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, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 000-52132
Dragon Acquisition Corporation
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(Exact name of Registrant as specified in its charter)
Cayman Islands N/A
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Nautilus Global Partners
700 Gemini, Suite 100, Houston, TX 77056
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(Address of principal executive offices) (Zip Code)
(281) 488-3883
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(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.
YES [ ] NO [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "accelerated filer and large
accelerated filer" in rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [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 [ ]
At November 13, 2006, there were 1,281,500 shares of
Registrant's ordinary shares outstanding.
GENERAL INDEX
Page Number
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................. 10
ITEM 4. CONTROLS AND PROCEDURES................................. 10
PART II.
OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS............................................... 10
ITEM 6. EXHIBITS............................................... 11
SIGNATURES....................................................... 11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dragon Acquisition Corporation
(A Development Stage Company)
Condensed Balance Sheets
September 30 May 31
2006 2006
------------ ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34,237 $ 35,500
Accounts receivable -- 8,100
------------ ------------
Total assets $ 34,237 $ 43,600
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to Affiliate $ 4,381 $ 5,548
Accounts payable 2,947 --
------------ ------------
Total current liabilities 7,328 5,548
------------ ------------
Commitments and Contingencies -- --
------------ ------------
SHAREHOLDERS' EQUITY
Preference shares, $0.001 par value,
1,000,000 shares authorized,
none issued and outstanding -- --
Ordinary shares, $.001 par value;
50,000,000 shares authorized;
1,281,500 and 1,227,500 shares
issued and outstanding at
September 30 and May 31, 2006,
respectively 1,282 1,228
Additional paid in capital 46,068 35,322
Ordinary shares subscribed -- 10,800
Subscriptions receivable -- (2,700)
Deficit accumulated during
development stage (20,441) (6,598)
------------ ------------
Total shareholders' equity 26,909 38,052
------------ ------------
Total liabilities and
shareholders' equity $ 34,237 $ 43,600
============ ============
See accompanying notes to condensed financial statements.
3
Dragon Acquisition Corporation
(A Development Stage Company)
Condensed Statements of Operations
Cumulative During
Development Stage
(March 10, 2006 to Three Months Ended
September 30, 2006) September 30, 2006
------------------- ------------------
Revenues $ -- $ --
------------------- ------------------
Expenses
Formation and Other Costs 19,736 6,071
General and administrative 1,217 1,217
------------------- ------------------
Total operating expenses 20,953 7,288
Operating loss (20,953) (7,288)
------------------- ------------------
Other (income) expense
Interest income (512) (512)
------------------- ------------------
Total other (income) expense (512) (512)
------------------- ------------------
Net loss $ (20,441) $ (6,776)
=================== ==================
Basic and diluted loss per share $ (0.02) $ (0.01)
=================== ==================
Weighted average ordinary shares
outstanding - basic and diluted 1,198,750 1,271,522
=================== ==================
See accompanying notes to condensed financial statements.
4
Dragon Acquisition Corporation
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
Cumulative During
Development Stage
(March 10,2006 to
September 30, 2006)
-------------------
Cash flows from operating activities
Net loss $ (20,441)
Adjustments to reconcile net loss to
cash used in operating activities:
Shares issued to Founder for
payment of formation costs 1,050
Changes in operating assets and
liabilities
Payable to Affiliate 4,381
Accounts Payable 2,947
-------------------
Net cash used in operating activities (12,063)
Cash flows from financing activities
Proceeds from the sale of ordinary shares 46,300
-------------------
Net cash provided by financing activities 46,300
-------------------
Net increase in cash 34,237
-------------------
Cash at beginning of the period -
-------------------
Cash at end of the period $ 34,237
===================
Supplemental disclosures of cash flow
information:
Interest paid $ -
===================
Income taxes paid $ -
===================
See accompanying notes to condensed financial statements.
5
Dragon Acquisition Corporation
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
NOTE 1 - Organization, Business and Operations
On March 10, 2006, Dragon Acquisition Corporation (the "Company")
was formed in the Cayman Islands with the objective to acquire,
or merge with, a foreign operating business.
At September 30, 2006, the Company had not yet commenced
operations. All activity from March 10, 2006 ("Date of
Inception") through September 30, 2006 relates to the Company's
formation. The Company selected December 31 as its fiscal year-
end.
The Company, based on its proposed business activities, is a
"blank check" company. The Securities and Exchange Commission
defines such a company as "a development stage company" as it
either has no specific business plan or purpose, or has indicated
that its business plan is to engage in a merger or acquisition
with an unidentified company or companies, or other entity or
person; and has issued `penny stock,' as defined in Rule 3a51-1
under the Securities Exchange Act of 1934. Many states have
enacted statutes, rules and regulations limiting the sale of
securities of "blank check" companies in their respective
jurisdictions. Management does not intend to undertake any
efforts to cause a market to develop in its securities, either
debt or equity, until the Company concludes a business
combination with an operating entity.
The Company was organized to acquire a target company or business
seeking the perceived advantages of being a publicly-held company
and, to a lesser extent, that desires to employ the Company's
funds in its business. The Company's principal business objective
for the next 12 months and beyond will be to achieve long-term
growth potential through a business combination rather than short-
term earnings. The Company will not restrict its potential
candidate target companies to any specific business, industry or
geographical location. The analysis of new business opportunities
will be undertaken by or under the supervision of the officers
and directors of the Company.
NOTE 2 - Summary of Significant Accounting Policies
Basis of Presentation
These financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting
principles in the United State of America, whereby revenues are
recognized in the period earned and expenses when incurred. The
Company also follows Statement of Financial Accounting Standards
("SFAS") No. 7, "Accounting and Reporting for Development State
Enterprises" in preparing its financial statements.
Statement of Cash Flows
For purposes of the statement of cash flows, we consider all
highly liquid investments (i.e., investments which, when
purchased, have original maturities of three months or less) to
be cash equivalents.
6
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
Loss Per Ordinary Share
Basic loss per ordinary share is based on the weighted effect of
ordinary shares issued and outstanding, and is calculated by
dividing net loss by the weighted average shares outstanding
during the period. Diluted loss per ordinary share is calculated
by dividing net loss by the weighted average number of ordinary
shares used in the basic loss per share calculation plus the
number of ordinary shares that would be issued assuming exercise
or conversion of all potentially dilutive ordinary shares
outstanding. The Company does not present diluted earnings per
share for years in which it incurred net losses as the effect is
antidilutive.
At September 30, 2006, there were no potentially dilutive
ordinary shares outstanding.
Income Taxes
Dragon Acquisition Corporation was registered as an Exempted
Company in the Cayman Islands, and therefore, is not subject to
Cayman Island income taxes for 20 years from the Date of
Inception. While the Company has no intention of conducting any
business activities in the United States, the Company would be
subject to United States income taxes based on such activities
that would occur in the United States.
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." This statement prescribes the
use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. In assessing the realization of deferred tax assets,
management considers whether it is likely that some portion or
all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the Company
attaining future taxable income during periods in which those
temporary differences become deductible.
Fair Value of Financial Instruments
Our financial instruments consist of a payable to an affiliate.
We believe the fair value of our payable reflects its carrying
amount.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have
a material effect on the accompanying financial statements.
7
NOTE 3 - Liquidity and Capital Resources
The Company has no revenues for the period from inception through
September 30, 2006, and does not intend to realize revenues until
the consummation of a merger with an operating entity. The
Company's principal business objective for the next 12 months and
beyond will be to achieve long-term growth potential through a
business combination rather than short-term earnings. There can
be no assurance that the Company will ever consummate the
business combination; achieve or sustain profitability or
positive cash flows from its operations, reduce expenses or sell
ordinary shares. To date, the Company has funded its formation
activities primarily through issuances of its ordinary shares and
a payable to affiliate.
NOTE 4 - Payable to Affiliate and Accounts Payable
The Company has a payable to affiliate of $4,381 to a Founder of
the Company. The payable is non-interest bearing and payable on
demand. The Company also has accounts payable related to the
formation of the Company for $2,947.
NOTE 5 - Ordinary Shares
On April 10, 2006, the Company was capitalized with 1,050,000
shares of its restricted ordinary shares issued at par value of
$0.001 per share, for consideration of $1,050 to its founding
shareholders. These shares, along with a payable issued to the
founder of $5,548, were the basis of the funding of the Company's
$6,598 in formation costs. On May 31, 2006, the Company sold
177,500 shares of its restricted ordinary shares for $35,500. The
restricted ordinary shares were sold to 355 offshore private
investors pursuant to a Private Placement Offering in lots of 500
shares each at $0.20 per share. On July 18, 2006, the Company
sold an additional 54,000 shares of its restricted ordinary
shares for $10,800. The restricted ordinary shares were sold to
108 offshore private investors pursuant to a Private Placement
Offering in lots of 500 shares each at $0.20 per share. No
underwriting discounts or commissions were paid with respect to
such sales.
NOTE 6 - Preference Shares
The Company is authorized to issue 1,000,000 shares of preference
shares with such designations, voting and other rights and
preferences as may be determined from time to time by the Board
of Directors. At September 30, 2006, there were no preference
shares issued or outstanding.
NOTE 7 - Commitments and Contingencies
The Company may become subject to various claims and litigation.
The Company vigorously defends its legal position when these
matters arise. The Company is not a party to, nor the subject
of, any material pending legal proceeding nor to the knowledge of
the Company, are any such legal proceedings threatened against
the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
Statements, other than historical facts, contained in this
Quarterly Report on Form 10-Q, including statements of potential
acquisitions and our strategies, plans and objectives, are
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Although we believe that our
forward looking statements are based on reasonable assumptions,
we caution that such statements are subject to a wide range of
risks, trends and uncertainties that could cause actual results
to differ materially from those projected. Among those risks,
trends and uncertainties are important factors that could cause
actual results to differ materially from the forward looking
statements, including, but not limited to; the effect of existing
and future laws, governmental regulations and the political and
economic climate of the United States; the effect of derivative
activities; and conditions in the capital markets. We undertake
no duty to update or revise these forward-looking statements.
When used in this Form 10-Q, the words, "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and
similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ
materially from those expressed or implied by these forward-
looking statements for a number of important reasons.
General
We are a development stage company formed solely for the
purpose of identifying and entering into a business combination
with a privately held business or company, domiciled and
operating in an emerging market, that is seeking the advantages
of being a publicly held corporation whose stock is eventually
traded on a major United States stock exchange. We intend to
focus on targets located primarily in Asia, South America and
Eastern Europe, as we believe that businesses with operating
history and growth potential in these locations would benefit
significantly from access to the United States capital markets
and may offer the potential of capital appreciation stemming from
the economic growth in such emerging markets.
Plan of Operation
As of the date of this registration statement, we have not
engaged in any business activities that generate revenue. Our
activities to date have been primarily focused upon our formation
and raising capital. We have conducted private offerings of our
ordinary shares, the proceeds of which we intend to use for
payment of costs associated with formation, accounting and
auditing fees, legal fees, and costs associated with identifying
acquisition targets and completing necessary due diligence. In
addition, we expect to incur costs related to filing periodic
reports with the Securities and Exchange Commission.
We believe we will be able to meet these costs for at least
the next 12 months using the funds that we have raised through
our private offerings. If necessary, we believe that we will be
able to raise additional funds through additional private sales
of ordinary shares, by obtaining loans from our shareholders,
management or other investors.
We may consider a business which has recently commenced
operations, is a developing company in need of additional funds
for expansion into new products or markets, is seeking to develop
a new product or service, or is an established business which may
be experiencing financial or operating difficulties and is in
need of additional capital. In the alternative, a business
combination may involve the acquisition of, or merger with, a
company which does not need substantial additional capital, but
which desires to establish a public trading market for its
shares, while avoiding, among other things, the time delays,
significant expense, and loss of voting control which may occur
in a public offering.
9
Continuing Operating Expenses
Because we currently do not have any business operations, we have
not had any revenues since inception. Total expenses for the
three months ended September 30, 2006 were $7,288 and $20,953 for
the period since inception. These expenses constituted
professional and filing fees.
Liquidity and Capital Resources
As of September 30, 2006, we had $34,237 in cash available
and had current liabilities of $4,381 to a related party and
$2,947 to unrelated parties. The Company is actively pursuing
merger opportunities as described in the "General" Section of
Management's Discussion and Analysis, and believes that its
current available cash will be sufficient for its operations
until a merger candidate is selected, but may seek additional
financing in connection with a potential business combination or
if it otherwise requires additional funds.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our Chief
Executive and Financial Officer has reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 240.13a-15(e) or 15d-15(e)) as of
the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer has concluded that our
current disclosure controls and procedures provide him with
reasonable assurance that they are effective to provide him with
timely material information relating to us required to be
disclosed in the reports we file or submit under the Exchange
Act.
Changes in Internal Control over Financial Reporting. Our
management has evaluated whether any change in our internal
control over financial reporting occurred during the last fiscal
quarter. Based on that evaluation, management concluded that
there has been no change in our internal control over financial
reporting during the relevant period 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.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On July 18, 2006, the Company sold 54,000 shares of its
restricted ordinary shares for $10,800. The restricted ordinary
shares were sold to 108 offshore private investors in a private
placement offering in lots of 500 shares each at $0.20 per share.
No underwriting discounts or commissions were paid with respect
to such sales. Such shares were sold pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit
Number Description
31 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities and Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements 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.
Dragon Acquisition Corporation
(Registrant)
By: /s/ JOSEPH R. ROZELLE
--------------------------------
JOSEPH R. ROZELLE
Chief Executive Officer
Date: November 14, 2006
11