregate Intrinsic Value $ | |
| | | | | | | | | | | | | |
| Outstanding and exercisable, August 31, 2010 and May 31, 2011 | | | 2,500,000 | | | | 2.13 | | | | 6.2 | | | | – | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Certain information included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934. These sections provide that the safe harbor for forward looking statements does not apply to statements made in initial public offerings. The words, such as "may," "would," "could," "anticipate," "estimate," "plans," "potential," "projects," "continuing," "ongoing," "expects," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding intent, belief or current expectations of the Company, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) continued development of business opportunities; (iv) market and other trends affecting our future financial condition; (v) our growth and operating strategy. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) we have incurred significant losses since our inception; (ii) any material inability to successfully develop our business plans; (iii) any adverse effect or limitations caused by government regulations; (iv) any adverse effect on our ability to obtain acceptable financing; (v) competitive factors; and (vi) other risks including those identified in our other filings with the Securities and Exchange Commission.
General
Asian Dragon was established to develop projects which focus on China’s growing precious and base metals reserves and markets.
Asian Dragon Group Inc. (“Asian Dragon”, “ADG”, “we”, the “Registrant”, or the “Company”) was incorporated in Nevada on June 11, 2003 and on August 10, 2006 filed Articles of Amendment with the Nevada Secretary of State to change its name to Asian Dragon Group Inc. Our fiscal year end is August 31st.
On April 10, 2008 the Company incorporated a British Columbia company named Asian Dragon Silver Inc. (“ADSI”) as a wholly owned subsidiary. The financial statements of the Company are presented on a consolidated basis and include all accounts of both the Company and its subsidiary.
The Company’s common stock is traded in the NASD Over-The-Counter market under the symbol “AADG” and the Company is also listed on the Frankfurt Stock Exchange under the trading symbol “P2J1”.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED FEBRUARY 28, 2011 AND FEBRUARY 28, 2010 AND THE EXPLORATION STAGE PERIOD FROM AUGUST 15, 2006 TO FEBRUARY 28, 2011
Revenues
We have not generated any revenues during the periods included in the financial statements in this report.
Operations and Net Loss
We incurred net losses for the three month periods ended May 31, 2011 and 2010 of $8,813 and $8,359, respectively. The net loss since the inception of the exploration stage was $23,241,867. The net loss for the current period is made up mostly of professional fees of $4,049 and interest accrued on the
loan payable and related party debt of $4,698. In the comparable period, the Company incurred general and administrative expenses of $3,898 and interest expense of $8,359.
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 May 31, 2011, consisted of cash resources of $670 and shareholder loans from a related party. Under the shareholder loans, loan advances to or on behalf of ADG or ADSI, bear interest at 5% per annum, calculated and compounded annually, not in advance. ADG or ADSI are required to repay the outstanding principal and interest at any time on demand. Prepayment of all or a portion of the outstanding principal and interest may be made by ADG or ADSI at any time without notice, bonus or penalty. The amount outstanding under the shareholder loan was $374,482 including accrued interest as of May 31, 2011. We also have a loan outstanding to an individual totaling $27,315 including accrued interest. This loan bears interest at 5% per annum, is calculated and compounded annually, not in advance. ADG may be 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. Since inception through to and including May 31, 2011, we have executed cash sales of our common shares totaling $7,225,126 through private placements.
Material Events and Uncertainties
Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in rapidly evolving markets. There can be no assurance that we will successfully address such risks, expenses and difficulties.
Employees
As of May 31, 2011, we had no employees and used contracted services to perform geological work, legal services and our bookkeeping. Additionally our CEO was engaged on a consulting basis. Going forward, the Company will use consultants with specific skills to assist with various aspects of its project evaluation, due diligence, acquisition initiatives, corporate governance and property management.
Critical Accounting Policies
Asian Dragon’s financial statements are prepared on a consolidated basis which includes the accounts of both the Company and its subsidiary and include related public financial information based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 2 of the consolidated financial statements included with our Report on Form 10-K for fiscal 2010. 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”). We have not entered into derivative contracts either to hedge existing risk or for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company's desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company's certifying officer has concluded that the Company's disclosure controls and procedures are not effective in reaching that level of assurance.
As of the end of the period being reported upon, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
As of May 31, 2011, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on the criteria established by COSO management concluded that the Company's internal control over financial reporting was not effective as of May 31, 2011, as a result of the identification of the material weaknesses described below.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, management identified the following control deficiencies. (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.
Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.
Changes in Internal Control over Financial Reporting
During the quarter ended May 31, 2011, no material changes were made to the Company’s internal control over financial reporting
Remediation Plan
Addition of staff
We have identified that additional staff will be required to properly segment the accounting duties of the Company. However, we do not currently have resources to fulfill this part of our plan and will be addressing this matter once sufficient resources are available.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against us.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no unregistered sales of equity securities during the three months ended May 31, 2011.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has no senior securities outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
Exhibit Number | | Description of Exhibit | | Filing |
| 3.01 | | Articles of Incorporation | | Filed with the SEC on March 22, 2005 as part of our Registration Statement on Form SB-2. |
| 3.02 | | Bylaws | | Filed with the SEC on March 22, 2005 as part of our Registration Statement on Form SB-2. |
| | | | |
| | | | |
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | ASIAN DRAGON GROUP INC. | |
| | | | |
| Dated: July 20, 2011 | By: | /s/ John Karlsson | |
| | | John Karlsson | |
| | | Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer & Director | |
