1. Nature of Operations
Earth Dragon Resources,
Inc. (the “Company”) was incorporated in the State of Nevada on October 23, 2007. The Company is an Exploration Stage
Company as defined by Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities”.
As discussed in Note 3, the Company acquired a mineral property located in the State of Nevada, U.S.A, in December 2007, which
claim expired September 1, 2011. As discussed in Note 4, the Company entered into three joint venture agreements to
finance certain other mining activities. As discussed in Note 10, the Company acquired Project X, Inc., a Nevada corporation formed
June 1, 2011 to enter into a Joint Venture to recover valuable cargo from lost ships, on February 10, 2012.
14, 2010, the Company effected a 38 for 1 forward stock split, increasing the issued and outstanding shares of common stock from
11,960,000 shares to 454,480,000 shares. Effective December 12, 2011, the Company effected a 1 for 500 reverse stock split, decreasing
the issued and outstanding shares of common stock from 254,480,000 shares to approximately 508,960 shares. All shares
and per share amounts have been adjusted to retroactively reflect these stock splits.
The 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. At August 31, 2011, the Company had cash of $54 and negative working capital of $228,417. For
the three months ended August 31, 2011 and 2010, the Company had net losses of $108,132 and $4,313, respectively. The Company has
incurred losses totaling $659,673 for the period from October 23, 2007 (inception) to August 31, 2011.These factors raise substantial
doubt as to the Company’s ability to continue as a going concern. The Company plans to raise additional capital and achieve
profitable operations through future business ventures. However, there is no assurance that the Company will accomplish these objectives.
The 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.