I just got A baby dragon:

http://beastkeeper.com/pet/760882

Both parents had much better stats, but all of the baby's decreased.  Is there a particular reason that the dragon's stats are so low?

I don't see what you mean, the genes on that offspring are excellent for what the parents could produce. It even got boiling blood.

Are talking about the characteristics on the baby? There is nothing wrong with them. The parents are both a high level and so will have higher characteristics than their newborn lvl 1 baby. Characteristic's numbers are not passed on, the genes to boost them are though. Level the offspring up and youll see those numbers rising to meet or even exceed the parent's.

Oh! Thank you! That makes so much more sense. :)