Orphen awakens from a horrible dream, where he sees Azalie impaling herself on the Sword of Baltanders and transforming into Bloody August.
That day, Orphen, Cleao and Majic travel into a coastal town and attempt to hire a boat to take them to one of the nearby islands, one which contain ancient ruins from the civilization that created the Sword. However, none will take them there, as everyone who has gone there before has been killed by a dragon that lives on the island, their boats eventually drifting back to shore. Instead, our heroes purchase one of the abandoned boats and sail that out instead. On their way they safe Dortin and Volkan from a shark. It turns out that they too are headed for the island, due to a treasure map that Volkan purchased (that turns out to be fake). On the way there, Orphen has several flashbacks to when he came here last, with Azalie, when he was a younger man.
Upon arriving, Orphen discovers that the ruins have been warded, though he easily overcomes the wards. Eventually he finds what he seeks, the statue that once held the Sword. In another flashback, we learn that the statue also held a bracelet that could magnify magical power, and Azalie attempted to keep the bracelet for herself, but hid it in the base of the statue instead after Orphen voiced reservations with her plan. We also learn in the flashback that the sword has the power to transform creatures, causing a mouse to grow.
Returning to the present, we learn that mouse has become the dragon that was killing fishermen. Orphen grabs the bracelet and our heroes lure the Dragon outside, where Orphen is able to bind it. Bloody August arrives shortly thereafter, destroying the bound Rat-Dragon. Orphen tries once again to bind her, with the magic-amplying bracelet assisting her. However, the attempt fails, and Bloody August flies away, with Orphen remaining behind, crying out in grief and rage.