The dwarves had been caught completely off guard by the attack of the dragon. They had been safe and secure in their stronghold in Erebor for so many years, they had almost become disillusioned with the rest of the world, thinking they were almost untouchable. But even with all their warriors and weapons, they could not stand against the might of a Firedrake of the North. Smaug decimated any attack they tried to put forth to protect their homeland, and the King's treasure horde. 

Seeing that it was hopeless to keep fighting, and only lose more lives, Thorin, the young dwarf prince, pulled his grandfather Thror to safety before he could dive into the swirling mass of treasure after the Arkenstone which he had lost grip on, and called the retreat. As the dwarves ran out of the smoking remains of the once grand city of Erebor, Thorin looked up to see the host of elves appearing on the crest of the hill.

Thranduil stopped as they reached the hill that overlooked the valley which Erebor lay in, and was taken completely by surprise at what he saw. He had long suspected the dwarves' greed would draw one, or more, of the dragons back down from their lairs in the North (and many times had tried to warn the great King Thror of such an occurence, but he would take no heed of the Elvenking's words) ; but he had not counted on it being so soon. They were unprepared, they could not take on a dragon with the few infantry that accompanied him now. He could not risk the lives of his subjects for such a futile endeavour; they would surely all be killed. And he had many other worries on his mind, he could not leave his niece and son to rule a kingdom on their own if he were to fall in battle now, they were too young, not ready. So when the dwarf prince spotted them and frantically raised his arms into the air, crying out in desperation. "HELP US!!!" the Elvenking could make no other decision but to turn back, and order his forces to draw back to the ailing Greenwood.