SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


FORM
      10-KSB




x
      Annual Report Pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934




For
      the
      fiscal year ended: December 31, 2006




o
      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 000-51431




CHARDAN
      NORTH CHINA ACQUISITION CORPORATION


(Name
      of
      Small Business Issuer in Its Charter)




Delaware
              (State
                of Incorporation)
            20-2479743
              (Small
                Business Issuer
              Employer
                I.D. Number)







625
                Broadway, Suite 1111, San Diego, California
              (Address
                of principal executive offices)
            92101
              (zip
                code)




(619)
      795-4627


(Issuer’s
      Telephone Number, Including Area Code)




Securities
      registered pursuant to Section 12(b) of the Act:


None




Securities
      registered pursuant to Section 12(g) of the Act:


(1)
      Units
      consisting of one share of Common Stock, par value $.0001 per
      share,


and
      two
      Warrants Common Stock, $.0001 par value per share


(2)
      Common Stock, $0.0001 par value per share


(3)
      Warrants to purchase shares of Common Stock




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirement for the past 90 days. Yes x No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule12b-2
      of the Exchange Act). Yes x No
      o




Issuer’s
      revenues for the fiscal year ended December 31, 2006 were $0.









As
      of
      March 26, 2007, the aggregate market value of the common stock held by
      non-affiliates of the Registrant was approximately $45,367,500.




As
      of
      March 26, 2007, there were 7,000,000 shares of Common Stock, $.0001 par value
      per share, outstanding.




Transitional
      Small Business Disclosure Format (check one): Yes o No
      x




2
 
  PART
        I




ITEM
      1.
      DESCRIPTION OF BUSINESS




Chardan
      North China Acquisition Corporation is a blank check company that was formed
      on
      March 10, 2005 to effect a merger, capital stock exchange, asset acquisition
      or
      other similar business combination with an operating business that has its
      primary operating facilities located in the People’s Republic of China in any
      city or province north of the Yangtze River.




In
      August
      2005, we closed our initial public offering of 5,750,000 units, including
      750,000 units issued upon exercise of the underwriters’ over-allotment option,
      with each unit consisting of one share of our common stock and two warrants,
      each to purchase one share of our common stock at an exercise price of $5.00
      per
      share. The units were sold at an offering price of $6.00 per unit, generating
      gross proceeds of $34,500,000. After deducting the underwriting discounts and
      commissions and the offering expenses, the total net proceeds to us from the
      offering were approximately $30,946,000, of which $29,835,000 was deposited
      into
      a trust fund and the remaining proceeds (approximately $1,111,000) became
      available to be used to provide for business, legal and accounting due diligence
      on prospective business combinations and continuing general and administrative
      expenses. Through December 31, 2006, we have used all of the net proceeds that
      were not deposited into the trust fund to pay general and administrative
      expenses. The net proceeds deposited into the trust fund remain on deposit
      in
      the trust fund earning interest. As of December 31, 2006, there was $31,294,931
      held in the trust fund.




We
      are
      not presently engaged in, and we will not engage in, any substantive commercial
      business until we consummate a business combination. We intend to utilize our
      cash, including the funds held in the trust fund, capital stock, debt or a
      combination of the foregoing in effecting a business combination. 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 what it may deem to be adverse
      consequences of undertaking a public offering itself. These include time delays,
      significant expense, compliance with various Federal and state securities laws
      and the uncertainty of being able to raise the desired capital after expending
      considerable resources on the public offering process. In the alternative,
      we
      may seek to consummate a business combination with a company that may be
      financially unstable or in its early stages of development or growth.




Opportunities
      for market expansion have emerged for businesses with operations in China due
      to
      changes in the PRC’s political, economic and social policies as well as certain
      fundamental changes affecting the PRC and its neighboring countries. We believe
      that China represents both a favorable environment for making acquisitions
      and
      an attractive operating environment for a target business for several reasons,
      including:




§
            prolonged
                economic expansion within China, including gross domestic product
                growth
                of approximately 9% on average over the last 25 years with forecasted
                continued growth for at least the next several
                years;




§
            attractive
                valuations for target businesses within China;




§
            increased
                government focus within China on privatizing assets, improving foreign
                trade and encouraging business and economic activity;




§
            favorable
                labor rates and efficient, low-cost manufacturing capabilities;




§
            theentry
                of China into the World Trade Organization, the sole global international
                organization dealing with the rules of trade between nations, which
                may
                lead to a reduction on tariffs for industrial products, a reduction
                in
                trade restrictions and an increase in trading with the United States;
                and




§
            the
                fact that China’s public equity markets are not as well developed and
                active as the equity markets within the United States and are
                characterized by companies with relatively small market capitalizations
                and low trading volumes.




We
      believe that these factors and others should enable us to acquire a target
      business with growth potential on favorable terms.




3




**Recent
      Developments**




*Purchase
      Agreement for Proposed Business Combination*




On
      February 9, 2007, we entered into an Amended and Restated Stock Purchase
      Agreement (the “Stock Purchase Agreement”) with the holders of common stock of
      Gifted Time Holding Co. Ltd. (“Gifted Time”), which incorporates all previous
      amendments to the stock purchase agreement dated as of February 2, 2006, for
      the
      acquisition of Gifted Time, which is a holding company owning controlling
      interests in two Chinese companies (Beijing HollySys and Hangzhou HollySys)
      engaged in the production and sale of industrial automation and control systems
      (“HollySys”). For a more complete discussion of our proposed business
      combination, including the risks that are applicable to us with respect to
      our
      acquisition of HollySys, see our Registration Statement on Form S-4, as amended
      (the “S-4 Registration Statement”).




We
      expect
      that the transaction will be consummated in the second or third quarter of
      2007,
      after the required approval by our stockholders. However, unless otherwise
      indicated, the remainder of this Annual Report on Form 10-KSB reports on our
      operations as if the business combination with Gifted Time will not take place.




*Selection
      of a target business and structuring of a business combination*




Subject
      to the requirement that the target business must have its primary operating
      facilities located in China in any city or province north of the Yangtze River,
      our management had virtually unrestricted flexibility in identifying and
      selecting a prospective target business. In evaluating a prospective target
      business, our management considered, among other factors, the following:




·
            financial
                condition and results of operation;




·
            growth
                potential;




·
            experience
                and skill of management and availability of additional personnel;




·
            capital
                requirements;




·
            competitive
                position;




·
            stage
                of development of the products, processes or services;




·
            degree
                of current or potential market acceptance of the products, processes
                or
                services;




·
            proprietary
                features and degree of intellectual property or other protection
                of the
                products, processes or services;




·
            regulatory
                environment of the industry; and




·
            costs
                associated with effecting the business combination.




In
      evaluating HollySys as a target business, we conducted thorough due diligence
      reviews which encompassed, among other things, meetings with incumbent
      management and inspection of facilities, as well as review of financial and
      other information made available to us. Additional information about the
      selection of HollySys as the target business is contained in the S-4
      Registration Statement.




Fair
      Market Value of Target Business




In
      order
      for us to conclude the proposed transaction, Gifted Time must have a fair market
      value equal to at least 80% of our net assets at the time of such acquisition.
      The fair market value of Gifted Time was determined by our board of directors
      based upon standards generally accepted by the financial community, such as
      actual and potential sales, earnings and cash flow and book value.




4




Opportunity
      for stockholder approval of business combination




We
      will
      submit the proposed business combination with Gifted Time (for the acquisition
      of controlling interests in HollySys) to our stockholders for approval once
      the
      S-4 Registration Statement providing them with information about the transaction
      is effective. The S-4 Registration Statement will have been prepared in
      accordance with the Securities Exchange Act of 1934, and it will include, among
      other things, a description of the operations of HollySys and audited and
      reviewed historical financial statements of Gifted Time, its controlling
      shareholder.




In
      connection with the vote required for a business combination with Gifted Time,
      our Founders have agreed to vote their respective shares of common stock owned
      by them (“Founder Shares”) in accordance with the vote of the majority of the
      shares of our common stock sold in the initial public offering (“IPO Shares”).
      We will proceed with the business combination only if a majority of the
      outstanding shares are voted in favor of the business combination with Gifted
      Time and stockholders holding less than 20% of the IPO Shares exercise their
      conversion rights.




Conversion
      rights




At
      the
      time we seek stockholder approval of the business combination with Gifted Time,
      we will offer the holders of IPO Shares the right to have those shares converted
      to cash if the stockholder votes against the business combination, requests
      conversion and the business combination is approved and completed. The actual
      per-share conversion price will be equal to the amount in the trust fund,
      inclusive of any interest, as of the record date for determination of
      stockholders entitled to vote on the business combination, divided by the total
      number of IPO Shares. Any request for conversion, once made, may be withdrawn
      at
      any time up to the date of the meeting. We anticipate that the funds to be
      distributed to stockholders entitled to convert their shares who elect
      conversion will be distributed promptly after completion of a business
      combination. We will not complete any business combination if stockholders
      owning 20% or more of the IPO Shares exercise their conversion
      rights.




Liquidation
      if no business combination




If
      we do
      not complete a business combination by August 10, 2007, our certificate of
      incorporation requires that we commence dissolution and distribute to all
      holders of IPO Shares, in proportion to the number of IPO Shares held by them,
      an aggregate sum equal to the amount in the trust fund, inclusive of any
      interest, plus any remaining net assets. The Founders have waived their rights
      to participate in any liquidation distribution with respect to their Founder
      Shares. There will be no distribution from the trust fund with respect to our
      warrants. Upon notice from us, the trustee of the trust fund will commence
      liquidating the investments constituting the trust fund and will turn over
      the
      proceeds to our transfer agent for distribution to our stockholders.




However,
      if we have not conducted our stockholder vote by a date that will enable us
      to
      conclude the business combination with HollySys by August 10, 2007, or at such
      time as it appears probable we will not be able to conduct our stockholder
      vote
      to enable the combination with HollySys to take place on or before August 10,
      2007, we intend to seek approval from our stockholders to extend the date by
      which we must complete a business combination. The principal factor that will
      determine whether we will need to amend our certificate of incorporation for
      that purpose is the date by which the S-4 Registration Statement is or can
      be
      expected to be declared effective by the SEC.




Should
      we
      liquidate, the proceeds deposited in the trust fund could become subject to
      the
      claims of our creditors which could be prior to the claims of our public
      stockholders. Dr. Richard D. Propper, our chairman of the board, and Kerry
      Propper, our executive vice president and a member of our board of directors,
      has each agreed that, if we liquidate prior to the consummation of a business
      combination, each will be personally liable to pay debts and obligations to
      vendors or other entities that are owed money by us for services rendered or
      products sold to us, or to any target business, in excess of the net proceeds
      of
      our initial public offering not held in the trust account.




**Competition**




Because
      we have entered into a binding agreement for the acquisition of Gifted Time,
      we
      no longer face competition in identifying, evaluating and selecting a target
      business.




5




**Government
      regulations**




Government
      regulations relating to acquisition transactions




On
      September 8, 2006, the Ministry of Commerce of the PRC, in conjunction with
      several other government agencies, promulgated regulations governing the process
      by which a Chinese company must secure approval to participate in an acquisition
      of its assets or its equity interests and by which a Chinese company may obtain
      public trading of its securities on a securities exchange outside the PRC (the
      “M&A Regulations”). The new regulations have largely centralized the
      approval process that had formerly been carried out by a combination of
      provincial and central government agencies within the Ministry of Commerce
      (MOFCOM), the State Administration of Industry and Commerce (SAIC), the State
      Administration of Foreign Exchange (SAFE) or its branch offices, the State
      Asset
      Supervision and Administration Commission, and the China Securities Regulatory
      Commission (CSRC) and also expanded the scope of the prior regulations.




Depending
      on the structure of the acquisition transaction, the M&A Regulations may
      require the Chinese parties of the acquisition transaction to make a series
      of
      applications and supplemental applications to the aforementioned agencies,
      some
      of which must be made within strict time limits and require approvals from
      one
      or the other of the aforementioned agencies. The application process has been
      supplemented to require the presentation of economic data concerning a
      transaction, including appraisals of the business to be acquired and valuation
      of the acquirer to permit the government to assess the fairness of the economics
      of a transaction in addition to its compliance with legal requirements. If
      obtained, approvals will have expiration dates by which a transaction must
      be
      completed. Also, completed transactions must be reported to MOFCOM and some
      of
      the other agencies within a short period after closing or be subject to an
      unwinding of the transaction.




It
      is
      expected that compliance with the M&A Regulations will be more time
      consuming than in the past, will be more costly for the Chinese parties and
      will
      permit the Chinese government much more extensive evaluation and control over
      the terms of the transaction. Therefore, it may not be possible to complete
      certain acquisitions in China because the terms of the transaction may not
      satisfy the criteria used in the approval process or, even if approved, if
      they
      are not consummated within the time permitted by the approvals granted (for
      example, we have not obtained our stockholder approval within the time required
      by the M&A Regulations for sanctioning the transaction).




The
      M&A Regulations have introduced aspects of economic and substantive analysis
      of the target business and the acquirer and the terms of the transaction by
      MOFCOM and the other governing agencies by requiring submission of an appraisal
      report, an evaluation report and the acquisition agreement, all of which form
      part of the application for approval. The regulations also prohibit a
      transaction at an acquisition price that is obviously lower than the appraised
      value of the Chinese business or assets. The regulations require that in certain
      transaction structures, the consideration must be paid within strict time
      periods, generally not in excess of one year. Because the Chinese authorities
      have expressed concern with offshore transactions which converted domestic
      companies into foreign invested enterprises (FIEs), the new regulations require
      that there be new foreign-sourced capital of not less than 25% of the domestic
      company’s post-acquisition registered capital in order to obtain FIE treatment.
      In asset transactions, there must be no harm to third parties or the public
      interest as a result of the allocation of assets and liabilities being assumed
      or acquired. These aspects of the regulations may limit our ability to negotiate
      various terms of an acquisition, including aspects of the initial consideration,
      contingent consideration, holdback provisions, indemnification provisions and
      provisions relating to the assumption and allocation of assets and liabilities.
      Therefore, in any future business combinations or acquisitions of Chinese
      companies, we may not be able to negotiate a transaction with terms that will
      satisfy both the requirements of the Chinese regulations and protect our
      stockholders’ interests.




The
      M&A Regulations also give the approving agencies authority to restrict
      foreign ownership of Chinese domestic companies engaged in “important
      industries.” The regulatory agencies have some discretion in determining whether
      a Chinese company falls within that category, but among the transactions that
      may be subject to these restrictions are those involving companies whose
      acquisition by foreign interests may affect national economic security or result
      in the transfer of “actual control” of companies having “famous Chinese brand
      names” or “well established Chinese brand names.” The M&A Regulations also
      provide for antitrust review for certain large transactions or transactions
      involving large companies, as well as roll-up transactions with the same effect
      in the relevant Chinese market. In addition, certain mergers and acquisitions
      among foreign companies occurring outside of the PRC could also be subject
      to
      antitrust review in China similar to those done under United States anti-trust
      law concepts. The regulations use criteria related to economic aspects of the
      parties or markets involved to determine if a transaction is subject to
      scrutiny, including any one of the following: level of sales or assets within
      China, control of 20% or more of the Chinese market on a pre-transaction basis,
      or control of 25% or more of the Chinese market as a result of the transaction.
      Exemptions may be sought from the MOFCOM and SAIC on the basis that: (i) the
      transaction will improve market competition, (ii) the transaction will
      restructure unprofitable entities and ensure employment, (iii) the transaction
      will introduce high technologies and increase international competitiveness,
      and
      (iv) the transaction will improve the environment.




6




The
      M&A Regulations set forth many specific requirements, but there are still
      many ambiguities in the meaning of many provisions that will be resolved only
      as
      practices and standards under the regulations develop. Further regulations
      are
      anticipated, but until there has been clarification either by pronouncement,
      regulation or practice, there is some uncertainty regarding the scope of the
      M&A Regulations and the manner in which they will apply to and the effect
      that they will have on the proposed transaction. Moreover, the ambiguities
      allow
      the regulators wide latitude in the enforcement of the regulations and in
      determining the transactions to which they may or may not apply.




We
      have
      given careful consideration to the effect that the M&A Regulations might
      have on our proposed business combination with Gifted Time. We have assisted
      Gifted Time in taking steps that will minimize the application of the M&A
      regulations to the proposed transaction. As a result, we do not believe that
      our
      business combination with Gifted Time will require approval under the M&A
      Regulations, but there remains a risk that the proposed transaction will be
      subject to approval by Chinese regulators. Additional information concerning
      the
      M&A Regulations is contained in the S-4 Registration Statement.




Government
      regulations relating to taxation




Under
      the
      PRC’s current tax laws, regulations and rulings, companies providing certain
      services, assigning intangible assets or selling immovable property are subject
      to a business tax at a rate ranging from 3% to 20% of the charges of the
      services provided, intangible assets assigned or immovable property sold, as
      the
      case may be. According to the Applicable Foreign Enterprises Tax Law, income
      such as dividends and profits distribution from the PRC derived from a foreign
      enterprise which has no establishment in the PRC is subject to a 10% withholding
      tax, subject to reduction as provided by any applicable double taxation treaty,
      unless the relevant income is specifically exempted from tax under the
      Applicable Foreign Enterprises Tax Law. The profit derived by a foreign investor
      from a PRC enterprise is currently exempted from PRC tax according to the
      Applicable Foreign Enterprises Tax Law. However, if this exemption were to
      be
      removed in the future, we might be required to deduct certain amounts from
      dividends we may pay to our stockholders following a business combination to
      pay
      corporate withholding taxes.




**Employees**




We
      have
      four executive officers, each of whom is a member of our board of directors.
      These individuals are not obligated to contribute any specific number of hours
      to our matters and intend to devote only as much time as they deem necessary
      to
      our affairs. The amount of time they devote in any time period will vary based
      on the availability of suitable target businesses to investigate. We do not
      intend to have any full time employees prior to the consummation of a business
      combination.




**Risks
      associated with our business**




In
      addition to other information included in this report and in addition to the
      risks associated with the proposed acquisition of Gifted Time (which are
      discussed in the S-4 Registration Statement), the following factors should
      be
      considered in evaluating our business and future prospects.




*We
      are a development stage company with no operating history and very limited
      resources.*




We
      are a
      recently incorporated development stage company with no operating results to
      date. Since we do not have an operating history, you will have no basis upon
      which to evaluate our ability to achieve our business objective, which is to
      acquire an operating business that has its primary operating facilities located
      in the PRC in any city or province south of the Yangtze River. We will not
      generate any revenues until, at the earliest, after the consummation of a
      business combination.




*If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders will be
      adversely affected.*




Our
      placing of funds in trust may not protect those funds from third party claims
      against us. The proceeds held in trust could be subject to claims which could
      take priority over the claims of our public stockholders. If we liquidate before
      the completion of a business combination, Dr. Richard D. Propper, our chairman
      of the board, and Kerry Propper, our executive vice president and a member
      of
      our board of directors, will be personally liable under certain circumstances
      to
      ensure that the proceeds in the trust fund are not reduced by the claims of
      various vendors or other entities that are owed money by us for services
      rendered or products sold to us. However, we cannot assure you that these
      individuals will be able to satisfy those obligations.




7




*We
      may incorrectly ascertain the merits or risks of the business’ operations with
      which we enter into an acquisition agreement.*




To
      the
      extent we complete a business combination with a financially unstable company
      or
      an entity in its development stage, we may be affected by numerous risks
      inherent in the business operations of those entities. Although our management
      will endeavor to evaluate the risks inherent in a particular target business
      or
      industry, we cannot assure you that we will properly ascertain or assess all
      of
      the significant risk factors. We also cannot assure you that an investment
      in
      our securities will not ultimately prove to be less favorable than a direct
      investment, if an opportunity were available, in a target business.




*We
      may issue shares of our common stock and preferred stock to complete a business
      combination, which would reduce the equity interest of our stockholders and
      likely cause a change in control of our ownership.*




Our
      certificate of incorporation authorizes the issuance of up to 20,000,000 shares
      of common stock, par value $.0001 per share, and 1,000,000 shares of preferred
      stock, par value $.0001 per share. We will, in all likelihood, issue a
      substantial number of additional shares of our common stock or preferred stock,
      or a combination of common and preferred stock, to complete a business
      combination and have to increase our capitalization as a result. The issuance
      of
      additional shares of our common stock or any number of shares of our preferred
      stock:




§
            may
                significantly reduce the equity interest of stockholders;




§
            will
                likely cause a change in control if a substantial number of our shares
                of
                common stock are issued, which may affect, among other things, our
                ability
                to use our net operating loss carry forwards, if any, and most likely
                also
                result in the resignation or removal of our present officers and
                directors; and




§
            may
                adversely affect prevailing market prices for our common
                stock.




Similarly,
      if we issue debt securities, it could result in:




§
            default
                and foreclosure on our assets if our operating revenues after a business
                combination were insufficient to pay our debt obligations;




§
            acceleration
                of our obligations to repay the indebtedness even if we have made
                all
                principal and interest payments when due if the debt security contains
                covenants that require the maintenance of certain financial ratios
                or
                reserves and any such covenant is breached without a waiver or
                renegotiation of that covenant;




§
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security is payable on demand; and




§
            our
                inability to obtain additional financing, if necessary, if the debt
                security contains covenants restricting our ability to obtain additional
                financing while such security is
                outstanding.




*We
      would be required to dissolve if we cannot complete the acquisition of Gifted
      Time by August 10, 2007 or obtain stockholder approval for an extension of
      the
      dissolution date.*




Our
      certificate of incorporation requires us to commence dissolving the Company
      if
      we do not complete a business combination by August 10, 2007. To complete that
      business combination, we must obtain requisite approval of our stockholders;
      and
      to solicit stockholder approval, we must resolve all remaining comments raised
      by the staff of the SEC in its review of our S-4 Registration Statement. If
      we
      expect that we will not be able to complete the business combination transaction
      with Gifted Time by the August 10, 2007 deadline, we will likely seek
      stockholder approval to extend that deadline. If we do not complete the business
      combination transaction by the deadline (as it may be extended), our
      stockholders will likely receive less than the price they paid for their
      shares.




8




*It
      is
      likely that most or all of our current officers and directors will resign upon
      consummation of a business combination and we will have only limited ability
      to
      evaluate the management of the target business.*




Our
      ability to successfully effect a business combination will be totally dependent
      upon the efforts of our key personnel. The future role of our key personnel
      in
      the target business, however, cannot presently be ascertained. Although it
      is
      possible that some of our key personnel will remain associated in various
      capacities with the target business following a business combination, it is
      likely that the management of the target business at the time of the business
      combination will remain in place. Although we intend to closely scrutinize
      the
      management of a prospective target business in connection with evaluating the
      desirability of effecting a business combination, we cannot assure you that
      our
      assessment of management will prove to be correct.




*Our
      officers and directors may allocate their time to other businesses thereby
      causing conflicts of interest in their determination as to how much time to
      devote to our affairs. This could have a negative impact on our ability to
      consummate a business combination.*




Our
      officers and directors are not required to commit their full time to our
      affairs, which may result in a conflict of interest in allocating their time
      between our operations and other businesses. We do not intend to have any full
      time employees prior to the consummation of a business combination. All of
      our
      executive officers are engaged in several other business endeavors and are
      not
      obligated to contribute any specific number of hours to our affairs. If our
      executive officers’ other business affairs require them to devote more
      substantial amounts of time to such affairs, it could limit their ability to
      devote time to our affairs and could have a negative impact on our ability
      to
      consummate a business combination.




*Our
      officers and directors are affiliated with entities engaged in business
      activities similar to those intended to be conducted by us and, accordingly,
      may
      have conflicts of interest in determining which entity a particular business
      opportunity should be presented to.*




Our
      officers and directors are affiliated with entities, including other “blank
      check” companies, engaged in business activities similar to those intended to be
      conducted by us. Additionally, our officers and directors may become aware
      of
      business opportunities which may be appropriate for presentation to us as well
      as the other entities to which they have fiduciary obligations. Accordingly,
      they may have conflicts of interest in determining to which entity a particular
      business opportunity should be presented. We cannot assure you that these
      conflicts will be resolved in our favor.




*All
      of our officers and directors own shares of our common stock which will not
      participate in liquidation distributions and therefore they may have a conflict
      of interest in determining whether a particular target business is appropriate
      for a business combination.*




All
      of
      our officers and directors own stock in our company, but have waived their
      right
      to receive distributions upon our liquidation. The shares and warrants owned
      by
      our directors and officers will be worthless if we do not consummate a business
      combination. The personal and financial interests of our directors and officers
      may influence their motivation in identifying and selecting a target business
      and completing a business combination timely. Consequently, our directors’ and
      officers’ discretion in identifying and selecting a suitable target business may
      result in a conflict of interest when determining whether the terms, conditions
      and timing of a particular business combination are appropriate and in our
      stockholders’ best interest.




*It
      is
      probable that we will consummate a business combination with a single operating
      business. Accordingly, the prospects for our success may be:*




§
            solely
                dependent upon the performance of a single business, or




§
            dependent
                upon the development or market acceptance of a single or limited
                number of
                products, processes or services.




In
      this
      case, we will not be able to diversify our operations or benefit from the
      possible spreading of risks or offsetting of losses, unlike other entities
      which
      may have the resources to complete several business combinations in different
      industries or different areas of a single industry.




9




*We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.*




We
      have
      already fully depleted the amounts held outside the Trust Fund in our efforts
      to
      find a suitable business combination and to consummate that transaction. To
      date
      we have had to borrow funds from affiliates to continue our operations, and
      we
      likely will need to borrow additional amounts before the transaction with Gifted
      Time is consummated. None of our officers, directors or stockholders is required
      to provide any financing to us in connection with or after a business
      combination, and it is possible that our affiliates will be unwilling or unable
      to provide the additional needed funds. Those funds may not be available from
      other sources, or they may only be available on unfavorable terms. We do not
      anticipate that necessary capital will be unavailable, but should that be the
      case we may need to abandon the proposed transaction with Gifted Time. Any
      obligations that the Company incurs over and above the amounts outside the
      Trust
      Fund, will become the obligations of the resulting company should the Gifted
      Time transaction occur. Depending on how large those obligations become, it
      might be necessary to restructure the transaction or we might need to abandon
      the transaction.




*Our
      existing stockholders, including our officers and directors, control a
      substantial interest in us and thus may influence certain actions requiring
      stockholder vote.*




Our
      board
      of directors is divided into three classes, each of which will generally serve
      for a term of three years with only one class of directors being elected in
      each
      year. It is unlikely that there will be an annual meeting of stockholders to
      elect new directors prior to the consummation of a business combination, in
      which case all of the current directors will continue in office at least until
      the consummation of the business combination. If there is an annual meeting,
      as
      a consequence of our “staggered” board of directors, only a minority of the
      board of directors will be considered for election and our existing
      stockholders, because of their ownership position, will have considerable
      influence regarding the outcome. Accordingly, our existing stockholders will
      continue to exert considerable control at least until the consummation of a
      business combination.




*Our
      outstanding warrants may have an adverse effect on the market price of common
      stock and make it more difficult to effect a business combination.*




We
      currently have outstanding warrants to purchase 11,500,000 shares of common
      stock and an option to purchase a total of 250,000 shares of common stock and
      warrants to purchase an additional 500,000 shares of common stock. To the extent
      we issue shares of common stock to effect a business combination, the potential
      for the issuance of substantial numbers of additional shares upon exercise
      of
      these warrants and options could make us a less attractive acquisition vehicle
      in the eyes of a target business as such securities, when exercised, will
      increase the number of issued and outstanding shares of our common stock and
      reduce the value of the shares issued to complete the business combination.
      Accordingly, our warrants and options may make it more difficult to effectuate
      a
      business combination or increase the cost of the target business. Additionally,
      the sale, or even the possibility of sale, of the shares underlying the warrants
      and options could have an adverse effect on the market price for our securities
      or on our ability to obtain future public financing. If and to the extent these
      warrants and options are exercised, there will be dilution to the holders of
      the
      common stock.




*If
      we
      are unable to effect a business combination and are forced to liquidate, our
      warrants will expire worthless.*




If
      we do
      not complete a business combination by August 10, 2007, we will be dissolved
      and
      will distribute to all holders of IPO Shares, in proportion to the number of
      IPO
      Shares held by them, an aggregate sum equal to the amount in the trust fund,
      inclusive of any interest, plus any remaining net assets. In such event, there
      will be no distribution with respect to our outstanding warrants. Accordingly,
      the warrants will expire worthless.




*If
      our Founders exercise their registration rights, it may have an adverse effect
      on the market price of our common stock and the existence of these rights may
      make it more difficult to effect a business combination.*




Our
      Founders are entitled to demand that we register the resale of their shares
      of
      common stock at any time after the date on which their shares are released
      from
      escrow. If our Founders exercise their registration rights with respect to
      all
      of their shares of common stock, then there will be an additional 1,250,000
      shares of common stock eligible for trading in the public market. The presence
      of this additional number of shares of common stock eligible for trading in
      the
      public market may have an adverse effect on the market price of our common
      stock. In addition, the existence of these rights may make it more difficult
      to
      effectuate a business combination or increase the cost of the target business,
      as the stockholders of the target business may be discouraged from entering
      into
      a business combination with us or will request a higher price for their
      securities as a result of these registration rights and the potential future
      effect their exercise may have on the trading market for our common
      stock.




10




*Our
      securities are quoted on the OTC Bulletin Board, which limits the liquidity
      and
      price of our securities.*




Our
      securities are traded on the OTC Bulletin Board, an NASD-sponsored and operated
      inter-dealer automated quotation system for equity securities not included
      on
      The Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board
      limits the liquidity and price of our securities more than if our securities
      were quoted or listed on The Nasdaq Stock Market or a national
      exchange.




*If
      we
      are deemed to be an investment company, we may be required to institute
      burdensome compliance requirements and our activities may be restricted, which
      may make it difficult for us to complete a business combination.*




If
      we are
      deemed to be an investment company under the Investment Company Act of 1940,
      our
      activities may be restricted, including:




§
            restrictions
                on the nature of our investments; and




§
            restrictions
                on the issuance of securities,




which
      may
      make it difficult for us to complete a business combination.




In
      addition, we may have imposed upon us burdensome requirements,
      including:




§
            registration
                as an investment company;




§
            adoption
                of a specific form of corporate structure; and




§
            reporting,
                record keeping, voting, proxy and disclosure requirements and other
                rules
                and regulations.




We
      do not
      believe that our anticipated principal activities will subject us to the
      Investment Company Act of 1940. To this end, the proceeds held in trust may
      only
      be invested by the trust agent in “government securities” with specific maturity
      dates. By restricting the investment of the proceeds to these instruments,
      we
      intend to meet the requirements for the exemption provided in Rule 3a-1
      promulgated under the Investment Company Act of 1940. If we were deemed to
      be
      subject to that act, compliance with these additional regulatory burdens would
      require additional expense that we have not budgeted.




***Risks
      associated with our acquisition of a target business in the
      PRC.***




*If
      the PRC does not continue its policy of economic reforms, it could, among other
      things, result in an increase in tariffs and trade restrictions on products
      we
      ultimately produce or sell following a business combination.*




The
      PRC
      government has been reforming its economic system since the late 1970s. The
      economy of the PRC has historically been a nationalistic, “planned economy,”
meaning it has functioned and produced according to governmental plans and
      pre-set targets or quotas. However, in recent years, the PRC government has
      implemented measures emphasizing the utilization of market forces for economic
      reform and the reduction of state ownership in business enterprises. We cannot
      predict the timing or extent of any future economic reforms that may be
      proposed.




*If
      relations between the United States and the PRC deteriorate, it could cause
      potential target businesses or their goods or services to become less
      attractive.*




The
      relationship between the United States and the PRC is subject to sudden
      fluctuation and periodic tension. In the recent past the United States has
      announced its intention to impose quotas on various Chinese imports, which
      may
      be extended for several years. Such import quotas may adversely affect political
      relations between the two countries and result in retaliatory countermeasures
      by
      the PRC in industries that may affect our ultimate target business. Relations
      may also be compromised if the U.S. becomes a more vocal advocate of Taiwan
      or
      proceeds to sell certain military weapons and technology to Taiwan. Changes
      in
      political conditions in the PRC and changes in the state of Sino-U.S. relations
      are difficult to predict and could adversely affect our operations or cause
      potential target businesses or their goods and services to become less
      attractive. Because we are not limited to any specific industry, there is no
      basis for investors in this offering to evaluate the possible extent of any
      impact on our ultimate operations if relations are strained between the PRC
      and
      the United States.




11




*If
      the PRC imposes restrictions to reduce inflation, future economic growth in
      the
      PRC could be severely curtailed, which could lead to a significant decrease
      in
      our profitability following a business combination.*




While
      the
      economy of the PRC has experienced rapid growth, this growth has been uneven
      among various sectors of the economy and in different geographical areas of
      the
      country. Rapid economic growth can lead to growth in the supply of money and
      rising inflation. If prices for the products of our ultimate target business
      rise at a rate that is insufficient to compensate for the rise in the costs
      of
      supplies, it may have an adverse effect on profitability. In order to control
      inflation in the past, the PRC has imposed controls on bank credits, limits
      on
      loans for fixed assets and restrictions on state bank lending. If similar
      restrictions are imposed, it may lead to a slowing of economic growth. Because
      we are not limited to any specific industry, the ultimate industry that we
      operate in may be affected more severely by such a slowing of economic
      growth.




*Any
      devaluation of currencies used in the PRC could negatively impact our target
      business’ results of operations and cause the cost of a target business as
      measured in dollars to increase.*




Because
      our objective is to acquire a target business having its primary operating
      facilities located in the PRC, and because substantially all revenues and income
      would be received in a foreign currency such as Renminbi, the main currency
      used
      in the PRC, the dollar equivalent of our net assets and distributions, if any,
      would be adversely affected by reductions in the value of the Renminbi. The
      value of the Renminbi fluctuates and is affected by, among other things, changes
      in the PRC’s political and economic conditions. The conversion of Renminbi into
      foreign currencies such as the dollar has been generally based on rates set
      by
      the People’s Bank of China, which are set daily based on the previous day’s
      interbank foreign exchange market rates and current exchange rates on the world
      financial markets. However, any devaluation may materially and adversely affect
      a target business. If the Renminbi appreciates in value against the dollar
      prior
      to the consummation of a business combination, the cost of a target business
      as
      measured in dollars will increase.




*Because
      Chinese law will govern almost all of any target business material agreements,
      we may not be able to enforce our rights within the PRC or elsewhere, which
      could result in a significant loss of business, business opportunities or
      capital.*




Chinese
      law will govern almost all of our target business’ material agreements, many of
      which may be with Chinese governmental agencies. We cannot assure you that
      the
      target business will be able to enforce any of its material agreements or that
      remedies will be available outside of the PRC. The system of laws and the
      enforcement of existing laws in the PRC may not be as certain in implementation
      and interpretation as in the United States. The Chinese judiciary is relatively
      inexperienced in enforcing corporate and commercial law, leading to a higher
      than usual degree of uncertainty as to the outcome of any litigation. The
      inability to enforce or obtain a remedy under any of our future agreements
      could
      result in a significant loss of business, business opportunities or capital.




After
      the
      consummation of a business combination, substantially all of our assets and
      most
      of our directors and officers will be located outside of the United States.
      As a
      result, it may not be possible for investors in the United States to enforce
      their legal rights, to effect service of process upon our directors or officers
      or to enforce judgments of United States courts predicated upon civil
      liabilities and criminal penalties of our directors and officers under Federal
      securities laws. Moreover, we have been advised that the PRC does not have
      treaties providing for the reciprocal recognition and enforcement of judgments
      of courts with the United States. Further, it is unclear if extradition treaties
      now in effect between the United States and the PRC would permit effective
      enforcement of criminal penalties of the Federal securities laws.




*Many
      industries in China are subject to government regulations that limit or prohibit
      foreign investments in such industries, which may limit the potential number
      of
      acquisition candidates.*




The
      Chinese government has imposed regulations in various industries that would
      limit foreign investors’ equity ownership or prohibit foreign investments
      altogether in companies that operate in such industries. As a result, the number
      of potential acquisition candidates available to us may be limited.




12




*If
      the United States imposes trade sanctions on the PRC due to its current currency
      policies, our target business’ ability to succeed in the international markets
      may be diminished.*




Trade
      groups in the United States have blamed the cheap value of the Chinese currency
      for causing job losses in American factories, giving exporters an unfair
      advantage and making its imports expensive. If Congress deems this to be the
      case, tariffs would be imposed on Chinese imports in addition to those already
      in force. If an additional tariff is imposed, it is possible that China-based
      companies will no longer maintain significant price advantages over foreign
      companies, including the United States, on their goods and
      services.




ITEM
      2.
      DESCRIPTION OF PROPERTY




We
      maintain our executive offices at 625 Broadway, Suite 1111, San Diego,
      California pursuant to an agreement with Chardan Ventures LLC, an affiliate
      of
      Dr. Richard D. Propper, our chairman of the board, and Jiangnan Huang and Zhang
      Li, each a member of our board of directors. We pay Chardan Ventures a monthly
      fee of $7,500 which is for general and administrative services including office
      space, utilities and secretarial support. We believe, based on rents and fees
      for similar services in the San Diego metropolitan area, that the fee charged
      by
      Chardan Ventures is at least as favorable as we could have obtained from an
      unaffiliated person. We consider our current office space adequate for our
      current operations.




ITEM
      3.
      LEGAL PROCEEDINGS




None.




ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.




13




PART
      II




ITEM
      5.
      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Market
      Information




Our
      units, common stock and warrants are traded on the Over-the-Counter Bulletin
      Board under the symbols CNCAU, CNCA and CNCAW respectively. The following table
      sets forth the range of high and low closing bid prices for the units, common
      stock and warrants for the periods indicated since such units commenced public
      trading on August 3, 2005 and since such common stock and warrants commenced
      public trading on August 31, 2005. The over-the-counter market quotations
      reflect inter-dealer prices, without retail mark-up, mark-down or commission
      and
      may not necessarily reflect actual transactions.




Common
                Stock
            
            Warrants
            
            UnitsHigh
            
            Low
            
            High
            
            Low
            
            High
            
            Low2005:Third
                Quarter (beginning August 3, 2005)
            
            $
            6.00
            
            $
            5.17
            
            $
            1.15
            
            $
            0.70
            
            $
            7.50
            
            $
            6.15Fourth
                Quarter
            
            $
            5.75
            
            $
            5.15
            
            $
            1.86
            
            $
            1.01
            
            $
            9.30
            
            $
            7.202006:First
                Quarter
            
            $
            12.90
            
            $
            5.74
            
            $
            7.38
            
            $
            1.65
            
            $
            27.50
            
            $
            9.10Second
                Quarter
            
            $
            12.60
            
            $
            7.45
            
            $
            7.45
            
            $
            2.60
            
            $
            27.40
            
            $
            12.50Third
                Quarter
            
            $
            9.40
            
            $
            7.02
            
            $
            4.60
            
            $
            2.50
            
            $
            18.75
            
            $
            12.00Fourth
                Quarter
            
            $
            8.68
            
            $
            8.53
            
            $
            3.60
            
            $
            3.59
            
            $
            16.40
            
            $
            16.00




As
      of
      March 30, 2007, there were 34 holders of record of our units, 374 holders of
      record of our common stock and 344 holders of record of our warrants. We believe
      the beneficial holders of the units, common stock and warrants to be in excess
      of 400 persons each.




Dividends




We
      have
      not paid any dividends on our common stock to date and do not intend to pay
      dividends prior to the completion of a business combination. The payment of
      dividends in the future will be contingent upon our revenues and earnings,
      if
      any, capital requirements and general financial condition subsequent to
      completion of a business combination. The payment of any dividends subsequent
      to
      a business combination will be within the discretion of our then board of
      directors. It is the present intention of our board of directors to retain
      all
      earnings, if any, for use in our business operations and, accordingly, our
      board
      does not anticipate declaring any dividends in the foreseeable future.




Initial
      Public Offering




In
      August
      2005, we closed our initial public offering of 5,750,000 units, including
      750,000 units issued upon exercise of the underwriters’ over-allotment option,
      with each unit consisting of one share of our common stock and two warrants,
      each to purchase one share of our common stock at an exercise price of $5.00
      per
      share. The units were sold at an offering price of $6.00 per unit, generating
      gross proceeds of $34,500,000. The representative of the underwriters in the
      offering was EarlyBirdCapital, Inc. The securities sold in the offering were
      registered under the Securities Act of 1933 on a registration statement on
      Form
      S-1 (No. 333-125016).




We
      paid a
      total of $3,035,000 in underwriting discounts and commissions, and approximately
      $519,257 was paid for costs and expenses related to the offering. After
      deducting the underwriting discounts and commissions and the offering expenses,
      the total net proceeds to us from the offering were approximately $30,946,000,
      of which $29,835,000 was deposited into a trust fund and the remaining proceeds
      (approximately $1,111,000) became available to be used to provide for business,
      legal and accounting due diligence on prospective business combinations and
      continuing general and administrative expenses. The net proceeds deposited
      into
      the trust fund and the interest earned on the proceeds remain on deposit in
      the
      trust fund.




14




Information
      regarding other expenses incurred for the year ended December 31, 2006 appears
      following Item 6 of this Report.




ITEM
      6.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




We
      were
      formed on March 10, 2005 to serve as a vehicle to effect a merger, capital
      stock
      exchange, asset acquisition or other similar business combination with an
      operating business that has its primary operating facilities located in the
      People's Republic of China north of the Yangtze River. We intend to utilize
      cash
      derived from the proceeds of our recently completed public offering, our capital
      stock, debt or a combination of cash, capital stock and debt, in effecting
      a
      business combination.




We
      consummated our initial public offering on August 10, 2005. All of our activity
      from March 10, 2005 through August 10, 2005 related to our formation and our
      initial public offering. Since August 10, 2005, we have been engaged in a search
      for a business with which to combine and, since the entry into a definitive
      agreement with the shareholders of Gifted Time in February 2006, bringing the
      transactions contemplated by that agreement to consummation.




We
      incurred a net loss of $368,117 for the year ended December 31, 2006, as
      compared to a net loss of $101,742 for the year ended December 31, 2005. Our
      total costs and expenses for 2006, all of which were related to efforts to
      find
      and evaluate target businesses, the negotiation of a definitive agreement
      regarding Gifted Time and the efforts to consummate the Gifted Time transaction,
      were just under $1,100,000 for the year ended December 31, 2006, as compared
      to
      approximately $454,000 for the year ended December 31, 2005. Our expenses in
      both years consisted principally of the following: travel and entertainment
      expenses, consulting fees, directors and officers liability insurance, amounts
      paid to a related party under a monthly administrative services agreement,
      professional fees, state franchise taxes, income taxes paid on the interest
      earned by the trust fund and miscellaneous expenses.




Those
      expenses were offset by interest income of approximately $830,000 for the year
      ended December 31, 2006 and $348,000 for the year ended December 31, 2005 on
      both the trust fund investments and funds outside the trust fund, excluding
      deferred interest.




Consulting
      expenses of $66,700 were paid pursuant to an agreement we entered into with
      Greatace, Ltd., a China-based consulting firm, during the quarter ended
      September 30, 2005, to assist in our search for prospective target companies
      in
      the northern portion of China. Greatace has also performed due diligence on
      prospective target businesses and assisted us in structuring our business
      combination with Gifted Time Holdings, Limited, a British Virgin Islands company
      that holds a controlling interest in Beijing HollySys Ltd., Hangzhou HollySys
      Automation, Ltd. and their respective subsidiaries and affiliates. In the event
      that we consummate our transaction with Gifted Time (or another target), we
      are
      obligated to pay Greatace an additional $133,300.




$29,835,000
      of the net proceeds of our initial public offering was placed in trust, reserved
      for the following: (a) distribution to the persons holding stock issued in
      our
      initial public offering upon their exercise of dissenter’s rights in connection
      with a proposed transaction or upon liquidation of our company in the event
      that
      we do not conclude a business combination within the time allowed by our
      certificate of incorporation; (b) as consideration in completing a business
      combination; or (c) as working capital for use by the acquired business.




The
      balance of the funds raised in our public offering, net of the offering
      expenses, was approximately $1,111,000. This amount was available to pay for
      business, legal, accounting and due diligence expenses relating to prospective
      acquisitions and for continuing general and administrative expenses. We have
      used all, of the net proceeds of our initial public offering not held in trust
      to identify and evaluate prospective acquisition candidates, select the target
      business and to structure, negotiate and consummate the business combination.
      Through December 31, 2006 we had borrowed $107,500 from related parties to
      sustain our operations. We also had approximately $508,000 in accounts payable
      and accrued liabilities, $204,000 in taxes payable and deferred interest of
      about $293,000.




At
      December 31, 2006, the trust fund contained approximately $31,295,000, as
      compared to $30,261,000 at December 31, 2005. The difference of $1,034,000
      represents interest earned on the funds in the trust fund. Outside of the trust
      fund, at December 31, 2006, we had current assets of $26,297, consisting of
      cash
      of $529, prepaid expenses of $25,768, offset by total current liabilities of
      $1,112,432, leaving us with working capital of approximately $(1,086,000).
      This
      shortfall in working capital is principally the result of the amount of time
      it
      has taken to consummate the transaction with Gifted Time, principally because
      the longer the trust fund remains in place, the more interest it earns, and
      the
      higher the tax liability that must be paid from sources outside of the trust
      fund. At December 31, 2005, outside of the trust fund, we had current assets
      of
      approximately $915,000 consisting of cash of $856,000, prepaid expenses of
      $59,000, offset by total current liabilities of $484,000, leaving us with
      working capital of $431,000. We do not have sufficient funds available outside
      of the trust fund to operate until we consummate a business combination, so
      we
      intend to supplement our working capital through borrowings.




15




Commencing
      in August 2005, we became obligated to pay to Chardan Ventures, LLC a monthly
      fee of $7,500 for general and administrative services. We will remain obligated
      to pay that fee until we consummate a business combination or until we liquidate
      the company.




We
      have
      borrowed $107,500 from two affiliates to cover the shortfall in working capital.
      We anticipate the need to borrow additional amounts prior to the consummation
      of
      the Gifted Time transaction. These loans bear interest at the prime rate
      published in the *Wall Street Journal*, as adjusted from time to
      time .




**Critical
      Accounting Policies**




Cash
      and
      Cash Equivalents




For
      financial statement purposes, we consider all highly liquid debt instruments
      with a maturity of three months or less when purchased to be cash equivalents.
      We maintain our cash in bank deposit accounts in the United States of America
      which, at times, may exceed applicable insurance limits. We have not experienced
      any losses in such accounts. We believe we are not exposed to any significant
      credit risk on cash and cash equivalents.




Investments
      Held in Trust




Investments
      held in trust are invested in United States government securities (Treasury
      Bills) with a maturity of 180 days or less which are accounted for as a trading
      security and recorded at market value which approximates amortized cost. The
      amount held in the Trust Fund was approximately $31,295,000 at December 31,
      2006, compared to approximately $30,261,000 at December 31, 2005. The excess
      of
      market value over cost, exclusive of the deferred interest described below,
      is
      included in interest income in the accompanying Statement of
      Operations.




Deferred
      Interest




Deferred
      interest consists of 19.99% of the interest earned on the investments held
      in
      trust, which is the maximum amount of interest we would be obligated to pay
      to
      stockholders who elected to redeem their stock without resulting in a rejection
      of the proposed transaction with Gifted Time.




Income
      Taxes




We
      account for income taxes using the asset and liability method, as prescribed
      by
      Statement of Financial Accounting Standards No. 109 "Accounting for Income
      Taxes". Under the asset and liability method, deferred tax assets and
      liabilities are recognized for the future tax consequences attributable to
      differences between the financial statement carrying amounts of existing assets
      and liabilities and their respective tax bases, and operating loss and tax
      credit carryforwards. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. The effect
      on deferred tax assets and liabilities of a change in tax rates is recognized
      in
      income in the period that includes the enactment date. Statutory taxes not
      based
      on income are included in general and administrative expenses.




**Off-Balance
      Sheet Arrangements**




Warrants
      and representative’s unit purchase option issued in conjunction with our initial
      public offering are equity linked derivatives and accordingly represent off
      balance sheet arrangements. In addition, the conversion feature of the
      representative’s unit purchase option constitutes an embedded derivative. The
      warrants, unit purchase option and conversion feature meet the scope exception
      in paragraph 11(a) of FAS 133 and are accordingly not accounted for as
      derivatives for purposes of FAS 133, but instead are accounted for as equity.
      See Footnote 5 to the financial statements for more information.




16




ITEM
      7.
      FINANCIAL STATEMENTS




This
      information appears following Item 14 of this Report and is incorporated herein
      by reference.




ITEM
      8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.




None.




ITEM
      8A.
      CONTROL AND PROCEDURES




An
      evaluation of the effectiveness of our disclosure controls and procedures as
      of
      December 31, 2006 was made under the supervision and with the participation
      of
      our management, including our chief executive officer and chief financial
      officer. Based on that evaluation, they concluded that our disclosure controls
      and procedures are effective as of the end of the period covered by this report
      to ensure that information required to be disclosed by us in reports that we
      file or submit under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in Securities and
      Exchange Commission rules and forms. Since our inception through December 31,
      2006, there were no significant changes in our internal controls over financial
      reporting that has materially affected, or is reasonably likely to materially
      affect our internal controls over financial reporting.




ITEM
      8B.
      OTHER INFORMATION




None.




17




PART
      III




ITEM
      9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(a) OF THE EXCHANGE ACT.




Directors
      and Executive Officers




Our
      current directors and executive officers are as follows:




Name
            
            Age
            
            PositionDr.
                Richard D. Propper
            
            59
            
            Chairman
                of the Board of DirectorsLi
                Zhang
            
            53
            
            Chief
                Executive Officer and DirectorKerry
                Propper
            
            31
            
            Chief
                Financial Officer, Secretary and DirectorJiangnan
                Huang
            
            56
            
            Executive
                Vice President and Director







***Dr.
      Richard D. Propper*** has been
      our chairman of the board of directors since our inception and has been the
      chief financial officer and a member of the board of directors of Chardan China
      III since its inception. He has also served as the chairman of the board of
      directors of Chardan China Acquisition Corp. since its inception in December
      2003. In August 2003, he formed Chardan Capital, LLC, a venture capital
      management and financial strategic consulting firm based in Southern California,
      and has been one of its managers since its formation. During this time, Dr.
      Propper has been focused principally on building business relationships between
      Chinese and U.S. companies. From June 2002 to July 2003, Dr. Propper was chief
      executive officer and chairman of the board of Mera Pharmaceuticals, Inc.,
      a
      public company that produces products from aquatic microorganisms. In 1984,
      he
      founded Montgomery Medical Ventures Funds, an early stage venture capital firm,
      and was the managing general partner until July 1993. He then pursued private
      investment activities from July 1993 until he formed Chardan Capital in August
      2003. Dr. Propper received a B.S. from McGill University and an M.D. from
      Stanford University. He also spent ten years on the faculty of Harvard medical
      school as a research fellow and an assistant professor in pediatrics. Dr.
      Propper is the father of Kerry Propper, our chief financial officer and
      secretary.




***Li
      Zhang*** has been
      our chief executive officer and a member of our board of directors since our
      inception and has been the executive vice president and a member of the board
      of
      directors of Chardan China III since its inception. He has also served as chief
      financial officer and a member of the board of directors of Chardan China
      Acquisition Corp. since its inception in December 2003. Mr. Zhang has also
      served as a member and manager of Chardan Capital, LLC since its inception
      in
      August 2003. Since September 2001, Mr. Zhang has been a principal and president
      of Pacific Asia Ventures, LLC, a company that provides strategic consulting
      services for Chinese-U.S. business relationships. Since September 2002, he
      has
      been an advisor to Mera Pharmaceuticals, Inc. Mr. Zhang has also been an advisor
      for Parentech, Inc., a company that produces products that enhance the
      development and well-being of infants, since December 2002. From January 1994
      until September 2001, Mr. Zhang served as chairman of Sino-American Investment,
      Inc., an investment consulting firm. From September 1996 until September 1998,
      Mr. Zhang also served as a consultant to the China Retail Fund, a venture
      capital fund that invests in retail ventures with backing from American
      International Group. Mr. Zhang has two decades of experience in establishing
      commercial and financial relationships between Chinese companies, government
      agencies and Western investors. Among his other affiliations during that time,
      he was chairman of Sino-American Power, Ltd., an organization formed for the
      purpose of building electric power generating plants in China, from 1994 through
      1996. Mr. Zhang received a B.A. from the Shenyang Teacher’s University in the
      PRC.




***Kerry
      Propper*** has been
      our chief financial officer, secretary and a member of our board of directors
      since our inception and has been the chief executive officer and a member of
      the
      board of directors of Chardan China III since its inception. Mr. Propper has
      also served as the executive vice president and a member of the board of
      directors of Chardan China Acquisition Corp. since its inception in December
      2003. Mr. Propper has been the owner and chief executive officer of Chardan
      Capital Markets LLC, a New York based broker/dealer, since July 2003. He has
      also been a managing member of SUJG, Inc., an investment company since April
      2005. Mr. Propper also sits on the board of directors of Source Atlantic Inc.,
      a
      health care consulting firm based in Massachusetts. Mr. Propper was a founder,
      and from February 1999 to July 2003 owner and managing director of Windsor
      Capital Advisors, a full service brokerage firm also based in New York. Mr.
      Propper also founded The Private Capital Group LLC, a small private investment
      firm specializing in hard money loans and convertible preferred debt and equity
      offerings for small public companies, in May 2000 and was affiliated with it
      until December 2003. From July 1997 until February 1999, Mr. Propper worked
      at
      Aegis Capital Corp., a broker dealer and member firm of the NASD. Mr. Propper
      received his B.A. (with honors) in Economics and International Studies from
      Colby College and studied at the London School of Economics. Kerry Propper
      is
      Dr. Propper’s son.




18




***Jiangnan
      Huang*** has been
      our executive vice president and a member of our board of directors since our
      inception and has been the chairman of the board of directors of Chardan China
      III since its inception. Mr. Huang has also served as the chief executive
      officer and a member of the board of directors of Chardan China Acquisition
      Corp. since its inception in December 2003. Mr. Huang has also served as a
      member and manager of Chardan Capital, LLC since August 2003. Mr. Huang has
      been
      a senior advisor to CITIC Securities, a Chinese broker dealer, with principal
      responsibility for its large international investment banking projects, since
      October 2002. He has also held a number of other senior positions in Chinese
      financial companies, including his tenure as president of Hong Kong Southern
      Capital Financial Group and director and general manager of Hong Kong Southern
      Capital Securities Co., Ltd. from July 2000 to October 2002. From October 1997
      until July 2000, he also served in a number of capacities with China Everbright
      Securities Co., Ltd. (Hong Kong), including a role as chief investment officer
      of the China Everbright Growth Fund. Mr. Huang received an MBA from the China
      Social Sciences University in 1981, where he engaged in advanced study at The
      Regional Economic Research & Development Center at the United
      Nations.




Our
      board
      of directors is divided into three classes with only one class of directors
      being elected in each year and each class serving a three-year term. The term
      of
      office of the first class of directors, consisting of Jiangnan Huang, will
      expire at our first annual meeting of stockholders. The term of office of the
      second class of directors, consisting of Kerry Propper, will expire at the
      second annual meeting. The term of office of the third class of directors,
      consisting of Dr. Propper and Li Zhang, will expire at the third annual
      meeting.




Audit
      Committee




Because
      we do not have any “independent” directors, the entire Board of Directors has
      acted as the Audit Committee. In connection with a business combination, the
      board of directors intends to cause the resulting entity to establish an
      appropriate audit committee within the guidelines of NASDAQ or one of the stock
      exchanges and the rules and regulations of the SEC and adopt a committee
      charter.




Code
      of
      Ethics




We
      have
      not adopted a formal code of ethics statement. The board of directors evaluated
      the business of the company and the number of employees and determined that
      since the business is largely limited to maintaining its cash investments while
      its searches for a target company and consummates an acquisition and the only
      persons acting for the company are the four directors who are also the officers
      of the company, general rules of fiduciary duty and federal and state securities
      laws provide adequate ethical guidelines for their conduct.




In
      connection with a business combination, the board of directors intends to cause
      the resulting entity to establish an appropriate code of ethics within the
      guidelines of NASDAQ or one of the stock exchanges and the rules and regulations
      of the SEC.




Stockholder -Director
      Communication




We
      have
      neither a nominating committee for persons to be proposed as directors for
      election to the board of directors nor a formal method of communicating the
      names of nominees from stockholders. We do not have any restrictions on
      stockholder nominations under our certificate of incorporation or by-laws other
      than advance notice to provide sufficient time for the board of directors to
      prepare the appropriate documentation under Delaware corporate law and the
      federal proxy rules. Currently the entire board of directors decides on
      nominees, on the recommendation of one or more members of the board. None of
      the
      members of the board of directors are “independent.” The board of directors will
      consider suggestions from individual stockholders, subject to evaluation of
      the
      person’s merits. Stockholders may communicate nominee suggestions directly to
      any of the board members, accompanied by biographical details and a statement
      of
      support for the nominees. The suggested nominee must also provide a statement
      of
      consent to being considered for nomination. Although there are no formal
      criteria for nominees, the board of directors believes that persons should
      be
      actively engaged in business endeavors, have a financial background, and be
      familiar with acquisition strategies and money management.




19




Because
      the management and directors of the company are the same persons, the board
      of
      directors has determined not to adopt a formal methodology for communications
      from stockholders on the belief that any communication would be brought to
      the
      boards’ attention by virtue of the co-extensive employment.




The
      board
      of directors does not have a formal policy of attendance of directors at the
      annual meeting. It does encourage such attendance. The company did not have
      an
      annual meeting in 2005.




Section
      16(a) Beneficial Ownership Reporting Compliance




Section
      16(a) of the Securities Exchange Act of 1934 requires our officers, directors
      and persons who own more than ten percent of a registered class of our equity
      securities to file reports of ownership and changes in ownership with the
      Securities and Exchange Commission. Officers, directors and ten percent
      stockholders are required by regulation to furnish us with copies of all Section
      16(a) forms they file. Based solely on copies of such forms received or written
      representations from certain reporting persons that no Form 5s were required
      for
      those persons, we believe that, during the fiscal year ended December 31, 2005,
      all filing requirements applicable to our officers, directors and greater than
      ten percent beneficial owners were complied with.




ITEM
      10.
      EXECUTIVE COMPENSATION




Commencing
      August 10, 2005 and ending upon the acquisition of a target business, we are
      committed to pay Chardan Ventures a fee of $7,500 per month for providing us
      with office space and certain office and secretarial services. Other than this
      $7,500 per-month fee, no compensation of any kind, including finders and
      consulting fees, will be paid to any of our Founders or any of their respective
      affiliates, for services rendered prior to or in connection with a business
      combination. However, our Founders will be reimbursed for any out-of-pocket
      expenses incurred in connection with activities on our behalf such as
      identifying potential target businesses and performing due diligence on suitable
      business combinations.




Since
      our
      formation, we have not granted any stock options or stock appreciation rights
      or
      any awards under long-term incentive plans.




ITEM
      11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of December 31, 2006 by:




each
      person known by us to be the beneficial owner of more than 5% of our outstanding
      shares of common stock;




each
      of
      our officers and directors; and




all
      our
      officers and directors as a group.




Unless
      otherwise indicated, we believe that all persons named in the table have sole
      voting and investment power with respect to all shares of common stock
      beneficially owned by them.




Name
                and Address of Beneficial Owner
            
            Amount
                and Nature
              of
                Beneficial
              Ownership
            
            Percent
                of
              Class(1)Richard
                D. Propper, M.D. (2)
            
            
            745,474
            
            
            10.6
            %Jeffrey
                L. Feinberg (3)
            
            
            1,419,323
            
            
            20.28
            %Jack
                Silver (4)
            
            
            364,000
            
            
            5.2
            %Royce
                & Associates, LLC (5)
            
            
            416,700
            
            
            5.95
            %Kerry
                Propper (6)
            
            
            385,000
            
            
            5.5
            %Li
                Zhang (7)
            
            
            188,513
            
            
            2.7
            %Jiangnan
                Huang
            
            
            151,013
            
            
            2.2
            %Directors
                and officers as a group (four persons) (8)
            
            
            1,470,000
            
            
            21
            %






20




(1)
            Beneficial
                ownership has been determined in accordance with Rule 13d-3 under
                the
                Securities Exchange Act of 1934. Unless otherwise noted, we believe
                that
                all persons named in the table have sole voting and investment power
                with
                respect to all shares of our common stock beneficially owned by them.
                These amounts exclude shares issuable upon exercise of warrants that
                are
                not exercisable and are not expected to be exercisable within 60
                days of
                December 31, 2006.




(2)
              Dr.
                  Propper’s shares of Chardan Common Stock include 110,000 shares issuable
                  upon exercise of warrants. The business address of Dr. Propper
                  is 625
                  Broadway, Suite 111, San Diego, California
                  92101.
  (3)
                The
                    securities reported as held by Mr. Feinberg represent shares
                    of Common
                    Stock held by Mr. Feinberg in his personal account; JLF Partners
                    I, L.P.,
                    JLF Partners II, L.P. and JLF Off Shore Fund, Ltd. to which JLF
                    Asset
                    Management LLC serves as the management company and/or investment
                    manager. Mr. Feinberg is the managing member of JLF Asset Management,
                    LLC.
                    The business address of Mr. Feinberg and these entities is 2775
                    Via de la
                    Valle, Suite 204, Del Mar, California 92014. This information
                    is derived
                    from a Schedule 13G/A filed by the above persons with the SEC
                    on February
                    13, 2007.
  (4)
                  The
                      business address of Mr. Silver is SIAR Capital LLC, 660 Madison
                      Avenue,
                      New York, New York 10021. These shares include (i) 164,000
                      shares held by
                      Sherleigh Associates, Inc. profit sharing plan (“Sherleigh Profit”), a
                      trust of which Mr. Silver is the trustee, and 200,000 shares
                      held by
                      Sherleigh Associates, Inc. defined benefit plan (“Sherleigh Defined”), but
                      exclude (x) 774,400 shares issuable upon exercise of warrants
                      held by
                      Sherleigh Profit and (y) 435,000 shares issuable upon exercise
                      of warrants
                      held by Sherleigh Defined which provide that they may not be
                      exercised
                      until the consummation of a business combination. Mr. Silver
                      has the sole
                      voting and despositve power with respect to all 364,000 shares
                      of Common
                      Stock beneficially owned by him. The foregoing information
                      is derived from
                      a Schedule 13G/A filed with the SEC on February 14,
                      2007.
  (5)
                    The
                        business address of Royce & Associates, LLC is 141 Avenue of the
                        Americas, New York, NY 10019.
  (6)
                      Kerry
                          Propper’s shares of Common Stock include 72,500 shares issuable
                          upon
                          exercise of warrants and includes 90,500 shares of common
                          stock held by
                          SUJG, Inc. Mr. Kerry Propper is a director of that entity
                          and controls the
                          voting and disposition of the Chardan shares held by that
                          entity.
  (7)
                        Li
                            Zhang’s shares of Common Stock include 37,500 shares issuable
                            upon
                            exercise of warrants. The shares of Common Stock for
                            the directors and
                            officers as a group includes 220,000 shares issuable
                            upon exercise of
                            warrants.
  (8)
                          The
                              shares of Common Stock for the directors and officers
                              as a group include
                              220,000 shares issuable upon exercise of
                              warrants.




None
      of
      the above stockholders has any voting rights that are different from the voting
      rights of any other stockholders.




All
      of
      the shares of our outstanding common stock owned by our Founders prior to our
      initial public offering have been placed in escrow with Continental Stock
      Transfer & Trust Company, as escrow agent, pursuant to an escrow agreement
      described below.




Dr.
      Richard D. Propper, Kerry Propper, Jiangnan Huang and Li Zhang may be deemed
      to
      be our “parents” and “promoters,” as these terms are defined under the Federal
      securities laws.




21




ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




In
      March
      2005, we issued 1,000,000 shares of our common stock to the individuals set
      forth below for $25,000 in cash, at a purchase price of $0.025 per share, as
      follows:




Name
            
            Number
                of SharesLi
              Zhang
            
            
            120,810Kerry
              Propper
            
            
            177,600Jiangnan
              Huang
            
            
            120,810Chardan
              Capital Partners
            
            
            508,380SUJG,
              Inc.
            
            
            72,400





Effective
      July 22, 2005, our board of directors authorized a stock dividend of 0.25 shares
      of common stock for each outstanding share of common stock, effectively lowering
      the purchase price to $0.02 per share.




The
      holders of the majority of these shares will be entitled to make up to two
      demands that we register these shares pursuant to a registration rights
      agreement. The holders of the majority of these shares can elect to exercise
      these registration rights at any time commencing three months prior to the
      date
      on which these shares of common stock are to be released from escrow. In
      addition, these stockholders have certain “piggy-back” registration rights with
      respect to registration statements filed subsequent to the date on which these
      shares of common stock are released from escrow. We will bear the expenses
      incurred in connection with the filing of any such registration
      statements.




Our
      directors and several individuals affiliated with companies they are associated
      with entered into letter agreements with the representative of the underwriters
      pursuant to which they agreed to purchase up to 1,000,000 warrants at prices
      not
      to exceed $0.75 per warrant during the 40-trading day period following separate
      trading of the warrants. A total of 220,000 warrants were purchased pursuant
      to
      these agreements. We have agreed that these warrants shall not be redeemable
      by
      us as long as such warrants continue to be held by such individuals or their
      affiliates. Because these individuals may be insiders, or affiliates of
      insiders, at the time of the redemption call, their ability to sell our
      securities in the open market will be significantly limited. If they remain
      insiders, we will have policies in place that prohibit insiders from selling
      our
      securities except during specific periods of time. Accordingly, unlike public
      stockholders who could, if we called the warrants for redemption, either sell
      their warrants or exercise such warrants and sell the shares of common stock
      received upon such exercise freely in the open market, the insiders would be
      significantly restricted from selling such securities. Additionally, even if
      the
      insiders could sell their securities, any sale by an insider would require
      him
      to file a Form 4 disclosing his sale and that would have a depressive effect
      on
      the price of our stock during the redemption period. As a result, we believe
      this non-call feature is appropriate.




Chardan
      Capital, LLC, an affiliate of Dr. Richard D. Propper, Li Zhang and Jiangnan
      Huang, has agreed that, through the acquisition of a target business, it will
      make available to us a small amount of office space and certain office and
      secretarial services, as we may require from time to time. We have agreed to
      pay
      Chardan Capital, LLC $7,500 per month for these services. Dr. Propper is
      president, a manager and 19.8% owner of Chardan Capital, LLC. Each of Li Zhang
      and Jiangnan Huang is a manager and 16.1% owner of Chardan Capital, LLC. As
      a
      result, they will benefit from the transactions to the extent of their interest
      in Chardan Capital, LLC. However, these arrangements are solely for the benefit
      of us and are not intended to provide Dr. Propper and Messrs. Zhang and Huang
      compensation in lieu of a salary. We believe, based on rents and fees for
      similar services in the San Diego metropolitan area, that the fee charged by
      Chardan Capital, LLC is at least as favorable as we could have obtained from
      an
      unaffiliated person. However, as our directors may not be deemed “independent,”
we did not have the benefit of disinterested directors approving this
      transaction.




Chardan
      Capital, LLC, an affiliate of Dr. Richard D. Propper, Li Zhang and Jiangnan
      Huang, has advanced to us a total of $95,000 and Kerry Propper has advanced
      to
      us $12,500 to cover various expenses related to our activities focused on
      consummating the Gifted Time transaction. These advances bear interest at the
      the prime rate published in the *Wall Street Journal*, as adjusted from
      time to time, and are due on the earlier of the first anniversary of the date
      of
      the advance (the earliest such anniversary being August 18, 2007) or three
      business days following the consummation of the business combination with Gifted
      Time. We expect to repay these loans from the proceeds of our initial public
      offering that have been placed in trust and that will be released upon
      consummation of the transaction with Gifted Time.




In
      2005,
      Kerry Propper advanced to us $20,000 and Chardan Capital Partners advanced
      to us
      $60,000 to cover expenses related to our initial public offering. The loans
      were
      payable without interest on the earlier of April 11, 2006 or the consummation
      of
      our initial public offering. We repaid these loans from the proceeds of our
      initial public offering not placed in trust.




22




We
      will
      reimburse our officers and directors for any reasonable out-of-pocket business
      expenses incurred by them in connection with certain activities on our behalf,
      such as identifying and investigating possible target businesses and business
      combinations. There is no limit on the amount of out-of-pocket expenses
      reimbursable by us, which will be reviewed only by our board or a court of
      competent jurisdiction if such reimbursement is challenged.




Other
      than the $7,500 per-month administrative fee and reimbursable out-of-pocket
      expenses payable to our officers and directors, no compensation or fees of
      any
      kind, including finders and consulting fees, will be paid to any of our existing
      stockholders, officers or directors who owned our common stock prior to this
      offering, or to any of their respective affiliates, for services rendered to
      us
      prior to or with respect to the business combination.




All
      ongoing and future transactions between us and any of our officers and directors
      or their respective affiliates, including loans by our officers and directors,
      will require prior approval in each instance by a majority of our uninterested
      “independent” directors (to the extent we have any) or the members of our board
      who do not have an interest in the transaction. These directors, if they
      determine to be necessary or appropriate, will have access, at our expense,
      to
      our attorneys or independent legal counsel. We will not enter into any such
      transaction unless our disinterested “independent” directors (or, if there are
      no “independent” directors, our disinterested directors) determine that the
      terms of such transaction are no less favorable to us than those that would
      be
      available to us with respect to such a transaction from unaffiliated third
      parties.




Pursuant
      to an escrow agreement between us, the Founders and Continental Stock Transfer
      & Trust Company, all of the Founders Shares were placed in escrow, with
      Continental acting as escrow agent, pursuant to an escrow agreement, until
      the
      earliest of:




·
            August
                10, 2008




·
            our
                liquidation; or




·
            the
                consummation of a liquidation, merger, stock exchange or other similar
                transaction which results in all of our stockholders having the right
                to
                exchange their shares of common stock for cash, securities or other
                property subsequent to our consummating a business combination with
                a
                target business.




During
      the escrow period, these shares cannot be sold, but the Founders will retain
      all
      other rights as stockholders, including, without limitation, the right to vote
      their shares of common stock and the right to receive cash dividends, if
      declared. If dividends are declared and payable in shares of common stock,
      such
      dividends will also be placed in escrow. If we are unable to effect a business
      combination and liquidate, none of our Founders will receive any portion of
      the
      liquidation proceeds with respect to common stock owned by them prior to our
      initial public offering.




We
      also
      entered into a registration rights agreement with the Founders pursuant to
      which
      the holders of the majority of the Founders Shares will be entitled to make
      up
      to two demands that we register these shares. The holders of the majority of
      these shares may elect to exercise these registration rights at any time after
      the date on which these shares of common stock are released from escrow. In
      addition, these stockholders have certain “piggy-back” registration rights on
      registration statements filed subsequent to the date on which these shares
      of
      common stock are released from escrow. We will bear the expenses incurred in
      connection with the filing of any such registration statements.




Each
      of
      our Founders also entered into a letter agreement with us and EarlyBirdCapital
      pursuant to which, among other things:




·
            each
                agreed to vote all Founder Shares owned by him in accordance with
                the
                majority of the IPO Shares if we solicit approval of our stockholders
                for
                a business combination;




·
            if
                we fail to consummate a business combination by August 10, 2007,
                each
                agreed to take all reasonable actions within his power to cause us
                to
                liquidate as soon as reasonably practicable;




·
            each
                waived any and all rights he may have to receive any distribution
                of cash,
                property or other assets as a result of such liquidation with respect
                to
                his Founder Shares;




23




·
            each
                agreed to present to us for our consideration, prior to presentation
                to
                any other person or entity, any suitable opportunity to acquire an
                operating business, until the earlier of our consummation of a business
                combination, our liquidation or until such time as he ceases to be
                an
                officer or director of ours, subject to any pre-existing fiduciary
                obligations he might have;




·
            each
                agreed that we could not consummate any business combination which
                involves a company which is affiliated with any of the Founders unless
                we
                obtain an opinion from an independent investment banking firm reasonably
                acceptable to EarlyBirdCapital that the business combination is fair
                to
                our stockholders from a financial perspective;




·
            each
                agreed that he and his affiliates will not be entitled to receive
                and will
                not accept any compensation for services rendered to us prior to
                the
                consummation of our business combination; and




·
            each
                agreed that he and his affiliates will not be entitled to receive
                or
                accept a finder’s fee or any other compensation in the event he or his
                affiliates originate a business combination.




ITEM
      13.
      EXHIBITS




The
      following Exhibits are filed as part of this report.




Exhibit
                No.
            
            Description2.1
            
            Amended
                and Restated Stock Purchase Agreement with Stockholders of Gifted
                Time
                Holdings Ltd. (1)3.1
            
            Certificate
                of Incorporation (2)3.1.
                1
            
            Certificate
                of Amendment to Certificate of Incorporation (2)3.2
            
            Bylaws
                (2)4.1
            
            Representative
                Unit Purchase Option (2)4.2
            
            Warrant
                Agreement with Continental Stock Transfer & Trust Company
                (2)4.3
            
            Warrant
                Clarification Agreement with Continental Stock Transfer & Trust
                Company, dated August 24, 2006 (3)4.4
            
            Warrant
                Clarification Agreement with Continental Stock Transfer & Trust
                Company, dated November 28, 2006 (4)4.5
            
            Amendment
                to Representative Unit Purchase Option (3)4.6
            
            Second
                Amendment to Representative Unit Purchase Option (4)10.1
            
            Investment
                Management Trust Agreement with Continental Stock Transfer & Trust
                Company (2)10.2
            
            Form
                of Stock Escrow Agreement with Continental Stock Transfer & Trust
                Company and the Initial Stockholders (2)10.3
            
            Letter
                Agreement with Chardan Capital, LLC regarding administrative support
                (2)10.4
            
            Form
                of Promissory Note, dated April 11, 2005, issued to Kerry Propper
                and
                Chardan Capital Partners (2)10.5
            
            Registration
                Rights Agreement with the Initial Stockholders (2)10.6
            
            Form
                of Promissory Note for loans from Chardan Capital LLC and Kerry
                Propper(1) 
Incorporated
                by reference to Amendment No. 3 to the
                registration statement on Form S-4 (Reg. No.
                333-132826).(2) 
Incorporated
                by reference to the registration statement
                on Form S-1 (Reg. No. 333-125016).(3) 
Incorporated
                by reference to the Current Report on Form
                8-K filed on August 29, 2006.(4) 
Incorporated
                by reference to the Current Report on Form
                8-K filed on December 1, 2006.




24




ITEM
      14.
      PRINCIPAL ACCOUNTING FEES AND SERVICES.




The
      firm
      of Goldstein Golub Kessler LLP (“GGK”) acts as our principal accountant. Through
      September 30, 2005, GGK had a continuing relationship with American Express
      Tax
      and Business Services Inc. (TBS), from which it leased auditing staff who were
      full time, permanent employees of TBS and through which its partners provide
      non-audit services. Subsequent to September 30, 2005, this relationship ceased
      and the firm established a similar relationship with RSM McGladrey, Inc. (RSM).
      GGK has no full time employees and therefore, none of the audit services
      performed were provided by permanent full-time employees of GGK. GGK manages
      and
      supervises the audit and audit staff, and is exclusively responsible for the
      opinion rendered in connection with its examination.




The
      following table sets forth the aggregate fees billed to the Company for the
      fiscal years ended December 31, 2006 and December 31, 2005 by GGK, TBS and
      RSM:




Fiscal
                2006
            
            Fiscal
                2005Audit
                Fees (1)
            
            $
            39,000
            
            $
            36,200Audit-Related
                Fees (2)
            
            $
            29,298
            
            $
            —Tax
                Fees (3)
            
            $
            3,812
            
            $
            —All
                Other Fees
            
            $
            —
            
            $
            —Total
            
            $
            72,110
            
            $
            36,200




(1)
            
            Audit Fees consist of fees for professional
              services rendered for the audit of the Company’s consolidated annual
              financial statements and review of the interim consolidated financial
              statements included in quarterly reports and services that are normally
              provided by GGK in connection with statutory and regulatory filings
              or
              engagements.(2)
            
            Audit-Related Fees consist of fees for
              assurance and related services that are reasonably related to the
              performance of the audit or review of the Company’s consolidated financial
              statements and are not reported under “Audit Fees.”(3)
            
            Tax Fees consist of fees billed by RSM
              for
              professional services rendered for tax return
              preparation.




25




Chardan
      North China Acquisition Corporation


(a
      corporation in the development stage)




Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Financial
                StatementsBalance
                Sheet
            
            
            F-3Statement
                of Operations
            
            
            F-4Statement
                of Stockholders’ Equity
            
            
            F-5Statement
                of Cash Flows
            
            
            F-6Notes
                to Financial Statements
            
            
            F-7





F-1




**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the
        Board of Directors and Stockholders
 Chardan
        North China Acquisition Corporation
 
 
 We
        have
        audited the accompanying balance sheet of Chardan North China Acquisition
        Corporation (a development stage corporation) (the “Company”) as of December 31,
        2006 and 2005, and the related statements of operations, stockholders’ equity
        and cash flows for the year ended December 31, 2006, the period from March
        10,
        2005 (inception) to December 31, 2005, and the cumulative period from March
        10,
        2005 (inception) to December 31, 2006. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Chardan North China Acquisition
        Corporation as of December 31, 2006 and 2005, and the results of its operations
        and its cash flows for the year ended December 31, 2006, the period from
        March
        10, 2005 (inception) to December 31, 2005, and the cumulative period from
        March
        10, 2005 (inception) to December 31, 2006 in conformity with United States
        generally accepted accounting principles.
 
 These
        financial statements have been prepared assuming the Company will continue
        as a
        going concern. As discussed in Notes 2 and 5 to the financial statements, the
        Company will face mandatory liquidation by August 10, 2007 if a business
        combination is not consummated. This raises substantial doubt about the
        Company’s ability to continue as a going concern. The financial statements do
        not include any adjustments that may result from the outcome of this
        uncertainty.
  
 **GOLDSTEIN
        GOLUB KESSLER LLP**
 New
        York,
        New York
 
 March
        30,
        2007
 
 F-2




**Chardan
        North China Acquisition Corporation**


**(A
      Development Stage Company)**


**Balance
        Sheet**
 December
                    31, 2006
                
                December
                    31, 2005ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                529
                
                $
                856,380Investments
                    held in trust
                
                
                31,294,931
                
                
                30,260,861Prepaid
                    expenses and other
                
                
                25,768
                
                
                58,503Total
                    current assets
                
                
                31,321,228
                
                
                31,175,744Long
                    term deferred tax asset
                
                
                292,188
                
                
                177,370Total
                    Assets
                
                $
                31,613,416
                
                $
                31,353,114LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilities:Accounts
                    payable and accrued liabilities
                
                $
                507,871
                
                $
                224,498Income
                    taxes payable
                
                
                203,955
                
                
                173,120Notes
                    payable, related parties
                
                
                107,500
                
                
                -Deferred
                    interest
                
                
                293,106
                
                
                86,395Total
                    current liabilities
                
                
                1,112,432
                
                
                484,013CommitmentsCommon
                    stock subject to possible conversion 1,149,425
                    shares at conversion value
                
                
                5,964,017
                
                
                5,964,017Stockholders'
                    equity:Preferred
                    stock, $.0001 par value, 1,000,000
                
                
                -
                
                
                -shares
                    authorized, none issuedCommon
                    stock, $.0001 par value: 20,000,000
                
                
                700
                
                
                700shares
                    authorized, 7,000,000 shares issued and outstanding(includes
                    1,149,425 shares subject to possible conversion)Additional
                    paid-in capital
                
                
                25,006,126
                
                
                25,006,126Accumulated
                    deficit
                
                
                (469,859
                )
                
                (101,742
                )Total
                    stockholders' equity
                
                
                24,536,967
                
                
                24,905,084Total
                    Liabilities and Stockholders' Equity
                
                $
                31,613,416
                
                $
                31,353,114


The
        accompanying notes should be read in conjunction with the financial
        statements.




F-3


**Chardan
        North China Acquisition Corporation**


**(A
      Development Stage Company)**


**Statements
      of Operations**


From
              
              FromMarch
                  10, 2005
              
              March
                  10, 2005Twelve
                  Months
              
              (Inception)
              
              (Inception)Ended
              
              Through
              
              ThroughDecember
                  31, 2006
              
              December
                  31, 2005
              
              December
                  31, 2006Costs
                  and ExpensesAdmin
                  and office support
              
              
              90,000
              
              
              37,500
              
              
              127,500Consulting
              
              
              -
              
              
              66,700
              
              
              66,700Insurance
              
              
              63,320
              
              
              29,167
              
              
              92,487Marketing
              
              
              119,765
              
              
              -
              
              
              119,765Professional
                  fees
              
              
              543,473
              
              
              127,957
              
              
              671,430State
                  franchise tax
              
              
              24,001
              
              
              23,775
              
              
              47,776Travel
              
              
              195,433
              
              
              147,091
              
              
              342,524Other
                  operating costs
              
              
              62,972
              
              
              21,673
              
              
              84,645Total
                  costs and expenses
              
              
              1,098,964
              
              
              453,863
              
              
              1,552,827Operating
                  loss
              
              
              (1,098,964
              )
              
              (453,863
              )
              
              (1,552,827
              )Other
                  income (expense):Interest
                  income
              
              
              830,429
              
              
              347,871
              
              
              1,178,300Interest
                  expense
              
              
              (1,765
              )
              
              -
              
              
              (1,765
              )Net
                  loss before income tax provision
              
              
              (270,300
              )
              
              (105,992
              )
              
              (376,292
              )Income
                  tax (provision) benefit
              
              
              (97,817
              )
              
              4,250
              
              
              (93,567
              )Net
                  loss
              
              $
              (368,117
              )
              $
              (101,742
              )
              $
              (469,859
              )Loss
                  per share - basic and diluted
              
              
              (0.05
              )
              
              (0.03
              )
              
              (0.08
              )Weighted
                  average shares outstanding - basic and diluted
              
              
              7,000,000
              
              
              4,020,202
              
              
              5,747,352




The
        accompanying notes should be read in conjunction with the financial
        statements.




F-4




**Chardan
      North China Acquisition Corporation**


**(A
      Development Stage Company)**


**Statements
      of Stockholders' Equity**


CommonShares
              
              Amount
              
              Additional
                  Paid-In Capital
              
              Accumulated(Deficit)
              
              Stockholders'
                  Equity(Deficit)Issuance
                  of common shares to initial shareholders on March 10, 2005 at
                  $0.02 per share
              
              
              1,250,000
              
              $
              125
              
              $
              24,875
              
              $
              -
              
              $
              25,000Sale
                  of 5,750,000 units, net of underwriters' discount and offering
                  expenses
                  (includes
                  1,149,425 shares subject to possible conversion)
              
              
              5,750,000
              
              
              575
              
              
              30,945,168
              
              
              -
              
              
              30,945,743Proceeds
                  subject to possible conversion of 1,149,425 shares
              
              
              -
              
              
              -
              
              
              (5,964,017
              )
              
              -
              
              
              (5,964,017
              )Proceeds
                  from issuance of an underwriter's option
              
              
              -
              
              
              -
              
              
              100
              
              
              -
              
              
              100Loss
                  for the period ended December 31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              (101,742
              )
              
              (101,742
              )Balance
                  at December 31, 2005
              
              
              7,000,000
              
              $
              700
              
              $
              25,006,126
              
              $
              (101,742
              )
              $
              24,905,084Loss
                  for the period ended December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              (368,117
              )
              
              (368,117
              )Balance
                  at December 31, 2006
              
              
              7,000,000
              
              $
              700
              
              $
              25,006,126
              
              $
              (469,859
              )
              $
              24,536,967




The
        accompanying notes should be read in conjunction with the financial
        statements.




F-5




**Chardan
      North China Acquisition Corporation**


**(A
      Development Stage Company)**


**Statements
      of Cash Flows**


From
              
              FromMarch
                  10, 2005
              
              March
                  10, 2005Twelve
                  Months
              
              (Inception)
              
              (Inception)Ended
              
              Through
              
              ThroughDecember
                  31, 2006
              
              December
                  31, 2005
              
              December
                  31, 2006Cash
                  Flows from Operating Activities:Net
                  loss
              
              $
              (368,117
              )
              $
              (101,742
              )
              $
              (469,859
              )Adjustments
                  to reconcile net loss to net cash used
                  in operating activities:Amortization
                  of discounts and interest earned on securities held in
                  trust
              
              
              (1,034,069
              )
              
              (425,861
              )
              
              (1,459,930
              )Changes
                  in operating Assets and Liabilities:Prepaid
                  expenses and other current assets
              
              
              32,734
              
              
              (48,333
              )
              
              (15,599
              )Deferred
                  tax asset
              
              
              (114,818
              )
              
              (177,370
              )
              
              (292,188
              )Accounts
                  payable and accrued liabilities
              
              
              283,374
              
              
              224,498
              
              
              507,872Income
                  taxes payable
              
              
              30,835
              
              
              173,120
              
              
              203,955Deferred
                  interest
              
              
              206,710
              
              
              86,395
              
              
              293,105Net
                  cash used by operating activities
              
              
              (963,351
              )
              
              (269,293
              )
              
              (1,232,644
              )Cash
                  Flows from Investing Activities:Purchases
                  of investments held in trust
              
              
              -
              
              
              (29,835,000
              )
              
              (29,835,000
              )Net
                  cash used by investing activities
              
              
              -
              
              
              (29,835,000
              )
              
              (29,835,000
              )Cash
                  Flows from Financing ActivitiesProceeds
                  from issuance of common stock
              
              
              -
              
              
              34,525,000
              
              
              34,525,000Proceeds
                  from issuance of option
              
              
              -
              
              
              100
              
              
              100Payment
                  of costs associated with public offering
              
              
              -
              
              
              (3,554,257
              )
              
              (3,554,257
              )Advance
                  to affiliate
              
              
              -
              
              
              (10,170
              )
              
              (10,170
              )Proceeds
                  from related party loans
              
              
              107,500
              
              
              -
              
              
              107,500Net
                  cash provided by financing activities
              
              
              107,500
              
              
              30,960,673
              
              
              31,068,173Net
                  increase in cash and cash equivalents
              
              
              (855,851
              )
              
              856,380
              
              
              529Cash
                  and cash equivalents, beginning of the period
              
              
              856,380
              
              
              -
              
              
              -Cash
                  and cash equivalents, end of the period
              
              $
              529
              
              $
              856,380
              
              $
              529
  The
          accompanying notes should be read in conjunction with the financial
          statements.
  Cash
                  paid for taxes
              
              $
              181,800
              
              $
              -
              
              $
              181,800Cash
                  paid for interest
              
              $
              -
              
              $
              -
              
              $
              -




F-6




CHARDAN
      NORTH CHINA ACQUISITION CORPORATION


(a
      development stage company)


NOTES
      TO
      THE FINANCIAL STATEMENTS


1. SUMMARY
      OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES





Business
      and Organization -
      Chardan North China Acquisition Corp. (the “Company”) was incorporated in
      Delaware on March 10, 2005 as a blank check company whose objective is to
      acquire an operating business that has its primary operating facilities in
      the
      People Republic of China in any city or province north of the Yangtze
      River.





Effective
      July 14, 2005, the Company's Board of Directors and Initial Stockholders
      authorized an amendment to the Company's Certificate of Incorporation to change
      the Company's name from Chardan China Acquisition Corp. II to Chardan North
      China Acquisition Corporation.





In
      August
      2005, the Company commenced its efforts to locate a company with which to effect
      a business combination. After signing a definitive agreement for the acquisition
      of a target business, such transaction will be submitted for stockholder
      approval. In the event that stockholders owning 20% or more of the outstanding
      stock excluding, for this purpose, those persons who were stockholders prior
      to
      the Offering, vote against the Business Combination and exercise their
      conversion rights described below, the Business Combination will not be
      consummated. All of the Company's stockholders prior to the Initial Public
      Offering, including all of the officers and directors of the Company ("Initial
      Stockholders"), have agreed to vote their 1,250,000 founding shares of common
      stock in accordance with the vote of the majority in interest of all other
      stockholders of the Company ("Public Stockholders") with respect to the Business
      Combination. After consummation of the Business Combination, all of these voting
      safeguards will no longer be applicable. With respect to a Business Combination
      which is approved and consummated, any Public Stockholder who voted against
      the
      Business Combination may demand that the Company convert his or her shares.
      The
      per share conversion price will equal the amount in the Trust Fund as of the
      record date for determination of stockholders entitled to vote on the Business
      Combination divided by the number of shares of common stock held by Public
      Stockholders at the consummation of the Offering. Accordingly, Public
      Stockholders holding 19.99% of the aggregate number of shares owned by all
      Public Stockholders may seek conversion of their shares in the event of a
      Business Combination.





Such
      Public Stockholders are entitled to receive their per share interest in the
      Trust Fund computed without regard to the shares held by Initial Stockholders.
      Accordingly, a portion of the net proceeds from the offering (19.99% of the
      amount originally held in the Trust Fund) has been classified as common stock
      subject to possible conversion in the accompanying balance sheet and 19.99%
      of
      the related interest earned on the investments held in the Trust Fund has been
      recorded as deferred interest.





Cash
      and Cash Equivalents -- The
      Company considers all highly liquid debt securities purchased with original
      or
      remaining maturities of three months or less to be cash equivalents. The
      carrying value of cash equivalents approximates fair value.





Fair
      Value of Financial Instruments - The
      carrying amounts of cash and cash equivalents, investments held in trust,
      accounts payable and accrued liabilities approximate fair market value because
      of the short maturity of those instruments.





Credit
      Risk - It is
      the Company’s practice to place its cash equivalents in high quality money
      market securities or certificate of deposit accounts with one major banking
      institution. Certain amounts of such funds are not insured by the Federal
      Deposit Insurance Corporation. However, the Company considers its credit risk
      associated with cash and cash equivalents to be minimal.




Investments
      Held in Trust -
      Investments held in trust are invested in United States government or State
      municipal securities with a maturity of 180 days or less which are accounted
      for
      as a trading security and recorded at market value which approximates amortized
      cost. The excess of market value over cost, exclusive of the deferred interest
      described below, is included in interest income in the accompanying Statement
      of
      Operations.





Deferred
      Interest -
      Deferred interest consists of 19.99% of the interest earned on the investments
      held in trust, which is the maximum amount of interest the Company would be
      obligated to pay to stockholders who elected to redeem their stock without
      resulting in a rejection of the Business Combination.





Income
      Taxes - The
      Company uses the asset and liability method of accounting for income taxes
      as
      required by SFAS No. 109 “Accounting for Income Taxes”. SFAS No. 109 requires
      the recognition of deferred tax assets and liabilities for the expected future
      tax consequences of temporary differences between the carrying amounts and
      the
      tax basis of certain assets and liabilities. Statutory taxes not based on income
      are included in general and administrative expenses.




F-7


CHARDAN
        NORTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


Income
      (Loss) Per Common Share - The
      Company computed basic and diluted loss per share amounts for December 31,
      2006
      pursuant to SFAS No. 128, “Earnings per Share.” Basic earnings per share (“EPS”)
      are computed by dividing the net income (loss) by the weighted average common
      shares outstanding during the period. Diluted EPS reflects the additional
      dilution for all potentially dilutive securities such as stock warrants and
      options. The effect of the 11,500,000 outstanding warrants, issued in connection
      with the initial public offering described in Note 5 has not been considered
      in
      the diluted EPS since the warrants are contingently exercisable. The effect
      of
      the 25,000 units included in the underwriters purchase option, as described
      in
      Note 5, along with the warrants underlying such units, has not been considered
      in the diluted EPS calculation since the effect would be
      antidilutive.




Reclassifications - For
        comparability, certain 2005 amounts have been reclassified, where appropriate,
        to conform to the financial statement presentation used in 2006.


Recent
      Authoritative Pronouncements





In
      June
      2006, the FASB issued FASB Interpretation No. (FIN) 48, *Accounting
      for Uncertainty in Income Taxes—An Interpretation of FASB Statement No.
      109* ,
      which
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 will be effective for the Company’s fiscal year
      2007. The Company has not yet evaluated the potential impact of adopting FIN
      48
      on its consolidated financial statements.





The
      Company does not believe that any other recently issued but not yet effective
      accounting standards will have a material effect on the Company’s financial
      position or results of operations.





2. GOING
      CONCERN





These
      financial statements have been prepared assuming that the Company will continue
      as a going concern. As discussed in Note 5, the Company faces mandatory
      liquidation on August 10, 2007 if it has not consummated a business combination.
      This raises substantial doubt about the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that may result
      from the outcome of this uncertainty.





3. RELATED
      PARTY TRANSACTIONS





Commencing
      on August 2, 2005 and ending upon the acquisition of a target business, the
      Company incurs an administrative fee of $7,500 per month from Chardan Capital,
      LLC, a company managed and partially owned by the Company's Chairman of the
      Board. The fee includes the provision of office space and certain office and
      secretarial services. The statement of operations for the twelve months ended
      December 31, 2006 includes $90,000 of such fees.





In
      April
      2005, two of the Company's stockholders advanced an aggregate of $80,000 to
      the
      Company, on a non-interest bearing basis, for payment of offering expenses
      on
      the Company's behalf. These loans were repaid following the initial public
      offering from the proceeds of the Offering.





In
      May
      2005 the Company made a non-interest bearing advance of $10,170 to an affiliate,
      which is included in prepaid expenses and other current assets on the
      accompanying balance sheet. This amount is due on demand, and is expected to
      be
      repaid in 2007.





Notes
      payable - related parties consists of the following as of December 31,
      2006:





Unsecured
                demand notes payable - shareholder notes bearing an interest rate
                at the prime rate published in the *Wall Street Journal*, as
                adjusted from time to time, due on various dates during
                2007.
            
            $
                107,500





Total
      interest expense on notes payable - related parties was $1,756 for the Year
      ended December 31, 2006. Due to the short term nature of the notes, the fair
      value approximates the carrying amount.





4. INCOME
      TAXES





Components
      of income taxes provision (benefit) are as follows:




F-8




CHARDAN
        NORTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


Year
                ended
              December
                31, 2006
            
            Period
                ended December 31, 2005CurrentFederal
            
            $
            121,511
            
            $
            134,731State
            
            
            91,124
            
            
            38,389Total
                Current
            
            
            212,635
            
            
            173,120Less
                deferred income taxes
            
            
            (114,818
            )
            
            (177,370
            )Total
                income taxes
            
            $
            97,817
            
            $
            (4,250
            )





The
      Deferred tax asset consists of the following:





December
                31, 2006
            
            December
                31, 2005Deferred
                interest income
            
            
            77,152
            
            
            36,328Deferred
                operating costs
            
            
            452,595
            
            
            141,042Deferred
                transaction fees
            
            
            151,656
            
            
            37,238681,403
            
            
            214,608Valuation
                allowance
            
            
            (389,215
            )
            
            (37,238
            )$
            292,188
            
            $
            177,370





The
        effective tax rate differs from the statutory rate due to the
        following:
 
 Year
                  ended
              
              Period endedDecember
                  31, 2006
              
              December
                  31, 2005Federal
                  statutory rate
              
              
              (34.0
              %)
              
              (34.0
              %)Valuation
                  allowance
              
              
              130.2
              %
              
              35.1
              %Tax
                  free interest, net of deferred interest
              
              
              (64.3
              %)
              
              -State
                  rate, net of federal benefit
              
              
              2.4
              %
              
              (4.8
              %)Permanent
                  book/tax differences
              
              
              0.9
              %
              
              0.6
              %Other
              
              
              1.0
              %
              
              (0.9
              %)Effective
                  income tax rate
              
              
              36.2
              %
              
              (4.0
              %)










5. COMMON
      STOCK, COMMON STOCK PURCHASE WARRANTS AND OPTIONS





On
      August
      10, 2005, the Company sold 5,000,000 units ("Units") in the initial public
      offering, and on August 17, 2005, the Company consummated the closing of an
      additional 750,000 units that were subject to the over-allotment option (the
      “Offering”). Gross proceeds from the initial public offering were $34,500,000.
      The Company paid a total of $3,035,000 in underwriting discounts and
      commissions, and approximately $519,257 was paid for costs and expenses related
      to the offering. After deducting the underwriting discounts and commissions
      and
      the offering expenses, the total net proceeds to the Company from the offering
      was approximately $30,945,843, of which $29,835,000 was deposited into in an
      interest bearing trust account until the earlier of the consummation of a
      business combination or the liquidation of the Company. The Company's
      Certificate of Incorporation provides for mandatory liquidation of the Company,
      without stockholder approval, in the event that the Company does not consummate
      a Business Combination prior to August 10, 2007. In the event of liquidation,
      it
      is likely that the per share value of the residual assets remaining available
      for distribution (including Trust Fund assets) will be less than the initial
      public offering price per share in the Offering due to costs related to the
      Offering and since no value would be attributed to the Warrants contained in
      the
      Units sold.




F-9




CHARDAN
        NORTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


Each
      Unit
      consisted of one share of the Company's common stock, $.0001 par value, and
      two
      Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles
      the holder to purchase from the Company one share of common stock at an exercise
      price of $5.00 commencing the later of the completion of a Business Combination
      or one year from the effective date of the Offering and expiring four years
      from
      the effective date of the Offering. The Warrants will be redeemable, at the
      Company's option, at a price of $.01 per Warrant upon 30 days' notice after
      the
      Warrants become exercisable, only in the event that the last sale price of
      the
      common stock is at least $8.50 per share for any 20 trading days within a 30
      trading day period ending on the third day prior to the date on which notice
      of
      redemption is given. The warrant agreement governing the Warrants, as amended,
      states that the warrants may expire unexercised or unredeemed if there is no
      effective registration statement and states in no event would the Company be
      obligated to pay cash or other consideration to the holder of warrants or
      otherwise “net cash settle” any warrant exercise.





In
      connection with this Offering, the Company issued an option, for $100, to the
      representative of the underwriters to purchase 250,000 Units at an exercise
      price of $7.50 per Unit. The unit purchase option agreement, as amended, states
      that the option may expire unexercised and unredeemed if there is no effective
      registration statement and states that in no event would the Company be
      obligated to pay cash or otherwise “net cash settle” the option or the warrants
      underlying the option. The Company accounted for the fair value of the option,
      inclusive of the receipt of the $100 cash payment, as an expense of the public
      offering resulting in a charge directly to stockholders' equity. The Company
      estimated that the fair value of this option is approximately $550,000 ($2.20
      per Unit) using a Black-Scholes option-pricing model. The fair value of the
      option granted to the Representative is estimated as of the date of grant using
      the following assumptions: (1) expected volatility of 44.5%, (2) risk-free
      interest rate of 3.8% and (3) expected life of 5 years. The option may be
      exercised for cash or on a "cashless" basis, at the holder's option, such that
      the holder may use the appreciated value of the option (the difference between
      the exercise prices of the option and the underlying warrants and the market
      price of the units and underlying securities) to exercise the option without
      the
      payment of any cash. In addition, the warrants underlying such Units are
      exercisable at $6.65 per share.





Effective
      July 22, 2005, the Company’s Board of Directors authorized a stock dividend of
      0.25 shares of Common Stock for each outstanding share of Common Stock. All
      references in the accompanying financial statements to the number of shares
      of
      Common Stock have been retroactively restated to reflect this
      transaction.





6. COMMITMENTS
      AND MATERIAL AGREEMENTS





On
      February 9, 2007, the Company entered into an Amended and Restated Stock
      Purchase Agreement (the “Stock Purchase Agreement”) which incorporates all
      previous amendments to the stock purchase agreement dated as of February 2,
      2006, pursuant to which the Company will acquire a controlling interest in
      Beijing HollySys Company, Limited and Hangzhou HollySys Automation, Limited
      (collectively referred to as “HollySys”). Upon completion of the transaction,
      the Company will own 74.11% and 89.64%, respectively, of the two
      companies.





The
      Stock
      Purchase Agreement provides for the Company to form a wholly owned subsidiary
      under the laws of the British Virgin Islands, under the name “HLS Systems
      International Limited” (“HLS”). At the time of closing of the Stock Purchase
      Agreement, the Company will merge with and into HLS for the purpose of
      redomestication out of the United States to secure future tax benefits.
      Simultaneously with the redomestication merger, HLS will acquire all of the
      issued and outstanding common stock of Gifted Time Holdings Limited (“Gifted
      Time”), a British Virgin Islands company that holds a controlling interest in
      HollySys pursuant to existing stock consignment agreements dated December 30,
      2005, and share transfer agreements dated January 12, 2006 between Gifted Time
      and certain stockholders of HollySys. The common stock of Gifted Time will
      be
      acquired for 22,200,000 shares of common stock of HLS equal to 73% of the total
      issued and outstanding common stock of the post-transaction company, and cash
      consideration of $30,000,000. A variable portion of the cash consideration
      will
      be deferred, ranging from $3,000,000 to $7,000,000, depending on the number
      of
      shares that the Company shareholders redeem, if any, in the process of approving
      the transaction. The amount of the cash payment that will be deferred will
      be
      determined at closing and will equal the sum of $3,000,000 plus two-thirds
      of
      the difference between the funds in the trust account (following the exercise
      of
      any conversion rights by the Company stockholders) and $30,000,000. The deferred
      portion of the cash purchase price is not payable until HLS generates positive
      cash flow of at least twice the deferred amount or HLS receives at least $60
      million of additional financing.




F-10




CHARDAN
        NORTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


As
      additional consideration, the holders of common stock of Gifted Time will be
      issued up to an aggregate of 11,000,000 shares of HLS common stock (2,000,0000
      per year for the first four years and 3,000,000 for the final year, each year
      on
      an all-or-none basis) for each of the next five years beginning with fiscal
      2007
      if, on a consolidated basis, HLS generates after-tax profits (excluding
      after-tax operating profits from any subsequent acquisitions of securities
      that
      have a dilutive effect) of at least the following amounts:




Year
      ending December 31,    After-Tax
      Profit


2007     $23,000,000


2008     $32,000,000


2009     $43,000,000


2010     $61,000,000


2011     $71,000,000





HLS
      intends to offer to exchange 1.3 million shares of its common stock for the
      outstanding shares of preferred stock of Gifted Time.




F-11




SIGNATURES




Pursuant
      to the requirements of the Section 13 or 15 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 on this 16th day of April
      2007.




CHARDAN
              NORTH
              CHINA ACQUISITION CORPORATIONBy:
            /s/
              Li
              ZhangLi
                Zhang
              President






In
      accordance with the Securities Exchange Act of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





Signature
            
            Title
            
            Date/s/
                Richard D. Propper
            
            Chairman
                of the Board of Directors
            
            April
                16, 2007Dr.
                Richard D. Propper/s/
                Li Zhang
            
            Chief
                Executive Officer and Director
            
            April
                16, 2007Li
                Zhang/s/
                Kerry Propper
            
            Chief
                Financial Officer, Secretary and Director
            
            April
                16, 2007Kerry
                Propper/s/
                Jiangnan Huang
            
            Executive
                Vice President and Director
            
            April
                16, 2007Jiangnan
                Huang