CN Dragon Corp - FORM 10-Q - November 18, 2011

Attached files

file	filename
EX-32.1 - EX 32.1 - CN Dragon Corp	ex321.htm
EX-32.2 - EX 32.2 - CN Dragon Corp	ex322.htm
EX-31.1 - EX 31.1 - CN Dragon Corp	ex311.htm
EX-31.2 - EX 31.2 - CN Dragon Corp	ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2011

Commission File Number: 000-53771

CN DRAGON CORPORATION

(Exact Name of registrant as specified in its charter)

Nevada		98-0358149
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


8/F Paul Y Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong (Address of principal executive offices)


	(+852) 2772 9900
(Registrant’s telephone number, including area code )

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 [ ] 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 during the preceding 12 months (or for such period that the registrant was required to submit and post such files). [ ] Yes [ ] No

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 [ ]		Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company)		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 [X] No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of September 30, 2011, there were 81,010,491 shares of our common stock [par value $0.001] issued and outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CN DRAGON CORPORATION

CONSOLIDATED BALANCE SHEETS

AS AT SEPTEMBER 30, 2011 AND MARCH 31, 2011

(Stated in US Dollars)

			As at
	Note		September 30, 2011		March 31, 2011
ASSETS			(Unaudited)		(Audited)
Current assets
Cash and cash equivalents	2(l)	$	3,392	$	1,898
Deposits and prepaid expense			226,700		18,320
Other receivables			1,403,041		1,210,775


Total current assets			1,633,133		1,230,993
Property, plant and equipment, net	4		7,726		11,456
Goodwill			63,967		63,967


TOTAL ASSETS		$	1,704,826	$	1,306,416


LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	61,506	$	69,003
Accrued liabilities			288,598		209,156
Loans payable to shareholders			14,583		14,583
Other payables			14,389		18,248


Total current liabilities			379,076		310,990

TOTAL LIABILITIES		$	379,076	$	310,990

See accompanying notes to consolidated financial statements

CN DRAGON CORPORATION

CONSOLIDATED BALANCE SHEETS (Continued)

AS AT SEPTEMBER 30, 2011 AND MARCH 31, 2011

(Stated in US Dollars)

			As at
	Note		September 30, 2011		March 31, 2011
			(Unaudited)		(Audited)
STOCKHOLDERS’ EQUITY

Preferred Stock, $0.001 par value,
375,000,000 shares authorized,
no share issued and outstanding		$	-	$	-

Common stock - $0.001 par value
250,000,000 shares authorized;
81,010,491 shares issued and outstanding as of
September 30, 2011 and March 31, 2011	6	$	81,011	$	81,011

Additional paid-in capital			7,029,442		7,029,442
Accumulated deficits			(7,803,822)		(7,739,848)
Accumulated other comprehensive income			2,019,119		1,624,821


		$	1,325,750	$	995,426



TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY		$	1,704,826	$	1,306,416

See accompanying notes to consolidated financial statements

CN DRAGON CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Stated in US Dollars)

			Six Months ended September 30
	Note		2011		2010
			(Unaudited)		(Unaudited)
Net revenues		$	53,354	$	363,704
Cost of net revenues			-		(154,073)


Gross profit			53,354		209,631
Operating expenses:
Selling and distribution			-		(54,623)
General and administrative			(117,328)		(476,012)


Loss before income taxes			(63,974)		(321,004)

Income taxes	7		-		-


Net loss			(63,974)		(321,004)
Other comprehensive income:
Foreign currency translation
adjustments			394,298		(32,275)


Comprehensive income(loss)		$	330,324	$	(353,279)


Basic and diluted loss per share	6	$	(0.001)	$	(0.007)


Weighted average number of share
outstanding	6		81,010,491		52,052,945

See accompanying notes to consolidated financial statements

CN DRAGON CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Stated in US Dollars)

			Three Months ended September 30
	Note		2011		2010
			(Unaudited)		(Unaudited)
Net revenues		$	26,561	$	-
Cost of net revenues			-		-


Gross profit			26,561		-
Operating expenses:
General and administrative			(70,454)		(335,524)


Loss before income taxes			(43,893)		(335,524)

Income taxes	7		-		-


Net loss			(43,893)		(335,524)
Other comprehensive income:
Foreign currency translation
adjustments			(3,890)		2,005


Comprehensive loss		$	(47,783)	$	(333,519)


Basic and diluted loss per share	6	$	(0.001)	$	(0.006)


Weighted average number of share
outstanding	6		81,010,491		58,947,599

CN DRAGON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND ACCUMULATED OTHER COMPREHENSIVE INCOME

FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND MARCH 31, 2011

(Stated in US Dollars)

												Accumulated
								Additional				other
	Preferred stock		Common stock					paid-in		Accumulated		comprehensive
	Number of	Number of			Amount		capital		deficit		income		Total
	share		Share

Balance, May 1, 2010	-		43,804,791	$		43,805	$	5,979,550	$	(6,842,073)	$	57,639	$	(761,079)
Issuance for service	-		1,353,500			1,354		553,581		-		-		554,935
Issuance for share capital	-		35,852,200			35,852		496,311		-		-		532,163
Net loss	-		-			-		-		(897,775)		-		(897,775)
Foreign currency
translation adjustment	-		-			-		-		-		1,567,182		1,567,182


Balance, March 31, 2011	-		81,010,491	$		81,011	$	7,029,442	$	(7,739,848)	$	1,624,821	$	995,426

Balance, April 1, 2011	-	81,010,491	$	81,011	$	7,029,442	$	(7,739,848)	$	1,624,821	$	995,426
Net loss	-	-		-		-		(63,974)		-		(63,974)

Foreign currency

translation adjustment	-	-		-		-		-		394,298		394,298

Balance, September 30, 2011	-	81,010,491	$	81,011	$	7,029,442	$	(7,803,822)	$	2,019,119	$	1,325,750

See accompanying notes to consolidated financial statements

CN DRAGON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Stated in US Dollars)

		For the periods ended September 30,
		2011		2010
Cash flows from operating activities		(Unaudited)		(Unaudited)
Net loss	$	(63,974)	$	(321,004)
Depreciation		1,547		6,821


Adjustments to reconcile net income to net cash provided
by operating activities:
Deposits and prepaid expense		(208,380)		626,847
Amounts due to the related companies				(1,417,284)
Other receivables		(192,266)
Accrued liabilities		79,442		2,171
Loans from shareholders		-		414,575
Other payable		(3,859)		(24,384)
Accounts payable		(7,497)		-


Net cash generated from (used in)
operating activities		(394,987)		(685,374)
Cash flows from investing activities



Invest in restricted cash		-		(1,000)
Purchase of plant and equipment		(3,643)		(47,740)

Net cash used in investing activities		(3,643)		(48,740)

Cash flows from financing activities
Loans payable to stockholders		-		127,934
Net cash provided by financing activities		-		127,934


Net cash and cash equivalents sourced
(used)		(398,630)		(606,180)

Effect of foreign currency translation on cash and cash
equivalents		400,124		405,080

Cash and cash equivalents – beginning of period		1,898		207,648


Cash and cash equivalents – end of period	$	3,392	$	6,548

See accompanying notes to consolidated financial statements

CN DRAGON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Stated in US Dollars)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

CN Dragon Corporation (“the Company”) was incorporated under the laws of the State of Nevada on August 30, 2001, under the name Infotec Business Systems, Inc. On June 8, 2007, we changed our name to Wavelit, Inc. On September 14, 2009, we changed our name to CN Dragon Corporation and began new business operations in the PRC.

On May 17, 2010, pursuant to the terms of the Agreement for Share Exchange, the Company acquired CNDC Corporation (“CNDC BVI”), and its wholly-owned subsidiaries, CN Dragon Holdings Limited (“CN Dragon Holdings”) and Zhengzhou Dragon Business Limited (“Zhengzhou Dragon”). This transaction was accounted for as a “reverse merger” with CNDC BVI deemed to be the accounting acquirer and the Company as the legal acquirer. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements for periods prior to the Share Exchange will be those of CNDC BVI, recorded at its historical cost basis. After completion of the Share Exchange, the Company’s consolidated financial statements will include the assets and liabilities of both the Company and CNDC BVI, the historical operations of CNDC BVI and the operations of the Company and its subsidiaries from the closing date of the Share Exchange.

CNDC BVI was established under the laws of the British Virgin Islands on March 26, 2008. The Company currently operates through itself and two subsidiaries, CN Dragon Holdings Limited and Zhengzhou Dragon Business Limited which were incorporated in Hong Kong and the People’s Republic of China (the PRC) respectively.

The Company and its subsidiaries (hereinafter, collectively referred to as (the “Group”) are engaged and specialized in investment, development and fund management in hospitality properties, as well as advisory and consulting services to the hospitality, tourism and real estate industries in the PRC.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Method of Accounting

The Group maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Group conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

(b)	Principles of consolidation

The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions are eliminated in consolidation.

The Company owned its subsidiaries soon after its reverse merger and continued to own the equity’s interests through September 30, 2011. The following table depicts the identity of the subsidiaries:

			Share capital/
	Place & date of Incorporation	Attributable equity Interest %	registered
Name of subsidiary	incorporation	interest %	capital

CNDC Corporation	British Virgin Islands/
	March 26, 2008	100	US$1

CN Dragon Holdings Limited	Hong Kong/Mar 5, 2008	100	HK$1

Zhengzhou Dragon Business Limited	PRC/Sep 12, 2008	100	HK$3,000,000

The Company prepared the consolidated financial statements in accordance with ASC 805-40 Reverse Acquisition. The Company changed its accounting year ended from April 30 to March 31 starting from 2011. The prior period is adjusted accordingly to reflect the proforma result of presentation.

(c)	Economic and political risks

The Group’s operations are conducted in Hong Kong and the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Group’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

(d)	Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method.

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(e)	Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for uncollectible accounts is maintained for all customers in considering with a variety of factors, including the length of past due, significant one-time events and the Group’s historical experience. Bad debts are written off as incurred.


	(f) Accounting for the impairment of long-lived assets

The Group periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

During the reporting period, there was no impairment loss.

(g)	Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Group is the Hong Kong dollars (HKD) and Renminbi (RMB). The financial statements are translated into United States dollars from HKD and RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

Period ended	September 30, 2011	September 30, 2010
RMB : USD exchange rate	6.3885	6.6981
Average period ended
RMB : USD exchange rate	6.4476	6.80675

Year ended	September 30, 2011	September 30, 2010
HKD : USD exchange rate	7.7929	7.7582
Average period ended
HKD : USD exchange rate	7.7850	7.77556

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(h)	Cash and cash equivalents

The Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts only in the PRC and Hong Kong. The Group does not maintain any bank accounts in the United States of America.

(i)	Revenue recognition

Revenue is recognized when all of the following criteria are met:

- Persuasive evidence of an arrangement exists;

- Delivery has occurred or services have been rendered;

- The seller’s price to the buyer is fixed or determinable; and

- Collection is reasonably assured.

(j)	Operating lease rental

The Group did not have leases which met the criteria of a capital lease. Leases which do not qualify as capital leases are classified as operating leases. Operating lease rental payment has $47,707 and nil included in general and administrative expenses for the periods ended September 30, 2011 and 2010 respectively.

(k)	Income taxes

The Group accounts for income taxes using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future realization is uncertain.

(l) Cash and concentration of risk

Cash includes cash on hand and demand deposits in bank accounts maintained within PRC and Hong Kong. Total cash in these banks at September 30, 2011 amounted to $2,392 of which no deposits are covered by Federal Depository Insured Commission. The Group has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

(m) Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Group’s current component of comprehensive income is net income and foreign currency translation adjustment.

(n) Recent accounting pronouncements

In April 2011, the FASB issued ASU 2011-02, Receivable (Topic 310) “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”, which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a prospective basis. A provision in ASU 2011-02 also supersedes the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU 2010-20. The adoption of ASU 2011-02 is not expected to have a material impact on the Company’s financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860), Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Comprehensive Income (Topic 220) Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position but is evaluating the format revision on the presentation of comprehensive income.

In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

3. PROPERTY, PLANT AND EQUIPMENT, NET

Details of property, plant and equipment, net are as follows:

		As at		As at
		September 30, 2011		March 31, 2011
At cost
Office equipment	$	12,724	$	15,604


		12,724		15,604
Less: accumulated depreciation		(4,998)		(4,148)


	$	7,726	$	11,456

Depreciation expenses are included in the statements of income as follows:


		For the period ended		For the year ended
		September 30, 2011		March 31, 2011

General and administrative expenses	$	1,547	$	11,100

4. AMOUNT DUE TO THE RELATED COMPANY

The amount due to the related company, is unsecured, interest free and repayable on demand.

CN DRAGON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Stated in US Dollars)

6. EARNING PER SHARE

The calculation of the basic and diluted earnings per share attributable to the share capital holder is based on the following data:

		For the periods ended September 30,
		2011		2010
Earnings (Loss):
Earnings for the purpose of basic earnings (loss) per share	$	(63,974)	$	(321,004)
Effect of dilutive potential share capital		-		-


Earnings for the purpose of diluted earnings (loss) per
Share	$	(63,974)	$	(321,004)


Number of shares:
Weighted average number of share capital for the purpose
of basic earnings (loss) per share		81,010,491		52,052,945
Effect of dilutive potential share capital		-		-


Weighted average number of share capital for the purpose
of dilutive earnings (loss) per share		81,010,491		52,052,945

7. INCOME TAXES

The Company is not subject to any income tax as there are no estimated profitable or assessable profits for the periods ended September 30, 2011 and 2010.

Pursuant to Hong Kong tax law, CN Dragon Holdings Limited is subjected to profits tax imposed at the rate of 16.5%. No Hong Kong profits tax is provided as there are no estimated assessable profits for the quarters ended September 30, 2011 and 2010.

Zhengzhou Dragon Business Limited, being registered in the PRC, is subject to PRC’s Corporate Income Tax (“CIT”) at a rate of 25%. No taxable income was derived from the subsidiary for the quarters ended September 30, 2011 and 2010.

No deferred tax has been provided as there is no material temporary difference arising for the quarters ended September 30, 2011and 2010.

8. UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN

The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not generated significant revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. The management will seek to raise funds from shareholders.

For the period ended September 30, 2011, the Company has generated revenue of $53,354 and has incurred an accumulated deficit $7,803,822. These financial statements do not include any adjustments relating 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. These factors noted above raise substantial doubts regarding the Company's ability to continue as a going concern.

9. SUBSEQUENT EVENT

The Company has evaluated all other subsequent events through November 17, 2011, the date these consolidated financial statements were issued, and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

THE COMPANY

Cautionary Statement Concerning Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this report. This report contains “forward-looking statements.” The statements contained in this report that are not historic in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements based on current expectations and assumptions.

Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from expectations include, but are not limited to, those set forth under the section “Risk Factors” set forth in this report.

The forward-looking events discussed in this report, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

General

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to business development expenses, financing operations and contingencies and litigation. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies

Method of Accounting

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

Principles of Consolidation

The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries (the “Group”). All significant inter-company balances and transactions are eliminated in consolidation.

The Company owned its subsidiaries soon after its inception and continued to own the equity’s interests through September 30, 2011. The following table depicts the identity of the subsidiaries:

	Date of			Share capital/
	Disposal (D)/	Place & date of Incorporation	Attributable equity Interest %	registered
Name of subsidiary	Acquisition(A)	incorporation	interest %	capital
CNDC Corporation	May 17, 2010	British Virgin Islands/
	(A)	March 26, 2008	100	US$1

CN Dragon Holdings Limited	May 17, 2010	Hong Kong	100	HK$1
	(A)	Mar 5, 2008

Zhengzhou Dragon Business Limited	May 17, 2010	PRC/Sep 12, 2008	100	HK$3,000,000
	(A)	(Deregistered on
		July 12, 2010)

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method.

Trade receivables

Accounting for impairment of long-lived assets

The Group periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognised based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

During the reporting period, there was no impairment loss.

Cash and cash equivalents

Revenue recognition

Revenue is recognized when all of the following criteria are met:

- Persuasive evidence of an arrangement exists;

- Delivery has occurred or services have been rendered;

- The seller’s price to the buyer is fixed or determinable; and

- Collection is reasonably assured.

Income taxes

Cash and concentration risk

Cash includes cash on hand and demand deposits in bank accounts maintained within PRC and Hong Kong. Total cash in these banks at September 30, 2011 amounted to $2,392, of which no deposits are covered by Federal Depository Insured Commission. The Group has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Results of Operations

Comparison of the Periods ended September 30, 2011 and 2010

The following table sets forth key components of our results of operations for the Company, for the periods indicated (Stated in US Dollars).

			Six Months ended September 30
	Note		2011		2010
			(Unaudited)		(Unaudited)
Net revenues		$	53,354	$	363,704
Cost of net revenues			-		(154,073)


Gross profit			53,354		209,631
Operating expenses:
Selling and distribution			-		(54,623)
General and administrative			(117,328)		(476,012)


Loss before income taxes			(63,974)		(321,004)

Income taxes	7		-		-


Net loss			(63,974)		(321,004)
Other comprehensive income:
Foreign currency translation
adjustments			394,298		(32,275)


Comprehensive income(loss)		$	330,324	$	(353,279)


Basic and diluted loss per share	6	$	(0.001)	$	(0.007)


Weighted average number of share
outstanding	6		81,010,491		52,052,945

For the period ended September 30, 2011, we incurred a loss from operations of $63,974. Our principal areas of expenditure during the period were for Accounting and Legal fees, and staffing fees. Accounting and Legal fees reflect costs incurred for regulatory filings and due diligence conducted on lodging and leisure businesses in the PRC. Terminating our business operations in the PRC also caused our revenues to decrease to $53,354 for the period ended September 30, 2011. This follows from the spin-off of our subsidiaries, Galaxy Networks, Inc. (USA), Galaxy Networks, Inc. (Canada), China Teletech Limited (fka. Stream Horizons Studio, Inc.) and sale of Precision Aviation, Inc. This allowed the Company to direct all the Company’s resources towards implementing our new business operations in the PRC. The scope of which included conducting due diligence on several identified acquisition targets with a well establish business in the lodging and leisure industries in the PRC, as well as conducting comprehensive market research specifically on high growth second-tier cities in the PRC.

Pursuant to these endeavors, the Company acquired CNDC Corporation on May 17, 2010, which operates through CN Dragon Holdings Ltd and Zhengzhou Dragon Business Ltd, having a two year operational history in providing consulting and management services to hotel investors and owners in the PRC.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. Our working capital is currently insufficient to sustain our current operations. Our plan is to seek additional funding and business relationships.

While management believes that revenues can be grown and that ultimately profitable operations can be attained in the future, there is no assurance that revenues will be maintained or grown or that they will ultimately be of a level required to generate profitable operations or provide positive cash follow. We are unable to predict at this time the exact amount of any additional working capital we will require to fund the implementation of our business plan and achieve cash flow sufficient to sustain operations and achieve profitability. To fund out operations and more fully implement our business plan, we may seek additional capital in the private and/or public equity markets through the sale of equity and debt securities. However, if we receive additional funds through the issuance of equity securities, our existing stockholders may experience significant dilution. If we issue new securities, they may contain certain rights, preferences or privileges that are senior to those of our common stock. Moreover, we may not be successful in obtaining additional financing when needed or on terms favorable to our stockholders. As we have no commitments from any third parties to provide additional equity or debt financing, we cannot provide any assurance that we will be successful in attaining such additional funding.

Off-balance Sheet Arrangements

We maintain no significant Off-balance Sheet Arrangements

Future Goals

In the next 12 months, our goal is to fully establish our business in the PRC. We plan to make acquisitions of existing operating hotel assets, and/or by developing, redeveloping hotel assets under our brand. Our long term goal is to build an asset based portfolio of hotels & resorts throughout the PRC’s emerging second-tier cities that are renown for tourism. To achieve our goals, we plan on making a private placement of our securities to raise the funds necessary. The development or acquisition of a suitable hotel asset is dependent upon sufficient financing and the identification of suitable development, or operating hotel.

Recent Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We currently do not utilize sensitive instruments subject market risk in our operations. In the event that we borrow money for our operations, our principal exposure to financial market risks is the impact that interest rate changes could have on our loans.

Item 4. Controls and Procedures.

Disclosure controls and procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as of the end of the period covered by this Transition Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as such defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures are effective.

Item 4T. Controls and Procedures.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles generally accepted in the United States of America. The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and 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 Company's financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company's internal control over financial reporting at September 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control--Integrated Framework. Based on that assessment under those criteria, management has determined that, at September 30, 2011, the Company's internal control over financial reporting was effective.

This Transition Report on Form 10-Q does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.

Inherent Limitations of Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

●		pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
●		provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
●		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Our management does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in internal control over financial reporting

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer has not identified any change in our internal control over financial reporting in connection with its evaluation of the three months ended September 30, 2011, 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.

We are not a party to any pending or ongoing legal proceedings responsive to this item number.

Item 1.A Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other information.

None.

Item 6. Exhibits.

	Exhibit	Form	Filing	Filed with
Exhibits	#	Type	Date	This Report

Articles of Incorporation filed with the Secretary of State of Nevada on August 30, 2001	3.1	SB-2	6/17/2002

Certificate of Change effective March 18, 2003	3.2	8-K	3/7/2003

Certificate of Change effective May 30, 2007	3.3	8-K	6/13/2007

Certificate of Amendment filed with the Secretary of State of Nevada on May 30, 2007	3.4	8-K	6/13/2007

Certificate of Amendment filed with the Secretary of State of Nevada on September 14, 2009	3.5	10-K	8/12/2010

Certificate of Amendment filed with the Secretary of State of Nevada on November 20, 2009	3.6	DEF 14C	11/20/09

Bylaws dated August 30, 2001	3.3	SB-2	6/17/2002

Share Exchange Agreement between CN Dragon Corporation and CNDC Group Ltd	10.1	8-K	5/21/10

Certification of Teck Fong Kong, pursuant to Rule 13a-14(a)	31.1			X

Certification of Chong Him Lau, pursuant to Rule 13a-14(a)	31.2			X

Certification of Teck Fong Kong , pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	32.1			X

Certification of Chong Him Lau, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	32.2			X

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, thereunto duly authorized.

	CN DRAGON CORPORATION


Date: November 18, 2011	By:	/s/ Teck Fong Kong
	(Teck Fong Kong, President, Director, CEO)


	By:	/s/ Chong Him Lau
	(Chong Him Lau, Director, CFO)

CN Dragon Corp - FORM 10-Q - November 18, 2011

Attached files

CN Dragon Corp Reports